BancorpSouth Announces Fourth Quarter and Annual 2016 Financial Results; Declares Quarterly Dividend

TUPELO, Miss., Jan. 25, 2017 /PRNewswire/ -- BancorpSouth, Inc. (NYSE: BXS) today announced financial results for the quarter and year ended December 31, 2016.

Annual highlights for 2016 included:

• Net income of $132.7 million, or $1.41 per diluted share.
• Generated net loan growth of $439.2 million, or 4.2 percent.
• Reported total deposit growth of $357.0 million, or 3.2 percent.
• Reached settlement with the Consumer Financial Protection Bureau and U.S. Department of Justice regarding their joint investigation into the Company's fair lending practices; incurred related pre-tax charge of $13.8 million.
• Net operating income – excluding MSR – of $141.4 million, or $1.50 per diluted share.
• Total operating expense declined $5.1 million compared to 2015.
• Repurchased 988,060 shares of outstanding common stock at a weighted average price of $23.40 per share.

Highlights for the fourth quarter of 2016 included:

• Net income of $37.7 million, or $0.40 per diluted share.
• Generated net loan growth of $153.2 million, or 5.7 percent on an annualized basis.
• Reported total deposit growth of $98.1 million, or 3.4 percent on an annualized basis.
• Earnings benefitted from a positive pre-tax mortgage servicing rights ("MSR") valuation adjustment of $11.2 million.
• Net operating income – excluding MSR – of $30.7 million, or $0.33 per diluted share.
• Credit quality remained stable; recorded provision for credit losses of $1.0 million for the quarter.
• Repurchased 436,541 shares of outstanding common stock at a weighted average price of $22.91 per share.
• Acquired certain assets of Gonzales, Louisiana based Waguespack & Associates Insurance, Inc. ("Waguespack"), which is expected to produce annual insurance commission revenues of approximately $3 million.

The Company reported net income of $37.7 million, or $0.40 per diluted share, for the fourth quarter of 2016 compared with net income of $21.2 million, or $0.22 per diluted share, for the fourth quarter of 2015 and net income of $37.8 million, or $0.40 per diluted share, for the third quarter of 2016.  Additionally, the Company reported net income of $132.7 million, or $1.41 per diluted share, for the year ended December 31, 2016 compared to $127.5 million, or $1.33 per diluted share, for the year ended December 31, 2015.    

The Company reported net operating income – excluding MSR – of $30.7 million, or $0.33 per diluted share, for the fourth quarter of 2016 compared to $29.6 million, or $0.31 per diluted share, for the fourth quarter of 2015 and $36.7 million, or $0.39 per diluted share, for the third quarter of 2016.  Additionally, the Company reported net operating income – excluding MSR – of $141.4 million, or $1.50 per diluted share, for the year ended December 31, 2016 compared to $138.4 million, or $1.44 per diluted share, for the year ended December 31, 2015.  Net operating income – excluding MSR – is a non-GAAP financial measure used by management to assess the core operating performance of the Company.  This measure excludes items such as securities gains and losses, MSR valuation adjustments, restructuring charges, merger related expenses, industry related legal settlements, and other one-time charges.  A full reconciliation of this measure is provided in the supplemental schedules of this news release.

At its regular quarterly meeting today, the Board of Directors of the Company declared a quarterly cash dividend of $0.125 per common share.  The dividend is payable April 3, 2017 to shareholders of record at the close of business on March 15, 2017.

"Earnings for the quarter benefitted from the positive MSR valuation adjustment of $11.2 million as a result of the rising interest rate environment," remarked Dan Rollins, BancorpSouth Chairman and Chief Executive Officer.  "Otherwise, while seasonal headwinds in several of our non-interest product offerings prevented sequential quarter improvement in certain of our operating metrics, we continue to grow our Company.  We reported net loan growth of $153.2 million, or 5.7 percent annualized, while total deposits grew $98.1 million, or 3.4 percent annualized.  Credit quality continues to remain stable as well, reflected by our provision for credit losses for the quarter of $1.0 million.  Finally, we continue to focus on controlling costs.  Total operating expenses declined by over $5 million in 2016 compared to 2015."

