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WIKI ANALYSIS
BancorpSouth, Inc. (NYSE: BXS) is a bank holding company headquartered in Tupelo, Mississippi. The company has over $13 billion in total assets[1] and generates almost 80% of its total revenues through loan interest.[2] As of Quarter 3 2008, over three quarters of BancorpSouth's revenue-driving loan portfolio was composed of one-to-four family and other real estate loans.[3]
BancorpSouth maintains a more conservative lending strategy than its peers by lending only to already-established business with good capital strength and by requiring especially strong collateral to secure all loans.[4] While this conservative approach means BXS forgoes the funding of some higher-yielding loans, it caused the company's percentage of net loan charge-offs to continuously decline each year from 0.41% in 2002 to 0.14% 2007.[5][6] Throughout 2008, however, increased loan defaults made this percentage spike up to 0.45% in Quarter 3 2008[7] - more than triple the percentage for Quarter 3 2007.[7] Although many banks have accepted TARP funding from the United States Treasury,[8] BXS has decided not to receive TARP funds in spite of its increased percentage of net charge-offs and decreased net income in Quarter 3 2008.[9] Banks that did accept TARP funds saw much higher net charge-off rates than BXS; for example, Bank of America's net charge-offs to average loans climbed to 2.36% in 2008 Quarter 4.[10]
BancorpSouth's presence in all five Gulf Coast states makes it particularly susceptible to trends associated with hurricane season. For example, the effects of Hurricane Katrina caused the company to add $7.6 million to its provision for credit losses in 2005,[11] by itself greater than the $6.9 million gain from Katrina-related insurance proceeds for the year.[12] Additionally, the aftermath of Katrina caused the company to make write downs all the way through 2007 for reasons ranging from credit losses to equipment depreciation.[13]
Business Overview
BancorpSouth operates through its subsidiary, BancorpSouth Bank, in Mississippi, Tennessee, Alabama, Arkansas, Texas, Louisiana, Florida and Missouri.[14] BXS focuses on generating interest revenue with its $9.2 billion loan portfolio[15] but also generates some income through administrative fees and charges.[16] The company follows conservative lending policies as evidenced by its historic net charge-offs as a percentage of average loans and leases, which dropped steadily from 2002 through 2007.[5][6]
Business and Financial Metrics
| Quarter 1 | Quarter 2 | Quarter 3 | |
| Interest Revenue ($1ks) | 190,459[18] | 175,762[19] | 172,624[20] |
| Noninterest Revenue ($1ks) | 66,231[18] | 73,266[19] | 63,433[20] |
| Total Revenue ($1ks) | 256,690[17] | 249,028[17] | 236,057[17] |
| Net Income ($1ks) | 35,145[17] | 40,125[17] | 38,345[17] |
| Net Charge-Offs to Avg Loans | 0.29%[21] | 0.30%[22] | 0.45%[7] |
| Net Interest Margin | 3.79%[23] | 3.79%[24] | 3.67%[25] |
Interest income generated by the company's $9.5 billion loan portfolio is the company's most significant source of revenue.[26] In Q3 2008, real estate mortgage loans dominated the portfolio, with $2.6 billion in one-to-four family mortgages and $4.9 billion in other real estate mortgages.[3] Other loans in the portfolio were categorized as commercial or agricultural ($1.3 billion), consumer and installment ($405.6 million), lease financing ($274.7 million), or other ($190.6 million).[3]
| 2005 | 2006 | 2007 | |
| Interest Revenue ($1ks)[27] | 559,936 | 681,891 | 801,242 |
| Noninterest Revenue ($1ks)[27] | 198,812 | 206,094 | 231,799 |
| Total Revenue ($1ks)[27] | 758,748 | 887,985 | 1,033,041 |
| Net Income ($1ks)[2] | 115,199 | 125,194 | 137,943 |
| Net Charge-Offs to Avg Loans[5] | 0.23% | 0.15% | 0.14% |
| Net Interest Margin[28] | 3.64% | 3.70% | 3.68% |
In FY 2007, total interest revenue totaled $801.2 million (78% of total revenue) while the company's other operations accounted for only $231.8 million in revenue.[2] While BancorpSouth's net income rose 10.2% from $125.2 million to $137.9 million between 2006 and 2007,[29] its total interest revenue grew only 9.6% over the same period.[29] BXS actually saw its biggest growth in areas of noninterest income like insurance commissions (12.5% increase) and credit card, debit card, and merchant fees (15.7% increase).[16]
Business Segments
