SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the transition period from to
Commission File 0-5519
ASSOCIATED BANC-CORP
(Exact Name of Registrant as Specified in Its Charter)
Wisconsin 39-1098068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
112 North Adams Street, Green Bay, Wisconsin 54301
(Address of principal executive offices)
(414) 433-3166
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
--------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at June 30, 1996, was 17,840,795 shares.
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition - June 30, 1996, and
December 31, 1995
Consolidated Statements of Income -
Three and Six Months Ended
June 30, 1996, and 1995
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996, and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
June 30 December 31
1996 1995
(In Thousands)
ASSETS
Cash and due from banks $ 174,617 $ 214,411
Interest-bearing deposits in other
financial institutions 656 652
Federal funds sold and securities
purchased under agreements to resell 18,030 45,100
Investment securities:
Held to maturity (Fair value of
approximately $375,183 and $399,697
at June 30, 1996, and December 31, 1995,
respectively) 379,006 398,233
Available for sale-stated at fair value 396,038 397,476
Loans, net of unearned income 2,924,163 2,747,936
Less: Allowance for possible loan losses (43,484) (41,614)
--------- ---------
Loans, net 2,880,679 2,706,322
Premises and equipment 67,565 59,300
Other assets 92,265 85,475
--------- ---------
Total assets $4,008,856 $3,906,969
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 549,597 $ 619,294
Interest-bearing deposits 2,669,244 2,526,382
--------- ---------
Total deposits 3,218,841 3,145,676
Short-term borrowings 377,467 363,449
Accrued expenses and other liabilities 29,814 35,209
Long-term borrowings 20,929 22,341
--------- ---------
Total liabilities 3,647,051 3,566,675
Commitments and contingent liabilities --- ---
Stockholders' equity
Preferred stock --- ---
Common stock (Par value $0.01 per share,
authorized 48,000,000 shares, issued
18,052,749 and 17,695,695 shares,
respectively) 181 177
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
June 30 December 31
1996 1995
(In Thousands)
Surplus 164,972 158,642
Retained earnings 197,481 179,153
Net unrealized gains on securities
available for sale 2,933 6,109
Less: Treasury stock (211,954 and 212,673
shares at cost) (3,762) (3,787)
------ -------
Total stockholders' equity 361,805 340,294
--------- ---------
Total liabilities and stockholders' equity $4,008,856 $3,906,969
========= =========
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
For the Three Months
Ended June 30
1996 1995
(In Thousands)
INTEREST INCOME
Interest and fees on loans $62,349 $57,168
Interest and dividends on investment securities:
Taxable 9,522 9,705
Tax-exempt 2,120 1,886
Interest on deposits in other financial institutions 17 9
Interest on federal funds sold and securities
purchased under agreements to resell 264 378
----- -----
Total interest income 74,272 69,146
------ ------
INTEREST EXPENSE
Interest on deposits 28,316 26,449
Interest on short-term borrowings 5,027 4,643
Interest on long-term borrowings 385 187
------ ------
Total interest expense 33,728 31,279
------ ------
NET INTEREST INCOME 40,544 37,867
Provision for possible loan losses 872 780
------ ------
Net interest income after provision for
possible loan losses 39,672 37,087
------ ------
NONINTEREST INCOME
Trust service fees 6,198 5,377
Service charges on deposit accounts 2,980 2,942
Investment securities gains, net 36 113
Mortgage banking activity 3,117 1,536
Retail investment income 765 554
Other 2,480 2,785
------ ------
Total noninterest income 15,576 13,307
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 18,347 16,585
Net occupancy expense 2,812 2,609
Equipment rentals, depreciation and maintenance 1,795 1,612
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
For the Three Months
Ended June 30
1996 1995
(In Thousands)
Data processing expense 1,968 1,966
Stationery and supplies 850 779
Business development and advertising 861 812
FDIC expense 23 1,635
Other 7,336 6,272
------ ------
Total noninterest expense 33,992 32,270
------ ------
Income before income taxes 21,256 18,124
Income tax expense 7,556 6,409
------ ------
NET INCOME $13,700 $11,715
====== ======
Per share
Net income $ .77 $ .67
Dividends $ .29 $ .22
Weighted average shares outstanding 17,835 17,477
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
For the Six Months
Ended June 30
1996 1995
(In Thousands)
INTEREST INCOME
Interest and fees on loans $123,520 $111,208
Interest and dividends on investment securities:
Taxable 19,088 19,441
Tax-exempt 4,266 3,752
Interest on deposits in other financial
institutions 25 16
Interest on federal funds sold and securities
purchased under agreements to resell 576 841
------- -------
Total interest income 147,475 135,258
------- -------
INTEREST EXPENSE
Interest on deposits 56,824 49,758
Interest on short-term borrowings 9,510 9,643
Interest on long-term borrowings 765 343
------ ------
Total interest expense 67,099 59,744
------ ------
NET INTEREST INCOME 80,376 75,514
Provision for possible loan losses 2,044 1,726
------ ------
Net interest income after provision for
possible loan losses 78,332 73,788
------ ------
NONINTEREST INCOME
Trust service fees 12,358 10,886
Service charges on deposit accounts 5,932 5,852
Investment securities gains, net 376 134
Mortgage banking activity 6,890 2,760
Retail investment income 1,397 1,012
Other 4,884 5,805
------ ------
Total noninterest income 31,837 26,449
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 36,708 33,362
Net occupancy expense 5,535 5,314
Equipment rentals, depreciation and maintenance 3,654 3,308
Data processing expense 4,025 3,909
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
For the Six Months
Ended June 30
1996 1995
(In Thousands)
Stationery and supplies 1,660 1,626
Business development and advertising 1,735 1,744
FDIC expense 35 3,264
Other 15,407 12,211
------ ------
Total noninterest expense 68,759 64,738
------ ------
Income before income taxes 41,410 35,499
Income tax expense 14,749 12,512
------ ------
NET INCOME $ 26,661 $ 22,987
====== ======
Per share
Net income 1.50 1.32
Dividends .56 .43
Weighted average shares outstanding 17,828 17,471
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1996 1995
(In Thousands)
OPERATING ACTIVITIES
Net income $ 26,661 $ 22,987
Adjustments to reconcile net income to net
cash used by operating activities:
Provision for possible loan losses 2,044 1,726
Depreciation and amortization 3,994 3,668
Amortization of mortgage servicing rights 1,109 266
Amortization of goodwill 1,522 1,226
Net amortization and accretion of premiums and
discounts 217 721
Gain on sales of investment securities, net (376) (134)
Increase in interest receivable and other assets (2,803) (2,238)
Decrease in interest payable and other
liabilities (5,676) (825)
Amortization of loan fees and costs (764) (801)
Purchases of trading account securities (5) (69)
Proceeds from sales of trading account securities 24 80
Net increase (decrease) in mortgage loans acquired
for resale 10,638 (16,842)
Gain on sales of mortgage loans held for resale, net (1,470)
(171)
Others, net (174) (415)
------- -----
Net cash provided operating activities $ 34,941 $ 9,179
------ -----
INVESTING ACTIVITIES
Net decrease in federal funds sold and securities
purchased under agreements to resell $ 30,196 $ 32,453
Net increase in interest-bearing deposits in other
financial institutions (4) (300)
