BancorpSouth, Inc.’s BXS operating earnings for first-quarter 2015 came in at 33 cents per share, in line with the Zacks Consensus Estimate. However, earnings came in 10% higher than the prior-year quarter.
 

Bancorpsouth Inc. - Earnings Surprise | FindTheCompany

Results reflected strong top-line performance, which was, however, offset by a rise in expenses. While, loans and deposits grew at a considerable rate and credit quality continued to show strength, capital ratios represented a mixed bag.

During the quarter, the company re-filed merger applications with concerned regulatory authorities to carry out the previously announced mergers with Louisiana-based Ouachita Bancshares Corp. and Texas-based Central Community Corporation.

Net income for the quarter came in at $32.3 million, up 13.4% year over year.

Quarter in Detail

BancorpSouth’s first-quarter net revenue totaled $179.4 million, up 6.8% year over year. Moreover, it beat the Zacks Consensus Estimate of $178.8 million.

Net interest revenue was $106.1 million, up 4.5% year over year. Fully taxable equivalent net interest margin increased 2 basis points (bps) year over year to 3.56%. The rise was mainly attributable to lower cost of deposits, partially offset by a fall in yields on loans and leases.

Non-interest revenues surged 10.2% year over year to $73.3 million. The rise was driven by revenue growth in all components, particularly mortgage lending revenue which more than doubled year over year to $8.6 million. Moreover, the company reported record high insurance commission revenue of $33.5 million. However, drop in deposit service charges partially offset the overall rise.

Excluding the MSR valuation adjustments of $3 million, net mortgage lending revenue in the quarter was $11.6 million, significantly up from $4.9 million in the year-ago quarter.

BancorpSouth’s non-interest expense was $136.9 million, up 8.1% year over year. This was mainly due to higher salaries, deposit insurance assessments and other expenses, partially offset by a decline in equipment and occupancy costs. Also, the quarter included a $5.5 million charge on litigation reserve, as a safeguard against contingent losses.
 
As of Mar 31, 2015, total deposits were $11.3 billion, up 2.8% year over year, while net loans and leases rose 7.5% to $9.7 billion.

Credit Quality

BancorpSouth witnessed a significant improvement in its credit quality. Provision for credit losses turned negative $5 million from nil over the past several quarters. Further, as of Mar 31, 2015, BancorpSouth’s nonperforming loans and leases declined to $61.5 million or 0.63% of net loans and leases, from $93.3 million or 1.03% as of Mar 31, 2014.

Further, allowance for credit losses to net loans and leases edged down to 1.40% from 1.65% in the prior-year quarter, while non-performing assets fell 43% to $89.4 million from $156.9 million in the prior-year quarter.

Additionally, annualized net charge-offs, as a percent of average loans and leases, decreased 13 bps year over year to 0.03%.

Capital Position

BancorpSouth capital ratios represented a mixed bag. As of Mar 31, 2015, tier I leverage capital stood at 10.30% compared with 10.04%, at the end of the prior-year quarter.

The ratio of total shareholders' equity to total assets increased to 12.07% at the end of the quarter from 11.83% as of Mar 31, 2014. Moreover, the ratio of tangible shareholders' equity to tangible assets advanced 30 bps to 9.99%.

However, during the quarter, tier I capital declined to 12.87% from 13.18% as of Mar 31, 2014.

Our Viewpoint

We believe BancorpSouth is poised to expand through strategic acquisitions on the back of financial strength which exhibits a strong capital and liquidity position. Also, gradual economic recovery will likely boost top-line performance, highlighting the company’s organic growth prospects. Besides, consistently improving credit metrics are a major positive for BancorpSouth.

However, headwinds like a volatile trend in loans and deposit growth, low interest rate environment and stringent regulatory reforms are likely to continue.

BancorpSouth currently carries a Zacks Rank #2 (Buy).

Among other Southeast banks, First Horizon National Corp. FHN reported adjusted first-quarter 2015 earnings of 18 cents, meeting the Zacks Consensus Estimate. Results reflected weak top-line performance and higher expenses. However, appreciable growth in loan and deposits and a decline in provisions acted as tailwinds.

IberiaBank Corp. IBKC and Popular, Inc. BPOP are expected to release first-quarter 2015 results on Apr 22 and Apr 27, respectively.

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