BancorpSouth Q3 Earnings & Revenues Lag, Costs Plunge
BancorpSouth, Inc.BXS delivered a negative earnings surprise for the third quarter as operating earnings of 36 cents per share lagged the Zacks Consensus Estimate of 37 cents. The figure was, however, up 12.5% year over year.
Results were adversely impacted by negative Mortgage Servicing Rights ("MSR") adjustment of $5.3 million, which led to a slight decline in net revenue. However, it was partly mitigated by a fall in expenses as well as negative provisions. Credit quality metrics and capital ratios depicted a mixed picture.
Net income for the quarter came in at $34.3 million, up 11.5% year over year.
Performance in Detail
Net revenue for the quarter fell marginally year over year to $174 million, missing the Zacks Consensus Estimate of $183.8 million.
Net interest revenue was $111.1 million, up 5.2% year over year. Fully taxable equivalent net interest margin decreased 3 basis points (bps) year over year to 3.59%. The fall was mainly triggered by a decline in yields on loans and leases, partially offset by lower cost of deposits.
Non-interest revenues fell 9.1% year over year to $63 million, primarily due to a 66% fall in net mortgage lending revenue. The fall stemmed from a negative Mortgage Servicing Rights ("MSR") adjustment of $5.3 million in the reported quarter, compared with a positive MSR adjustment of $0.6 million in the year-ago period. Excluding such adjustments, net mortgage lending revenues was $7.6 million, up 20.6% year over year.
Further, deposit service charges, insurance commissions and wealth management revenues witnessed a year-over-year decline. On the other hand, credit card income jumped 3.5% year over year.
On the positive side, non-interest expense decreased 5.4% year over year to $126.5 million. For full-year 2015, the company expects total annual pension expense to be up $7 million from the prior year, led by change in actuarial assumptions.
Efficiency ratio dropped 363 bps to 71.56% during the third quarter. A fall in efficiency ratio implies higher profitability.
As of Sep 30, 2015, total deposits were $11.1 billion, up 4.1% year over year; while net loans and leases rose 7.5% to $10.2 billion.
Credit quality represented a mixed bag. Provision for credit losses came in at negative $3 million, compared with nil over the past several quarters; while allowance for credit losses to net loans and leases edged down to 1.30% from 1.51% in the prior-year quarter.
Additionally, the quarter recorded net charge-offs of $2.3 million against $3.2 million in the year-ago period.
However, nonperforming loans and leases increased 16 bps year over year to 0.88% of net loans and leases as of Sep 30, 2015; while non-performing assets rose 2.1% to $113.9 million from $128.9 million in the prior-year quarter.
BancorpSouth capital ratios represented a mixed bag. As of Sep 30, 2015, Tier I leverage capital was 10.56% compared with 10.47% at the end of the prior-year quarter.
However, the ratio of total shareholders' equity to total assets fell to 11.93% at the end of the quarter from 12.32% as of Sep 30, 2014; while the ratio of tangible shareholders' equity to tangible assets declined 26 bps to 9.88%.
Moreover, at the end of the quarter, Tier I capital ratio declined to 12.29% from 13.18% as of Sep 30, 2014.
We believe BancorpSouth is poised to expand through strategic acquisitions, backed by strong capital and liquidity position. Also, gradual economic recovery will likely boost the company's top-line performance, highlighting its organic prospects. Moreover, consistently improving credit metrics are a major positive for BancorpSouth.
Additionally, the company has exhibited successful efforts toward expense management, which will likely boost bottom-line growth in the upcoming quarters.
However, headwinds such as volatile trend in loans and deposit growth, low interest rate environment and stringent regulatory reforms will likely persist.
BancorpSouth currently carries a Zacks Rank #3 (Hold).
Among other Southeast banks, First Horizon National Corp. FHN delivered a positive earnings surprise in the third quarter with earnings per share of 29 cents beating the Zacks Consensus Estimate by 31.8%. Results reflected a steep fall in expenses as well as provisions, partially offset by lower revenues.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.