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| BXS > SEC Filings for BXS > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
As a financial holding company, the financial condition and operating results of
the Company are heavily influenced by economic trends nationally and in the
specific markets in which the Company's subsidiaries provide financial services.
Generally, during 2008 and the first nine months of 2009, the pressures of the
national and regional economic cycle created a difficult operating environment
for the financial services industry. The Company is not immune to such pressures
and understands that the continuing economic downturn has had a negative impact
on the Company and its customers in all of the markets that it serves. The
impact is reflected in a decline in credit quality and the increases in the
Company's measures of non-performing loans and net charge-offs, compared to the
third quarter and first nine months of 2008. While these measures have
increased, the Company believes that it is well positioned with respect to
overall credit quality and the strength of its allowance for credit losses to
meet the challenges of the current economic cycle. Management believes, however,
that continued weakness in the economic environment could adversely affect the
strength of the credit quality of the Company's assets overall and, therefore,
management will continue to focus on early identification and decisive
resolution of any credit issues.
Most of the revenue of the Company is derived from the operation of its
principal operating subsidiary, the Bank. The financial condition and operating
results of the Bank are affected by the level and volatility of interest rates
on loans, investment securities, deposits and other borrowed funds, and the
impact of economic downturns on loan demand, collateral value and
creditworthiness of existing borrowers. The financial services industry is
highly competitive and heavily regulated. The Company's success depends on its
ability to compete aggressively within its markets while maintaining sufficient
asset quality and cost controls to generate net income.
The information that follows is provided to enhance comparability of financial
information between periods and to provide a better understanding of the
Company's operations.
SELECTED FINANCIAL QUARTERLY DATA
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
(Dollars in thousands, except per share data)
Earnings Summary:
Total interest revenue $ 153,487 $ 172,624 $ 463,418 $ 538,845
Total interest expense 41,751 63,022 130,866 209,330
Net interest income 111,736 109,602 332,552 329,515
Provision for credit losses 22,514 16,306 55,053 38,354
Noninterest income 59,549 63,433 205,581 202,930
Noninterest expense 119,746 116,059 361,466 341,593
Income before income taxes 29,025 40,670 121,614 152,498
Income taxes 7,494 12,325 36,739 48,883
Net income $ 21,531 $ 28,345 $ 84,875 $ 103,615
Selected Average Balances:
Total assets $ 13,167,057 $ 13,304,939 $ 13,250,329 $ 13,174,345
Loans and leases, net of unearned income 9,750,159 9,529,731 9,729,050 9,371,480
Total shareholders' equity 1,265,099 1,231,350 1,251,769 1,219,170
Common Share Data:
Basic earnings per share $ 0.26 $ 0.34 $ 1.02 $ 1.26
Diluted earnings per share 0.26 0.34 1.02 1.25
Cash dividends per share 0.22 0.22 0.66 0.65
Financial Ratios (Annualized):
Return on average assets 0.65 % 0.85 % 0.86 % 1.05 %
Return on average shareholders' equity 6.75 9.16 9.07 11.35
Total shareholders' equity to total assets 9.69 9.34 9.69 9.34
Tangible shareholders' equity to tangible
assets 7.64 7.25 7.64 7.25
Net interest margin 3.77 3.67 3.75 3.75
Credit Quality Ratios (Annualized):
Net charge-offs to average loans and leases 0.68 % 0.45 % 0.59 % 0.35 %
Provision for credit losses to average loans
and leases 0.92 0.68 0.57 0.41
Allowance for credit losses to net loans and
leases 1.48 1.35 1.48 1.35
Allowance for credit losses to non-performing
loans and leases 129.70 198.16 129.70 198.16
Allowance for credit losses to non-performing
assets 83.35 132.25 83.35 132.25
Non-performing loans and leases to net loans
and leases 1.14 0.68 1.14 0.68
Non-performing assets to net loans and leases 1.77 1.01 1.77 1.01
Captial Adequacy:
Tier I capital 11.39 % 10.57 % 11.39 % 10.57 %
Total capital 12.64 11.82 12.64 11.82
Tier I leverage capital 9.03 8.48 9.03 8.48
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In addition to financial ratios defined by U.S. GAAP, the Company utilizes tangible shareholders' equity and tangible asset measures when evaluating the performance of the Company. Tangible shareholders' equity is defined by the Company as total shareholders' equity less goodwill and identifiable intangible assets. Tangible assets are defined by the Company as total assets less goodwill and identifiable assets. The Company believes the ratio of tangible equity to tangible assets to be an important measure of financial strength of the Company. The following table reconciles tangible assets and tangible shareholders' equity as presented above to U.S. GAAP financial measures as reflected in the Company's unaudited consolidated financial statements:
