BancorpSouth Announces Second Quarter 2016 Financial Results

TUPELO, Miss., July 20, 2016 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter ended June 30, 2016.

Highlights for the second quarter of 2016 included:

• Net income of $34.7 million, or $0.37 per diluted share.
• Generated net loan growth of $131.3 million, or 5.1 percent on an annualized basis.
• Reached a settlement with the Consumer Financial Protection Bureau and the U.S. Department of Justice of their joint investigation of the Company's fair lending practices.
• Earnings were adversely impacted by a negative mortgage servicing rights ("MSR") valuation adjustment of $4.1 million.
• Net operating income - excluding MSR of $37.2 million, or $0.39 per diluted share.
• Continued stable credit quality; recorded provision for credit losses of $2.0 million for the quarter.
• Net interest margin remained stable at 3.56 percent.
• Continued progress toward leveraging cost structure as total noninterest expense was essentially flat compared to both the second quarter of 2015 and the first quarter of 2016, excluding disclosed non-operating items.

The Company reported net income of $34.7 million, or $0.37 per diluted share, for the second quarter of 2016 compared with net income of $39.7 million, or $0.41 per diluted share, for the second quarter of 2015 and net income of $22.5 million, or $0.24 per diluted share, for the first quarter of 2016. 

The Company reported net operating income – excluding MSR of $37.2 million, or $0.39 per diluted share, for the second quarter of 2016 compared to $37.0 million, or $0.39 per diluted share, for the second quarter of 2015 and $36.9 million, or $0.39 per diluted share, for the first quarter of 2016. 

"During the second quarter, we announced a settlement with the Consumer Financial Protection Bureau and the U.S. Department of Justice regarding their joint investigation of our fair lending practices," remarked Dan Rollins, BancorpSouth Chairman and Chief Executive Officer.  "This settlement did not materially impact our second quarter financial results as we previously recorded an associated liability of $13.8 million during the first quarter of this year.  We believe putting this matter behind us was in the best interests of our customers, teammates, and shareholders.  We are excited to move forward continuing to do what we do best, which is serve our customers and communities as well as deliver returns to our shareholders. 

"Despite this distraction, our core financial results continue to improve.  Our mortgage team generated production volume of $462.6 million during the quarter, which contributed to mortgage production and servicing revenue totaling $13.1 million.  Total mortgage banking revenue was adversely impacted by a negative MSR valuation adjustment of $4.1 million. We reported loan growth of $131.3 million, or 5.1 percent annualized, while our net interest margin remained stable at 3.56 percent.  Finally, we continue to challenge expenses and hold our core operating expenses in a tight range quarter after quarter.  Our operating efficiency ratio – excluding MSR was 68.2 percent for the quarter, which is reflective of the hard work of our teammates and the focus placed on challenging every dollar we spend." 

Net Interest Revenue

Net interest revenue was $112.3 million for the second quarter of 2016, an increase of 4.7 percent from $107.3 million for the second quarter of 2015 and an increase of 1.0 percent from $111.2 million for the first quarter of 2016.  The fully taxable equivalent net interest margin was 3.56 percent for the second quarter of 2016 compared to 3.54 percent for the second quarter of 2015 and 3.56 percent for the first quarter of 2016.  Yields on loans and leases were 4.20 percent for the second quarter of 2016 compared with 4.23 percent for the second quarter of 2015 and 4.21 percent for the first quarter of 2016, while yields on total interest earning assets were 3.78 percent for the second quarter of 2016 compared with 3.78 percent for the second quarter of 2015 and 3.78 percent for the first quarter of 2016.  The average cost of deposits was 0.21 percent for the second quarter of 2016 compared to 0.23 percent for the second quarter of 2015 and 0.21 percent for the first quarter of 2016.

Asset, Deposit and Loan Activity

Total assets were $14.1 billion at June 30, 2016 compared with $13.6 billion at June 30, 2015.  Loans and leases, net of unearned income, were $10.6 billion at June 30, 2016 compared with $10.0 billion at June 30, 2015. 