Purchases of held to maturity securities (80,434) (59,553)
Purchases of available for sale securities (83,326) (44,725)
Proceeds from sales of available for sale
securities 2,723 84
Maturities of held to maturity securities 88,920 61,342
Maturities of available for sale securities 101,603 63,577
Net increase in loans (138,347) (135,164)
Proceeds from sales of other real estate 717 1,050
Purchases of premises and equipment, net of disposals (10,612) (2,614)
Capitalized mortgage servicing rights (3,624) (593)
Net cash from acquisition 2,943 ---
------ ------
Net cash used by investment activities $(89,245) $(84,443)
------ ------
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1996 1995
(In Thousands)
FINANCING ACTIVITIES
Net increase in deposits $ 11,968 $ 55,735
Net increase (decrease) in short-term borrowings 9,624 (9,229)
Repayment of long-term borrowings --- (536)
Cash dividends (9,922) (7,439)
Proceeds from issuance of long-term borrowings 2,500 ---
Proceeds from exercise of stock options 340 722
Purchase of treasury stock --- (875)
------ ------
Net cash used by financing activities $ 14,510 $ 38,378
------ ------
Net decrease in cash and cash equivalents $(39,794) $(36,886)
Cash and cash equivalents beginning of period 214,411 210,497
------- -------
Cash and cash equivalents at end of period $174,617 $173,611
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 68,055 $ 56,237
Income taxes 17,670 15,602
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate $ 880 $ 408
Loans made in connection with the disposition of
other real estate 39 167
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
NOTE 1: In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
Associated Banc-Corp s ( Corporation ) financial position, results of its
operations and cash flows for the periods presented. All adjustments necessary
to the fair presentation of the financial statements are of a normal recurring
nature. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. All material intercompany transactions and balances are
eliminated. The Corporation has not changed its accounting and reporting
policies from those stated in the Corporation s 1995 Form 10-K Annual Report.
NOTE 3: Business Combinations
The following table summarizes completed transactions during 1995 and 1996
(through June 30):
<TABLE>
Consideration Paid
--------------------
<CAPTION>
Cash Shares of Total
Date Method of (In Common Assets (In Intangibles
Name of Acquired Acquired Accounting Millions) Stock Millions) (In Millions)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Great Northern 7/95 Purchase $1.2 --- (A) $1.5
Mortgage Company
Rolling Meadows,
Illinois
GN Bancorp, Inc. 8/95 Pooling of --- 747,626 130 ---
Chicago, interests
Illinois (B)
SBL Capital Bank 3/96 Pooling of --- 332,957 68 ---
Shares, Inc. (C) interests
Greater Columbia 4/96 Pooling of --- 967,634 211 ---
Bancshares, interests
Inc. (B)
</TABLE>
(A) The Corporation acquired approximately $535 million in mortgage servicing
as part of this acquisition. The consolidated financial statements include the
results of operations since the date of acquisition.
(B) The transaction was accounted for as a pooling of interests. All
consolidated financial information has been restated as if the transaction had
been effected as of the beginning of the earliest period presented.
(C) The transaction, accounted for using the pooling-of-interests method, was
not material to prior years' reported operating results and, accordingly,
previously reported results were not restated.
On July 19, 1996, the Corporation completed its merger with F&M Bankshares of
Reedsburg, Inc. The transaction was accounted for as a pooling of interests
with the issuance of 534,990 shares of the Corporation s common stock.
On July 31, 1996, the Corporation completed its merger with Mid-America
National Bancorp. The transaction was accounted for as a purchase in a cash
transaction of $6.7 million.
NOTE 4: Investment Securities
The amortized cost and fair values of investment securities held to maturity
and securities available for sale for the periods indicated were as follows:
Investment Securities Held to Maturity
- -------------------------------------------------------------------------------
(In thousands) June 30, 1996
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S treasury and federal agency securities $ 157,840 $ 155,852
Obligations of states and political subdivisions 165,458 163,633
Other securities 55,708 55,698
- -------------------------------------------------------------------------------
Total $ 379,006 $ 375,183
===============================================================================
(In thousands) December 31, 1995
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal agency securities $ 172,548 $ 172,484
Obligations of states and political subdivisions 169,923 170,614
Other securities 55,762 56,599
- -------------------------------------------------------------------------------
Total $ 398,233 $ 399,697
===============================================================================
Investment Securities Available for Sale
- -------------------------------------------------------------------------------
(In thousands) June 30, 1996
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal agency securities $ 368,488 $ 365,764
Other securities 22,952 30,274
- -------------------------------------------------------------------------------
Total $ 391,440 $ 396,038
==============================================================================
(In thousands) December 31, 1995
- -------------------------------------------------------------------------------
Amortized Cost Fair Value
- -------------------------------------------------------------------------------
U.S. treasury and federal agency securities $ 368,217 $ 371,414
Other securities 19,507 26,062
- -------------------------------------------------------------------------------
Total $ 387,724 $ 397,476
===============================================================================
NOTE 5: Allowance for Possible Loan Losses
A summary of the changes in the allowance for possible loan losses for the
periods indicated is as follows:
- -------------------------------------------------------------------------------
For the Six For the Year
Months Ended Ended
June 30, December 31,
1996 1995
(In Thousands)
Balance at beginning of period $41,614 $39,380
Balance related to acquisition 822 ---
Provisions charged to operating expense (2,044) 4,291
Loan losses net of recoveries 996 (2,057)
------ ------
Balance at end of period $43,484 $41,614
====== ======
- -------------------------------------------------------------------------------
NOTE 6: Mortgage Servicing Rights
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 122, Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65 . Accordingly, the Corporation recognizes
as separate assets (capitalized) the rights to service mortgage loans for
others whether the servicing rights are acquired through purchases or loan
origination. The fair value of capitalized mortgage servicing rights is based
upon the present value of estimated expected future cash flows. Based upon
current fair values, capitalized mortgage servicing rights are assessed
periodically for impairment, which is recognized in the statement of income
during the period in which impairment occurs by establishing a corresponding
valuation allowance. For purposes of performing its impairment evaluation, the
Corporation stratifies its portfolio of capitalized mortgage servicing rights
on the basis of certain risk characteristics.