BancorpSouth is divided into two segments: its community banking segment is its primary revenue generator while its "general corporate and other" segment encompasses operations not associated with community banking. Each segment generates income from interest and noninterest sources.[30]
Community Banking (77% of total revenue): As BancorpSouth's primary source of revenue, the community banking segment generated $509.0 million in 2007.[30] This segment generates income through a full range of deposit products, commercial loans and consumer loans.[30]
General Corporate and Other (23% of total revenue): This segment generated $145.7 million in 2007.[30] Activities in this segment include leasing, mortgage lending, trust services, credit card activities, insurance services, investment services, personal finance lending and other services not related to community banking.[30]
| Community Banking | General Corporate and Other | Total | |
| Net Interest Income after Provision for Credit Losses ($1ks) | 360,396 | 39,807 | 400,203 |
| Noninterest Revenue ($1ks) | 125,950 | 105,849 | 231,799 |
| Noninterest Expense ($1ks) | 283,182 | 144,876 | 428,058 |
| Net Income after Taxes ($1ks) | 137,415 | 528 | 137,943 |
| Total Assets ($1ks) | 11,042519 | 2,147,322 | 13,189,841 |
Trends & Forces
BXS's conservative lending principles have protected it from serious subprime exposure, but company is still hurt by general economic problems
BXS uses notably conservative lending policies and has consequently avoided all but nominal exposure - approximately $329,000 at the end of 2007 - to to the credit issues affecting the subprime residential mortgage market.[29] Nevertheless, as businesses and individuals across the country struggle to survive the credit crunch, a higher percentage of loans in general are losing value; BXS saw its net charge-offs to average loans hit an uncharacteristic 0.45% in the third quarter of 2008[31] after steadily decreasing from 0.23% in 2005 to 0.14% by 2007.[5] These increased charge-offs coincide with a 17.0% decline in interest revenue and 21.8% drop in net income from Q3 2007 to Q3 2008.[20]
Furthermore, $7.5 billion of BXS's $9.6 billion is composed of real estate mortgages, with $2.6 billion of that amount attributable to one-to-four family mortgages.[3] As pending home sales hit record lows in November 2008, the value of real estate used as collateral in mortgages is falling;[32] this means less recovered value when BXS forecloses a home after default and decreased overall demand for mortgages. Furthermore, the U.S. unemployment rate hit a 26-year high of 4.5 million in January 2009;[33] jobless Americans are less likely to pay off their loans, so rising unemployment potentially subjects BXS to an increase in one-to-four family mortgage defaults.
BXS is not participating in the Treasury's Capital Purchase Program
BancorpSouth reported that it would not request TARP funds from the United States Treasury, citing its good capitalization;[9] in the third quarter of 2008, average total capital equaled 11.82% of total risk-adjusted assets.[34] BXS remains confident that its business model and conservative lending policies will allow it to pursue acquisition opportunities and continue its income growth.[9] If capital becomes less accessible, declining the Treasury's offer means a missed opportunity for BXS. The decision to keep operating as usual, however, promotes client confidence in BancorpSouth and stimulates business activity as consumers scrutinize banks for reliability.
Severe weather in the gulf coast can disrupt BXS operations and cause regional economic problems
BancorpSouth operates in all of the Gulf Coast states[35] and is consequently particularly susceptible to problems created by hurricane season. In 2005, 13 of its banking locations along the Mississippi Gulf Coast were damaged;[36] three branches and a loan office did not reopen until at least 2006.[36] Hurricane Katrina's impact decreased BXS's net income by $2.2 million [36] in spite of a $6.9 million gain from related insurance coverage in 2005.[37] Expecting that Katrina would increase the amount of loans charged off, BXS increased its provision for credit in 2005 losses by $7.6 million but reversed $5.9 million of that provision during 2006;[29] Katrina's effect on BXS customers was not as strong as the company expected.[29]
Competition
BancorpSouth competes for client deposits and loan sales with other nearby regional banks as well as larger banks that operate in its markets.
