BancorpSouth Bank delivered an earnings surprise of 1.49% in third-quarter 2021 on higher net interest income. Net operating earnings of 68 cents per share beat the Zacks Consensus Estimate of 67 cents. However, the bottom line compares unfavorably with the 69 cents reported in the year-ago quarter.
Higher net revenues were aided by an increase in net interest revenues. Moreover, higher deposit balances and improved credit quality aided the company. Nevertheless, shrinking net interest margins, capital position and loan growth were major drags.
The company’s net income for the September-end quarter amounted to $70.4 million or 65 cents per share, down from the $71.5 million or 69 cents reported in the year-ago quarter.
Revenues & Deposits Climb, Expenses Rise
Net revenues for the reported quarter increased marginally year over year to $265.96 million. In addition, the top-line figure surpassed the Zacks Consensus Estimate of $264.93 million.
Net interest revenues for the quarter came in at $181.5 million, up 3.2% year over year. The fully-taxable equivalent net interest margin (NIM) was 2.86%, contracting 45 basis points (bps) year over year.
Non-interest revenues fell 6% year over year to $84.4 million. The figure included a positive mortgage servicing rights valuation adjustment of $2 million. This downside resulted from the decrease in mortgage banking and net security losses.
Non-interest expenses came in at $179.9 million, flaring up 16% year on year. This upside stemmed primarily from a rise in all the components.
As of Sep 30, 2021, total deposits were $23.2 billion, up 3.5% sequentially, while loans and leases, net of unearned income, slid 3.8% sequentially to $14.7 billion.
Credit Quality Strengthens
Non-performing loans and leases were 0.56% of net loans and leases as of Sep 30, 2021, down from 0.98% as of Sep 30, 2020. Also, non-performing assets were $100.3 million, down 36% from the prior-year quarter.
Additionally, during the July-September period, the company recorded benefit for credit losses of $7 million compared with the provision of $16 million seen in the third quarter of 2020. This provision was primarily associated to the improvement in the overall credit quality and a reduction in the level of classified loan balances. However, allowance for credit losses to net loans and leases was 1.74% as of Sep 30, 2021, up 10 bps year on year.
Declined Capital Position
As of Sep 30, 2021, tier 1 capital and tier 1 leverage capital ratios were 11.63% and 8.3%, respectively, compared with the 11.65% and 8.59% recorded at the end of the prior-year quarter.
Yet, the ratio of tangible shareholders' equity to tangible assets shrunk 86 bps to 7.44%. Additionally, ratio of its total shareholders' equity to total assets was 10.18% at the end of the third quarter, down from 11.1% as of Sep 30, 2020.
Share Repurchase Update
In the reported quarter, the company repurchased 1,742,474 shares at a weighted average price of $28.69 per share.
BancorpSouth has a healthy balance-sheet position. This supports its acquisition and capital-deployment strategies. Apart from these, the decline in interest rates amid the Federal Reserve's accommodative policy stance might hurt the company’s margins in the upcoming period.
Currently, BancorpSouth carries a Zacks Rank #4 (Sell).
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