Changes in capitalized mortgage servicing rights for the six months ended June
30, 1996, were:
Balance at 12/31/95 $7,239,053
Capitalized mortgage servicing rights 3,623,984
Amortization (1,109,100)
Sales of servicing rights ---
Allowance for impairment (1,157)
---------
Balance at 6/30/96 $9,752,780
=========
NOTE 7: Per Share Computations
Per share computations are computed based on the weighted average number of
common shares outstanding for the three and six months ended June 30, 1996, and
1995.
ITEM 2. Management s Discussion and Analysis of Financial Condition and the
Results of Operations
The purpose of this discussion is to focus on information about the
Corporation s financial condition and results of operations that are not
otherwise apparent from the consolidated financial statements included in this
report. Reference should be made to those statements presented elsewhere in
this report for an understanding of the following discussion and analysis.
EARNINGS
The acquisition of Greater Columbia Bancshares, Inc. (primary subsidiary was
The First National Bank of Portage, now known as Associated Bank Portage) was
completed on April 5, 1996. This acquisition was accounted for using the
pooling-of-interests method. Therefore, all consolidated financial information
has been restated as if the transaction had been effected as of the beginning
of the earliest reporting period.
On March 1, 1996, SBL Capital Bankshares was acquired (primary subsidiary was
The State Bank of Lodi, now known as Associated Bank Lodi). This acquisition
was accounted for using the pooling-of-interests method. This transaction was
not material to prior years' reported operating results and, accordingly,
previously reported results were not restated. The operating results of
Associated Banc-Corp include Associated Bank Lodi since January 1, 1996.
In August 1995, the Corporation acquired GN Bancorp, parent company of the $130
million Gladstone-Norwood Trust & Savings Bank in northwest Chicago. The GN
Bancorp acquisition was accounted for as a pooling of interests. All
consolidated financial information has been restated as if the transaction had
been effected as of the beginning of the earliest period presented.
In July 1995, Great Northern Mortgage was acquired. This transaction was
accounted for as a purchase. Thus, the first six months of 1995 do not include
the results of this acquisition.
Net income for the second quarter of 1996 increased to $13.7 million, up 16.9%
over 1995 second quarter net income of $11.7 million. Earnings per share
increased to $.77 for the second quarter of 1996, an increase of 14.9% over
earnings per share of $.67 in the second quarter of 1995.
Net income for the first six months of 1996 increased to $26.7 million, up
16.0% over the first six months of 1995 net income of $23.0 million. Earnings
per share for the first six months of 1996 increased to $1.50, up 13.6% over
the first six months of 1995 earnings per share of $1.32.
Net Income
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Net Income $13,700 $12,961 $12,221 $12,820 $11,715
E.P.S. 0.77 0.73 0.70 0.73 0.67
Return on Average
Equity - Quarter 15.42% 14.88% 14.43% 15.68% 14.91%
Return on Average
Equity - Year to Date 15.15% 14.88% 15.03% 15.25% 15.03%
Return on Average
Assets - Quarter 1.39% 1.34% 1.28% 1.37% 1.30%
Return on Average
Assets - Year to Date 1.37% 1.34% 1.31% 1.32% 1.29%
- -------------------------------------------------------------------------------
Return on average assets (ROA) for the second quarter of 1996 was 1.39%, up
from 1.30% during the same period last year. The 9 basis point increase in ROA
was achieved as net income grew 16.9%, outpacing average asset growth of 9.8%,
as compared to the second quarter last year. ROA for the first six months of
1996 improved to 1.37% compared to 1.29% for the first six months of 1995. ROA
also improved when comparing the second quarter of 1996 (ROA of 1.39%) to the
first quarter of 1996 (1.34%), as net income increased by 5.7% while average
assets increased 1.7%.
Return on average equity (ROE) for the second quarter of 1996 was 15.42%, up
from the 14.91% reported during the same period last year. ROE for the first
six months of 1996 improved slightly to 15.15%, up from 15.03% in the same
period last year. ROE also improved when comparing the second quarter of 1996
(ROE of 15.42%) to the first quarter of 1996 (14.88%).
NET INTEREST INCOME
Second Quarter 1996 compared to First Quarter 1996:
Taxable equivalent net interest income in the second quarter of 1996 was $41.9
million, an increase of $771,000 over the first quarter net interest income of
$41.1 million. The increase in net interest income was attributable to larger
volumes of earning assets. The net change (change in interest income from
incremental volumes of earning assets less the change in interest expense from
incremental volumes of interest-bearing liabilities) contributed $805,000 of
net interest income in the second quarter of 1996 compared to the first quarter
of 1996. This positive volume variance was slightly reduced by a negative rate
variance (change in interest income from incremental yields on earning assets
less the change in interest expense from incremental rates on interest-bearing
liabilities) of $32,000.
The net interest margin for the second quarter of 1996 was 4.56% compared with
4.55% in the first quarter of 1996.
The slight increase in the net interest margin for the second quarter of 1996
compared to the first quarter of 1996 is primarily attributable to a larger
decrease in the funding cost when compared to the earning asset yield decrease.
The interest rate spread (difference between yield on earning assets and rate
on interest-bearing liabilities) increased slightly by 1 basis point from the
first quarter to 3.76%. The yield on earning assets declined 2 basis points
while the rate on interest-bearing liabilities decreased by 3 basis points in
the second quarter.
Average earning assets increased $64 million in the second quarter. Earning
asset growth continues to be concentrated in loans as the average loans to
average deposits ratio climbed to 91.37% in the second quarter of 1996, up from
89.53% in the first quarter of 1996. Average loans grew $87 million, or 12.4%
on an annualized basis, in the second quarter.
The second quarter growth in average loans of $87 million was funded by
increased time deposits (personal CDs and brokered CDs) of $28 million,
increased short-term borrowings (funds purchased, repurchase agreements and
FHLB borrowings) of $32 million, lower investments and short-term investments
of $23 million, increased net free funds of $14 million offset by lower
balances of Savings, NOW and MMA of $10 million.
Second Quarter 1996 compared to Second Quarter 1995:
Taxable equivalent net interest income in the second quarter of 1996 was $41.9
million, a significant increase of $2.9 million over the second quarter 1995
net interest income of $39.0 million. Excluding Lodi (net interest income in
the second quarter of 1996 of $696,000), net interest income would have
increased by $2.2 million when compared to the second quarter of 1995.
