BancorpSouth Reports Record Quarterly Earnings

TUPELO, Miss., July 18, 2018 /PRNewswire/ -- BancorpSouth Bank (NYSE: BXS) (the "Company") today announced financial results for the quarter ended June 30, 2018.

Highlights for the second quarter of 2018 included:

• Record quarterly net income of $54.0 million, or $0.55 per diluted share, which represents an increase of 34 percent on a per share basis compared to the second quarter of 2017.
• Completed operational integration of Central Community Corporation merger and recorded corresponding merger-related expenses of $1.9 million for the second quarter.
• Net operating income – excluding MSR – of $55.6 million, or $0.56 per diluted share.
• Generated net loan growth of $121.3 million, or 4.0 percent on an annualized basis.
• Net interest margin increased to 3.71 percent from 3.67 percent for the first quarter of 2018.
• Announced the signing of a definitive merger agreement with Icon Capital Corporation, parent company of Icon Bank of Texas, National Association, headquartered in Houston, Texas.
• Repurchased 785,877 shares of outstanding common stock at a weighted average price of $31.39 per share.

The Company reported net income of $54.0 million, or $0.55 per diluted share, for the second quarter of 2018 compared with net income of $37.9 million, or $0.41 per diluted share, for the second quarter of 2017 and net income of $53.5 million, or $0.54 per diluted share, for the first quarter of 2018.  The Company reported net operating income – excluding MSR – of $55.6 million, or $0.56 per diluted share, for the second quarter of 2018 compared to $38.8 million, or $0.42 per diluted share, for the second quarter of 2017 and $53.6 million, or $0.54 per diluted share, for the first quarter of 2018. 

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 recognized securities gains and losses, mortgage servicing rights ("MSR") valuation adjustments, restructuring charges, merger-related expenses, industry-related legal settlements, and other one-time charges. 

"We are pleased to report another quarter of record financial performance," remarked Dan Rollins, Chairman and Chief Executive Officer.  "The increase in our earnings for the quarter was driven by balance sheet growth and improvement in our net interest margin combined with continued strong credit quality and a stable expense base.   Our business development efforts yielded net loan growth of $121 million for the quarter, or 4 percent on an annualized basis.  We are pleased with these results, particularly given competitive pressures and anticipated runoff associated with our acquired loans.  As expected, we experienced a seasonal decline on the deposit side of the balance sheet.  Finally, our net interest margin improved to 3.71 percent as we continue to benefit from recent rate hikes."

"Additionally, we continue our efforts to deploy capital in a manner that seeks to maximize shareholder value.  We repurchased just over 785,000 shares of our stock at a weighted average price of $31.39 per share during the quarter.  We also announced the signing of a definitive merger agreement with Icon Capital Corporation, which has approximately $800 million in assets in the Houston, Texas market.  We are excited about the value the Icon team will add to our franchise as we continue to grow."

Net Interest Revenue

Net interest revenue was $142.1 million for the second quarter of 2018, an increase of 21.0 percent from $117.5 million for the second quarter of 2017 and an increase of 2.9 percent from $138.1 million for the first quarter of 2018.  The fully taxable equivalent net interest margin was 3.71 percent for the second quarter of 2018 compared to 3.52 percent for the second quarter of 2017 and 3.67 percent for the first quarter of 2018.  Yields on net loans and leases were 4.67 percent for the second quarter of 2018 compared with 4.27 percent for the second quarter of 2017 and 4.60 percent for the first quarter of 2018, while yields on total interest earning assets were 4.15 percent for the second quarter of 2018 compared with 3.80 percent for the second quarter of 2017 and 4.05 percent for the first quarter of 2018.  The net interest margin, excluding accretable yield, was 3.63 percent for the second quarter of 2018 compared with 3.60 percent for the first quarter of 2018 while yields on net loans and leases, excluding accretable yield, were 4.57 percent for the second quarter of 2018 compared with 4.51 percent for the first quarter of 2018.  Purchase accounting accretion did not impact the net interest margin or net loan and lease yields for the second quarter of 2017.  The average cost of deposits was 0.34 percent for the second quarter of 2018 compared to 0.25 percent for the second quarter of 2017 and 0.31 percent for the first quarter of 2018.

Asset, Deposit and Loan Activity

Total assets were $17.2 billion at June 30, 2018 compared with $14.8 billion at June 30, 2017.  Loans and leases, net of unearned income, were $12.4 billion at June 30, 2018 compared with $11.0 billion at June 30, 2017.  Total deposits were $13.5 billion at June 30, 2018 compared with $11.9 billion at June 30, 2017.  These balance sheet comparisons include the impact of the acquisitions of Central Community Corporation and Ouachita Bancshares Corp., each of which closed effective January 15, 2018.  Balance sheet totals for these two banks at the time of closing are disclosed in the "Transactions" section of this news release.

