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BancorpSouth, Inc.’s (BXS - Free Report) first-quarter 2014 earnings per share came in at 30 cents, in line with the Zacks Consensus Estimate. However, earnings compared favorably with the prior-year quarter figure of 22 cents.

Elevated net interest revenue, a strong capital position and the absence of provision for credit losses were the positives. Moreover, reduced non-interest expenses reflected prudent expense management. However, absence of credible improvement in the mortgage market was a concern, which led to lower non-interest income in the quarter.

The company’s net income stood at $28.4 million in the reported quarter, reflecting a significant increase of 36.5% from the year-ago quarter figure of $20.8 million.

Quarter in Detail

BancorpSouth’s net interest revenue came in at $101.5 million, up 3.5% year over year. Fully taxable equivalent net interest margin (NIM) climbed 17 basis points year over year to 3.54%. The rise was mainly due to lower interest expenses, partially offset by a fall in yields on loans and leases.

Non-interest revenues declined 6.7% year over year to $66.5 million. The decline was mainly due to lower mortgage lending revenues, partially offset by higher insurance commission revenue. Non-interest revenues for the quarter included negative mortgage servicing rights (MSR) valuation adjustment of $1.5 million, compared with a positive adjustment of $1.0 million in first-quarter 2013.

Excluding the MSR valuation adjustments, net mortgage lending revenue was $4.9 million, a significant decline from $11.3 million in the year-ago quarter.

BancorpSouth’s non-interest expense declined 6.4% year over year to $126.7 million. This was mainly due to lower salaries and employee benefits costs as well as lower other expenses.

As of Mar 31, 2014, total deposits stood at $10.8 billion, down 2.7% year over year, while net loans and leases rose 6.0% to $8.9 billion.

Credit Quality

BancorpSouth reported a significant improvement in its credit quality. Provision for credit losses was nil in the reported quarter. Annualized net charge-offs as a percent of average loans and leases declined 11 basis points year over year to 0.16%.

Further, as of Mar 31, 2014, BancorpSouth’s nonperforming loans were $93.3 million or 1.03% of net loans and leases, significantly down from $207.0 million or 2.41% as of Mar 31, 2013.

Further, allowance for credit losses to net loans and leases decreased to 1.65% from 1.89% in the prior-year quarter. Also, non-performing assets stood at $156.9 million, down 48.3% from $303.3 million in the prior-year quarter.

Capital Position

BancorpSouth exhibited a strong capital position.  Tier I capital and tier I leverage capital stood at 13.18% and 10.04%, respectively, compared with 14.06% and 10.33% at the end of the prior-year quarter. As of Mar 31, 2014, total risk based capital ratio came in at 14.44% as compared with 15.31% as of Mar 31, 2013.

The ratio of total shareholders' equity to total assets increased to 11.83% at the end of the quarter from 10.94% as of Mar 31, 2013. Moreover, the ratio of tangible shareholders' equity to tangible assets advanced 73 basis points to 9.69%.

Our Viewpoint

Overall, BancorpSouth’s results reflected a commendable quarter for the company. While there are lingering concerns over the prevalent stringent regulatory landscape and a weak mortgage market, we believe that improvement in the company’s fee-based business will help it navigate through the current cycle.

Moreover, the recent acquisitions reflect inorganic growth of the company, which will significantly drive earnings in the coming quarters. Currently, BancorpSouth carries a Zacks Rank #3 (Hold).

Among other Southeast banks, SY Bancorp Inc. (SYBT - Free Report) is expected to release March-quarter end results on Apr 23, United Community Banks, Inc. (UCBI - Free Report) on Apr 24 and HomeTrust Bancshares, Inc. on May 5.

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