BancorpSouth's (BXS) Q3 Earnings Beat Estimates, Costs Down

BancorpSouth, Inc. BXS reported third-quarter 2017 adjusted operating earnings of 43 cents per share, beating the Zacks Consensus Estimate of 42 cents. Also, the bottom line compared favorably with the year-ago quarter earnings of 39 cents.
 
Results benefitted from an improvement in net interest revenue and lower expenses, partially offset by lower non-interest revenue. Loans and deposit balances remained strong during the quarter. However, the company recorded provisions in the quarter, which was a headwind.

Including mortgage servicing rights (“MSR”) valuation adjustment, the company’s net income amounted to $39.5 million or 43 cents per share, increasing from $37.8 million or 40 cents reported in the year-ago quarter.

Net Interest Revenues Up, Expenses Down

Quarterly net revenues increased 1.2% year over year to $186.5 million. However, the reported figure missed the Zacks Consensus Estimate of $191.2 million.

Net interest revenues came in at $120.6 million, up 5.2% year over year. Fully-taxable equivalent net interest margin (NIM) was 3.58%, increasing 7 basis points (bps) from the prior-year quarter figure.

Non-interest revenues decreased 5.3% year over year to $66 million. The decline was primarily due to a fall in mortgage banking revenues and deposit service charges. These decreases were partially offset by high insurance commissions and other income.

Non-interest expenses were $126.9 million, decreasing 1.1% on a year-over-year basis.

As of Sep 30, 2017, total deposits were $11.8 billion, down 1.4% sequentially, while net loans and leases grew marginally to $10.9 billion.

Credit Quality: A Mixed Bag

Non-performing loans and leases were 0.59% of net loans and leases as of Sep 30, 2017, down from 0.85% as of Sep 30, 2016. Additionally, allowance for credit losses to net loans and leases was 1.08%, down from 1.18% registered in the comparable period last year. Further, non-performing assets were nearly $71 million, decreasing from $102.3 million registered in the prior-year quarter.

However, annualized net charge-offs, as a percent of average loans and leases were 0.09%, compared with 0.04% in the prior-year quarter. Also, the company recorded $0.5 million of provisions in the quarter, as against no provisions registered in the year-ago quarter.

Capital Ratios Deteriorated

As of Sep 30, 2017, Tier I capital and tier I leverage capital was 12.04% and 10.02%, down from 12.32% and 10.53%, respectively, at the end of the prior-year quarter.

The ratio of its total shareholders' equity to total assets was 11.52% at the end of the quarter, down from 11.80% as of Sep 30, 2016. The ratio of tangible shareholders' equity to tangible assets contracted 30 bps to 9.56%.

Share Repurchases

During the quarter, the company repurchased 0.7 million common shares at an average price of $28.99 per share.

Our Viewpoint

Persistent decline in mortgage banking revenues continues to be a major concern for the company. Though, NIM improved in the quarter, it has been declining since the past few years. Thus, lower NIM might hurt the company’s top line growth. Further, the company’s significant exposure to risky loan portfolios might hamper its financials in the near term.

BancorpSouth, Inc. Price, Consensus and EPS Surprise
 

BancorpSouth, Inc. Price, Consensus and EPS Surprise | BancorpSouth, Inc. Quote

BancorpSouth currently 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

Wells Fargo & Company WFC reported third-quarter adjusted earnings of $1.04 per share, which came in line with the Zacks Consensus Estimate. Results were hurt due to a decline in revenues and higher expenses. However, credit quality witnessed improvement.

Despite weak fixed income market revenues, Citigroup Inc. C delivered a positive earnings surprise of 7.6% in third-quarter 2017 on prudent expense management. Earnings per share of $1.42 for the quarter easily outpaced the Zacks Consensus Estimate of $1.32.

Rising rates and loan growth drove JPMorgan Chase & Co.’s JPM earnings of $1.76 per share, which easily surpassed the Zacks Consensus Estimate of $1.67. Also, the figure reflects a rise of 11% from the year-ago period. Solid loan growth (driven mainly by improved credit card loans) and higher interest rates supported net interest income. Moreover, a slight fall in operating expenses acted as a tailwind.

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