Provision for Credit Losses and Allowance for Credit Losses

Earnings for the second quarter of 2018 reflect a provision for credit losses of $2.5 million, compared to a provision of $1.0 million for both the second quarter of 2017 and first quarter of 2018.  Net charge-offs for the second quarter of 2018 were $2.0 million, compared with net charge-offs of $4.6 million for the second quarter of 2017 and net recoveries of $0.2 million for the first quarter of 2018.  The allowance for credit losses was $119.9 million, or 0.97 percent of net loans and leases, at June 30, 2018, compared with $121.6 million, or 1.10 percent of net loans and leases, at June 30, 2017 and $119.4 million, or 0.97 percent of net loans and leases, at March 31, 2018.  The allowance for credit losses coverage metrics were impacted by loans acquired in the acquisitions that closed during the first quarter of 2018.

Total non-performing assets were $81.2 million, or 0.65 percent of net loans and leases, at June 30, 2018 compared with $79.4 million, or 0.72 percent of net loans and leases, at June 30, 2017, and $90.9 million, or 0.74 percent of net loans and leases, at March 31, 2018.  Other real estate owned was $7.8 million at June 30, 2018 compared with $7.7 million at June 30, 2017 and $9.4 million at March 31, 2018.

Noninterest Revenue

Noninterest revenue was $72.5 million for the second quarter of 2018, compared with $68.1 million for the second quarter of 2017 and $78.9 million for the first quarter of 2018.  These results included a negative MSR valuation adjustment of $0.2 million for the second quarter of 2018, compared with a negative MSR valuation adjustment of $1.5 million for the second quarter of 2017 and a positive MSR valuation adjustment of $5.5 million for the first quarter of 2018.  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 $7.1 million for the second quarter of 2018, compared with $7.6 million for the second quarter of 2017 and $7.7 million for the first quarter of 2018.  Mortgage origination volume for the second quarter of 2018 was $523.7 million, compared with $385.9 million for the second quarter of 2017 and $291.9 million for the first quarter of 2018.  Of total mortgage origination volume for the second quarter of 2018, $209.3 million was portfolio loans, compared with $93.5 million for the second quarter of 2017 and $61.0 million for the first quarter of 2018.

Credit and debit card fee revenue was $10.5 million for the second quarter of 2018, compared with $9.6 million for both the second quarter of 2017 and the first quarter of 2018.  Deposit service charge revenue was $10.8 million for the second quarter of 2018, compared with $9.7 million for the second quarter of 2017 and $10.9 million for the first quarter of 2018.  Wealth management revenue was $5.7 million for the second quarter of 2018, compared with $5.3 million for the second quarter of 2017 and $5.7 million for the first quarter of 2018.  Other noninterest revenue was $5.5 million for the second quarter of 2018, compared with $6.3 million for the second quarter of 2017 and $10.4 million for the first quarter of 2018.   Other noninterest revenue for the first quarter of 2018 benefitted from a legal settlement totaling $3.0 million.

Insurance commission revenue was $33.0 million for the second quarter of 2018, compared with $31.1 million for the second quarter of 2017 and $29.1 million for the first quarter of 2018.  New accounting guidance, which became effective January 1, 2018, impacted the Company's accounting for insurance commission revenue.  Previously, contingent commissions were recognized as revenue in the period of receipt; however, under the guidance, the Company is required to estimate and accrue for contingent commissions throughout the year.

Noninterest Expense

Noninterest expense for the second quarter of 2018 was $145.2 million, compared with $127.6 million for the second quarter of 2017 and $147.7 million for the first quarter of 2018.  Salaries and employee benefits expense was $91.5 million for the second quarter of 2018 compared to $80.7 million for the second quarter of 2017 and $91.2 million for the first quarter of 2018.  Occupancy expense was $11.1 million for the second quarter of 2018, compared with $10.5 million for the second quarter of 2017 and $10.8 million for the first quarter of 2018.  Other noninterest expense was $35.7 million for the second quarter of 2018, compared to $30.7 million for the second quarter of 2017 and $39.6 million for the first quarter of 2018.  Other noninterest expense for the first quarter of 2018 was adversely impacted by a single forgery and theft loss totaling $2.3 million and the second quarter benefitted from a $1.3 million fraud loss recovery.  Additionally, merger-related expense for the second quarter of 2018 was $1.9 million, compared with no merger-related expense for the second quarter of 2017 and $5.7 million for the first quarter of 2018.  Income tax expense was reduced by the tax benefit of the vesting of restricted stock during the second quarter.

