On Wednesday, BancorpSouth, Inc. (BXS) enhanced its quarterly cash dividend by 400% to 5 cents per share. The increased dividend will be paid on Oct 1, 2013 to shareholders of record as of Sep 13, 2013.
This reflects the company’s commitment to return value to shareholders with its strong cash generation capabilities. Notably, the latest rise in cash dividend by BancorpSouth is the first increase since the quarterly dividend payment was reduced to 1 cent per share in second-quarter 2011.
The dividend increase follows the company’s accomplishments in the first half of 2013. Notably, during the June quarter-end, BancorpSouth's earnings benefited from higher non-interest revenues. Moreover, loan loss provision levels stabilized in the quarter with a number of credit quality metrics exhibiting a favorable trend.
BancorpSouth is working rigorously on its efficiency initiatives to reduce costs. Moving forward with its strategic plan, recently the company announced a Voluntary Early Retirement Program and redemption of trust preferred securities (TruPS) worth $125 million, completed in early August.
Notably, fully phased-in annual pre-tax savings of about $9 million or 6 cents per share, net of tax is anticipated from the retirement program. Moreover, due to TruPS redemption, annual interest expenses are expected to go down by $9 million or 6 cents per share, net of tax.
In the first half of 2013, BancorpSouth paid $1.9 million as cash dividends. Cash and due from banks exiting the year was $268.6 million.
We are encouraged by the better-than-expected results at BancorpSouth. Along with its robust mortgage lending business performance, the company benefited from numerous opportunistic acquisitions. Capital deployment activities also serve as positive catalysts. Further, TruPS redemption is viewed as a positive step for the banks, enabling them to bring down interest expenses, as these securities demand higher rates than other securities and often the banks replace TruPS with equity or other low-cost debt.
While concerns remain over the continuation of the low interest rate environment and its adverse impact on NIM, we believe that the improvement in the company’s fee-based business would help it navigate through the current cycle.
BancorpSouth currently carries a Zacks Rank #2 (Buy). Among other Southeast banks, Farmers Capital Bank Corporation (FFKT), Middleburg Financial Corporation (MBRG) and SY Bancorp Inc. (SYBT) are worth considering with a Zacks Rank #1 (Strong Buy).
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