<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
---------------------
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
COMMISSION FILE NUMBER: 000-22007
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SOUTHWEST BANCORPORATION OF TEXAS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
TEXAS 76-0519693
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
4400 POST OAK PARKWAY
HOUSTON, TEXAS 77027
(Address of Principal Executive Offices, including zip code)
(713) 235-8800
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
---------------------
There were 27,971,683 shares of the Registrant's Common Stock outstanding
as of the close of business on November 12, 1999.
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<PAGE> 2
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants.................................. 2
Condensed Consolidated Balance Sheet as of September 30, 1999 and
December 31, 1998 (unaudited)................................... 3
Condensed Consolidated Statement of Income for the Three Months
Ended September 30, 1999 and 1998, and for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)......................... 4
Condensed Consolidated Statement of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1999 (unaudited)........ 5
Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)................... 6
Notes to Condensed Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 25
Item 2. Changes in Securities and Use of Proceeds................... 25
Item 3. Default upon Senior Securities.............................. 25
Item 4. Submission of Matters to a Vote of Security Holders......... 25
Item 5. Other Information........................................... 25
Item 6. Exhibits and Reports on Form 8-K............................ 25
Signatures........................................................... 26
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Southwest Bancorporation of Texas, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Southwest Bancorporation of Texas, Inc. and Subsidiaries (the "Company") as of
September 30, 1999, the related condensed consolidated statement of income for
the three- and nine-month periods ended September 30, 1999 and 1998, the
condensed consolidated statement of changes in shareholders' equity for the
nine-month period ended September 30, 1999 and the condensed consolidated
statement of cash flows for the nine-month periods ended September 30, 1999 and
1998. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated interim financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, prior to the restatement for the pooling of
interests described in Note 5, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Southwest Bancorporation of Texas
and Subsidiary as of December 31, 1998, and the related consolidated statements
of income, of changes in shareholders' equity, and of cash flows for the year
then ended (not presented herein); and, in our report dated February 12, 1999,
we expressed an unqualified opinion on those consolidated financial statements.
We did not audit the consolidated financial statements of Fort Bend Holding
Corp. as of December 31, 1998, which statements reflect total assets and
shareholders' equity of $316.9 million and $33.6 million, respectively, as of
December 31, 1998. Those statements were reviewed by us in accordance with
standards established by the American Institute of Certified Public Accountants.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects in relation to the consolidated financial statements from
which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
November 12, 1999
2
<PAGE> 4
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Cash and due from banks..................................... $ 114,189 $ 129,922
Federal funds sold and other cash equivalents............... 39,086 57,571
---------- ----------
Total cash and cash equivalents.................... 153,275 187,493
Securities -- available for sale............................ 668,713 651,623
Securities -- held to maturity.............................. -- 67,117
Loans held for sale......................................... 67,378 15,310
Loans receivable, net....................................... 1,648,340 1,498,709
Premises and equipment, net................................. 32,308 30,944
Accrued interest receivable................................. 15,581 15,459
Prepaid expenses and other assets........................... 85,556 55,736
---------- ----------
Total assets....................................... $2,671,151 $2,522,391
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand -- noninterest-bearing............................. $ 580,905 $ 561,420
Demand -- interest-bearing................................ 53,913 94,683
Money market accounts..................................... 867,666 735,000
Savings................................................... 35,704 35,915
Time, $100 and over....................................... 329,631 337,365
Other time................................................ 257,174 235,079
---------- ----------
Total deposits..................................... 2,124,993 1,999,462
Securities sold under repurchase agreements................. 159,158 181,696
Other short-term borrowings................................. 176,789 138,388
Long-term borrowings........................................ 4,269 4,362
Accrued interest payable.................................... 2,318 1,499
Other liabilities........................................... 16,893 16,926
---------- ----------
Total liabilities.................................. 2,484,420 2,342,333
---------- ----------
Minority interest in consolidated subsidiary................ -- 2,722
Commitments and contingencies
Shareholders' equity:
Common stock -- $1 par value, 50,000,000 shares
authorized; 27,963,351 issued and outstanding at
September 30, 1999 and 27,649,710 issued and 27,394,005
outstanding at December 31, 1998........................ 27,963 27,650
Additional paid-in capital................................ 61,426 58,549
Retained earnings......................................... 106,951 88,844
Accumulated other comprehensive income (loss)............. (9,609) 3,749
Treasury stock, at cost -- 255,705 shares................. -- (1,456)
---------- ----------
Total shareholders' equity......................... 186,731 177,336
---------- ----------
Total liabilities and shareholders' equity......... $2,671,151 $2,522,391
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 5
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income:
Loans............................................ $36,332 $30,821 $100,886 $85,565
Securities....................................... 10,922 9,329 33,306 27,945
Federal funds sold and other..................... 259 1,987 1,411 5,671
------- ------- -------- -------
Total interest income.................... 47,513 42,137 135,603 119,181
Interest expense on deposits and other
borrowings....................................... 20,180 18,312 57,866 52,743
------- ------- -------- -------
Net interest income........................... 27,333 23,825 77,737 66,438
Provision for loan losses.......................... 1,500 1,245 4,560 2,808
------- ------- -------- -------
Net interest income after provision for
loan losses............................ 25,833 22,580 73,177 63,630
------- ------- -------- -------
Other income:
Service charges.................................. 2,620 2,123 7,748 6,302
Mortgage fee income and other charges............ 717 907 2,085 2,590
Investment services.............................. 1,062 1,022 3,137 2,692
Gain on sale of loans, net....................... 598 713 1,395 1,827
Gain (loss) on sale of securities, net........... 10 31 (139) 216
Other operating income........................... 1,956 1,041 5,871 2,932
------- ------- -------- -------
Total other income....................... 6,963 5,837 20,097 16,559
------- ------- -------- -------
Other expenses:
Salaries and employee benefits................... 12,488 11,119 36,197 31,251
Occupancy expense................................ 3,356 2,653 9,327 7,801
Merger-related expenses and other charges........ -- -- 4,474 67
Other operating expenses......................... 4,839 4,501 14,057 12,601
------- ------- -------- -------
Total other expenses.......................... 20,683 18,273 64,055 51,720
------- ------- -------- -------
Income before income taxes and minority
interest.................................... 12,113 10,144 29,219 28,469
Provision for income taxes......................... 4,305 3,567 10,854 10,032
------- ------- -------- -------
Income before minority interest............... 7,808 6,577 18,365 18,437
Minority interest.................................. -- 165 (19) 324
------- ------- -------- -------
Net income.................................... $ 7,808 $ 6,412 $ 18,384 $18,113
======= ======= ======== =======
Earnings per common share:
Basic............................................ $ 0.28 $ 0.25 $ 0.66 $ 0.71
======= ======= ======== =======
Diluted.......................................... $ 0.27 $ 0.23 $ 0.64 $ 0.65