Capital Management

The Company's equity capitalization is comprised entirely of common stock.  The Company's ratio of shareholders' equity to assets was 12.03 percent at June 30, 2018, compared with 11.40 percent at June 30, 2017 and 11.99 percent at March 31, 2018.  The ratio of tangible shareholders' equity to tangible assets was 8.71 percent at June 30, 2018, compared with 9.44 percent at June 30, 2017 and 8.69 percent at March 31, 2018.

During the second quarter of 2018, the Company repurchased 785,877 shares of its outstanding common stock at a weighted average price of $31.39 per share pursuant to its share repurchase program which is intended to comply with Rules 10b-18 and 10b5-1 promulgated under the Securities and Exchange Act of 1934, as amended.  During the first quarter of 2018, the Company repurchased 2,073,986 shares of its outstanding common stock at a weighted average price of $32.32 per share.  As of June 30, 2018, the Company had 3,140,137 remaining shares available for repurchase under its current share repurchase authorization, which expires on December 31, 2019.  

Estimated regulatory capital ratios at June 30, 2018 were calculated in accordance with the Basel III capital framework.  The Company is a "well capitalized" bank, as defined by federal regulations, at June 30, 2018, with Tier 1 risk-based capital of 11.42 percent and total risk-based capital of 12.30 percent, compared with required minimum levels of 8 percent and 10 percent, respectively, in order to qualify for "well capitalized" classification. 

Summary

Rollins concluded, "As we look toward the second half of 2018, I'm excited about the opportunity to continue improving our performance.  While we do expect to see continued competitive pressure on deposit pricing, we anticipate our net interest margin will continue to improve as our loan and securities portfolios reprice.  Additionally, we expect to continue to realize additional cost savings related to our two acquisitions that closed in January.  In particular, the conversion for First State Bank Central Texas occurred late in the second quarter.  Accordingly, we anticipate that most of the cost savings associated with this transaction will be realized in future quarters."

TRANSACTIONS

Icon Capital Corporation

On April 18, 2018, the Company announced the signing of a definitive merger agreement (the "Icon Merger Agreement") with Icon Capital Corporation and its wholly owned subsidiary, Icon Bank of Texas, National Association (collectively referred to as "Icon"), pursuant to which Icon agreed to be merged with and into the Company (the "Icon Merger").  Icon is headquartered in Houston, Texas and operates 7 full-service banking offices in the Houston, Texas metropolitan area.  As of June 30, 2018, Icon, on a consolidated basis, reported total assets of $740.7 million, total loans of $627.6 million and total deposits of $643.2 million.  Under the terms of the definitive agreement, the Company expects to issue approximately 4,125,000 shares of the Company's common stock plus $17.5 million in cash for all outstanding shares of Icon Capital Corporation's capital stock, subject to certain conditions and potential adjustments.  For more information regarding the Icon Merger, see our Current Report on Form 8-K that was filed with the Federal Deposit Insurance Corporation ("FDIC") on April 18, 2018.  The Agreement has been unanimously approved by the Boards of Directors of both the Company and Icon. Icon has agreed to convene a meeting of its shareholders to vote upon the approval of the Merger Agreement. Subject to the satisfaction of all closing conditions, including the receipt of all required regulatory approvals, the Merger is expected to be completed during the second half of 2018 although the Company can provide no assurance that the Icon Merger will close during this time period or at all.

Central Community Corporation

Effective January 15, 2018, the Company completed the merger with Central Community Corporation ("CCC"), headquartered in Temple, Texas, pursuant to which CCC merged with and into the Company.  CCC was the parent company of First State Bank Central Texas ("First State Bank"), which was headquartered in Austin, Texas.  First State Bank operated 31 full-service banking offices in central Texas.  As of January 15, 2018, CCC, on a consolidated basis, reported total assets of $1.4 billion, total loans of $712.2 million and total deposits of $1.2 billion.  Under the terms of the definitive merger agreement, the Company issued approximately 7,250,000 shares of the Company's common stock plus $28.5 million in cash for all outstanding shares of CCC's capital stock.  For more information regarding the CCC merger, see our Current Report on Form 8-K that was filed with the FDIC on January 16, 2018.  The purchase accounting for this transaction is considered provisional as management continues to identify and assess information regarding the nature of the acquired assets and liabilities and reviews the associated valuation assumptions and methodologies.

