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BancorpSouth (BXS) Up 10.9% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for BancorpSouth Bank (BXS - Free Report) . Shares have added about 10.9% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is BXS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

BancorpSouth's Q1 Earnings Beat Estimates, Costs Rise

BancorpSouth reported first-quarter 2018 operating earnings of 54 cents per share, beating the Zacks Consensus Estimate of 50 cents. Also, the bottom line compared favorably with the year-ago quarter earnings of 41 cents.

Results benefitted from an improvement in net interest revenues and non-interest revenues, partially offset by higher expenses. Loans and deposit balances remained strong during the quarter. Further, the company recorded net recoveries in the quarter, which was a tailwind. However, worsening of capital position remained a key headwind.

The company’s net income for the quarter amounted to $53.5 million compared with $38.1 million reported in the year-ago quarter.

Rise in Revenues Partially Offset by Higher Expenses, Loans and Deposits Increase

Quarterly net revenues increased nearly 17% year over year to $217 million. Also, the reported figure surpassed the Zacks Consensus Estimate of $210.7 million.

Net interest revenues came in at $138.1 million, up 20.5% year over year. Fully-taxable equivalent net interest margin (NIM) was 3.67%, increasing 21 basis points (bps) from the prior-year quarter.

Non-interest revenues increased 11.4% year over year to $78.9 million. The rise was primarily due to growth in mortgage origination volumes and positive MSR valuation adjustment.

Non-interest expenses were $147.7 million, increasing 16.2% on a year-over-year basis. The rise is due to impact of merger expenses, and a single forgery and theft loss witnessed in the quarter.

As of Mar 31, 2018, total deposits were $13.9 billion, up 16.6% sequentially while loans and leases, net of unearned income increased 11.2% to $12.3 billion.

Credit Quality: A Mixed Bag

Non-performing loans and leases were 0.66% of net loans and leases as of Mar 31, 2018, down from 0.76% as of Mar 31, 2017. Additionally, allowance for credit losses to net loans and leases was 0.97%, down from 1.16% registered in the comparable period last year. Also, the company recorded $1 million of provisions in the quarter, stable year over year.

Further, non-performing assets were nearly $90.7 million, up from $90 million registered in the prior-year quarter. Annualized net recoveries, as a percent of average loans and leases, were 0.01% compared with 0.02% a year ago.

Capital Ratios Deteriorate

As of Mar 31, 2018, Tier I capital and tier I leverage capital was 11.30% and 9.39%, down from 12.16% and 9.95%, respectively, at the end of the prior-year quarter.

The ratio of its total shareholders' equity to total assets was 11.99% at the end of the quarter, up from 11.45% as of Mar 31, 2017. However, the ratio of tangible shareholders' equity to tangible assets contracted 80 bps to 8.69%.

Share Repurchases

During the quarter, the company repurchased about 2.1 million common shares at a weighted average price of $32.32 per share. As of Mar 31, 2018, it had 3.9 million remaining shares available for repurchase under current share repurchase program through Dec 31, 2019.  

Other Developments

Following the earnings release, BancorpSouth announced plans to acquire Icon Capital Corporation and its wholly owned subsidiary, Icon Bank of Texas, National Association. The acquisition is anticipated to expand BancorpSouth’s presence in Houston. Also, the transaction will add total assets worth $794 million, loans of $624 million and total deposits of $692 million to BancorpSouth’s balance sheet.

Per the terms, the acquirer will issue about 4.1 million shares of its common stock, along with $17.5 million in cash, for all outstanding shares of Icon Capital Corporation capital stock, subject to certain conditions and potential adjustments.

Management expects to achieve cost savings of around 20% of their non-interest expense base due to which the transaction will be accretive to earnings in the first full year. Notably, the deal is likely to close during the second half of 2018, subject to regulatory approval and other customary closing conditions.  

Outlook

Management expects combined effective tax rate for 2018 to be around 23%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.

BancorpSouth Bank Price and Consensus

 

VGM Scores

At this time, BXS has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise BXS has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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