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 6
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------- PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
SHARES DOLLARS CAPITAL EARNINGS INCOME/(LOSS) STOCK EQUITY
---------- ------- ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999............. 27,394,005 $27,650 $58,549 $88,844 $ 3,749 $(1,456) $177,336
Common stock issued to 401(k)
plan............................. 4,431 4 73 77
Exercise of stock options.......... 257,882 257 1,446 1,703
Deferred compensation
amortization..................... 171 171
Shares issued in exchange for
minority interest in Mitchell
Mortgage......................... 307,323 307 2,268 2,575
Cancellation of treasury stock..... (255) (1,201) 1,456
Other, net......................... (290) 120 120
Cash dividends paid by Mitchell.... (277) (277)
Comprehensive income:
Net income for the nine months
ended September 30, 1999....... 18,384 18,384
Net change in unrealized
depreciation on securities
available for sale, net of
deferred taxes of $7,193....... (13,358) (13,358)
--------
Total comprehensive income......... 5,026
---------- ------- ------- -------- -------- ------- --------
BALANCE, SEPTEMBER 30, 1999.......... 27,963,351 $27,963 $61,426 $106,951 $ (9,609) -- $186,731
========== ======= ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 7
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 18,384 $ 18,113
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses.............................. 4,560 2,808
Depreciation........................................... 5,217 3,941
Realized loss (gain) on securities available for sale,
net................................................... 139 (216)
Amortization........................................... 2,797 2,653
Minority interest in net (loss) income of consolidated
subsidiary............................................ (19) 324
Gain on sale of loans, net............................. (444) (1,113)
Dividends on Federal Home Loan Bank stock.............. (416) (827)
Origination of loans held for sale and mortgage
servicing rights...................................... (115,031) (89,714)
Proceeds from sales of loans........................... 62,848 90,128
Increase in accrued interest receivable, prepaid
expenses and other assets............................. (23,393) (13,739)
Increase in accrued interest payable and other
liabilities........................................... 1,492 1,576
Other, net............................................. 80 32
Adjustment to conform reporting periods................ -- 2,650
--------- ---------
Net cash (used in) provided by operating
activities...................................... (43,786) 16,616
--------- ---------
Cash flows from investing activities:
Proceeds from maturity of securities available for sale... 48,372 193,974
Proceeds from maturity of securities held to maturity..... -- 4,000
Proceeds from sale of securities available for sale....... 237,641 122,934
Principal paydowns of mortgage-backed securities available
for sale............................................... 93,642 83,425
Principal paydowns of mortgage-backed securities held to
maturity............................................... -- 18,317
Purchase of securities available for sale................. (351,024) (357,350)
Net increase in loans receivable.......................... (154,458) (240,541)
Purchase of Bank-owned life insurance policies............ -- (20,000)
Purchase of premises and equipment........................ (7,259) (7,193)
Other, net................................................ 684 49
Adjustment to conform reporting periods................... -- 9,654
--------- ---------
Net cash used in investing activities............. (132,402) (192,731)
--------- ---------
Cash flows from financing activities:
Net increase in noninterest-bearing demand deposits....... 19,485 8,443
Net increase in time deposits............................. 14,361 36,316
Net increase in other interest-bearing deposits........... 91,685 103,455
Net (decrease) increase in securities sold under
repurchase agreements.................................. (22,538) 41,343
Net increase (decrease) in other short-term borrowings.... 38,401 (13,276)
Payments on long term borrowings.......................... (93) (42)
Proceeds from long term borrowings........................ -- 500
Net proceeds from exercise of stock options............... 997 1,843
Other, net................................................ (328) (821)
Adjustment to conform reporting periods................... -- (13,318)
--------- ---------
Net cash provided by financing activities......... 141,970 164,443
--------- ---------
Net decrease in cash and cash equivalents................... (34,218) (11,672)
Cash and cash equivalents at beginning of period............ 187,493 264,023
--------- ---------
Cash and cash equivalents at end of period.................. $ 153,275 $ 252,351
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE> 8
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Southwest Bancorporation of Texas, Inc. (the "Company") and its direct and
indirect wholly-owned subsidiaries, Southwest Holding Delaware Inc. (the
"Delaware Company"), Southwest Bank of Texas, National Association (the "Bank"),
and Mitchell Mortgage Company, LLC ("Mitchell"). These financial statements give
retroactive effect to the merger of Fort Bend Holding Corp., ("Fort Bend") on
April 1, 1999 in a transaction accounted for as a pooling of interests (see Note
5). All material intercompany accounts and transactions have been eliminated. In
the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly the Company's consolidated financial
position at September 30, 1999 and December 31, 1998, consolidated income for
the three-month and nine-month periods ended September 30, 1999 and 1998,
consolidated cash flows for the nine months ended September 30, 1999 and 1998
and the consolidated changes in shareholders' equity for the nine months ended
September 30, 1999. Interim period results are not necessarily indicative of
results of operations or cash flows for a full-year period.
These financial statements and the notes thereto should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1998, Form S-4 dated January 13, 1999, Form 8-K dated April 1,
1999, and Fort Bend's annual report on Form 10-K for the year ended March 31,
1998.
New Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, was
issued by the Financial Accounting Standards Board to establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for the
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The standard is effective for all
fiscal years beginning after June 15, 2000. This pronouncement is not
anticipated to have a material effect on the Company's consolidated financial
position, results of operations or cash flows.
2. COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income................................ $ 7,808 $6,412 $ 18,384 $18,113
Net change in unrealized
appreciation/(depreciation) on
securities available for sale, net of
tax..................................... (4,260) 2,986 (13,358) 2,009
------- ------ -------- -------
Total comprehensive income...... $ 3,548 $9,398 $ 5,026 $20,122
======= ====== ======== =======
</TABLE>
7
<PAGE> 9
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. EARNINGS PER COMMON SHARE
Earnings per common share is computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income............................................ $ 7,808 $ 6,412 $18,384 $18,113
Interest on 8% convertible debentures, net of tax..... 146 453
Minority interest in net loss of Mitchell, net of
tax................................................. -- (a) (19) (a)
------- ------- ------- -------
Net income, adjusted.................................. $ 7,808 $ 6,558 $18,365 $18,566
======= ======= ======= =======
Divided by average common shares and common share
equivalents:
Average common shares............................... 27,947 25,848 27,664 25,608
Average common shares issuable under the stock
option plan...................................... 1,063 1,189 1,037 1,365
Average common shares issuable with the conversion
of the 8% convertible debentures................. 1,390 1,525
Average common shares issuable with the conversion
of the minority interest of Mitchell............. (a) 197 (a)
------- ------- ------- -------
Total average common shares and common share
equivalents............................... 29,010 28,427 28,898 28,498
======= ======= ======= =======
Basic earnings per common share..................... $ 0.28 $ 0.25 $ 0.66 $ 0.71
======= ======= ======= =======
Diluted earnings per common share................... $ 0.27 $ 0.23 $ 0.64 $ 0.65
======= ======= ======= =======
</TABLE>
- ---------------
(a) The assumed conversion of the minority ownership interest in Mitchell into
297,346 and 287,122 shares of common stock has an antidilutive effect on
earnings per share for the three months and nine months ended September 30,
1998, respectively. Thus, it is excluded from the calculation of diluted
earnings per share.
4. SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
During the nine months ended September 30, 1999, the Company reduced its
current federal income tax liability by approximately $706,000 and recorded a
corresponding increase to additional paid-in capital representing the tax
benefit related to the exercise of certain stock options.
5. MERGER RELATED ACTIVITY
On April 1, 1999, the Company consummated its merger with Fort Bend. Fort
Bend was the parent company of Fort Bend Federal Savings and Loan Association of
Rosenberg (which also was merged into the Bank on April 1, 1999) and the
majority owner of Mitchell. In accordance with the Agreement and Plan of Merger,
the Company exchanged 1.45 shares of the Company's common shares for each share
of Fort Bend common stock, resulting in the issuance of approximately 4.6
million shares of Company Common Stock on a fully diluted basis. At March 31,
1999, Fort Bend had total assets of approximately $316 million and total
deposits of approximately $269 million. The transaction has been accounted for
as a pooling of interests; therefore the Company's condensed consolidated
financial statements have been restated to include the accounts and operations
of Fort Bend for all periods presented.
8
<PAGE> 10
SOUTHWEST BANCORPORATION OF TEXAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Separate interest income and net income amounts of the merged entities are
presented in the following table:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Interest income:
Periods prior to consummation:
Southwest Bancorporation............................... $ 37,612 $102,203
Fort Bend.............................................. 5,454 16,978
Periods subsequent to consummation........................ 92,537 --
-------- --------
Total interest income............................. $135,603 $119,181
======== ========
Net income:
Periods prior to consummation:
Southwest Bancorporation............................... $ 6,305 $ 16,506
Fort Bend.............................................. 410 1,607
Periods subsequent to consummation........................ 11,669 --
-------- --------
Total net income.................................. $ 18,384 $ 18,113
======== ========
</TABLE>
Through the merger with Fort Bend, the Company acquired Fort Bend's 51
percent ownership interest in Mitchell, a full-service mortgage banking
affiliate of The Woodlands Operating Company, L.P. ("Woodlands"). Following the
merger, Woodlands had the right to convert its 49% ownership interest in
Mitchell into shares of Company common stock at an exchange rate of 119.3408
shares for each $1,000 of its ownership interest in Mitchell. Prior to the
merger, Woodlands had the right to convert its ownership interest into Fort Bend
stock. Effective as of June 30, 1999, Woodlands exercised its conversion right,
resulting in the issuance of 307,323 shares of Company common stock to Woodlands
in exchange for Woodlands' 49% ownership interest in Mitchell and Mitchell
becoming a wholly-owned subsidiary of the Bank. The acquisition of additional
ownership interest in Mitchell has been accounted for as a purchase.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
On April 1, 1999, Southwest Bancorporation of Texas, Inc. (the "Company")
and Fort Bend Holding Corp. ("Fort Bend") completed their previously announced
merger, which was accounted for as a pooling of interests. The merger agreement
provided for the exchange of 1.45 shares of the Company's Common Stock for each
share of Fort Bend Common Stock, resulting in the issuance of approximately 4.6
million shares of Company Common Stock on a fully diluted basis. In connection
with this merger, the Company incurred approximately $4.5 million in pretax
merger-related expenses and other charges (the "special charge"). The historical
financial data has been restated to include the accounts and operations of Fort
Bend for all periods presented.
Through the merger with Fort Bend, the Company acquired Fort Bend's 51%
ownership interest in Mitchell, a full-service mortgage banking affiliate of
Woodlands. Following the merger, Woodlands had the right to convert its 49%
ownership interest in Mitchell into shares of Company common stock at an
exchange rate of 119.3408 shares for each $1,000 of its ownership interest in
Mitchell. Prior to the merger Woodlands had the right to convert its ownership
interest into Fort Bend stock. Effective as of June 30, 1999, Woodlands
exercised its conversion right, resulting in the issuance of 307,323 shares of
Company common stock to Woodlands in exchange for Woodlands' 49% ownership
interest in Mitchell and Mitchell becoming a wholly-owned subsidiary of the
Bank.
Total assets at September 30, 1999 and December 31, 1998 were $2.67 billion
and $2.52 billion, respectively. Gross loans were $1.73 billion at September 30,
1999, an increase of $200 million or 13% from $1.53 billion at December 31,
1998. This growth was a result of a strong local economy, and the Company's
style of relationship banking. Shareholders' equity was $186.7 million and
$177.3 million at September 30, 1999 and December 31, 1998, respectively.
Results of Operations
For the nine months ended September 30, 1999, net income was $18.4 million
($0.64 per diluted share) compared to $18.1 million ($0.65 per diluted share)
for the same period in 1998, an increase of two percent. For the three months
ended September 30, 1999, net income was $7.8 million ($0.27 per diluted share)
compared to $6.4 million ($0.23 per diluted share) for the same period in 1998,
an increase of 22%. Return on average assets and return on average common
shareholders' equity for the three months ended September 30, 1999 was 1.18%,
and 16.76%, respectively.
RESULTS OF OPERATIONS
Interest Income
Interest income for the three months ended September 30, 1999 was $47.5
million, an increase of $5.4 million, or 13% from the three months ended
September 30, 1998. This increase in interest income is due to a $301.7 million
increase in average earning assets to $2.40 billion for the three months ended
September 30, 1999, a 14% increase from the same period last year. For the nine
months ended September 30, 1999, interest income was $135.6 million, a $16.4
million, or 14% increase from the same period a year ago. This increase in
interest income is due to a $346.6 million increase in average earning assets to
$2.35 billion for the nine months ended September 30, 1999, a 17% increase from
the same period last year.
Interest income on loans increased $5.5 million to $36.3 million for the
three months ended September 30, 1999. This was due to a $321.3 million increase
in average loans outstanding during the same period. Interest income on
securities increased to $10.9 million, a $1.6 million increase from the three
month period ended September 30, 1998. This increase was attributable to a
$104.7 million increase in average securities outstanding, up 18% when compared
to the three months ended September 30, 1998.
For the nine months ended September 30, 1999, interest income on loans
increased 18% to $100.9 million, up from $85.6 million for the same period last
year. Interest income on securities increased to $33.3 million, an increase of
$5.4 million or 19% from the nine month period ended September 30, 1998.
10
<PAGE> 12
These increases were principally related to an increase of 17% in average
earning assets to $2.4 billion for the nine months ended September 30, 1999 over
the same period in 1998.
Interest Expense
Interest expense on deposits and other borrowings was $20.2 million for the
three months ended September 30, 1999, compared to $18.3 million for the same
period in 1998. For the nine months ended September 30, 1999, interest expense
on deposits and other borrowings was $57.9 million compared to $52.7 million for
the same period a year ago. The increase in interest expense was attributable to
a $270.4 million and $297.6 million respective increase in average
interest-bearing liabilities for the three- and nine-month comparable periods.
Net Interest Income
Net interest income was $27.3 million for the three months ended September
30, 1999, compared with $23.8 million for the same period in 1998, an increase
of 15%. For the nine months ended September 30, 1999, net interest income
increased 17% from the same period in 1998 to $77.7 million. The increase in net
interest income during the three- and nine-months ended September 30, 1999 was
largely due to growth in average interest-earning assets, primarily loans.