"Additionally, we continue to look for opportunities to deploy capital in a manner that enhances shareholder value.  I'm excited about the opportunity presented by our transaction with the Waguespack team as we look to continue to expand our agency footprint and grow insurance commission revenue.  This team is expected to add annual revenues of approximately $3 million to our book of business.  Finally, we were able to continue to execute on our share repurchase program as we repurchased 436,541 shares during the quarter at a weighted average price of $22.91 per share."

Net Interest Revenue

Net interest revenue was $115.4 million for the fourth quarter of 2016, an increase of 3.7 percent from $111.2 million for the fourth quarter of 2015 and an increase of 0.7 percent from $114.6 million for the third quarter of 2016.  The fully taxable equivalent net interest margin was 3.46 percent for the fourth quarter of 2016 compared to 3.58 percent for the fourth quarter of 2015 and 3.51 percent for the third quarter of 2016.  Yields on loans and leases were 4.18 percent for the fourth quarter of 2016 compared with 4.15 percent for the fourth quarter of 2015 and 4.20 percent for the third quarter of 2016, while yields on total interest earning assets were 3.70 percent for the fourth quarter of 2016 compared with 3.79 percent for the fourth quarter of 2015 and 3.74 percent for the third quarter of 2016.  The average cost of deposits was 0.23 percent for the fourth quarter of 2016 compared to 0.21 percent for the fourth quarter of 2015 and 0.22 percent for the third quarter of 2016.

Asset, Deposit and Loan Activity

Total assets were $14.7 billion at December 31, 2016 compared with $13.8 billion at December 31, 2015.  Loans and leases, net of unearned income, were $10.8 billion at December 31, 2016 compared with $10.4 billion at December 31, 2015. 

Total deposits were $11.7 billion at December 31, 2016 compared with $11.3 billion at December 31, 2015.  Time deposits decreased $12.2 million, or 0.7 percent, at December 31, 2016 compared to December 31, 2015.  Over the same time period, interest bearing demand deposits increased $30.7 million, or 0.6 percent while noninterest bearing demand deposits increased $219.0 million, or 7.2 percent, and savings deposits increased $119.5 million, or 8.3 percent.

Provision for Credit Losses and Allowance for Credit Losses

Earnings for the quarter reflect a provision for credit losses of $1.0 million, compared to no recorded provision for the fourth quarter of 2015 and no recorded provision for the third quarter of 2016.  Total non-performing assets ("NPAs") were $109.7 million, or 1.01 percent of net loans and leases, at December 31, 2016 compared with $109.7 million, or 1.06 percent of net loans and leases, at December 31, 2015, and $102.3 million, or 0.96 percent of net loans and leases, at September 30, 2016. 

Net charge-offs for the fourth quarter of 2016 were $3.2 million, compared with net charge-offs of $6.6 million for the fourth quarter of 2015 and net charge-offs of $1.0 million for the third quarter of 2016.  Gross charge-offs were $5.7 million for the fourth quarter of 2016, compared with $9.5 million for the fourth quarter of 2015 and $3.8 million for the third quarter of 2016.  Gross recoveries of previously charged-off loans were $2.5 million for the fourth quarter of 2016, compared with $3.0 million for the fourth quarter of 2015 and $2.7 million for the third quarter of 2016.  Annualized net charge-offs were 0.12 percent of average loans and leases for the fourth quarter of 2016, compared with annualized net charge-offs of 0.25 percent for the fourth quarter of 2015 and annualized net charge-offs of 0.04 percent for the third quarter of 2016. 

Non-performing loans ("NPLs") were $101.8 million, or 0.94 percent of net loans and leases, at December 31, 2016, compared with $94.9 million, or 0.92 percent of net loans and leases, at December 31, 2015, and $90.9 million, or 0.85 percent of net loans and leases, at September 30, 2016.  The allowance for credit losses was $123.7 million, or 1.14 percent of net loans and leases, at December 31, 2016, compared with $126.5 million, or 1.22 percent of net loans and leases, at December 31, 2015 and $125.9 million, or 1.18 percent of net loans and leases, at September 30, 2016. 

