On Jun 15, we issued an updated report on BancorpSouth Bank BXS. The firm’s rising fee income, impressive capital-deployment initiatives, and inorganic growth via mergers and acquisitions (M&A) are the major driving factors. However, significant exposure to consumer mortgage and commercial real estate loans, along with rising expenses, are on the downside.
The company’s earnings estimates have been unchanged for the current year and 2022, in the last 30 days. It currently carries a Zacks Rank #3 (Hold).
Shares of the company have rallied 6% over the past six months, underperforming 21.7% growth recorded by the industry.
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BancorpSouth has been undertaking measures to boost its fee income. Fee income saw a five-year (2016-2020) compound annual growth rate (CAGR) of around 26%, mainly on higher credit and debit card income, along with rise in deposit service charges. The company’s fee income is expected to continue rising in the quarters ahead, as lower interest rates will likely result in higher originations and support the mortgage segment’s performance.
The company’s capital-deployment plans and stable debt/equity position are a source of comfort. We remain encouraged by BancorpSouth’s ability to generate positive cash flows, and enhance shareholders’ value through regular dividend payments and share repurchases.
Furthermore, the company had a long-term debt of $4.3 million, and cash and due from banks of $263.3 million, as of Mar 31, 2021. Further, with high cash level, its earnings before interest and tax have been 25.6 times the interest expenses and have increased in the past few quarters. With a record of continued bottom-line growth, BancorpSouth has an advantageous position if the economic situation worsens.
Also, with a solid liquidity position, the company is well poised to undertake investments through M&As. It maintained its acquisition spree, fortifying footprint in various areas. The transactions are anticipated to continue to be accretive to earnings over the long run.
However, the company’s credit quality deteriorated in 2020 due to the pandemic and migh remain under pressure in the upcoming period. Furthermore, though BancorpSouth’s non-interest expenses witnessed a declining trend in the first three months of 2021, the same saw a three-year CAGR of 5.5% in 2020 on rise in almost all components of expenses, including higher personnel costs. Therefore, inorganic growth and digitization efforts might continue to inflating expenses in the days to come.
The company has significant exposure to consumer mortgage and commercial real estate loans, which makes us apprehensive about its growth prospects. As of Mar 31, 2021, the bank’s exposure to these loan portfolios constituted around 59% of total loans. If there is significant deterioration in the real estate prices due to the pandemic-induced slowdown, it will dampen the company’s near-term profitability.
Stocks to Consider
TowneBank TOWN has witnessed a 3.6% upward estimate revision for 2021 earnings over the past 30 days. The company’s shares have gained 34.2% so far this year. It flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Allegiance Bancshares, Inc.’s ABTX shares have appreciated 19.6% so far this year. Further, the company’s earnings estimate for the ongoing year moved 2.6% north in the past 30 days. It currently carries a Zacks Rank of 2 (Buy).
Popular, Inc. BPOP has witnessed an 18.9% upward estimate revision in 60 days’ time. The company’s shares have rallied 40.8% in the year so far. It flaunts a Zacks Rank #1 at present.
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