September 30,
2009 2008
(In thousands)
Tangible Assets:
Total assets $ 13,271,873 $ 13,300,728
Less: Goodwill 270,097 271,017
Identifiable intangible assets 24,347 29,607
Total tangible assets $ 12,977,429 $ 13,000,104
Tangible Shareholders' Equity
Total shareholders' equity $ 1,286,218 $ 1,242,719
Less: Goodwill 270,097 271,017
Identifiable intangible assets 24,347 29,607
Total tangible shareholders' equity $ 991,774 $ 942,095
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FINANCIAL HIGHLIGHTS
The primary source of revenue for the Company is the amount of net interest
revenue earned by the Bank. Net interest revenue is the difference between
interest earned on loans and investments and interest paid on deposits and other
obligations. While the Company experienced moderate loan growth during the three
and nine months ended September 30, 2009 compared to the same periods in 2008, a
declining interest rate environment resulted in a decrease in interest revenue
of 11.1% in the third quarter of 2009 compared to the same period in 2008 and
14.0% in the first nine months of 2009 compared to the same period in 2008. The
Company experienced a decrease in interest expense of 33.8% in the third quarter
of 2009 compared to the third quarter of 2008 and a decrease of 37.5% in the
first nine months of 2009 compared to the first nine months of 2008 primarily
because of the substantial decline in rates paid on deposits and other funding
sources. The Company continued with its asset/liability strategies, which
include funding loan growth with the proceeds from maturing, lower yielding
investment securities and increased lower rate demand deposits. These factors
combined to increase the Company's net interest revenue to $111.7 million for
the third quarter of 2009, an increase of $2.1 million, or 1.9%, from
$109.6 million for the third quarter of 2008 and to $332.6 million for the first
nine months of 2009, an increase of $3.0 million, or 0.9%, from $329.5 million
for the first nine months of 2008.
Contributing to the decrease in net income was the increase in the provision for
credit losses in the third quarter and first nine months of 2009 compared to the
same periods of 2008. The provision for credit losses increased $6.2 million, or
38.1% for the third quarter of 2009 compared to the same period in 2008 and
increased $16.7 million, or 43.5% for the first nine months of 2009 compared to
the same period in 2008. Consistent with the increase in the provision for
credit losses, annualized net charge-offs increased to 0.68% of average loans
and leases for the third quarter of 2009 from 0.45% of average loans and leases
for the third quarter of 2008 and to 0.59% of average loans for the first nine
months of 2009 from 0.35% of average loans and leases for the first nine months
of 2008. The increase in the provision for credit losses for the third quarter
and first nine months of 2009 was primarily reflective of the slow economic
environment as well as the Company's continued focus on early identification and
resolution of credit issues.
The Company has taken steps in the past that have diversified its revenue stream
by increasing the amount of revenue received from mortgage lending operations,
insurance agency activities, brokerage and securities activities
and other activities that generate fee income. Management believes this
diversification is important to reduce the impact of fluctuations in net
interest revenue on the overall operating results of the Company. While
noninterest revenue decreased 6.1% for the third quarter of 2009 compared to the
third quarter of 2008, noninterest revenue increased 1.3% for the first nine
months of 2009 compared to the first nine months of 2008. One of the primary
contributors to the increase in noninterest revenue for the first nine months of
2009 was mortgage lending revenue, which increased 65.0% to $23.6 million for
the first nine months of 2009 compared to $14.3 million for the first nine
months of 2008. The increase in mortgage lending revenue was primarily a result
of the increase in mortgage originations, the majority of which were
refinancings in the first half of 2009 resulting from historically low mortgage
interest rates. While mortgage lending revenue increased for the first nine
months of 2009 compared to the same period in 2008, mortgage lending revenue
decreased 38.5% in the third quarter of 2009 compared to the same period of 2008
as a result of the impact of a $4.1 million decrease in the value of the
Company's MSRs compared with a $1.0 million decrease in value for the third
quarter of 2008.