Ouachita Bancshares Corp.

Effective January 15, 2018, the Company completed the merger with Ouachita Bancshares Corp., parent company of Ouachita Independent Bank (collectively referred to as "OIB"), headquartered in Monroe, Louisiana, pursuant to which OIB was merged with and into the Company.  OIB operated 11 full-service banking offices along the I-20 corridor and had a loan production office in Madison, Mississippi.  As of January 15, 2018, OIB, on a consolidated basis, reported total assets of $707.1 million, total loans of $495.6 million and total deposits of $653.4 million.  Under the terms of the definitive merger agreement, the Company issued 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.  For more information regarding the OIB merger, see our Current Report on Form 8-K that was filed with the FDIC on January 16, 2018.  The purchase accounting for this transaction is considered provisional as management continues to identify and assess information regarding the nature of the acquired assets and liabilities and reviews the associated valuation assumptions and methodologies.

The Reorganization

Effective October 31, 2017, the merger of BancorpSouth, Inc. with and into BancorpSouth Bank was closed, with BancorpSouth Bank continuing as the surviving entity (the "Reorganization").  The Reorganization resulted in the elimination of the holding company structure.  The Reorganization is expected to improve efficiency through the elimination of redundant corporate infrastructure and duplicative regulatory oversight.  For more information regarding the Reorganization, see our Current Report on Form 8-K that was filed with the FDIC on November 1, 2017.

Non-GAAP Measures and Ratios

This news release presents certain financial measures and ratios that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP").  A discussion regarding these non-GAAP measures and ratios, including reconciliations of non-GAAP measures to the most directly comparable GAAP measures and definitions for non-GAAP ratios, appears under the caption "Reconciliation of Non-GAAP Measures and Other Non-GAAP Ratio Definitions"  beginning on page 21 of this news release.

Conference Call and Webcast

The Company will conduct a conference call to discuss its second quarter 2018 financial results on July 19, 2018, at 10:00 a.m. (Central Time).  This conference call will be an interactive session between management and analysts. Shareholders and other interested parties may listen to this live conference call via Internet webcast by accessing www.BancorpSouth.investorroom.com/Webcasts. The webcast will also be available in archived format at the same address.

About BancorpSouth Bank

BancorpSouth Bank (NYSE: BXS) is headquartered in Tupelo, Mississippi, with approximately $17 billion in assets.  BancorpSouth operates approximately 280 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 benefits, costs, synergies and financial and operational impact of the Reorganization on the Company, the benefits, costs, synergies, and financial and operational impact of the CCC and OIB mergers, the acceptance by customers of OIB and CCC of the Company's products and services after the closing of the mergers, the terms, timing and closing of the proposed Icon Merger, acceptance by customers of Icon of the Company's products and services, the opportunities to enhance market share in certain markets and market acceptance of  the Company generally in new markets, 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 and the United States Department of Justice related to the Company's fair lending practices (the "Consent Order"), the impact of the Tax Cuts and Jobs Act of 2017 on the Company and its operations and financial performance, 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, the impact of interest rates on loan yields, 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 customer base and 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, dispositions and other strategic growth opportunities and initiatives 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 to meet expectations regarding the benefits, costs, synergies, and financial and operational impact of the Reorganization and the CCC and OIB mergers, the possibility that any of the anticipated benefits, costs, synergies and financial and operational improvements of the Reorganization and the OIB and CCC mergers will not be realized or will not be realized as expected, the ability of the Company and Icon to complete the Icon Merger, the ability of the Company and Icon to satisfy the conditions to the completion of the Icon Merger, including the approval of the merger transaction by Icon's shareholders and the receipt of all regulatory approvals required for the Icon Merger on the terms expected in the Icon Merger Agreement, the ability of the Company and Icon to meet expectations regarding the timing, completion and accounting and tax treatments of the Icon Merger, the possibility that any of the anticipated benefits of the Icon Merger will not be realized or will not be realized as expected, the failure of the Icon Merger to close for any other reason, the effect of  the announcement of the Icon Merger on the Company's operating results, the possibility that the Icon Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, the lack of availability of the Bank's filings mandated by the Exchange Act from the SEC's publicly available website after the closing of the Reorganization, 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 Tax Cuts and Jobs Act of 2017 on the Company and its operations and financial performance, 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, dispositions and other strategic growth opportunities and initiatives, 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 FDIC.  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.

   

SOURCE BancorpSouth Bank