The increase in net interest income was attributable to larger volumes of
earning assets, with the net change (change in interest income from incremental
volumes of earning assets less the change in interest expense from incremental
volumes of interest-bearing liabilities) contributing $3.508 million of net
interest income in the second quarter of 1996 compared to the second quarter of
1995. This positive volume variance was slightly reduced by a negative rate
variance (change in interest income from incremental yields on earning assets
less the change in interest expense from incremental rates on interest-bearing
liabilities) of $596,000. This indicates that while the balance sheet has
exhibited strong growth, the spreads booked in the second quarter of 1996 are
tighter than they were in the second quarter of 1995.
The net interest margin for the second quarter of 1996 was 4.56% compared with
4.63% in the second quarter of 1995.
The interest rate spread (difference between yield on earning assets and rate
on interest-bearing liabilities) decreased 5 basis points to 3.76% from the
second quarter of 1995 at 3.81%. The yield on earning assets decreased by 12
basis points while the rate on interest-bearing liabilities decreased by 7
basis points compared to the second quarter of 1995. The contribution from net
free funds decreased by 2 basis points from the second quarter of 1995.
Combined, these factors lowered net interest margin by 7 basis points.
Average earning assets increased $319 million in the second quarter of 1996
over the second quarter of 1995. Earning asset growth was concentrated in
loans as the average loans to average deposits ratio climbed to 91.37% in the
second quarter of 1996, up from 87.79% in the second quarter of 1995. Average
loans grew $324 million, or 12.6% in the second quarter of 1996 compared to the
second quarter of 1995.
The growth in average loans since the second quarter of 1995 of $324 million
was funded by increased time deposits (personal CDs and brokered CDs) of $134
million, increased Savings/NOW/MMA balances of $67 million, increased wholesale
borrowings (funds purchased, repurchase agreements and FHLB borrowings and
long-term borrowings) of $70 million, lower investments and short-term
investments of $5 million, and increased net free funds of $47 million.
YTD Second Quarter 1996 compared to YTD Second Quarter 1995:
Taxable equivalent net interest income in the first six months of 1996 was
$82.9 million, a significant increase of $5.2 million over the first six months
of 1995 net interest income of $77.7 million. Excluding Lodi (net interest
income for the first six months of 1996 of $1.4 million), net interest income
would have increased by $3.8 million when compared to the first six months of
1995.
The increase in net interest income was attributable to larger volumes of
earning assets. The net change (change in interest income from incremental
volumes of earning assets less the change in interest expense from incremental
volumes of interest-bearing liabilities) contributed an additional $6.6 million
of net interest income in the first six months of 1996 compared to the first
six months of 1995. This positive volume variance was reduced by a negative
rate variance (change in interest income from incremental yields on earning
assets less the change in interest expense from incremental rates on interest-
bearing liabilities) of $1.4 million. This also indicates that while the
balance sheet has exhibited strong growth, the spreads booked in the first half
of 1996 are tighter than they were in the first half of 1995.
The net interest margin for the first six months of 1996 was 4.56% compared
with 4.68% in the first six months of 1995.
The interest rate spread (difference between yield on earning assets and rate
on interest-bearing liabilities) decreased 11 basis points to 3.76% from 3.87%
during the first six months of 1996. The yield on earning assets decreased by 4
basis points while the rate on interest-bearing liabilities increased by 7
basis points. The contribution from net free funds also decreased, by 1 basis
point. Combined, these factors decreased net interest margin by 12 basis
points.
Average earning assets increased $313 million in the first six months of 1996
over the first six months of 1995. Average loans grew $321 million, in the
first six months of 1996 compared to the first six months of 1995.
The growth in average loans in the first six months of 1996 of $321 million was
funded by increased time deposits (personal CDs and brokered CDs) of $174
million, increased Savings/NOW/MMA balances of $60 million, increased wholesale
borrowings (funds purchased, repurchase agreements and FHLB borrowings and
long-term borrowings) of $43 million, lower investments and short-term
investments of $7 million, and increased net free funds of $37 million.
Net Interest Income
Tax Equivalent Basis
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Interest Income $74,272 $73,203 $72,746 $71,374 $69,146
Tax Equivalent Adjustment 1,307 1,248 1,092 1,164 1,074
------ ------ ------ ------ ------
Tax Equivalent Interest Income 75,579 74,451 73,838 72,538 70,220
Interest Expense 33,728 33,371 32,872 32,483 31,279
------ ------ ------ ------ ------
Tax Equivalent Net
Interest Income $41,851 $41,080 $40,966 $40,055 $38,941
- -------------------------------------------------------------------------------
Net Interest Margin
Quarterly Trends
(Quarterly Info Only)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Yield on Earning Assets 8.23% 8.25% 8.33% 8.33% 8.35%
Cost of Interest
Bearing Liabilities 4.47 4.50 4.56 4.55 4.54
---- ---- ---- ---- ----
Interest Rate Spread 3.76 3.75 3.77 3.78 3.81
Net Free Funds Contribution 0.80 0.80 0.85 0.82 0.82
---- ---- ---- ---- ----
Net Interest Margin 4.56 4.55 4.62 4.60 4.63
==== ==== ==== ==== ====
Average Earning Assets
to Average Assets 93.23 93.20 93.22 93.14 93.56
Free Funds Ratio 17.80 17.73 18.69 18.04 18.09
- -------------------------------------------------------------------------------
Earning Asset and Interest-Bearing Liability Volumes
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Average Loans $2,889,322 $2,802,634 $2,687,593 $2,624,199 $2,565,377
Average Earning Assets 3,693,151 3,628,817 3,517,687 3,455,798 3,374,495
Average Noninterest
Bearing Deposits 535,998 522,232 539,005 516,466 497,141
Average Interest
Bearing Deposits 2,626,189 2,608,069 2,513,125 2,500,191 2,425,131
Average Deposits 3,162,187 3,130,301 3,052,130 3,016,657 2,922,272
Average Interest
Bearing Liabilities 3,035,594 2,985,476 2,860,107 2,832,312 2,764,062
- -------------------------------------------------------------------------------
LOAN LOSSES
Allowance for Loan Loss
The loan loss provision for the second quarter of 1996 was $872,000, a decrease
of $300,000 from the first quarter of 1996 and an increase of $92,000 over the
second quarter of 1995. The provision for the first six months of 1996 was
$2.0 million, compared to $1.7 million in the first six months of 1995.
As of June 30, 1996, the allowance for possible loan losses of $43.5 million
represented 1.49% of total outstanding loans, down slightly from 1.51% at
December 31, 1995, and down from 1.56% at June 30, 1995.