Total deposits were $11.4 billion at June 30, 2016 compared with $11.1 billion at June 30, 2015.  A decrease in time deposits of $54.4 million, or 2.8 percent, at June 30, 2016 compared to June 30, 2015 and a decrease in interest bearing demand deposits of $42.8 million, or 0.9 percent were more than offset by growth in other lower cost deposits.  Noninterest bearing demand deposits increased $221.5 million, or 7.6 percent, over the same period, while savings deposits increased $105.1 million, or 7.5 percent.

Provision for Credit Losses and Allowance for Credit Losses

Earnings for the quarter reflect a provision for credit losses of $2.0 million, compared to a negative provision of $5.0 million for the second quarter of 2015 and a provision of $1.0 million for the first quarter of 2016.  Total non-performing assets ("NPAs") were $94.9 million, or 0.90 percent of net loans and leases, at June 30, 2016 compared with $103.7 million, or 1.04 percent of net loans and leases, at June 30, 2015, and $106.9 million, or 1.02 percent of net loans and leases, at March 31, 2016. 

Net charge-offs for the second quarter of 2016 were $1.6 million, compared with net recoveries of $6.7 million for the second quarter of 2015 and net charge-offs of $1.0 million for the first quarter of 2016.  Gross charge-offs were $4.3 million for the second quarter of 2016, compared with $5.0 million for the second quarter of 2015 and $3.2 million for the first quarter of 2016.  Gross recoveries of previously charged-off loans were $2.7 million for the second quarter of 2016, compared with $11.7 million for the second quarter of 2015 and $2.3 million for the first quarter of 2016.  Annualized net charge-offs were 0.06 percent of average loans and leases for the second quarter of 2016, compared with annualized net recoveries of 0.27 percent for the second quarter of 2015 and annualized net charge-offs of 0.04 percent for the first quarter of 2016. 

Non-performing loans ("NPLs") were $80.2 million, or 0.76 percent of net loans and leases, at June 30, 2016, compared with $79.4 million, or 0.79 percent of net loans and leases, at June 30, 2015, and $94.2 million, or 0.90 percent of net loans and leases, at March 31, 2016.  The allowance for credit losses was $126.9 million, or 1.20 percent of net loans and leases, at June 30, 2016, compared with $138.3 million, or 1.38 percent of net loans and leases, at June 30, 2015 and $126.5 million, or 1.21 percent of net loans and leases, at March 31, 2016. 

NPLs at June 30, 2016 consisted primarily of $68.6 million of nonaccrual loans, compared with $81.9 million of nonaccrual loans at March 31, 2016.  NPLs at June 30, 2016 also included $1.9 million of loans 90 days or more past due and still accruing, compared with $4.6 million of such loans at March 31, 2016, and included restructured loans still accruing of $9.7 million at June 30, 2016, compared with $7.8 million of such loans at March 31, 2016.  Early stage past due loans, representing loans 30-89 days past due, totaled $31.9 million at June 30, 2016 compared to $23.6 million at March 31, 2016.  Other real estate owned increased $2.0 million to $14.7 million during the second quarter of 2016 from $12.7 million at March 31, 2016. 

Noninterest Revenue

Noninterest revenue was $69.7 million for the second quarter of 2016, compared with $74.3 million for the second quarter of 2015 and $65.5 million for the first quarter of 2016.  These results included a negative MSR valuation adjustment of $4.1 million for the second quarter of 2016 compared with a positive MSR valuation adjustment of $4.3 million for the second quarter of 2015 and a negative MSR valuation adjustment of $8.0 million for the first quarter of 2016.  Valuation adjustments in the MSR asset are driven primarily by fluctuations in interest rates period over period.   

Excluding the MSR valuation adjustments, mortgage banking revenue was $13.1 million for the second quarter of 2016, compared with $9.8 million for the second quarter of 2015 and $10.6 million for the first quarter of 2016.  Mortgage origination volume for the second quarter of 2016 was $462.6 million, compared with $417.2 million for the second quarter of 2015 and $315.4 million for the first quarter of 2016.

