BancorpSouth (BXS) Q1 Earnings Top, Revenues Lag, Costs Rise

BancorpSouth (NYSE:BXS) reported first-quarter 2019 net operating earnings of 56 cents per share, surpassing the Zacks Consensus Estimate of 54 cents. Also, the bottom line increased 3.7% from the prior-year quarter.

Results were affected by lower non-interest income and higher expenses. However, an improvement in net interest revenues, net interest margin (NIM) and lower provisions were tailwinds.

The company’s net income for the first quarter amounted to $51.6 million compared with $53.5 million reported in the year-ago quarter.

Revenues Decline, Expenses Rise, Deposits Improve

Net revenues for the reported quarter decreased slightly year over year to $216.8 million. Further, the revenue figure missed the Zacks Consensus Estimate of $221.2 million.

Net interest revenues for the quarter came in at $152.6 million, up 10.5% year over year. Fully-taxable equivalent NIM was 3.86%, expanding 19 basis points (bps) year over year.

Non-interest revenues decreased 18.6% year over year to $64.2 million. However, the figure included a negative mortgage servicing rights valuation adjustment of $4.9 million. The downside mainly resulted from lower mortgage banking and
other revenues.

Non-interest expenses came in at $150 million, up 1.5% from the year-ago quarter. The upswing stemmed from the impact of elevated salaries and employee benefits, net occupancy, equipment and deposit insurance assessments.

As of Mar 31, 2019, total deposits were $14.7 billion, up 4.4% sequentially, while loans and leases, net of unearned income, edged down to $13.1 billion.

Credit Quality: A Mixed Bag

Non-performing loans and leases were 0.67% of net loans and leases as of Mar 31, 2019, up from 0.66% as of Mar 31, 2018. Annualized net charge-offs, as a percentage of average loans and leases, increased to 0.12% from net recoveries of 0.01% recorded as of Mar 31, 2018. However, allowance for credit losses to net loans and leases was 0.89%, marginally down from 0.97% registered in the year-ago quarter.

Non-performing assets were nearly $97 million, up from the prior-year quarter’s $90.9 million. However, the company recorded provision for credit losses of $0.5 million compared with the $1 million reported in the year-ago quarter.

Strong Capital Ratios

As of Mar 31, 2019, tier I capital and tier I leverage capital was 10.79% and 11.60%, down from 11.30% and 12.18%, respectively, witnessed at the end of the prior-year quarter.

The ratio of its total shareholders' equity to total assets was 12.16% at the end of the Mar-end quarter, up from 11.99% as of Mar 31, 2018. However, the ratio of tangible shareholders' equity to tangible assets shrunk 28 bps to 8.41%.

Share Repurchases

During the reported quarter, the company repurchased 1 million common shares at a weighted average price of $27.60 per share.

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Our Viewpoint

BancorpSouth displayed a decent show in the Jan-Mar quarter. Improved NIM, along with growth in deposits, will likely be conducive to its top-line growth, moving ahead. However, mounting expenses might impede bottom-line growth.

Also, the company’s efforts to grow through acquisitions are encouraging. During the first quarter, the company announced the signing of definitive merger agreements with Van Alstyne Financial Corporation and Summit Financial Enterprises, Inc. It also completed the acquisitions of Casey Bancorp, Inc. and Merchants Trust, Inc.