BancorpSouth 2017 Annual Earnings Reach New Record; Declares Quarterly Dividend

TUPELO, Miss., Jan. 24, 2018 /PRNewswire/ -- BancorpSouth Bank (NYSE: BXS) (the "Company") today announced financial results for the quarter and year ended December 31, 2017.

Annual highlights for 2017 included:

• Record net income of $153.0 million, or $1.67 per diluted share.
• Total operating expense declined $7.4 million compared to 2016.
• Net interest margin increased to 3.54 percent from 3.52 percent for 2016.
• Generated net loan growth of $244.4 million, or 2.3 percent.
• Reported total deposit growth of $227.5 million, or 1.9 percent.
• Net operating income – excluding MSR – of $152.0 million, or $1.66 per diluted share.
• Completed pending mergers with Central Community Corporation and Ouachita Bancshares Corp. effective January 15, 2018 for which regulatory approval was received during the fourth quarter of 2017.
• Repurchased 3,695,213 shares of outstanding common stock at a weighted average price of $29.94 per share.

Highlights for the fourth quarter of 2017 included:

• Net income of $37.5 million, or $0.41 per diluted share.
• Reported total deposit growth of $139.6 million, or 4.7 percent on an annualized basis.
• Total noninterest expense declined compared to both the third quarter of 2017 and the fourth quarter of 2016.
• Earnings benefitted from a positive pre-tax mortgage servicing rights ("MSR") valuation adjustment of $2.4 million.
• Net operating income – excluding MSR – of $36.8 million, or $0.41 per diluted share.
• Recorded additional income tax expense of $0.6 million, or $0.01 per share, to reflect the net impact of certain strategic tax planning decisions as well as the revaluation of the net deferred tax asset resulting from corporate tax law changes enacted by the Tax Cuts and Jobs Act of 2017.

The Company reported net income of $37.5 million, or $0.41 per diluted share, for the fourth quarter of 2017 compared with net income of $37.7 million, or $0.40 per diluted share, for the fourth quarter of 2016 and net income of $39.5 million, or $0.43 per diluted share, for the third quarter of 2017.  The Company reported net operating income – excluding MSR – of $36.8 million, or $0.41 per diluted share, for the fourth quarter of 2017 compared to $30.7 million, or $0.33 per diluted share, for the fourth quarter of 2016 and $39.6 million, or $0.43 per diluted share, for the third quarter of 2017. 

Additionally, the company reported net income of $153.0 million, or $1.67 per diluted share, for the year ended December 31, 2017 compared to $132.7 million, or $1.41 per diluted share, for the year ended December 31, 2016.  The Company reported net operating income – excluding MSR – of $152.0 million, or $1.66 per diluted share, for the year ended December 31, 2017 compared to $141.4 million, or $1.50 per diluted share, for the year ended December 31, 2016. 

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 securities gains and losses, MSR valuation adjustments, restructuring charges, merger-related expenses, industry-related legal settlements, and other one-time charges. 

At its regular quarterly meeting today, the Board of Directors of the Company declared a quarterly cash dividend of $0.14 per share of common stock.  The dividend is payable April 2, 2018 to shareholders of record at the close of business on March 15, 2018.

"We are pleased to report a successful completion to 2017," remarked Dan Rollins, BancorpSouth Chairman and Chief Executive Officer.  "A lot of hard work and progress by our teammates culminated in the closings of our pending transactions with Ouachita Bancshares Corp. and Central Community Corporation, which were effective January 15, 2018.   We could not have reached this point without the commitment and patience demonstrated by the shareholders, management teams, and employees of these two companies.  We are excited to have them as a part of our team.  Furthermore, we are pleased to be able to continue executing our strategic plan, of which these two organizations are an integral part."

"As we look specifically at fourth quarter results, we saw positive progress in a number of areas despite seasonally lower revenues associated with several of our noninterest products.  Total operating expense declined compared to both the third quarter of 2017 and the fourth quarter of 2016.  Additionally, we saw continued yield pickup in our loan and securities portfolios, combined with relatively stable deposit costs.  The positive impact of these items on our margin was offset by the decision to leverage the balance sheet in order to prefund the securities portfolio restructuring in anticipation of the merger closings."  

"Finally, we expect that the Tax Cuts and Jobs Act of 2017 will provide a tremendous benefit to our company and our shareholders.  Our board of directors and management team recognize that our employees, along with their customer relationships, are the most valuable asset of our company.  I'm proud the first investment that we made as a result of this legislation was in our teammates, through salary increases and one-time bonuses.  This legislation also resulted in the revaluation of our net deferred tax asset.  We made certain strategic tax planning decisions, which allowed us to reduce the net impact of the revaluation to $0.6 million."

