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On September 17th, we released an updated report on BancorpSouth Bank BXS. The company’s rising fee income, impressive capital raising initiatives, and inorganic growth through mergers and acquisitions (M&A) are the main driving forces. However, significant exposure to mortgage and commercial real estate loans, as well as a rising cost base, are headwinds.
The company’s earnings estimates for the current year and 2022 have remained unchanged for the past 30 days. It currently has a # 3 Zacks Rank (Hold).
The company’s shares are down 9.1% over the past six months, compared to the 5.5% decline in the industry.
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BancorpSouth has taken steps to increase its fee income. Fee income saw an average annual growth rate (CAGR) of around 26% over the five years (2016-2020), mainly driven by higher credit and debit card revenues and an increase in deposit service fees. The rising trend continued in the first half of 2021. The company’s fee income is expected to continue to grow in the coming quarters as lower interest rates are likely to lead to higher origins and support the performance of the mortgage segment.
The company’s capital deployment plans are a consolation given the stable debt / equity position and the continuously improved performance over the past few quarters. We are encouraged by BancorpSouth’s ability to generate positive cash flows and increase shareholder value through regular dividend payments and share buybacks.
Additionally, as of June 30, 2021, the company had long-term debt of $ 4.2 million and cash and bank debt of $ 331.8 million. With a high cash balance, earnings before interest and taxes were 27.4 times the interest expense and have risen in the last few quarters. With earnings growth continuing, BancorpSouth is in an advantageous position should the economy worsen.
In addition, with a solid liquidity position, the company is well positioned to make investments through M&A. The company is on an acquisition tour and is strengthening its presence in various areas. It is expected that the transactions will continue to have a positive impact on earnings over the long term.
However, the company’s credit quality deteriorated in 2020 due to the pandemic and could remain under pressure for the period to come. Additionally, BancorpSouth’s noninterest expenses showed a declining trend in the first half of 2021 but a 3-year CAGR of 5.5% in 2020, with almost all expense components increasing, including higher staff costs. Hence, its inorganic growth and digitization efforts could drive spending even higher in the coming days.
The company has significant exposure to consumer mortgage and commercial real estate loans, which worries us about its growth prospects. As of June 30, 2021, the bank’s exposure to these loan portfolios was approximately 64% of total loans. Should there be a significant deterioration in property prices due to the pandemic-induced slowdown, it will dampen the company’s short-term profitability.
Shares to consider
The Zacks consensus estimate for TowneBankTOWN 2021’s profit has moved 4.7% north in the past 30 days. The company’s stock is up 27.2% so far this year. It currently has a Zacks rank of # 2 (Buy). You can see the full list of current Zacks # 1 (Strong Buy) Rank stocks here.
MetroCity Bankshares, Inc.MCBS stock is up 43.9% so far this year. Additionally, for the current year, the Zacks Consensus Estimate has shifted 3.1% north in the last 30 days. It currently has a Zacks rank of 2.
The Zacks consensus estimate for First Warranty Bancshares, Inc.FGBI’s FGBI 2021 earnings are up 14.9% in 60 days. The company’s share has gained 7.2% over the year to date. It currently flaunts a # 1 Zacks rank.
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BancorpSouth Bank (BXS): Free Stock Analysis Report
Towne Bank (TOWN): Free Stock Analysis Report
First Guaranty Bancshares, Inc. (FGBI): Free Stock Research Report
MetroCity Bankshares, Inc. (MCBS): Free Stock Research Report
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