Credit and debit card fee revenue was $9.5 million for the second quarter of 2016, compared with $9.3 million for the second quarter of 2015 and $9.0 million for the first quarter of 2016.  Deposit service charge revenue was $11.0 million for the second quarter of 2016, compared with $11.5 million for the second quarter of 2015 and $11.0 million for the first quarter of 2016.  Insurance commission revenue was $28.8 million for the second quarter of 2016, compared with $29.3 million for the second quarter of 2015 and $33.2 million for the first quarter of 2016.  Wealth management revenue was $5.3 million for the second quarter of 2016, compared with $5.5 million for the second quarter of 2015 and $5.1 million for the first quarter of 2016.    

Noninterest Expense

Noninterest expense for the second quarter of 2016 was $128.7 million, compared with $128.2 million for the second quarter of 2015 and $142.3 million for the first quarter of 2016.  Salaries and employee benefits expense was $81.8 million for the second quarter of 2016 compared to $79.8 million for the second quarter of 2015 and $82.5 million for the first quarter of 2016.  Occupancy expense was $10.1 million for the second quarter of 2016, compared with $10.4 million for the second quarter of 2015 and $10.3 million for the first quarter of 2016.  Other noninterest expense was $30.9 million for the second quarter of 2016, compared to $31.6 million for the second quarter of 2015 and $33.2 million for the first quarter of 2016.  Total noninterest expense for the first quarter of 2016 included a total charge of $13.8 million to reflect the probable and estimable liability associated with the joint investigation by the Consumer Financial Protection Bureau and the U.S. Department of Justice, $10.3 million of which is reflected as regulatory settlement expense and $3.5 million of which is included in other noninterest expense.  The settlement of this matter did not have a material financial impact on second quarter 2016 financial results.

Capital Management

The Company's equity capitalization is comprised entirely of common stock.  BancorpSouth's ratio of shareholders' equity to assets was 12.12 percent at June 30, 2016, compared with 12.32 percent at June 30, 2015 and 12.06 percent at March 31, 2016.  The ratio of tangible shareholders' equity to tangible assets was 10.11 percent at June 30, 2016, compared with 10.26 percent at June 30, 2015 and 10.05 percent at March 31, 2016.

Estimated regulatory capital ratios at June 30, 2016 were calculated in accordance with the Basel III capital framework.  BancorpSouth is a "well capitalized" financial holding company, as defined by federal regulations, with Tier 1 risk-based capital of 12.37 percent at June 30, 2016 and total risk based capital of 13.45 percent, compared with required minimum levels of 8 percent and 10 percent, respectively, for "well capitalized" classification. 

Transactions

On January 8, 2014, the Company announced the signing of a definitive merger agreement with Ouachita Bancshares Corp., parent company of Ouachita Independent Bank (collectively referred to as "OIB"), headquartered in Monroe, Louisiana, pursuant to which Ouachita Bancshares Corp. will be merged with and into the Company.  OIB operates 11 full-service banking offices along the I-20 corridor and has a loan production office in Madison, Mississippi.  As of June 30, 2016, OIB, on a consolidated basis, reported total assets of $667.1 million, total loans of $481.2 million and total deposits of $570.7 million.  Under the terms of the definitive agreement, the Company will issue approximately 3,675,000 shares of the Company's common stock plus $22.875 million in cash for all outstanding shares of Ouachita Bancshares Corp.'s capital stock, subject to certain conditions and potential adjustments.  The merger has been unanimously approved by the Board of Directors of each company and was approved by OIB shareholders on April 8, 2014.  On February 25, 2015, the Company re-filed the merger application for the merger with Ouachita Bancshares Corp. with the appropriate regulatory agencies.  On June 30, 2015, the Company announced the merger agreement was extended through December 31, 2015 to allow for additional time to obtain the necessary regulatory approvals and to satisfy all closing conditions.  Although the merger agreement has not been extended beyond December 31, 2015, the amended agreement remains in effect until terminated by the Board of Directors of the Company or OIB.  The terms of the amended agreement provide for a minimum total deal value of $111.1 million but also allow Ouachita Bancshares Corp. to terminate the agreement if the average closing price of the Company's common stock declines below a certain threshold prior to closing.  The transaction is expected to close shortly after receiving all required regulatory approvals, although the Company can provide no assurance that the merger will close timely or at all.