Net Interest Revenue

Net interest revenue was $121.4 million for the fourth quarter of 2017, an increase of 5.2 percent from $115.4 million for the fourth quarter of 2016 and an increase of 0.7 percent from $120.6 million for the third quarter of 2017.  The fully taxable equivalent net interest margin was 3.58 percent for the fourth quarter of 2017 compared to 3.46 percent for the fourth quarter of 2016 and 3.58 percent for the third quarter of 2017.  Yields on loans and leases were 4.36 percent for the fourth quarter of 2017 compared with 4.18 percent for the fourth quarter of 2016 and 4.33 percent for the third quarter of 2017, while yields on total interest earning assets were 3.90 percent for the fourth quarter of 2017 compared with 3.70 percent for the fourth quarter of 2016 and 3.89 percent for the third quarter of 2017.  The average cost of deposits was 0.27 percent for the fourth quarter of 2017 compared to 0.23 percent for the fourth quarter of 2016 and 0.26 percent for the third quarter of 2017.

Asset, Deposit and Loan Activity

Total assets were $15.3 billion at December 31, 2017 compared with $14.7 billion at December 31, 2016.  Loans and leases, net of unearned income, were $11.1 billion at December 31, 2017 compared with $10.8 billion at December 31, 2016. 

Total deposits were $11.9 billion at December 31, 2017 compared with $11.7 billion at December 31, 2016.  Time deposits decreased $84.1 million, or 4.6 percent, at December 31, 2017 compared to December 31, 2016.  Over the same time period, interest bearing demand deposits increased $32.1 million, or 0.6 percent, while noninterest bearing demand deposits increased $202.5 million, or 6.2 percent, and savings deposits increased $77.0 million, or 4.9 percent.

Provision for Credit Losses and Allowance for Credit Losses

Earnings for the fourth quarter reflect a provision for credit losses of $0.5 million, compared to a provision of $1.0 million for the fourth quarter of 2016 and a provision of $0.5 million for the third quarter of 2017.  Net charge-offs for the fourth quarter of 2017 were $1.8 million, compared with net charge-offs of $3.2 million for the fourth quarter of 2016 and net charge-offs of $2.6 million for the third quarter of 2017.  The allowance for credit losses was $118.2 million, or 1.07 percent of net loans and leases, at December 31, 2017, compared with $123.7 million, or 1.14 percent of net loans and leases, at December 31, 2016 and $119.5 million, or 1.08 percent of net loans and leases, at September 30, 2017. 

Total non-performing assets were $84.5 million, or 0.76 percent of net loans and leases, at December 31, 2017 compared with $109.7 million, or 1.01 percent of net loans and leases, at December 31, 2016, and $71.0 million, or 0.64 percent of net loans and leases, at September 30, 2017.  Other real estate owned was $6.0 million at December 31, 2017 compared with $7.8 million at December 31, 2016 and $6.0 million at September 30, 2017.

Noninterest Revenue

Noninterest revenue was $63.1 million for the fourth quarter of 2017, compared with $72.0 million for the fourth quarter of 2016 and $66.0 million for the third quarter of 2017.  These results included a positive MSR valuation adjustment of $2.4 million for the fourth quarter of 2017, compared with a positive MSR valuation adjustment of $11.2 million for the fourth quarter of 2016 and an essentially flat MSR valuation adjustment for the third quarter of 2017.  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 $4.9 million for the fourth quarter of 2017, compared with $5.6 million for the fourth quarter of 2016 and $7.0 million for the third quarter of 2017.  Mortgage origination volume for the fourth quarter of 2017 was $308.4 million, compared with $395.9 million for the fourth quarter of 2016 and $342.4 million for the third quarter of 2017.

Credit and debit card fee revenue was $9.5 million for the fourth quarter of 2017, compared with $9.3 million for both the fourth quarter of 2016 and the third quarter of 2017.  Deposit service charge revenue was $10.3 million for the fourth quarter of 2017, compared with $10.0 million for the fourth quarter of 2016 and $10.4 million for the third quarter of 2017.  Insurance commission revenue was $25.8 million for the fourth quarter of 2017, compared with $25.7 million for the fourth quarter of 2016 and $28.6 million for the third quarter of 2017.  Wealth management revenue was $5.6 million for the fourth quarter of 2017, compared with $5.4 million for both the fourth quarter of 2016 and the third quarter of 2017.    

