BancorpSouth's (BXS) Q1 Earnings Beat Estimates, Costs Rise

BancorpSouth BXS reported first-quarter 2018 operating earnings of 54 cents per share, beating the Zacks Consensus Estimate of 50 cents. Also, the bottom line compared favorably with the year-ago quarter earnings of 41 cents.
 
Results benefitted from an improvement in net interest revenues and non-interest revenues, partially offset by higher expenses. Loans and deposit balances remained strong during the quarter. Further, the company recorded net recoveries in the quarter, which was a tailwind. However, worsening of capital position remained a key headwind.

The company’s net income for the quarter amounted to $53.5 million compared with $38.1 million reported in the year-ago quarter.

Rise in Revenues Partially Offset by Higher Expenses, Loans and Deposits Increase

Quarterly net revenues increased nearly 17% year over year to $217 million. Also, the reported figure surpassed the Zacks Consensus Estimate of $210.7 million.

Net interest revenues came in at $138.1 million, up 20.5% year over year. Fully-taxable equivalent net interest margin (NIM) was 3.67%, increasing 21 basis points (bps) from the prior-year quarter.

Non-interest revenues increased 11.4% year over year to $78.9 million. The rise was primarily due to growth in mortgage origination volumes and positive MSR valuation adjustment.

Non-interest expenses were $147.7 million, increasing 16.2% on a year-over-year basis. The rise is due to impact of merger expenses and a single forgery and theft loss witnessed in the quarter.

As of Mar 31, 2018, total deposits were $13.9 billion, up 16.6% sequentially while loans and leases, net of unearned income increased 11.2% to $12.3 billion.

Credit Quality: A Mixed Bag

Non-performing loans and leases were 0.66% of net loans and leases as of Mar 31, 2018, down from 0.76% as of Mar 31, 2017. Additionally, allowance for credit losses to net loans and leases was 0.97%, down from 1.16% registered in the comparable period last year. Also, the company recorded $1 million of provisions in the quarter, stable year over year.

Further, non-performing assets were nearly $90.7 million, up from $90 million registered in the prior-year quarter. Annualized net recoveries, as a percent of average loans and leases, were 0.01% compared with 0.02% a year ago.

Capital Ratios Deteriorate

As of Mar 31, 2018, Tier I capital and tier I leverage capital was 11.30% and 9.39%, down from 12.16% and 9.95%, respectively, at the end of the prior-year quarter.

The ratio of its total shareholders' equity to total assets was 11.99% at the end of the quarter, up from 11.45% as of Mar 31, 2017. However, the ratio of tangible shareholders' equity to tangible assets contracted 80 bps to 8.69%.

Share Repurchases

During the quarter, the company repurchased about 2.1 million common shares at a weighted average price of $32.32 per share. As of Mar 31, 2018, it had 3.9 million remaining shares available for repurchase under current share repurchase program through Dec 31, 2019.  

Other Developments

Following the earnings release, BancorpSouth announced plans to acquire Icon Capital Corporation and its wholly owned subsidiary, Icon Bank of Texas, National Association. The acquisition would expand BancorpSouth’s presence in Houston. Also, the acquisition will add total assets worth $794 million, loans of $624 million and total deposits of $692 million to BancorpSouth’s balance sheet.

Per the terms, the acquirer will issue about 4.1 million shares of its common stock along with $17.5 million in cash, for all outstanding shares of Icon Capital Corporation capital stock, subject to certain conditions and potential adjustments.

Our Viewpoint

BancorpSouth reported a decent quarter. Improved NIM along with loan growth is likely to support its top line in the quarters ahead. Also, the company’s efforts to grow through acquisitions are encouraging.

However, persistent decline in mortgage banking revenues continues to be a major concern. Also, deterioration in capital position remains another drag. Further, mounting expenses might hurt bottom-line growth.

BancorpSouth Bank Price, Consensus and EPS Surprise

BancorpSouth Bank Price, Consensus and EPS Surprise | BancorpSouth Bank Quote

BancorpSouth carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other Banks

U.S. Bancorp’s USB first-quarter 2018 adjusted earnings per share of 95 cents surpassed the Zacks Consensus Estimate by a penny. The figure came ahead of the prior-year quarter earnings of 82 cents.

Driven by top-line strength, Northern Trust Corporation’s NTRS first-quarter 2018 earnings per share of $1.58 compared favorably with $1.09 recorded in the year-ago quarter. The Zacks Consensus Estimate was $1.42.

First Horizon National Corporation FHN reported first-quarter 2018 adjusted earnings per share of 34 cents, surpassing the Zacks Consensus Estimate by 13.3%. The adjusted figure excludes pre-tax acquisition-related expenses and gain on sale of a building.

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