Charge-offs for the quarter ending June 30, 1996, of $1.5 million were reduced
by recoveries of $555,000 creating net charge offs of $947,000. This compares
to net charge-offs of $254,000 in the second quarter of 1995 and net charge-
offs of $49,000 in the first quarter of 1996.
Net charge-offs to average loans of .13% (annualized) in the second quarter of
1996 compares to net charge-offs of .01% (annualized) and .04% (annualized) in
the first quarter of 1996 and the second quarter of 1995. Net charge-offs to
average loans for the first six months of 1996 of .07% compares to .03% for the
first six months of 1995.
Provision for Possible Loan Losses
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Provision - Quarter $ 872 $ 1,172 $ 1,888 $ 677 $ 780
Provision - Year to Date 2,044 1,172 4,291 2,403 1,726
Net Charge-offs (Recoveries)
- Quarter 947 49 925 740 254
Net Charge-offs (Recoveries)
- Year to Date 996 49 2,057 1,132 392
Allowance at Period End 43,484 43,559 41,614 40,651 40,714
Allowance at Period End Loans 1.49% 1.54% 1.51% 1.52% 1.56%
Net Charge-offs (Recoveries)
to Average Loans
(Annualized) - Quarter .13% .01% .14% .11% .04%
Net Charge-offs (Recoveries)
to Average Loans
(Annualized) - Year to Date .07% .01% .08% .06% .03%
- -------------------------------------------------------------------------------
NONPERFORMING LOANS
Management is committed to an aggressive nonaccrual and problem loan
identification philosophy. This philosophy is embodied through the monitoring
and reviewing of credit policies and procedures to ensure that all problem
loans are identified quickly and the risk of loss is minimized.
Nonperforming loans are considered a leading indicator of future loan losses.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past
due but still accruing and restructured loans.
Loans are normally placed in nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact on
the collectibility of principal or interest on loans, it is management's
practice to place such loans on nonaccrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously
accrued and uncollected interest on such loans is reversed and income is
recorded only to the extent that interest payments are subsequently received in
cash and a determination has been made that the principal balance of the loan
is collectible. If collectibility of the principal is in doubt, payments
received are applied to loan principal.
Loans past due 90 days or more but still accruing interest are also included in
nonperforming loans. Loans past due 90 days or more but still accruing are
classified as such where the underlying loans are both well-secured (the
collateral value is sufficient to cover principal and accrued interest) and in
the process of collection. Also included in nonperforming loans are
"restructured" loans. Restructured loans involve the granting of some
concession to the borrower involving the modification of terms of the loan,
such as changes in payment schedule or interest rate.
Total nonperforming loans at June 30, 1996, were $19.7 million, an increase of
$2.0 million from December 31, 1995. The ratio of nonperforming loans to total
loans at June 30, 1996, was .67% compared to .64% at December 31, 1995, and
.71% at June 30, 1995.
Non-Performing Loans and Other Real Estate
($ in Thousands)
- -------------------------------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95
Non-Accrual Loans $14,935 $14,520 $14,677 $15,744 $16,783
Accruing Loans Past Due
90 Days or More 3,442 2,172 1,320 1,751 693
Restructured Loans 1,325 1,180 1,704 1,228 1,158
------ ------ ------ ------ -----
Total Nonperforming Loans $19,702 $17,872 $17,701 $18,723 $18,634
Nonperforming Loans as a
Percent of Loans .67% .63% .64% .70% .71%
Other Real Estate Owned $ 1,763 $ 1,083 $ 1,600 $ 1,899 $ 1,414
- -------------------------------------------------------------------------------
Impaired loans are defined as those loans where it is probable that all amounts
due according to contractual terms, including principal and interest, will not
be collected. The Corporation has determined that nonaccrual and restructured
loans meet the definition. Impaired loans are measured at the fair value of
the collateral, if the loan is collateral dependant, or alternatively at the
present value of expected future cash flows. Interest income on impaired loans
is recognized only at the time that cash is received, unless applied to reduce
principal.
At June 30, 1996, the recorded investment in impaired loans totaled $13.7
million. Included in this amount is $11.1 million of impaired loans that do
not require a related allowance for possible loan losses and $2.6 million of
impaired loans for which the related allowance for possible loan losses totaled
$0.9 million. The average recorded investment in impaired loans during the six
months ended June 30, 1996, was approximately $13.0 million. Interest income
recognized on a cash basis on impaired loans during the first six months of
1996 totaled $335,000.
The following table shows, for those loans accounted for on a nonaccrual basis
and restructured loans for the six months ended June 30, 1996, the gross
interest that would have been recorded if the loans had been current in
accordance with their original terms and the amount of interest income that was
included in net income for the period.
For the Six
Months Ended
June 30, 1996
($ In Thousands)
Interest income in accordance with original terms $ 958
Interest income recognized (368)
-----
Reduction in interest income $ 590
=====
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of
management to place loans in this category does not necessarily mean that the
Corporation expects losses to occur, but that management recognizes that a
higher degree of risk is associated with these performing loans.
Potential Problem Loans
($ in Thousands)
- -------------------------------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95
Potential Problem Loans $44,564 $43,545 $35,935 $34,589 $46,025
- -------------------------------------------------------------------------------
At June 30, 1996, potential problem loans totaled $44.6 million compared to
$35.9 million at the end of 1995. The loans that have been reported as
potential problem loans are not concentrated in a particular industry, but
rather cover a diverse range of businesses, e.g. communications, wholesale
trade, manufacturing, finance/insurance/real estate, and services. Management
does not presently expect significant losses from credits in this category.
Other real estate owned totaled $1.8 million at June 30, 1996, compared with
$1.4 million at June 30, 1995.
LOAN CONCENTRATIONS
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause
them to be similarly impacted by economic or other conditions. The
Corporation's loans are widely diversified by borrower, industry group and
area. At June 30, 1996, no concentrations existed in the Corporation's loan
portfolio in excess of 10% of total loans.
Real estate construction loans at June 30, 1996, totaled $186.2 million or only
6.4% of loans while agricultural loans were 1.1% of total loans.
As of June 30, 1996, the Corporation did not have any cross-border outstandings
to borrowers in any foreign country where such outstandings exceeded 1% of
total assets.
NONINTEREST INCOME
Second Quarter 1996 compared to First Quarter 1996:
Noninterest income decreased $685,000, or 4.2%, in the second quarter of 1996
when compared to the first quarter of 1996. Excluding investment security
gains, noninterest income decreased $381,000, or 2.4% during the same time
period. Income from mortgage banking activities decreased $656,000 in the
second quarter while retail investment income and miscellaneous other income
increased $133,000 and $76,000, respectively.