Noninterest Expense

Noninterest expense for the fourth quarter of 2017 was $125.9 million, compared with $130.5 million for the fourth quarter of 2016 and $126.9 million for the third quarter of 2017.  Salaries and employee benefits expense was $78.1 million for the fourth quarter of 2017 compared to $80.9 million for the fourth quarter of 2016 and $81.4 million for the third quarter of 2017.  Occupancy expense was $10.1 million for the fourth quarter of 2017, compared with $10.3 million for both the fourth quarter of 2016 and the third quarter of 2017.  Other noninterest expense was $31.3 million for the fourth quarter of 2017, compared to $34.0 million for the fourth quarter of 2016 and $29.3 million for the third quarter of 2017.

Capital Management

The Company's equity capitalization is comprised entirely of common stock.  The Company's ratio of shareholders' equity to assets was 11.20 percent at December 31, 2017, compared with 11.71 percent at December 31, 2016 and 11.52 percent at September 30, 2017.  The ratio of tangible shareholders' equity to tangible assets was 9.31 percent at December 31, 2017, compared with 9.73 percent at December 31, 2016 and 9.56 percent at September 30, 2017.

During the fourth quarter of 2017, the Company did not repurchase shares of its outstanding common stock 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 third quarter of 2017, the Company repurchased 699,888 shares at a weighted average price of $28.99 per share.  As of December 31, 2017, the Company had 6,000,000 remaining shares available for repurchase under its current share repurchase authorization, which expires on December 31, 2019.  

Estimated regulatory capital ratios at December 31, 2017 were calculated in accordance with the Basel III capital framework.  The Company is a "well capitalized" bank, as defined by federal regulations, at December 31, 2017, with Tier 1 risk-based capital of 12.15 percent and total risk-based capital of 13.13 percent, compared with required minimum levels of 8 percent and 10 percent, respectively, in order to qualify for "well capitalized" classification. 

TRANSACTIONS

The Reorganization

Effective October 31, 2017, the previously announced merger of BancorpSouth, Inc. with and into BancorpSouth Bank was closed, with BancorpSouth Bank continuing as the surviving entity (the "Reorganization").  This transaction 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.  See our current report on Form 8-K that was filed with the Federal Deposit Insurance Corporation (the "FDIC") on November 1, 2017 and that is incorporated herein by reference.

Waguespack & Associates Insurance, Inc.

On December 19, 2016, BXS Insurance announced and closed the acquisition of certain assets of Waguespack & Associates Insurance, Inc.  The agency was formed in 1986, is based in Gonzalez, Louisiana and produces annual revenues of approximately $3 million.  Waguespack continues to operate under its legacy leadership in Gonzales.

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, and its wholly owned bank subsidiary First State Bank Central Texas, ("First State Bank") which was headquartered in Austin, Texas.  First State Bank operates 31 full-service banking offices in central Texas.  As of December 31, 2017, CCC, on a consolidated basis, reported total assets of $1.4 billion, total loans of $715.1 million and total deposits of $1.2 billion.  Under the terms of the definitive 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.

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 operates 11 full-service banking offices along the I-20 corridor and has a loan production office in Madison, Mississippi.  As of December 31, 2017, OIB, on a consolidated basis, reported total assets of $703.1 million, total loans of $498.0 million and total deposits of $599.0 million.  Under the terms of the definitive 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.

Summary

Rollins concluded, "Our annual results for 2017 reflect continued improvement in many of our operating metrics. Although our loan and deposit growth for the year was not as high as we would have liked, we saw significant improvement in other areas including record net income of $153.0 million, or $1.67 per diluted share.  Our total operating expense for 2017 actually declined $7.4 million compared to 2016, which contributed to our operating efficiency ratio - excluding MSR - declining from 69.8 percent to 67.8 percent.  This improvement, combined with the expansion in our net interest margin and other factors, contributed to 11 percent growth in our operating earnings per share.  Finally, we were able to return capital to our shareholders, repurchasing approximately 3.7 million shares at a weighted average price of $29.94.  As we look to 2018, I'm confident our company is positioned to continue to improve our operating performance and enhance the returns delivered to our shareholders."

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 20 of this news release.

Conference Call and Webcast

The Company will conduct a conference call to discuss its fourth quarter and annual 2017 financial results on January 25, 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.com/Webcast. 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 276 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 terms, the proposed impact of the Reorganization on the Bank, the acceptance by customers of Ouachita Bancshares Corp. and Central Community Corporation of the Company's products and services after the closing of the mergers, 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, 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 and consideration to be used therefor, 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 and the Bank to meet expectations regarding the accounting and tax treatments of the Reorganization, the possibility that any of the anticipated benefits of the Reorganization will not be realized or will not be realized as expected, 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, 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, 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.