The net interest margin was 4.52% for the three months ended September 30,
1999, compared with 4.51% in the third quarter of 1998. This increase resulted
from a decrease in the cost of funds of 26 basis points from 4.56% to 4.30%, for
the three months ended September 30, 1998 and September 30, 1999, respectively.
This decrease in the cost of funds was partially offset by a decrease in the
yield on earning assets of 12 basis points, from 7.98% to 7.86% for the three
months ended September 30, 1998 and September 30, 1999, respectively. The net
interest margin was 4.42% for the nine months ended September 30, 1999, down
from 4.43% for the first nine months of 1998. The decrease in the net interest
margin was primarily due to a decrease in the yield on average earning assets
which decreased 12 basis points to 7.86% for the three months ended September
30, 1999, and 23 basis points to 7.71% for the nine months ended September 30,
1999.
11
<PAGE> 13
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made and
all average balances are daily average balances. Nonaccruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------------- --------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.......................... $1,684,357 $36,332 8.56% $1,363,031 $30,821 8.97%
Securities..................... 693,481 10,922 6.25 588,788 9,329 6.29
Federal funds sold and other... 19,847 259 5.18 144,142 1,987 5.47
---------- ------- ---- ---------- ------- ----
Total interest-earning
assets............... 2,397,685 47,513 7.86% 2,095,961 42,137 7.98%
------- ---- ------- ----
Less allowance for loan losses... (18,112) (13,655)
---------- ----------
Total earning assets, net of
allowance...................... 2,379,573 2,082,306
Nonearning assets................ 237,359 164,636
---------- ----------
Total assets........... $2,616,932 $2,246,942
========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Money market and savings
deposits.................... $ 837,307 7,541 3.57% $ 840,314 8,494 4.01%
Certificates of deposits....... 618,792 7,752 4.97 537,454 7,058 5.21
Repurchase agreements and
borrowed funds.............. 406,942 4,887 4.76 214,893 2,760 5.10
---------- ------- ---- ---------- ------- ----
Total interest-bearing
liabilities.......... 1,863,041 20,180 4.30% 1,592,661 18,312 4.56%
------- ---- ------- ----
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits.................... 547,276 478,090
Other liabilities.............. 21,790 22,117
---------- ----------
Total liabilities...... 2,432,107 2,092,868
Shareholders' equity............. 184,825 154,074
---------- ----------
Total liabilities and
shareholders'
equity............... $2,616,932 $2,246,942
========== ==========
Net interest income.............. $27,333 $23,825
======= =======
Net interest spread.............. 3.56% 3.42%
==== ====
Net interest margin.............. 4.52% 4.51%
==== ====
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------------- --------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans.............................. $1,599,825 $100,886 8.43% $1,272,571 $ 85,565 8.99%
Securities......................... 713,647 33,306 6.24 597,585 27,945 6.25
Federal funds sold and other....... 39,320 1,411 4.80 136,077 5,671 5.57
---------- -------- ---- ---------- -------- ----
Total interest-earning
assets................... 2,352,792 135,603 7.71% 2,006,233 119,181 7.94%
-------- ---- -------- ----
Less allowance for loan losses....... (16,933) (12,978)
---------- ----------
Total earning assets, net of
allowance.......................... 2,335,859 1,993,255
Nonearning assets.................... 218,199 159,586
---------- ----------
Total assets............... $2,554,058 $2,152,841
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Money market and savings
deposits........................ $ 843,241 22,365 3.55% $ 794,188 23,838 4.01%
Certificates of deposits........... 610,479 22,490 4.93 523,657 20,658 5.27
Repurchase agreements and borrowed
funds........................... 373,932 13,011 4.65 212,213 8,247 5.20
---------- -------- ---- ---------- -------- ----
Total interest-bearing
liabilities.............. 1,827,652 57,866 4.23% 1,530,058 52,743 4.61%
-------- ---- -------- ----
Noninterest-bearing liabilities:
Noninterest-bearing demand
deposits........................ 530,684 455,989
Other liabilities.................. 24,212 19,603
---------- ----------
Total liabilities.......... 2,382,548 2,005,650
Shareholders' equity................. 171,510 147,191
---------- ----------
Total liabilities and
shareholders' equity..... $2,554,058 $2,152,841
========== ==========
Net interest income.................. $ 77,737 $ 66,438
======== ========
Net interest spread.................. 3.48% 3.33%
==== ====
Net interest margin.................. 4.42% 4.43%
==== ====
</TABLE>
13
<PAGE> 15
The following table presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
(decrease) related to outstanding balances and the volatility of interest rates.
For purposes of this table, changes attributable to both rate and volume which
cannot be segregated have been allocated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 VS. 1998 1999 VS. 1998
--------------------------- ---------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------- ---------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans............................... $ 7,266 $(1,755) $ 5,511 $22,004 $(6,683) $15,321
Securities.......................... 1,659 (66) 1,593 5,427 (66) 5,361
Federal funds sold and other........ (1,713) (15) (1,728) (4,032) (228) (4,260)
------- ------- ------- ------- ------- -------
Total increase (decrease)
in interest income...... 7,212 (1,836) 5,376 23,399 (6,977) 16,422
------- ------- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES:
Money market and savings deposits... (30) (923) (953) 1,472 (2,945) (1,473)
Certificates of deposits............ 1,068 (374) 694 3,425 (1,593) 1,832
Repurchase agreements and borrowed
funds............................. 2,467 (340) 2,127 6,285 (1,521) 4,764
------- ------- ------- ------- ------- -------
Total increase (decrease)
in interest expense..... 3,505 (1,637) 1,868 11,182 (6,059) 5,123
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest
income............................ $ 3,707 $ (199) $ 3,508 $12,217 $ (918) $11,299
======= ======= ======= ======= ======= =======
</TABLE>
Provision for Loan Losses
The provision for loan losses was $1.5 million for the three months ended
September 30, 1999 as compared to $1.2 million for the three months ended
September 30, 1998. The provision for loan losses was $4.6 million for the nine
months ended September 30, 1999 as compared to $2.8 million for the nine months
ended September 30, 1998. Although no assurance can be given, management
believes that the present allowance for loan losses is adequate considering loss
experience, delinquency trends and current economic conditions. Management will
continue to review its loan loss allowance policy as the Company's loan
portfolio grows and diversifies.
14
<PAGE> 16
Noninterest Income
Noninterest income for the three months ended September 30, 1999 was $7.0
million, an increase of $1.1 million or 19% over the same period in 1998.