Mortgage banking activity includes loan servicing fees, origination fees,
underwriting fees and escrow waiver fees as well as the net gain or loss on the
sale of mortgage loans to the secondary market. Income from these activities
decreased $656,000 in the second quarter of 1996 compared to the first quarter
of 1996. Increased revenues from servicing (up $76,000) were offset by lower
origination fees ($99,000), underwriting fees ($98,000), escrow waiver fees
($21,000) and gain on sale of loans ($514,000).
Retail investment income continues to increase as the new locations are opened
and fully staffed. Income from this activity increased 21.0%, or $133,000 in
the second quarter.
Other miscellaneous income, from a variety of sources, increased 3.2%, or
$76,000 in the quarter. Investment security gains decreased $304,000 when
compared to the first quarter of 1996.
Second Quarter 1996 compared to Second Quarter 1995:
Noninterest income increased $2.3 million or 17.1%, in the second quarter of
1996 when compared to the second quarter of 1995. Excluding investment
security gains, noninterest income increased $2.3 million, or 17.8% during the
same time period. The largest contributors to this increase were mortgage
banking activity ($1.6 million), trust fees ($821,000), retail investment
income ($211,000) offset by a decrease in other miscellaneous income of
$305,000.
Income from mortgage banking activity increased 102.9%, or $1.6 million in the
second quarter of 1996 compared to the same period last year. This large
increase was attributable to increased fees from larger servicing and
origination volumes, as well as the adoption of SFAS 122 on January 1, 1996.
The increase in servicing and origination volumes reflect the general market
conditions during the last 12 months as well as the added volumes from the
acquisition of Great Northern Mortgage in July of 1995. As a result of
adopting SFAS 122, previously unrecorded internally originated rights to
service mortgage loans for others are now capitalized and amortized over the
expected life of the loan servicing arrangement. The substantial increase in
income from mortgage banking activities was from servicing fees ($552,000),
origination fees ($191,000), underwriting fees ($166,000), escrow waiver fees
($44,000) and gain on sale of loans to the secondary market ($628,000). The
impact of the adoption of SFAS 122 is a component of the increase from the gain
on sale of loans.
Trust fees grew 15.3%. This increase is reflective of the general market
conditions prevalent during the last 18 months.
Retail investment income increased by 38.1%, or $211,000, over the second
quarter of 1995. The addition of new offices and staff helped account for this
increase.
Other miscellaneous income decreased by $305,000, or 11.0% when compared to the
second quarter of 1995.
YTD Second Quarter 1996 compared to YTD Second Quarter 1995:
Noninterest income increased $5.4 million or 20.4%, in the first six months of
1996 when compared to the same period last year. Excluding investment security
gains, noninterest income increased $5.1 million, or 19.6% during the same time
period. The largest contributors to this increase were mortgage banking
activity ($4.1 million), trust fees ($1.5 million), retail investment income
($385,000) offset by a decrease in other miscellaneous income of $921,000.
Income from mortgage banking activity increased 149.6%, or $4.1 million in the
first six months of 1996 compared to the same period last year. This large
increase was attributable to increased fees from larger servicing and
origination volumes, as well as the adoption of SFAS 122 on January 1, 1996.
The increase in servicing and origination volumes reflect the general market
conditions during the last 12 months as well as the added volumes from the
acquisition of Great Northern Mortgage in July of 1995. As a result of
adopting SFAS 122, previously unrecorded originated rights to service mortgage
loans for others are now capitalized and amortized over the expected life of
the loan servicing arrangement. The substantial increase in income from
mortgage banking activities was from servicing fees ($1.1 million), origination
fees ($623,000), underwriting fees ($529,000), escrow waiver fees ($129,000)
and gain on sale of loans to the secondary market ($1.8 million). The impact
of the adoption of SFAS 122 is a component of the increase from the gain on
sale of loans.
Trust fees grew 13.5%. This increase is reflective of the general market
conditions prevalent during the last 18 months.
Retail investment income increased by 38.0%, or $385,000, over the first half
of 1995. The addition of new offices and staff helped account for this
increase.
Other miscellaneous income decreased by $921,000, or 15.9% when compared to the
first half of 1995.
Noninterest Income
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Trust Servicing Fees $ 6,198 $ 6,160 $ 5,897 $ 5,460 $ 5,377
Service Charges on Deposit
Accounts 2,980 2,952 2,940 3,022 2,942
Mortgage Banking Activity 3,117 3,773 2,590 2,451 1,536
Retail Investment Income 765 632 563 525 554
Other 2,480 2,404 2,369 2,888 2,785
----- ----- ----- ----- -----
Noninterest income
excluding securities
gains 15,540 15,921 14,359 14,346 13,194
----- ----- ----- ----- -----
Investment Security
Gains, Net 36 340 104 92 113
------ ------ ------ ------ ------
Total $ 15,576 $ 16,261 $ 14,463 $ 14,438 $ 13,307
- -------------------------------------------------------------------------------
NONINTEREST EXPENSE
Second Quarter 1996 compared to First Quarter 1996:
Total noninterest expense decreased $775,000, or 2.2%, in the second quarter of
1996 when compared to the first quarter of 1996. With the exception of other
miscellaneous expense (down $735,000) all categories of noninterest expense
remained essentially the same as the first quarter of 1996.
Second Quarter 1996 compared to Second Quarter 1995:
Total noninterest expense increased $1.7 million, or 5.3%, in the second
quarter of 1996 when compared to the second quarter of 1995. Categories
showing the largest increases were salaries and employee benefits ($1.8
million), other miscellaneous expense ($1.1 million), occupancy expense
($203,000) and equipment rentals, depreciation and maintenance ($183,000).
Offsetting these increases were significantly lower FDIC insurance premiums
($1.6 million).
Salaries and benefits increased 10.6% over the second quarter of 1995 (7.32%
excluding the impact of Lodi and Great Northern Mortgage). The increase was in
base salary expense ($1.1 million), commissions paid to individuals with sales
based salaries ($254,000), and profit sharing expense as a result of higher
levels of earnings ($139,000).
Net occupancy expense increased $203,000, or 7.8%, over the second quarter of
1995. This increase is attributable to higher costs associated with additional
rent for buildings and land (up $133,000).
Equipment rentals, depreciation and maintenance increased from the second
quarter of 1995 by $183,000, or 11.4%. The increase is attributable to higher
depreciation and maintenance costs associated with the equipment purchased as
part of technology and customer service enhancements currently in progress
(depreciation on computers and equipment up $252,000).