On January 21, 2014, the Company announced the signing of a definitive merger agreement with Central Community Corporation, headquartered in Temple, Texas, pursuant to which Central Community Corporation will be merged with and into the Company.  Central Community Corporation is the parent company of First State Bank Central Texas ("First State Bank"), which is headquartered in Austin, Texas.  First State Bank operates 31 full-service banking offices in central Texas.  As of June 30, 2016, Central Community Corporation, on a consolidated basis, reported total assets of $1.4 billion, total loans of $601.9 million and total deposits of $1.1 billion.  Under the terms of the definitive agreement, the Company will issue approximately 7,250,000 shares of the Company's common stock plus $28.5 million in cash for all outstanding shares of Central Community Corporation's capital stock, subject to certain conditions and potential adjustments.  The merger has been unanimously approved by the Board of Directors of each company and was approved by Central Community Corporation shareholders on April 24, 2014.  On February 25, 2015, the Company re-filed the merger application for the merger with Central Community Corporation with the appropriate regulatory agencies.  On June 30, 2015, the Company announced the merger agreement was extended through December 31, 2015 to allow for additional time to obtain the necessary regulatory approvals and to satisfy all closing conditions.  Although the merger agreement has not been extended beyond December 31, 2015, the amended agreement remains in effect until terminated by the Board of Directors of the Company or Central Community Corporation.  The terms of the amended agreement provide for a minimum total deal value of $202.5 million but also allow Central Community Corporation to terminate the agreement if the average closing price of the Company's common stock declines below a certain threshold prior to closing.  The transaction is expected to close shortly after receiving all required regulatory approvals, although the Company can provide no assurance that the merger will close timely or at all.

For the most recent information regarding the status of the merger with Ouachita Bancshares Corp. and the status of the merger with Central Community Corporation in our periodic reports, please refer to the section titled "Recent Acquisitions and Transaction Activity" in Part I, Item 1, and Part I, Item 1A, of the Annual Report on Form 10-K that was previously filed with the SEC on February 23, 2016.

Summary

Rollins concluded, "Our financial results reflect the same simple story we have been communicating quarter after quarter.  We continue to grow revenue while managing total noninterest expense in a very tight range.  Revenue growth has been driven by increases in net interest income as we grow our balance sheet and maintain a stable net interest margin as well growth in certain of our non-interest products, including mortgage banking revenue.  Our insurance teammates continue to focus on growing our customer base to battle industry pricing headwinds.  I'm confident we are positioned to continue to improve our operating performance and enhance shareholder value as we move forward."

Conference Call

BancorpSouth will conduct a conference call to discuss its second quarter 2016 results on July 21, 2016, at 10:00 a.m. (Central Time).  Investors may listen via the Internet by accessing BancorpSouth's website at http://www.bancorpsouth.com.  A replay of the conference call will be available at BancorpSouth's website for at least two weeks following the call.

About BancorpSouth, Inc.

BancorpSouth, Inc. (NYSE: BXS) is a financial holding company headquartered in Tupelo, Mississippi, with $14.1 billion in assets.  BancorpSouth Bank, a wholly-owned subsidiary of BancorpSouth, Inc., operates 238 full service branch locations as well as additional mortgage, insurance, and loan production offices in Alabama, Arkansas, Florida, Louisiana, Mississippi, Missouri, Tennessee and Texas, including an insurance location in Illinois.  BancorpSouth is committed to a culture of respect, diversity, and inclusion in both its workplace and communities. To learn more, visit our Community Commitment page at www.bancorpsouth.com.  Like us on Facebook; follow us on Twitter: @MyBXS; or connect with us through LinkedIn.