Noninterest income for the nine months ended September 30, 1999 was $20.1
million, an increase of 21%, from $16.6 million during the comparable period in
1998. The following table presents for the periods indicated the composition of
noninterest income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges on deposit accounts..................... $2,620 $2,123 $ 7,748 $ 6,302
Investment services..................................... 1,062 1,022 3,137 2,692
Mortgage fee income and other charges................... 717 907 2,085 2,590
Gain on sale of loans, net.............................. 598 713 1,395 1,827
Gain (loss) on sale of securities, net.................. 10 31 (139) 216
Factoring fee income.................................... 892 508 2,234 1,224
Loan servicing income................................... 262 199 774 657
Other noninterest income................................ 802 334 2,863 1,051
------ ------ ------- -------
Total noninterest income...................... $6,963 $5,837 $20,097 $16,559
====== ====== ======= =======
</TABLE>
Service charges were $2.6 million for the three months ended September 30,
1999, compared to $2.1 million for the three months ended September 30, 1998, an
increase of $497,000 or 23%. Service charges were $7.7 million for the nine
months ended September 30, 1999 compared to $6.3 million for the same period in
1998, an increase of $1.4 million, or 23%. The deposit accounts serviced
increased to 74,653 at September 30, 1999 from 69,652 at September 30, 1998.
For the three months ended September 30, 1999, investment services income
grew to $1.1 million, an increase of 4% over the 1998 level. For the nine months
ended September 30, 1999, investment services income grew to $3.1 million or 17%
from the $2.7 million level during the 1998 period. This increase is
attributable to the expanding investment and foreign exchange departments, as
well as the continued strategic focus by the Company to increase its competitive
position in providing investment services.
Fee income earned from mortgage lending and gains recorded from the sale of
loans declined for the nine months ended September 30, 1999. This decline was
primarily the result of a decrease in the volume of transactions processed due
to interest rate uncertainty. Gain on sale of loans was adversely affected by
less favorable pricing in the secondary market during the current year.
Other noninterest income for the three months ended September 30, 1999
increased 140% to $802,000 from $334,000 in 1998. Significant components of this
increase include earnings from bank owned life insurance of $261,000 and
earnings from an unconsolidated investee of $78,000. For the nine months ended
September 30, 1999, other noninterest income increased 172% to $2.9 million, up
$1.8 million from the same period in 1998. This increase was primarily due to
earnings from bank owned life insurance of $991,000 and earnings from an
unconsolidated investee of $356,000.
Noninterest Expenses
For the three months ended September 30, 1999, noninterest expenses totaled
$20.7 million, an increase of $2.4 million, or 13%, from $18.3 million during
1998. For the nine months ended September 30, 1999, noninterest expenses totaled
$64.1 million, an increase of $12.3 million, or 24%, from the same period in
1998. The increase in noninterest expenses during the nine months ended
September 30, 1999 was primarily due to $4.5 million in merger-related expenses
and other charges (including investment banking fees, other professional fees
and severance expense), in connection with the merger with Fort Bend. Excluding
the special charge, the efficiency ratio would have decreased to 62.42% for the
nine months ended September 30, 1999 from 62.48% for the comparable period in
1998.
15
<PAGE> 17
Salary and benefit expense for the three months ended September 30, 1999
was $12.5 million, an increase of $1.4 million or 12% from the three months
ended September 30, 1998. Salary and benefit expense for the nine months ended
September 30, 1999 was $36.2 million, an increase of $4.9 million or 16% from
the same period in 1998. This increase was due primarily to hiring of additional
personnel required to accommodate the Company's growth. Total full-time
employees at September 30, 1999 and 1998 were 912 and 810, respectively.
Occupancy expense increased $700,000, or 26% to $3.4 million for the three
months ended September 30, 1999. For the nine months ended September 30, 1999,
occupancy expense increased $1.5 million, or 20% from the same period a year ago
to $9.3 million. Major categories within occupancy expense are building lease
expense and depreciation expense. Building lease expense increased to $888,000
for the three months ended September 30, 1999 from $690,000 for the same period
in 1998. For the nine months ended September 30, 1999, building lease expense
was $2.5 million, an increase of 25%, or $500,000 from $2.0 million for the
first nine months of 1998. This increase resulted from increasing operating
costs at the 26 branches, and by increasing the rentable square feet at the
corporate office. Depreciation expense was $1.2 million for the three months
ended September 30, 1999, an increase of 12% or $134,000 from the $1.1 million
level from the prior comparable period. For the nine months ended September 30,
1999 depreciation expense increased $1.3 million or 32%, to $5.2 million from
$3.9 million in the first nine months of 1998. This increase was primarily due
to depreciation on equipment provided to new employees and expense related to
technology upgrades throughout the Company.
Income Taxes
Income tax expense includes the regular federal income tax at the statutory
rate, plus the income tax component of the Texas franchise tax. The amount of
federal income tax expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of nondeductible interest expense, and
the amount of other nondeductible expenses. Taxable income for the income tax
component of the Texas franchise tax is the federal pre-tax income, plus certain
officers salaries, less interest income from federal securities. For the three
months ended September 30, 1999, the provision for income taxes was $4.3
million, an increase of $700,000 or 19% from the $3.6 million provided for the
same period in 1998. For the nine months ended September 30, 1999, income tax
expense was $10.9 million, an increase of $900,000 or 9% from the $10.0 million
provided for the same period in 1998.
FINANCIAL CONDITION
Loan Portfolio
Total gross loans were $1.73 billion at September 30, 1999, an increase of
$200 million or 13% from $1.53 billion at December 31, 1998.
The following table summarizes the loan portfolio of the Company by type of
loan as of September 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial................. $ 640,631 36.9% $ 639,026 41.8%
Real estate:
Construction and land development....... 445,683 25.7 296,004 19.4
1-4 family.............................. 325,352 18.8 267,690 17.5
Commercial owner occupied............... 163,321 9.4 167,084 10.9
Farmland................................ 13,126 0.8 8,314 0.5
Other................................... 28,610 1.6 20,719 1.4
Consumer.................................. 117,594 6.8 130,161 8.5
---------- ----- ---------- -----
Total loans............................... $1,734,317 100.0% $1,528,998 100.0%
========== ===== ========== =====
</TABLE>
16
<PAGE> 18
The primary lending focus of the Company is on a small- and medium-sized
commercial, residential mortgage and consumer loans. The Company offers a
variety of commercial lending products including term loans, lines of credit and
equipment financing. A broad range of short- to medium-term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital (including inventory and receivables), business expansion
(including acquisitions of real estate and improvements) and the purchase of
equipment and machinery. The purpose of a particular loan generally determines
its structure.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such debt
from income. As a general practice, the Company takes as collateral a lien on
any available real estate, equipment or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets.
A substantial portion of the Company's real estate loans consists of loans
collateralized by real estate and other assets of commercial customers.
Additionally, a portion of the Company's lending activity consists of the
origination of single-family residential mortgage loans collateralized by
owner-occupied properties located in the Company's primary market area. The
Company offers a variety of mortgage loan products which generally are amortized
over five to 30 years.
Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 90% of appraised value. The
Company requires mortgage title insurance and hazard insurance in the amount of
the loan. Although the contractual loan payment periods for single-family
residential real estate loans are generally for a three to seven year period,
such loans often remain outstanding for significantly shorter periods than their
contractual terms.
Consumer loans made by the Company include automobile loans, recreational
vehicle loans, boat loans, home improvement loans, personal loans
(collateralized and uncollateralized) and deposit account collateralized loans.
The terms of these loans typically range from 12 to 84 months and vary based
upon the nature of collateral and size of loan.