Noninterest revenue was also impacted by decreases of 7.8% and 9.1% in service
charges for the third quarter and first nine months of 2009, respectively,
compared to the same periods in 2008, as a result of lower volumes of items
processed. The Company experienced decreases in insurance commissions of 7.6%
and 6.7% for the third quarter and first nine months of 2009, respectively,
compared to the same periods in 2008, resulting from the soft market cycle
experienced in the insurance industry. Contributing to the increase in
noninterest revenue during the first nine months of 2009, the Company recorded
interest on tax refunds of $2.8 million, gains on the sale of student loans of
$3.7 million, a gain of $1.8 million on the sale of the Company's remaining
shares of MasterCard, Inc. common stock, an insurance recovery on a casualty
loss of $1.3 million and gains on claims related to bank owned life insurance of
$1.4 million.
Noninterest expense increased 3.2% and 5.8% for the third quarter and first nine
months of 2009, respectively, compared to the same periods in 2008. This
increase in noninterest expense included the incremental costs related to the 12
full-service branch bank offices opened since the end of the third quarter of
2008, coupled with an increase of $2.7 million and $8.4 million in the Company's
regular FDIC insurance assessment for the third quarter and first nine months of
2009, respectively, compared to the same periods in 2008, despite being assessed
at the FDIC's lowest rate because of its status as "well capitalized" under
federal regulations. Noninterest expense was also negatively impacted by the
second quarter $6.1 million special FDIC assessment as part of the restoration
plan for the Deposit Insurance Fund. The major components of net income are
discussed in more detail in the various sections that follow.
The Company's capital and liquidity remained strong during the third quarter of
2009 as its total shareholders' equity to total assets ratio increased to 9.69%
from 9.34% for the third quarter of 2008. Also, demand deposits increased 3.3%
contributing to an overall deposit increase of 6.0% at September 30, 2009
compared to December 31, 2008. This increase in deposits allowed the Company to
reduce its reliance on short-term borrowings, which decreased 71.1% at
September 30, 2009 compared to December 31, 2008.
RESULTS OF OPERATIONS
Net Interest Revenue
Net interest revenue is the difference between interest revenue earned on
assets, such as loans, leases and securities, and interest expense paid on
liabilities, such as deposits and borrowings, and continues to provide the
Company with its principal source of revenue. Net interest revenue is affected
by the general level of interest rates, changes in interest rates and changes in
the amount and composition of interest earning assets and interest bearing
liabilities. The Company's long-term objective is to manage interest earning
assets and interest bearing liabilities to maximize net interest revenue, while
balancing interest rate, credit and liquidity. Net interest margin is determined
by dividing fully taxable equivalent net interest revenue by average earning
assets. For purposes of the following discussion, revenue from tax-exempt loans
and investment securities has been adjusted to a fully taxable equivalent
("FTE") basis, using an effective tax rate of 35%. The following tables present
average interest earning assets, average interest bearing liabilities, net
interest revenue-FTE, net interest margin and net interest rate spread for the
three months and nine months ended September 30, 2009 and 2008:
Three months ended September 30,
2009 2008
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in millions, yields on taxable equivalent basis)
ASSETS
Loans and leases (net of
unearned income) (1)(2) $ 9,750.1 $ 130.3 5.30 % $ 9,529.8 $ 145.2 6.04 %
Loans held for sale 58.3 0.7 4.76 % 160.2 1.9 4.77 %
Held-to-maturity
securities:
Taxable (3) 998.8 11.8 4.69 % 1,219.1 14.2 4.62 %
Non-taxable (4) 199.4 3.4 6.71 % 180.6 3.0 6.64 %
Available-for-sale
securities:
Taxable 889.3 8.6 3.83 % 901.0 9.0 3.98 %