Other Regional Banks
Major regional bank competitors are:
- SunTrust Banks (STI): Financial holding company for SunTrust Bank;[38] competes with BXS in Tennessee and Florida.[39]
- Regions Financial Corporation: Headquartered in Birmingham, Alabama, Regions Financial is a bank that competes with BXS in the Alabama, Arkansas, Florida, Mississippi, Tennessee, Texas, Louisiana, and Missouri markets.[40]
- Trustmark Corporation: Provides competing banking services in BXS's Florida, Mississippi, Tennessee, and Texas markets.[41]
Larger Banks
Although nationally-scaled banks do not have a strong presence in BancorpSouth's primary markets, the company may have to compete more with larger banks like Bank of America and Citigroup as they expand.
| Net Charge-Offs to Avg Loans | Net Interest Margin | Total Revenue ($1ks) | Net Income ($1ks) | |
|---|---|---|---|---|
| BancorpSouth (BXS) | 0.14%[42] | 3.68%[43] | 1,033,041[2] | 137,943[2] |
| SunTrust Banks (STI) | 0.35%[44] | 3.11%[45] | 13,464,604[46] | 1,603,740[46] |
| Regions Financing Tr I (RF) | 0.29%[47] | 3.79%[47] | 10,939,051[48] | 1,251,095[49] |
| Trustmark (TRMK) | 0.23%[50] | 3.92%[51] | 705,590[51] | 108,595[51] |
References
- ↑ BXS 2007 10-K pg. 47
- ↑ 2.0 2.1 2.2 2.3 2.4 BXS 2007 10-K pg. 48
- ↑ 3.0 3.1 3.2 3.3 3.4 BXS Q308 10-Q pg. 6
- ↑ BXS 2007 10-K pg. 8
- ↑ 5.0 5.1 5.2 5.3 BXS 2007 10-K pg. 32
- ↑ 6.0 6.1 BXS 2005 10-K pg. 14
- ↑ 7.0 7.1 7.2 BXS Q308 10-Q pg. 24
- ↑ CalculatedRisk. Treasury Capital Purchase Program (TARP).
- ↑ 9.0 9.1 9.2 Company Release. BancorpSouth Elects Not to Participate in U.S. Treasury's Capital Purchase Program.
- ↑ Eric Ruth (January 17, 2009). Feds boost Bank of America again.
- ↑ BXS 2005 10-K pg. 31
- ↑ BXS 2005 10-K pg. 25
- ↑ BXS 2007 10-K pg. 34
- ↑ BXS 2007 10-K pg. 2
- ↑ BXS 2007 10-K pg. 11
- ↑ 16.0 16.1 BXS 2007 10-K pg. 33
- ↑ 17.0 17.1 17.2 17.3 17.4 17.5 17.6 Yahoo! Finance Income Statement: BancorpSouth
- ↑ 18.0 18.1 BXS Q208 10-Q pg. 3
- ↑ 19.0 19.1 BXS Q208 10-Q pg. 4
- ↑ 20.0 20.1 20.2 BXS Q308 10-Q pg. 4
- ↑ BXS Q208 10-Q pg. 18
- ↑ BXS Q208 10-Q pg. 20
- ↑ BXS Q208 10-Q pg. 19
- ↑ BXS Q208 10-Q pg. 22
- ↑ BXS Q308 10-Q pg. 22
- ↑ BXS Q308 10-Q pg. 3
- ↑ 27.0 27.1 27.2 BXS 2007 10-K pg. 23
- ↑ BXS 2007 10-K pg. 29
- ↑ 29.0 29.1 29.2 29.3 29.4 BXS 2007 10-K pg. 25
- ↑ 30.0 30.1 30.2 30.3 30.4 30.5 BXS 2007 10-K pg. 78
- ↑ BXS 2007 10-K pg. 24
- ↑ Alan Zibel. Pending home sales plunge to record low in Nov..
- ↑ Linda Young. Surging Numbers Of Jobless Americans Taxing State Unemployment Systems.
- ↑ BXS Q308 10-Q pg. 31
- ↑ BXS Q308 10-Q pg. 19
- ↑ 36.0 36.1 36.2 BXS 2005 10-K pg. 24
- ↑ BXS 2006 10-K pg. 24
- ↑ Yahoo! Finance Profile: SunTrust Banks Inc.
- ↑ STI 2007 10-K pg. 1
- ↑ Yahoo! Finance Profile: Regions Financial Corp.
- ↑ Yahoo! Finance Profile: Trustmark Corporation
- ↑ BXS 2007 10-K pg. 14
- ↑ BXS 2007 10-K pg. 28
- ↑ STI 2007 10-K pg. 17
- ↑ STI 2007 10-K pg. 25
- ↑ 46.0 46.1 STI 2007 10-K pg. 78
- ↑ 47.0 47.1 RF 2007 10-K pg. 25
- ↑ Yahoo! Finance: RF Income Statement
- ↑ RF 2007 10-K pg. 78
- ↑ TRMK 2007 Annual Report pg. 60
- ↑ 51.0 51.1 51.2 TRMK 2007 Annual Report pg. 1
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