The contractual maturity ranges of the commercial and industrial and real
estate construction loan portfolio and the amount of such loans with fixed
interest rates and floating rates in each maturity range as of September 30,
1999 are summarized in the following table:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------------
AFTER ONE
ONE YEAR THROUGH AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial............. $370,734 $247,603 $22,294 $ 640,631
Real estate construction.............. 282,559 134,149 28,975 445,683
-------- -------- ------- ----------
Total....................... $653,293 $381,752 $51,269 $1,086,314
======== ======== ======= ==========
Loans with a fixed interest rate...... $208,740 $ 97,794 $19,728 $ 326,262
Loans with a floating interest rate... 444,553 283,958 31,541 760,052
-------- -------- ------- ----------
Total....................... $653,293 $381,752 $51,269 $1,086,314
======== ======== ======= ==========
</TABLE>
Loan Review and Allowance for Loan Losses
The Company has well developed procedures in place to assess the quality of
its loan portfolio. These procedures include a Credit Quality Assurance Process
that begins with approval of lending policies and underwriting guidelines by the
Board of Directors, an independent loan review department staffed with OCC
experienced personnel, low individual lending limits for officers, Senior Loan
Committee approval for large credit relationships and quality loan documentation
procedures. The Company also maintains a well developed monitoring process for
credit extensions in excess of $250,000. The Company performs monthly and
quarterly concentration analyses based on various factors such as industries,
collateral types, business lines, large credit sizes, international investments
and officer portfolio loads. The Company has established underwriting guidelines
to be followed by its officers. The Company also monitors its delinquency levels
for any negative or
17
<PAGE> 19
adverse trends. There can be no assurance, however, that the Company's loan
portfolio will not become subject to increasing pressures from deteriorating
borrower credit due to general economic conditions.
Historically, Houston has been affected by the state of the energy
business, but since the mid 1980s the economic impact has been reduced by a
combination of increased industry diversification and less reliance on debt to
finance expansion. Nevertheless, slowdowns in the industry caused by volatile
oil prices continue to affect the Houston economy. When energy prices drop, as
they did in 1998, it is the Company's practice to review and adjust underwriting
standards with respect to companies affected by oil and gas price volatility,
and to continuously monitor existing credit exposure to companies which are
impacted by this price volatility.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Based on an evaluation of the loan
portfolio, management presents a quarterly review of the allowance for loan
losses to the Board of Directors, indicating any changes in the allowance since
the last review and any recommendations as to adjustments in the allowance. In
making its evaluation, management considers the diversification by industry of
the Company's commercial loan portfolio, the effect of changes in the local real
estate market on collateral values, the results of recent regulatory
examinations, the effects on the loan portfolio of current economic indicators
and their probable impact on borrowers, the amount of charge-offs for the
period, the amount of nonperforming loans and related collateral security and
the evaluation of its loan portfolio by the loan review function. Charge-offs
occur when loans are deemed to be uncollectible.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An allowance is also established based on the Company's
historical charge-off experience and other factors. The Company then charges to
operations a provision for loan losses determined on a quarterly basis to
maintain the allowance for loan losses at an adequate level determined according
to the foregoing methodology.
Management believes that the allowance for loan losses at September 30,
1999 is adequate to cover losses inherent in the portfolio as of such date.
There can be no assurance, however, that the Company will not sustain losses in
future periods which could be greater than the size of the allowance at
September 30, 1999.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance for loan losses beginning of period.............. $14,979 $11,927
Provision for loan losses.................................. 4,560 4,053
Charge-offs................................................ (1,096) (1,151)
Recoveries................................................. 156 132
Adjustment to conform reporting periods.................... -- 18
------- -------
Allowance for loan losses end of period.................... $18,599 $14,979
======= =======
Allowance to period-end loans.............................. 1.12% 0.99%
Net charge-offs to average loans........................... 0.08% 0.08%
Allowance to period-end nonperforming loans................ 904.18% 482.45%
</TABLE>
The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The majority of the unallocated portion below represents
management's estimates of the amounts needed to cover economic and portfolio
trends. The
18
<PAGE> 20
allocation is made for analytical purposes and is not necessarily indicative of
the categories in which future loan losses may occur. The total allowance is
available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
--------------------- ---------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial and industrial................... $ 3,310 36.9% $ 2,808 41.8%
Real estate:
Construction and land development......... 291 25.7 81 19.4
1-4 family residential.................... 106 18.8 -- 17.5
Commercial owner occupied................. -- 9.4 38 10.9
Farmland.................................. -- 0.8 -- 0.5
Other..................................... -- 1.6 -- 1.4
Consumer.................................... 696 6.8 893 8.5
Unallocated................................. 14,196 -- 11,159 --
------- ----- ------- -----
Total allowance for loan losses... $18,599 100.0% $14,979 100.0%
======= ===== ======= =====
</TABLE>
Nonperforming Assets and Impaired Loans
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well collateralized and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection.
Nonperforming assets were $2.4 million at September 30, 1999 compared with
$3.8 million at December 31, 1998. This resulted in a ratio of nonperforming
assets to loans plus other real estate of 0.14% and 0.25% at September 30, 1999
and December 31, 1998, respectively.
The following table presents information regarding nonperforming assets as
of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans............................................ $1,132 $2,424
Accruing loans 90 or more days past due..................... 925 681
Restructured loans.......................................... -- 151
ORE & OLRA.................................................. 318 504
------ ------
Total nonperforming assets........................ $2,375 $3,760
====== ======
Nonperforming assets to total loans and other real estate... 0.14% 0.25%
</TABLE>
The Company regularly updates appraisals on loans collateralized by real
estate, particularly those categorized as nonperforming loans and potential
problem loans. In instances where updated appraisals reflect reduced collateral
values, an evaluation of the borrower's overall financial condition is made to
determine the need, if any, for possible writedowns or appropriate additions to
the allowance for loan losses.
A loan is considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal and interest when due according to the contractual terms
of the loan agreement. The Company's impaired loans were approximately $14.0
million at both September 30, 1999 and December 31, 1998. The largest component
of impaired loans is a commercial energy related loan of approximately $11
million. The average recorded investment in impaired loans during the nine
months ended September 30, 1999 and the year ended December 31, 1998 was $14.0
million and $6.0 million, respectively. The total required allowance for loan
losses related to these loans was $0 for each
19
<PAGE> 21
reported period. Interest income on impaired loans of $1.1 million and $415,000
was recognized for cash payments received during the nine months ended September
30, 1999 and the year ended December 31, 1998, respectively.
The Bank is not committed to lend additional funds to debtors whose loans
have been modified.
Securities
At the date of purchase, the Company classifies debt and equity securities
into one of three categories: held to maturity, trading or available for sale.
At each reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities are classified as held to maturity and measured
at amortized cost in the financial statements only if management has the
positive intent and ability to hold those securities to maturity. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading and measured at fair value in the financial
statements with unrealized gains and losses included in earnings. Securities not
classified as either held to maturity or trading are classified as available for
sale and measured at fair value in the financial statements with unrealized
gains and losses reported, net of tax as a component of accumulated other
comprehensive income (loss) until realized. Gains and losses on sales of
securities are determined using the specific-identification method. The Company
has classified all securities as available for sale. This allows the Company to
manage its investment portfolio more effectively and to enhance the average
yield on the portfolio.