NPLs at December 31, 2016 consisted primarily of $71.8 million of nonaccrual loans, compared with $70.7 million of nonaccrual loans at September 30, 2016.  NPLs at December 31, 2016 also included $4.0 million of loans 90 days or more past due and still accruing, compared with $2.3 million of such loans at September 30, 2016, and included restructured loans still accruing of $26.0 million at December 31, 2016, compared with $17.9 million of such loans at September 30, 2016.  Early stage past due loans, representing loans 30-89 days past due, totaled $27.8 million at December 31, 2016 compared to $46.7 million at September 30, 2016.  Other real estate owned decreased $3.6 million to $7.8 million during the fourth quarter of 2016 from $11.4 million at September 30, 2016. 

Noninterest Revenue

Noninterest revenue was $73.0 million for the fourth quarter of 2016, compared with $67.4 million for the fourth quarter of 2015 and $70.9 million for the third quarter of 2016.  These results included a positive MSR valuation adjustment of $11.2 million for the fourth quarter of 2016 compared with a positive MSR valuation adjustment of $2.9 million for the fourth quarter of 2015 and a positive MSR valuation adjustment of $1.8 million for the third 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 $6.6 million for the fourth quarter of 2016, compared with $7.7 million for the fourth quarter of 2015 and $10.5 million for the third quarter of 2016.  Mortgage origination volume for the fourth quarter of 2016 was $395.9 million, compared with $310.0 million for the fourth quarter of 2015 and $478.2 million for the third quarter of 2016.

Credit and debit card fee revenue was $9.3 million for the fourth quarter of 2016, compared with $9.4 million for the fourth quarter of 2015 and $9.3 million for the third quarter of 2016.  Deposit service charge revenue was $10.0 million for the fourth quarter of 2016, compared with $11.8 million for the fourth quarter of 2015 and $11.3 million for the third quarter of 2016.  Insurance commission revenue was $25.7 million for the fourth quarter of 2016, compared with $25.3 million for the fourth quarter of 2015 and $28.2 million for the third quarter of 2016.  Wealth management revenue was $5.4 million for the fourth quarter of 2016, compared with $5.4 million for the fourth quarter of 2015 and $5.3 million for the third quarter of 2016.    

Noninterest Expense

Noninterest expense for the fourth quarter of 2016 was $131.5 million, compared with $148.4 million for the fourth quarter of 2015 and $129.5 million for the third quarter of 2016.  Noninterest expense for the fourth quarter of 2015 included a charge of $16.5 million related to the settlement of a 2010 class action lawsuit related to overdraft fees.  Salaries and employee benefits expense was $81.8 million for the fourth quarter of 2016 compared to $80.2 million for the fourth quarter of 2015 and $82.1 million for the third quarter of 2016.  Occupancy expense was $10.3 million for the fourth quarter of 2016, compared with $10.4 million for the fourth quarter of 2015 and $10.4 million for the third quarter of 2016.  Other noninterest expense was $34.0 million for the fourth quarter of 2016, compared to $51.5 million for the fourth quarter of 2015 and $30.4 million for the third quarter of 2016.

Capital Management

The Company's equity capitalization is comprised entirely of common stock.  BancorpSouth's ratio of shareholders' equity to assets was 11.71 percent at December 31, 2016, compared with 12.00 percent at December 31, 2015 and 11.80 percent at September 30, 2016.  The ratio of tangible shareholders' equity to tangible assets was 9.73 percent at December 31, 2016, compared with 9.96 percent at December 31, 2015 and 9.86 percent at September 30, 2016.

On December 15, 2016, the Company redeemed $10.3 million in Junior Subordinated Debt Securities issued to City Bancorp Preferred Trust I.  Subsequent to year-end, on January 9, 2017, the Company redeemed $6.7 million in Junior Subordinated Debt Securities issued to American State Capital Trust I and $6.2 million in Junior Subordinated Debt Securities issued to Business Holding Company Trust I.  Each of these Junior Subordinated Debt Securities was assumed by the Company pursuant to various prior mergers.

