BancorpSouth (BXS) Down 8.1% Since Earnings Report: Can It Recover?

A month has passed since the last earnings report BancorpSouth, Inc. BXS. The stock is down about 8.1% in that time frame, underperforming the market.

Will the recent negative trend continue until the stock’s next earnings release, or will there be a breakthrough? Before we dive into how investors and analysts have reacted lately, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

BancorpSouth’s Q2 earnings beat by higher revenues

BancorpSouth’s second-quarter 2017 adjusted operating earnings were $0.42 per share, beating the Zacks Consensus Estimate by $0.02. Moreover, this figure compared favorably with the year-ago quarter’s result of $0.39.

Revenues increased due to high loan and deposit balances. Stable non-interest costs were also positive. However, the main factor that held back was the decline in income from mortgage loans.

Including a $1.5 million mortgage servicing rights (MSR) valuation adjustment, the company’s second-quarter net income was $37.9 million, or $0.41 per share, down from $34.7 million USD, or USD 0.37 per share, recorded in the corresponding quarter of the previous year.

Revenues, loans and deposits are growing, costs are stable

BancorpSouth’s second-quarter net revenue increased 2.7% year-over-year to $185.6 million. Revenues, however, missed the Zacks Consensus Estimate of $187.8 million.

Net interest income was $117.5 million, up 4.6% year-over-year. Fully taxed equivalent net interest margin was 3.52%, down 4 basis points (bps) from the previous quarter due to the high average cost of deposits.

Noninterest income declined slightly year over year to $68.1 million. The decline was primarily due to declines in mortgage banking and deposit service fee revenues. These declines were partially offset by strong underwriting and other income.

Excluding MSR valuation adjustments, mortgage banking revenue was $7.6 million, down 36.7% from $12.0 million in the prior-year quarter.

Non-interest expenses remained stable at $127.6 million year-over-year.

As of June 30, 2017, total deposits were $11.9 billion, up 4.4% year-over-year, while net loans and leases increased 3.8% to $11.0 billion.

Credit Quality: Mixed

BancorpSouth’s credit quality presented a mixed picture. The company recorded $1.0 million of reserves in the reported quarter, compared with $2 million in the same quarter a year earlier. Defaulted loans and leases decreased to $71.7 million, or 0.65% of net loans and leases, at June 30, 2017, from $80.2 million, or 0.76%, at June 30, 2016.

Additionally, the provision for credit losses on net loans and leases decreased to 1.10% from 1.20% in the comparable period last year. Additionally, non-performing assets amounted to $79.4 million, down 16.3% year over year.

However, annual net charge-offs as a percentage of average loans and leases stood at 0.17%, compared with an annual rate of 0.06% in the same quarter last year.

Strong capital position

BancorpSouth remained well capitalized in the second quarter. As of June 30, 2017, Tier 1 capital and Tier 1 leveraged capital were 11.90% and 9.93%, respectively, compared to 12.37% and 10.66% at the end of the prior-year quarter.

The ratio of equity to total assets at the end of the quarter was 11.40%, compared to 12.12% as of June 30, 2016. The ratio of tangible equity to total assets decreased by 67 basis points to 9.44%.

During the second quarter, the company repurchased 1.38 million shares of common stock at an average price of $29.64 per share.

How have estimates changed since then?

After this publication, investors observed an upward trend in new estimates. There were two upward revisions in the current quarter.

BancorpSouth, Inc. Price and Consensus

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

VGM Results

Right now, BancorpSouth stock has a weak growth score of F, but its momentum is doing much better at B. Plotting a somewhat similar path, the stock is given a grade of C on the value side, placing it in the middle 20% for this investment strategy.

Overall, the stock has an overall VGM Rating of D. If you’re not focused on one strategy, this rating should interest you.

Our style ratings suggest this stock is better suited for momentum investors than value investors.

Perspectives

The stock’s estimates are trending upwards. The scale of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We expect the stock to see a return in the next few months.

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