The amortized cost and approximate fair value of securities classified as
held to maturity and available for sale is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------- FAIR
COST GAIN LOSS VALUE
--------- ----- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government securities.......................... $ 80,826 $ 50 $ (1,326) $ 79,550
Mortgage-backed securities.......................... 584,138 437 (14,079) 570,496
Federal Reserve Bank stock.......................... 2,408 -- -- 2,408
Federal Home Loan Bank stock........................ 13,825 -- -- 13,825
Other securities.................................... 2,403 38 (7) 2,434
-------- ---- -------- --------
TOTAL SECURITIES AVAILABLE FOR SALE......... $683,600 $525 $(15,412) $668,713
======== ==== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
COST GAIN LOSS VALUE
--------- ------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government securities........................... $143,570 $1,575 $ -- $145,145
Mortgage-backed securities........................... 488,851 4,549 (452) 492,948
Federal Reserve Bank stock........................... 2,069 -- -- 2,069
Federal Home Loan Bank stock......................... 7,672 -- -- 7,672
Other securities..................................... 3,694 107 (12) 3,789
-------- ------ ----- --------
TOTAL SECURITIES AVAILABLE FOR SALE.......... $645,856 $6,231 $(464) $651,623
======== ====== ===== ========
HELD TO MATURITY
U.S. Government securities........................... $ 6,248 $ 14 $(186) $ 6,076
Mortgage-backed securities........................... 60,869 689 (259) 61,299
-------- ------ ----- --------
TOTAL SECURITIES HELD TO MATURITY............ $ 67,117 $ 703 $(445) $ 67,375
======== ====== ===== ========
</TABLE>
20
<PAGE> 22
In connection with the merger, the Company transferred all of Fort Bend's
held-to-maturity debt securities to the available for sale category. The
amortized cost of these securities at the time of transfer was $57.8 million and
the unrealized gain was $80,000 ($52,000 net of income taxes). The Company does
not intend to sell these securities in the near term.
Securities totaled $668.7 million at September 30, 1999, a decrease of
$50.0 million from $718.7 million at December 31, 1998. This decrease resulted
from maturities and paydowns within the portfolio. The proceeds were used to
fund the increase in the loan portfolio. The yield on the securities portfolio
for the nine months ended September 30, 1999 was 6.24% while the yield was 6.25%
in 1998.
Included in the Company's mortgage-backed securities at September 30, 1999
were $285.8 million in agency issued collateral mortgage obligations.
At September 30, 1999, 89% of the mortgage-backed securities held by the
Company had final maturities of more than 10 years. At September 30, 1999,
approximately $54.6 million of the Company's mortgage-backed securities earned
interest at floating rates and repriced within one year, and accordingly were
less susceptible to declines in value should interest rates increase.
The following table summarizes the contractual maturity of investments
(including securities, federal funds sold and interest-bearing deposits) and
their weighted average yields at September 30, 1999. The yield on the securities
portfolio is based on average historical cost balances and does not give effect
to changes in fair value that are reflected as a component of consolidated
shareholders' equity.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
YEAR BUT YEARS BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
--------------- --------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
------- ----- ------- ----- ------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities...... $15,263 5.08% $50,563 5.63% $15,000 6.45% $ -- 0.00% $ 80,826 5.68%
Mortgage-backed securities...... 1,458 5.40 21,508 6.41 41,815 6.35 519,357 6.37 584,138 6.36
Federal Reserve Bank stock...... 2,408 6.00 -- -- -- -- -- -- 2,408 6.00
Federal Home Loan Bank stock.... 13,825 5.25 -- -- -- -- -- -- 13,825 5.25
Other securities................ 1,189 4.69 209 8.04 515 7.06 490 7.42 2,403 6.05
Federal funds sold.............. 33,850 4.75 -- -- -- -- -- -- 33,850 4.75
Interest-bearing deposits....... 5,236 6.13 -- -- -- -- -- -- 5,236 6.13
------- ---- ------- ---- ------- ---- -------- ---- -------- ----
Total investments....... $73,229 5.06% $72,280 5.87% $57,330 6.38% $519,847 6.37% $722,686 6.19%
======= ==== ======= ==== ======= ==== ======== ==== ======== ====
</TABLE>
Prepaid Expenses and Other Assets
Total prepaid expenses and other assets were $85.6 million at September 30,
1999, an increase of $29.9 million from $55.7 million at December 31, 1998.
Significant components within prepaid expenses and other assets include the cash
value of bank owned life insurance, $26.0 million and accounts receivable
purchased. At September 30, 1999 the balance of accounts receivable purchased
was $18.8 million an increase of $10.0 million from December 31, 1998.
Deposits
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company's deposits consist of demand, savings, NOW
accounts, money market and time accounts. The Company relies primarily on
advertising, competitive pricing policies and customer service to attract and
retain these deposits. As of September 30, 1999, the Company had less than 3% of
its deposits classified as brokered funds and does not anticipate any
significant increase. Deposits provide the primary source of funding for the
Company's lending and investment activities, and the interest paid for deposits
must be managed carefully to control the level of interest expense.
21
<PAGE> 23
The Company's ratio of average demand deposits to average total deposits
for the periods ended September 30, 1999 and December 31, 1998, was 28% and 29%,
respectively.
The average daily balances and weighted average rates paid on deposits for
the nine months ended September 30, 1999 and the year ended December 31, 1998,
are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------- -----------------
AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NOW Accounts.................................... $ 33,017 2.54% $ 47,482 1.67%
Regular Savings................................. 36,278 2.42 35,122 2.35
Premium Yield................................... 451,016 4.15 426,034 4.69
Money market.................................... 322,930 2.93 300,141 3.39
CD's less than $100,000......................... 224,649 4.91 192,041 5.15
CD's $100,000 and over.......................... 346,444 4.88 289,357 5.17
IRA's & QRP's................................... 39,386 5.39 54,697 5.70
---------- ---- ---------- ----
Total interest-bearing deposits....... 1,453,720 4.13% 1,344,874 4.44%
==== ====
Noninterest-bearing deposits.................... 530,684 469,721
---------- ----------
Total deposits........................ $1,984,404 $1,814,595
========== ==========
</TABLE>
The following table sets forth the maturity of the Company's time deposits
that are $100,000 or greater as of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
3 months or less............................................ $148,905 $213,705
Between 3 months and 6 months............................... 102,696 56,005
Between 6 months and 1 year................................. 48,286 43,019
Over 1 year................................................. 29,744 24,636
-------- --------
Total time deposits $100,000 and over............. $329,631 $337,365
======== ========
</TABLE>
Borrowings
Securities sold under repurchase agreements and other short-term
borrowings, consisting of federal funds purchased and treasury, tax, and loan
deposits, generally represent borrowings with maturities ranging from one to
thirty days. Information relating to these borrowings is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Securities sold under repurchase agreements:
Average................................................... $189,180 $182,254
Period-end................................................ 159,158 181,696
Maximum month-end balance during period................... 265,440 240,670
Interest rate:
Average................................................... 4.10% 4.77%
Period-end................................................ 3.95% 5.16%
Other short-term borrowings:
Average................................................... $184,579 $ 26,034
Period-end................................................ 176,789 138,388
Maximum month-end balance during period................... 210,059 138,388
Interest rate:
Average................................................... 5.22% 5.65%
Period-end................................................ 5.48% 5.53%
</TABLE>
Securities sold under repurchase agreements are maintained in safekeeping
by correspondent banks.