Forward-Looking Statements

Certain statements contained in this news release may not be based upon historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology such as "anticipate," "believe," "could," "estimate," "expect," "foresee," "hope," "intend," "may," "might," "plan," "will," or "would" or future or conditional verb tenses and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to the terms, timing and closings of the proposed mergers with Ouachita Bancshares Corp. and Central Community Corporation, the Company's ability to operate its regulatory compliance programs consistent with federal, state and local laws, including its Bank Secrecy Act ("BSA") and anti-money laundering ("AML") compliance program and its fair lending compliance program, the Company's compliance with the consent order it entered into with the Consumer Financial Protection Bureau (the "CFPB") and the United States Department of Justice ("DOJ") related to the Company's fair lending practices (the "Consent Order"), the acceptance by customers of Ouachita Bancshares Corp. and Central Community Corporation of the Company's products and services if the proposed mergers close, the outcome of any instituted, pending or threatened material litigation, amortization expense for intangible assets, goodwill impairments, loan impairment, utilization of appraisals and inspections for real estate loans, maturity, renewal or extension of construction, acquisition and development loans, net interest revenue, fair value determinations, the amount of the Company's non-performing loans and leases, additions to OREO, credit quality, credit losses, liquidity, off-balance sheet commitments and arrangements, valuation of mortgage servicing rights, allowance and provision for credit losses, continued weakness in the economic environment, early identification and resolution of credit issues, utilization of non-GAAP financial measures, the ability of the Company to collect all amounts due according to the contractual terms of loan agreements, the Company's reserve for losses from representation and warranty obligations, the Company's foreclosure process related to mortgage loans, the resolution of non-performing loans that are collaterally dependent, real estate values, fully-indexed interest rates, interest rate risk, interest rate sensitivity, calculation of economic value of equity, impaired loan charge-offs, troubled debt restructurings, diversification of the Company's revenue stream, liquidity needs and strategies, sources of funding, net interest margin, declaration and payment of dividends, cost saving initiatives, improvement in the Company's efficiencies, operating expense trends, future acquisitions and consideration to be used therefor, and the impact of certain claims and ongoing, pending or threatened litigation, administrative and investigatory matters. 

The Company cautions readers not to place undue reliance on the forward-looking statements contained in this news release, in that actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of factors. These factors may include, but are not limited to, the Company's ability to operate its regulatory compliance programs consistent with federal, state and local laws, including its BSA/AML compliance program and its fair lending compliance program, the Company's ability to successfully implement and comply with the Consent Order, the ability of the Company, Ouachita Bancshares Corp. and Central Community Corporation to obtain regulatory approval of and close the proposed mergers, the willingness of Ouachita Bancshares Corp. and Central Community Corporation to proceed with the proposed mergers, which they are no longer contractually obligated to complete, the potential impact upon the Company of the delay in the closings of these proposed mergers, the impact of any ongoing, pending or threatened litigation, administrative and investigatory matters involving the Company, conditions in the financial markets and economic conditions generally, the adequacy of the Company's provision and allowance for credit losses to cover actual credit losses, the credit risk associated with real estate construction, acquisition and development loans, losses resulting from the significant amount of the Company's OREO, limitations on the Company's ability to declare and pay dividends, the availability of capital on favorable terms if and when needed, liquidity risk, governmental regulation, including the Dodd-Frank Act, and supervision of the Company's operations, the short-term and long-term impact of changes to banking capital standards on the Company's regulatory capital and liquidity, the impact of regulations on service charges on the Company's core deposit accounts, the susceptibility of the Company's business to local economic and environmental conditions, the soundness of other financial institutions, changes in interest rates, the impact of monetary policies and economic factors on the Company's ability to attract deposits or make loans, volatility in capital and credit markets, reputational risk, the impact of the loss of any key Company personnel, the impact of hurricanes or other adverse weather events, any requirement that the Company write down goodwill or other intangible assets, diversification in the types of financial services the Company offers, the Company's ability to adapt its products and services to evolving industry standards and consumer preferences, competition with other financial services companies, risks in connection with completed or potential acquisitions, the Company's growth strategy, interruptions or breaches in the Company's information system security, the failure of certain third-party vendors to perform, unfavorable ratings by rating agencies, dilution caused by the Company's issuance of any additional shares of its common stock to raise capital or acquire other banks, bank holding companies, financial holding companies and insurance agencies, other factors generally understood to affect the assets, business, cash flows, financial condition, liquidity, prospects and/or results of operations of financial services companies and other factors detailed from time to time in the Company's press and news releases, reports and other filings with the SEC.  Forward-looking statements speak only as of the date that they were made, and, except as required by law, the Company does not undertake any obligation to update or revise forward-looking statements to reflect events or circumstances that occur after the date of this news release.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE BancorpSouth, Inc.