Estimated regulatory capital ratios at December 31, 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 12.34 percent at December 31, 2016 and total risk based capital of 13.38 percent, compared with required minimum levels of 8 percent and 10 percent, respectively, in order to qualify for "well capitalized" classification. 

Transactions

On December 19, 2016, BancorpSouth Insurance Services, Inc. announced and closed the acquisition of certain assets of Gonzales, Louisiana based Waguespack & Associates Insurance, Inc.  The agency was formed in 1986 and is expected to produce annual revenues of approximately $3 million.  Waguespack will continue to operate under current leadership in its current location in Gonzales.

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 agreed to 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 December 31, 2016, Central Community Corporation, on a consolidated basis, reported total assets of $1.4 billion, total loans of $647.6 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.  The Company and Central Community Corporation entered into an extension of the merger effective on October 13, 2016, extending the merger agreement through December 31, 2017 to allow for additional time to obtain the necessary regulatory approvals and to satisfy all closing conditions. The merger agreement remains in effect until terminated by the Board of Directors of the Company or Central Community Corporation.  The terms of the 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.

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. agreed to 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 December 31, 2016, OIB, on a consolidated basis, reported total assets of $671.5 million, total loans of $494.8 million and total deposits of $567.2 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 Ouachita Bancshares Corp. shareholders on April 8, 2014.  The Company and Ouachita Bancshares Corp. entered into an extension of the merger effective on October 13, 2016, extending the merger agreement through December 31, 2017 to allow for additional time to obtain the necessary regulatory approvals and to satisfy all closing conditions. The merger agreement remains in effect until terminated by the Board of Directors of the Company or Ouachita Bancshares Corp.  The terms of the 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.

For the most recent information regarding the status of the merger with Central Community Corporation and the status of the merger with Ouachita Bancshares Corp. in our periodic and current reports, please refer to the Form 8-K that was previously filed with the SEC on October 14, 2016.

Summary

Rollins concluded, "I believe our annual results for 2016 reflect our simple strategy of continuing to grow our Company while challenging expenses.  We reported total loan growth for the year of over $435 million and total deposit growth of over $355 million.  This growth, combined with a relatively stable net interest margin, resulted in annual growth in net interest income of $17.8 million, or 4.1 percent.  Our mortgage team originated $1.7 billion in mortgage loans for the year and reported mortgage banking revenue growth, excluding MSR, of $4.0 million, or 11.0 percent.  Our insurance team was able to grow their customer base and hold total commission revenue essentially flat, despite continued pricing pressure on premiums across the industry.   Finally, we continue to improve our cost structure.  Our operating efficiency ratio – excluding MSR – declined from 72.14 percent in 2015 to 69.92 percent for 2016.  As we move into 2017, I'm confident this simple approach will allow us to continue improving our operating performance."

Conference Call

BancorpSouth will conduct a conference call to discuss its fourth quarter 2016 results on January 26, 2017, at 10:00 a.m. (Central Time).  Investors may listen via the Internet by accessing BancorpSouth's website at www.bancorpsouth.com and accessing the "Investor Relations" webpage.  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 $14.7 billion in assets.  BancorpSouth Bank, a wholly-owned subsidiary of BancorpSouth, Inc., operates 234 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, credit quality, credit losses, liquidity, off-balance sheet commitments and arrangements, valuation of mortgage servicing rights, allowance and provision for credit losses, 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, diversification of the Company's revenue stream, the growth of the Company's insurance business and commission revenue, the growth of the Company's loan, deposit and fee revenue sources, liquidity needs and strategies, sources of funding, net interest margin, declaration and payment of dividends, the utilization of the Company's share repurchase program, the implementation and execution of 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, 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, 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 growth of the Company's insurance business and commission revenue, the growth of the Company's loan, deposit and fee revenue sources, 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, the utilization of the Company's share repurchase program, the implementation and execution of cost saving initiatives, 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.