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. For the nine months ended September 30, 1999, the
Company's liquidity needs have primarily been met by growth in short-term
borrowings from the Federal Home Loan Bank.
The Company's risk-based capital ratios including Leverage Capital, Tier 1
Risk-Based Capital and the Total Risk-Based Capital Ratio were 7.35%, 9.31% and
10.21%, respectively, at September 30, 1999.
YEAR 2000 INFORMATION AND READINESS DISCLOSURE
The Company has undertaken a company-wide initiative to address the Year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer system and facilities. The Company has completed a thorough
education and awareness initiative and an inventory and assessment of its
technology and application portfolio to understand the scope of the Year 2000
impact.
The Company has focused on developing appropriate policies or risk
mitigation actions to address Year 2000 related failures prior to the millennium
due to reliance on internal or external dependencies. The Company is working
with key external parties, including customers, counterparties, vendors,
exchanges, depositories, utilities, suppliers, agents, and regulatory agencies,
to eliminate the potential risks posed by the Year 2000 problem. Year 2000
compliance by the Company's borrowers is now an integral part of its
underwriting procedures. The Company is prepared to curtail credit availability
to customers identified as having material exposure to the Year 2000 issue.
However, its ability to exercise curtailment may be limited by various factors,
including existing legal agreements and potential concerns regarding lender
liability.
The Company has also completed an extensive review of its non-information
technology systems, such as elevators, escalators, bank vaults and security
systems. Most of these systems do not have date sensitive systems or imbedded
computer chips, and the Company has received written confirmation from
substantially all vendors of these systems that they are Year 2000 compliant.
The failure of external parties to resolve their own Year 2000 issues in a
timely manner could result in a material financial risk to the Company. For
potential failure scenarios where the risk to the Company is deemed significant
and where the risk is considered to have higher probability of occurrence, the
Company has developed business recovery/contingency plans. These plans define
the infrastructure that should be put in place for managing a failure after
January 1, 2000.
The Company has successfully completed Year 2000 testing of all of its
current voice and data network, client/server environment and applications. We
do not expect potential risks to have an adverse impact on our operations but
have developed contingency plans for that scenario. For the computer systems and
facilities that we have determined to be most critical, we completed the
development, testing, and adoption of business contingency and resumption plans
as of June 30, 1999. These plans conform to recently issued guidance from the
Federal Financial Institutions Examinations Council on Business Contingency
Planning for Year 2000 readiness. Contingency plans include manual workarounds,
identification of resource requirements and alternative solutions for resuming
critical business processes in the event of a Year 2000 related failure. Testing
and training of the personnel necessary to deploy any of the business
contingency and resumption plans has been ongoing throughout 1999. We have also
developed a liquidity plan to address a potential increase in cash withdrawals
by our depository customers in anticipation of the Year 2000 century date
change.
Costs to prepare the Company's systems for the Year 2000 are estimated at
approximately $3.5 million, for internal systems renovation and testing, testing
equipment and both internal and external resources working on the project.
Through September 30, 1999, the Company had incurred approximately $3.2 million
of these costs. Capital expenditures total approximately $584,000 and
non-capital expenditures total approximately $2.6 million.
23
<PAGE> 25
OTHER MATTERS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, was issued by the Financial Accounting Standards
Board to establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for the changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
standard is effective for all fiscal years beginning after June 15, 2000. This
pronouncement is not anticipated to have a material effect on the Company's
consolidated financial position, results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes since December 31, 1998. See the
Company's Annual Report on Form 10-K, "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition -- Interest Rate Sensitivity and Liquidity."
24
<PAGE> 26
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
15.1 -- Awareness Letter of PricewaterhouseCoopers LLP
27. -- Financial Data Schedule
</TABLE>
The required Financial Data Schedule has been included as Exhibit 27 of the
Form 10-Q filed electronically with the Securities and Exchange Commission.
(b) Reports on Form 8-K
None.
25
<PAGE> 27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WALTER E. JOHNSON Chairman of the Board and November 12, 1999
- ----------------------------------------------------- Chief Executive Officer
Walter E. Johnson (Principal Executive
Officer)
/s/ DAVID C. FARRIES Executive Vice President, November 12, 1999
- ----------------------------------------------------- Treasurer and Secretary
David C. Farries (Principal Financial
Officer)
/s/ R. JOHN MCWHORTER Senior Vice President and November 12, 1999
- ----------------------------------------------------- Controller (Principal
R. John McWhorter Accounting Officer)
</TABLE>
26
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
15.1 -- Awareness Letter of PricewaterhouseCoopers LLP
27. -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 15.1
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
November 15, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Southwest Bancorporation of Texas, Inc.
Registrations on Form S-3 and Form S-8.
We are aware that our report dated November 12, 1999 on our review of interim
financial information of Southwest Bancorporation of Texas, Inc. and
subsidiaries for the period ended September 30, 1999 and included in the
Company's quarterly report on Form 10-Q for the quarter then ended is
incorporated by reference in the Company's registration statements on
Form S-3 (File No. 333-47995 and 333-80603) and Form S-8 (File Nos. 333-76269,
333-21619, 333-27891, 333-33533, and 333-55685). Pursuant to Rule 436(c) under
the Securities Act of 1933, this report should not be considered a part of
the registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 114,189
<INT-BEARING-DEPOSITS> 2,182
<FED-FUNDS-SOLD> 33,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 668,713
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,734,317
<ALLOWANCE> 18,599
<TOTAL-ASSETS> 2,671,151
<DEPOSITS> 2,124,993
<SHORT-TERM> 335,947
<LIABILITIES-OTHER> 19,211
<LONG-TERM> 4,269
0
0
<COMMON> 27,963
<OTHER-SE> 158,768
<TOTAL-LIABILITIES-AND-EQUITY> 2,671,151
<INTEREST-LOAN> 100,886
<INTEREST-INVEST> 33,306
<INTEREST-OTHER> 1,411
<INTEREST-TOTAL> 135,603
<INTEREST-DEPOSIT> 44,855
<INTEREST-EXPENSE> 57,866
<INTEREST-INCOME-NET> 77,737
<LOAN-LOSSES> 4,560
<SECURITIES-GAINS> (139)
<EXPENSE-OTHER> 43,819
<INCOME-PRETAX> 29,219
<INCOME-PRE-EXTRAORDINARY> 18,384
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,384
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 4.42
<LOANS-NON> 1,132
<LOANS-PAST> 925
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,979
<CHARGE-OFFS> 1,096
<RECOVERIES> 156
<ALLOWANCE-CLOSE> 18,599
<ALLOWANCE-DOMESTIC> 18,599
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