Other noninterest expense increased $1.1 million in the second quarter of 1996
when compared to the second quarter of 1995. The increase is attributable to
increased mortgage servicing rights amortization of $398,000, consultant fees
of $296,000, miscellaneous expense accrual at the parent of $445,000 offset by
higher gain on sale of ORE/fixed assets ($184,000).
The significant decrease in FDIC expense from the second quarter of 1995
reflects the reduced FDIC premium ($500 per bank, except for SAIF deposits)
compared to $.23 per $100 of deposits.
The efficiency ratio improved to 59.23% for the second quarter of 1996 compared
to 61.90% for the same period last year. The ratio also decreased when
compared to the first quarter of 1996, improving from 60.99% to 59.23%. The
improvement from the first quarter of 1996 was due to noninterest expense
declining 2.2%, while net tax-equivalent income grew by only 0.7%.
The expense ratio improved to 2.01% for the second quarter of 1996 compared to
2.27% for the second quarter of 1995. The second quarter of 1996 also improved
when compared to the expense ratio of 2.09% in the first quarter of 1996.
YTD Second Quarter 1996 compared to YTD Second Quarter 1995:
Total noninterest expense increased $4.0 million, or 6.2%, in the first six
months of 1996 when compared to the same period in 1995 (increased $2.2
million, or 3.5%, excluding Lodi and GN Mortgage). Categories showing the
largest increases were salaries and employee benefits ($3.3 million), other
miscellaneous expense ($3.2 million), occupancy expense ($221,000) and
equipment rentals, depreciation and maintenance ($346,000). Offsetting these
increases were significantly lower FDIC insurance premiums ($3.2 million).
Salaries and benefits increased 10.0% over the first six months of 1995. The
increase was in base salary expense ($2.1 million), commissions paid to
individuals with sales based salaries ($562,000), profit sharing expense as a
result of higher levels of earnings ($307,000), 401k expense ($85,000) and FICA
taxes ($134,000).
Net occupancy expense increased $221,000, or 4.2%, over the first six months of
1995. This increase is attributable to higher costs associated with additional
rent for buildings and land (up $142,000) and increased building maintenance
costs (up $74,000).
Equipment rentals, depreciation and maintenance increased from the first half
of 1995 by $346,000, or 10.5%. The increase is attributable to higher
depreciation and maintenance costs associated with the equipment purchased as
part of technology and customer service enhancements currently in progress
(depreciation on computers and equipment up $498,000), offset by lower
depreciation expense on furniture and fixtures (down $192,000).
Other noninterest expense increased $3.2 million in the first six months of
1996 when compared to the same period in 1995. The increase is attributable to
increased MSR amortization of $845,000, consultant fees of $480,000, donations
of $135,000, lower gain on sale of ORE/fixed assets of $128,000 and higher
expenses relating to travel/meals/auto of $163,000.
The significant decrease in FDIC expense from the first six months of 1995
reflects the reduced FDIC premium ($1,000 per bank, except for SAIF deposits)
compared to $.23 per $100 of deposits.
The YTD efficiency ratio for 1996 improved to 60.11% compared to 62.25% for the
same period last year. The YTD expense ratio for 1996 improved to 2.05%
compared to 2.31% for the same period last year.
Noninterest Expense
Quarterly Trends
($ in Thousands)
- ------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Salaries and Employee
Benefits $18,347 $18,361 $17,391 $17,422 $16,585
Net Occupancy Expense 2,812 2,723 2,500 2,652 2,609
Equipment Rentals,
Depreciation and
Maintenance 1,795 1,859 1,658 1,635 1,612
Data Processing Expense 1,968 2,057 1,909 2,091 1,966
Stationery and Supplies 850 810 808 742 779
Business Development and
Advertising 861 874 806 721 812
FDIC Expense 23 12 331 35 1,635
Other 7,336 8,071 7,489 7,105 6,272
------ ------ ------ ------ ------
Total $33,992 $34,767 $32,892 $32,403 $32,270
- -------------------------------------------------------------------------------
Expense Control
Quarterly Trends
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Efficiency Ratio
- Quarter 59.23% 60.99% 59.45% 59.56% 61.90%
Efficiency Ratio
- Year 60.11% 60.99% 60.84% 61.32% 62.25%
Expense Ratio
- Quarter 2.01% 2.09% 2.09% 2.07% 2.27%
Expense Ratio
- Year 2.05% 2.09% 2.19% 2.23% 2.31%
- -------------------------------------------------------------------------------
INCOME TAXES
Income tax expense increased 17.9% over the second quarter of 1995, essentially
parallelling the increase of 17.3% in income before taxes. The effective tax
rate remained fairly consistent with previous quarters at 35.5%.
Income Tax Expense
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Income Before Taxes $21,256 $20,154 $19,557 $20,249 $18,124
====== ====== ====== ====== ======
State Tax Expense $ 1,290 $ 1,211 $ 1,301 $ 1,236 $ 1,040
Federal Tax Expense 6,266 5,982 6,035 6,193 5,369
------ ------ ------ ------ ------
Total Income Tax Expense 7,556 7,193 7,336 7,429 6,409
Effective Tax Rate 35.5% 35.7% 37.5% 36.7% 35.4%
- -------------------------------------------------------------------------------
BALANCE SHEET
June 30, 1996, compared to March 31, 1996
During the second quarter of 1996, total assets increased $79.1 million to
exceed the $4 billion mark for the first time at $4.009 billion. Loans
increased $87.8 million (12.4% annualized growth). The loan growth was in
commercial and other ($59.7 million), real estate mortgage ($17.6 million) and
consumer ($10.5 million). This loan growth was funded through increased
interest-bearing deposits (primarily time deposits) of $62.2 million, increased
short-term and long-term borrowings of $11.9 million, reduced investment and
short-term investment balances of $27.1 million offset by lower net free funds
of $13.3 million.
June 30, 1996, compared to December 31, 1995
During the first six months of 1996, total assets increased $101.9 million to
$4.009 billion. Loans increased $176.3 million. The loan growth was in
commercial and other ($150.6 million), real estate mortgage ($7.3 million) and
consumer ($18.4 million). Loan growth, excluding the acquisitions of Lodi and
GN Mortgage, was funded through increased interest-bearing deposits (primarily
time deposits) of $90.3 million, increased short-term and long-term borrowings
of $8.3 million, reduced investment and short-term investment balances of $62.8
million offset by lower net free funds of $37.9 million.
