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BancorpSouth Inc.’s (BXS - Analyst Report) third quarter 2013 earnings per share came in at 26 cents, in line with the Zacks Consensus Estimate. Further, results surpassed the prior-year quarter figure by a penny.

BancorpSouth’s results benefited from a significant fall in provision for credit losses as well as lower non-interest expense. However, these were offset by decline in both net interest and non-interest revenues.

Provision for credit losses was $0.5 million, significantly decreasing from the year-ago figure of $6.0 million.

Quarter in Detail

BancorpSouth’s net interest revenue came in at $100.2 million, down 3% year over year. The company experienced a fall in fully taxable equivalent net interest margin, which declined to 3.45%, registering a fall of 10 basis points from the prior-year quarter. The decline was mainly due to continued pressure on asset yields, especially yields on loans and leases, partly offset by a fall in the average cost of interest bearing liabilities.

Additionally, non-interest revenues declined 11% year over year to $62.5 million. The fall was mainly due to lower service charge revenues, partly offset by rise in credit and debit card fee revenues as well as insurance commission revenues. Non-interest revenues for the quarter included a negative MSR valuation adjustment of $0.2 million, compared with a negative adjustment of $3.2 million for third-quarter 2012.

Excluding the MSR valuation adjustments, net mortgage lending revenue was $5.4 million, down from $16.8 million in the year-ago quarter.

On the other hand, BancorpSouth’s non-interest expense was $129.4 million. This reflected a 3% decrease from the comparable period in 2012 as salaries and employee benefits cost as well as foreclosed property expense declined year over year. Non-interest expense for the third quarter of 2013 included pre-tax charges of $2.9 million related to the write-off of unamortized issuance costs of the trust preferred securities (TruPS). The company also incurred a charge of $2.8 million related to various legal proceedings.

Credit Quality

BancorpSouth’s credit quality improved in the reported quarter.

Net charge-offs were $7.6 million, compared with $12.8 million in the year-ago quarter and $4.6 million in the prior quarter. Annualized net charge-offs were 0.35% of average loans and leases, compared with 0.59% in the prior-year period and 0.21% in the past quarter.

As of Sep 30, 2013, BancorpSouth’s nonperforming loans were $144.3 million or 1.65% of net loans and leases, compared with $247.3 million or 2.85% of net loans and leases as of Sep 30, 2012 and $167.9 million or 1.94% of net loans and leases as of Jun 30, 2013.

Moreover, as of Sep 30, 2013, the company’s allowance for credit losses was $154.0 million or 1.76% of net loans and leases, compared with $169.0 million or 1.95% of net loans and leases, as of Sep 30, 2012 and $161.0 million or 1.86% of net loans and leases as of Jun 30, 2013.  

Capital Position

Capital ratios continued to be healthy at BancorpSouth, with Tier I leverage and total risk-based capital ratios at 9.93% and 14.52%, respectively, compared with 10.21% and 14.81% in the past year and 10.58% and 15.47% in the prior quarter. Moreover, as defined by federal regulations, BancorpSouth remains a "well capitalized" financial holding company.

The bank’s Tier 1 risk-based capital of 13.26% as of Sep 30, 2013 and total risk based capital of 14.52% were above the minimum required levels of 6% and 10%, respectively.

In the reported quarter, the company’s equity capitalization was 100% common stock. The ratio of shareholders' equity to assets increased to 11.46% in the quarter from 10.93% as of Sep 30, 2012 and 11.04% as of Jun 30, 2013. Moreover, the ratio of tangible shareholders' equity to tangible assets advanced to 9.43% from 8.91% as of Sep 30, 2012 and 8.96% as of Jun 30, 2013.

Our Take

The results of BancorpSouth are commendable. Along with its robust mortgage lending business performance, the company benefited from numerous opportunistic acquisitions. While there are lingering concerns over the prevalent low interest rate environment and its adverse impact on NIM, we believe that improvement in the company’s fee-based business will help it navigate through the current cycle.

BancorpSouth currently carries a Zacks Rank #3 (Hold). Some other Southeast banks that are worth a look include SY Bancorp Inc. (SYBT - Snapshot Report), Simmons First National Corporation (SFNC - Snapshot Report) and American National Bankshares Inc. (AMNB - Snapshot Report). While SY Bancorp and Simmons First National both carry a Zacks Rank #1 (Strong Buy), American National has a Zacks Rank #2 (Buy).

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