BancorpSouth, Inc.’s (BXS) second-quarter 2014 earnings per share came in at 33 cents, in line with the Zacks Consensus Estimate. However, earnings compared favorably with the prior-year quarter figure of 29 cents.
Elevated net interest revenue, a strong capital position and the absence of provision for credit losses were the positives. Moreover, reduced non-interest expenses reflected prudent expense management. However, absence of credible improvement in the mortgage market was a concern, which led to lower non-interest income in the quarter.
Including merger related and other non-operating expenses, the company’s net income stood at $30.9 million or 32 cents per share in the reported quarter, up from the year-ago quarter figure of $20.8 million or 22 cents per share.
Quarter in Detail
BancorpSouth’s net interest revenue came in at $103.1 million, up 5% year over year. Fully taxable equivalent net interest margin (NIM) climbed 23 basis points year over year to 3.59%. The rise was mainly due to lower interest expenses, partially offset by a fall in yields on loans and leases.
Non-interest revenues declined 8.3% year over year to $69.8 million. The decline was mainly due to lower mortgage lending revenues, partially offset by higher insurance commission revenue. Non-interest revenues for the quarter included negative mortgage servicing rights (MSR) valuation adjustment of $2.1 million, compared with a positive adjustment of $5.3 million in second-quarter 2013.
Excluding the MSR valuation adjustments, net mortgage lending revenue was $11.2 million down from $12.6 million in the year-ago quarter.
BancorpSouth’s non-interest expense declined 10% year over year to $128 million. This was mainly due to lower salaries and employee benefits costs. Notably, prior-year quarter non-interest expenses included a pre-tax charge of $10.9 million associated with Voluntary Early Retirement Program (VERO).
As of Jun 30, 2014, total deposits stood at $10.7 billion, down 1.8% year over year, while net loans and leases rose 8.3% to $9.1 billion.
Credit Quality
BancorpSouth reported a significant improvement in its credit quality. Provision for credit losses was nil in the reported quarter. Annualized net charge-offs as a percent of average loans and leases declined 10 basis points year over year to 0.11%.
Further, as of Jun 30, 2014, BancorpSouth’s nonperforming loans were $73.7 million or 0.79% of net loans and leases, significantly down from $167.9 million or 1.94% as of Jun 30, 2013.
Allowance for credit losses to net loans and leases decreased to 1.58% from 1.86% in the prior-year quarter. Also, non-performing assets stood at $128.9 million, down 49.7% from $256.4 million in the prior-year quarter.
Capital Position
BancorpSouth exhibited a strong capital position. Tier I capital and tier I leverage capital stood at 13.09% and 10.33%, respectively, compared with 14.21% and 10.58% at the end of the prior-year quarter. As of Jun 30, 2014, total risk based capital ratio came in at 14.35% as compared with 15.47% as of Jun 30, 2013.
The ratio of total shareholders' equity to total assets increased to 12.24% at the end of the quarter from 11.04% as of Jun 30, 2013. Moreover, the ratio of tangible shareholders' equity to tangible assets advanced 99 basis points to 10.03%.
Recent Acquisitions
In Jan 2014, BancorpSouth entered into two merger agreements to acquire Monroe, Louisiana-based Ouachita Bancshares Corp. and Temple, Texas-based Central Community Corporation. However, the mergers await certain regulatory approvals and therefore, have been delayed and extended till Jun 30, 2015.
In Apr 2014, BancorpSouth acquired assets of Lafayette, Louisiana based-Knox Insurance Group, LLC, which generates revenues of about $3 million annually.
Our Viewpoint
Overall, BancorpSouth’s results reflected a commendable quarter for the company. While there are lingering concerns over the prevalent stringent regulatory landscape and a weak mortgage market, we believe that improvement in the company’s fee-based business will help it navigate through the current cycle.
Moreover, the recent acquisitions reflect inorganic growth of the company, which will significantly drive earnings in the coming quarters. Currently, BancorpSouth carries a Zacks Rank #3 (Hold).
Among other Southeast banks, Popular, Inc. (BPOP) and United Community Banks, Inc. (UCBI) are expected to release June-quarter end results on Jul 24 while HomeTrust Bancshares, Inc. (HTBI) on Jul 28.
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