Non-taxable (5) 69.7 1.1 7.12 % 75.9 1.3 7.04 %
Federal funds sold,
securities purchased
under agreement to
resell and short-term
investments 62.3 0.1 0.30 % 65.5 0.4 2.37 %
Total interest earning
assets and revenue 12,027.9 156.0 5.15 % 12,132.1 175.0 5.74 %
Other assets 1,285.4 1,304.4
Less: allowance for
credit losses (146.2 ) (131.6 )
Total $ 13,167.1 $ 13,304.9
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LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $ 4,010.3 $ 9.0 0.89 % $ 3,492.9 $ 14.2 1.62 % Savings 716.2 0.9 0.52 % 723.4 1.4 0.75 % Other time 3,726.8 25.5 2.72 % 3,761.8 33.7 3.56 % Federal funds purchased,securities sold under agreement to repurchase, short-term FHLB borrowings and other short term borrowings 1,071.1 0.5 0.20 % 1,790.8 7.9 1.75 % Junior subordinated debt securities 160.3 2.9 7.14 % 160.3 3.0 7.60 % Long-term FHLB borrowings 286.3 2.9 3.90 % 288.9 2.8 3.91 % Total interest bearing liabilities and expense 9,971.0 41.7 1.66 % 10,218.1 63.0 2.45 % Demand deposits - noninterest bearing 1,747.0 1,681.1 Other liabilities 184.0 174.4 Total liabilities 11,902.0 12,073.6 Shareholders' equity 1,265.1 1,231.3 Total $ 13,167.1 $ 13,304.9 Net interest revenue-FTE $ 114.3 $ 112.0 Net interest margin 3.77 % 3.67 % Net interest rate spread 3.49 % 3.29 % Interest bearing liabilities to interest earning assets 82.90 % 84.22 % |
(1) Includes taxable equivalent adjustment to interest of approximately $0.8 million for both of the three months ended September 30, 2009 and 2008, respectively, using an effective tax rate of 35%.
(2) Non-accrual loans are included in Loans (net of unearned income).
(3) Includes taxable equivalent adjustments to interest of approximately $0.1 million for both of the three months ended September 30, 2009 and 2008, respectively, using an effective tax rate of 35%.
(4) Includes taxable equivalent adjustments to interest of approximately $1.2 million and $1.0 million for the three months ended September 30, 2009 and 2008, respectively, using an effective tax rate of 35%.
(5) Includes taxable equivalent adjustment to interest of approximately $0.3 million and $0.4 million for the three months ended September 30, 2009 and 2008, respectively, using an effective tax rate of 35%.
Nine months ended September 30,
2009 2008
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in millions, yields on taxable equivalent basis)
ASSETS
Loans and leases (net
of unearned income)
(1)(2) $ 9,729.0 $ 390.4 5.37 % $ 9,371.5 $ 453.3 6.46 %
Loans held for sale 130.4 3.2 3.27 % 152.6 5.6 4.86 %
Held-to-maturity
securities:
Taxable (3) 1,061.6 37.2 4.68 % 1,312.4 45.3 4.61 %
Non-taxable (4) 189.4 9.9 7.02 % 185.4 9.3 6.71 %
Available-for-sale
securities:
Taxable 900.1 26.4 3.91 % 856.9 27.1 4.23 %
Non-taxable (5) 71.1 3.9 7.29 % 96.5 5.1 7.11 %
Federal funds sold,
securities
purchased under
agreement to resell
and short-term
investments 34.5 0.1 0.56 % 37.5 0.9 3.06 %
Total interest
earning assets and
revenue 12,116.1 471.1 5.20 % 12,012.8 546.6 6.08 %
Other assets 1,277.6 1,287.4
Less: allowance for
credit losses (143.6 ) (125.9 )
Total $ 13,250.1 $ 13,174.3
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LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand - interest bearing $ 4,016.3 $ 31.0 1.03 % $ 3,465.7 $ 44.4 1.71 % Savings 711.1 2.8 0.53 % 721.8 4.2 0.78 % Other time 3,594.6 77.9 2.90 % 4,033.3 120.3 3.98 % Federal funds purchased,securities sold under agreement to repurchase, short-term FHLB borrowings and other short term borrowings 1,331.3 2.0 0.20 % 1,477.2 22.9 2.07 % Junior subordinated debt securities 160.3 8.8 7.31 % 160.3 9.3 7.76 % Long-term FHLB borrowings 286.3 8.4 3.94 % 275.8 8.2 3.98 % Total interest bearing liabilities and expense 10,099.9 130.9 1.73 % 10,134.1 209.3 2.76 % Demand deposits - noninterest bearing 1,735.0 1,652.2 Other liabilities 163.5 168.8 Total liabilities 11,998.4 11,955.1 Shareholders' equity 1,251.7 1,219.2 Total $ 13,250.1 $ 13,174.3 Net interest revenue-FTE $ 340.2 $ 337.3 Net interest margin 3.75 % 3.75 % . . . |
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