June 30, 1996, compared to June 30, 1995
Over the past twelve months total assets increased $308.1 million to $4.009
billion. Loans increased $310.0 million. The $310 million of loan growth was
in commercial and other ($256.2 million), real estate mortgage ($19.6 million)
and consumer ($34.2 million). The loan growth, excluding the acquisitions of
Lodi and GN Mortgage, was funded through increased interest-bearing deposits
(primarily time deposits) of $151.4 million, increased short-term and long-term
borrowings of $55.2 million, reduced investment and short-term investment
balances of $37.9 million and higher net free funds of $11.7 million.
LIQUIDITY
Liquidity refers to the ability of the Corporation to generate adequate amounts
of cash to meet the Corporation's needs for cash. The subsidiary banks and the
parent company of the Corporation have different liquidity considerations.
Banking subsidiaries meet their cash flow requirements by having funds
available to satisfy customer credit needs as well as having available funds to
satisfy deposit withdrawal requests. Liquidity at banking subsidiaries is
derived from deposit growth, money market assets, maturing loans, the maturity
of securities, access to other funding sources and markets, and a strong
capital position.
Deposit growth is the primary source of liquidity at the banking subsidiaries.
Interest-bearing deposits increased $143 million, while noninterest-bearing
deposits fell $70 million from the seasonally high year-end balance.
As of June 30, 1996, the securities portfolio contained $368.5 million at
amortized cost of U.S. Treasury and federal agency securities available for
sale, representing 47.8% of the total securities portfolio. These government
securities are highly marketable and had a market value equal to 99.3% of
amortized cost at quarter end.
Money market investments, consisting of federal funds sold, securities
purchased under agreements to resell, and interest-bearing deposits in other
financial institutions, averaged $11.8 million in the second quarter of 1996
compared to $25.3 million during the same period in 1995. Being short-term and
liquid by nature, money market investments generally provide a lower yield than
other earning assets. The Corporation has a strategy of maintaining a
sufficient level of liquidity to accommodate fluctuations in funding sources
and will periodically take advantage of specific opportunities to temporarily
invest excess funds at narrower than normal rate spreads while still generating
additional net interest income. At June 30, 1996, the Corporation had $18.7
million outstanding in short-term money market investments, serving as an
essential source of liquidity. The amount at quarter end represents .5% of
total assets compared to 1.2% at December 31, 1995.
Short-term borrowings totaled $377.5 million at June 30, 1996, compared with
$363.4 million at the end of 1995. Within the classification of short-term
borrowings are federal funds purchased and securities sold under agreements to
repurchase. Federal funds are purchased from a sizeable network of
correspondent banks while securities sold under agreements to repurchase are
obtained from a base of individual, business and public entity customers.
Deposit growth will continue to be the primary source of bank subsidiary
liquidity on a long-term basis, along with stable earnings, the resulting cash
generated by operating activities and strong capital positions. Shorter-term
liquidity needs will mainly be derived from growth in short-term borrowings,
maturing securities and money market assets, loan maturities and access to
other funding sources.
Liquidity is also necessary at the parent company level. The parent company's
primary sources of funds are dividends and service fees from subsidiaries,
borrowings and proceeds from the issuance of equity. The parent company
manages its liquidity position to provide the funds necessary to pay dividends
to shareholders, service debt, invest in subsidiaries and satisfy other
operating requirements. Dividends received from subsidiaries totaled $23.2
million in the first six months of 1996 and will continue to be the parent's
main source of long-term liquidity.
At June 30, 1996, the parent company had $110 million of established lines of
credit with non-affiliated banks, of which $59 million was in use. The parent
company also has access to funds from the issuance of the Corporation's
commercial paper, although such funds are also downstreamed to the nonbank
subsidiaries. Commercial paper outstanding at June 30, 1996, totaled $2.5
million.
The Corporation s long-term debt to equity ratio at June 30, 1996, was 5.8%,
compared to 6.6% at December 31, 1995. This decrease is mainly attributable to
FHLB advances which were reclassed from long-term to short-term borrowings due
to remaining maturities of less than one year.
Management believes that, in the current economic environment, the
Corporation's subsidiary and parent company liquidity positions are adequate.
There are no known trends nor any known demands, commitments, events or
uncertainties that will result or are reasonably likely to result in a material
increase or decrease in the Corporation's liquidity.
CAPITAL
Stockholders' equity at June 30, 1996, increased 6.3%, or $21.5 million, to
$361.8 million or $20.28 per share compared with $340.3 million, or $19.46 per
share, at December 31, 1995. Equity to assets at June 30, 1996, remains strong
at 9.03%, with the Tier 1 leverage ratio climbing to 8.39%. The increase in
equity of $21.9 million since December 31, 1995, is attributable to $7.6
million from the Lodi acquisition, $16.7 million of retained earnings, $340,000
from the exercise of stock options reduced by $3.2 million for the change in
the equity portion of the SFAS 115 adjustment.
Cash dividends of $.29 per share were paid in the second quarter of 1996,
representing a payout ratio of 37.66%. Compared to the same period last year,
a cash dividend of $.22 per share was paid, representing a payout ratio of
32.84%. On a YTD basis, the cash dividend paid in 1996 was $.56 compared to
$.43 per share paid in the same period last year, a 30.2% increase.
Capital
Quarterly Trends
($ in Thousands)
- -------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Stockholders Equity $361,805 $354,867 $340,294 $329,989 $322,973
Average Equity to
Average Assets 9.02% 9.00% 8.91% 8.75% 8.74%
Equity to Assets
- Period End 9.03% 9.03% 8.71% 8.80% 8.73%
Tier 1 Capital to Risk
Weighted Assets -
Period End 10.75% 10.66% 10.57% 10.55% 10.48%
Total Capital to Risk
Weighted Assets -
Period End 12.00% 11.91% 11.82% 11.81% 11.74%
Tier 1 Leverage Ratio
- Period End 8.39% 8.23% 8.05% 7.93% 7.99%
Market Value Per Share
- Period End $38.75 $37.75 $40.94 $36.75 $30.38
Book Value Per Share
- Period End $20.28 $19.90 $19.46 $18.89 $18.48
Market Value Per Share
to Book Value Per Share 191.1% 189.7% 210.4% 194.5% 164.4%
Dividends Per Share
- This Quarter $ .29 $ .27 $ .27 $ .27 $ .22
Dividends Per Share
- Year to Date $ .56 $ .27 $ .97 $ .70 $ .43
Earnings Per Share
- This Quarter $ .77 $ .73 $ .70 $ .73 $ .67
Earnings Per Share
- Year to Date $1.50 $ .73 $2.75 $2.05 $1.32
Dividend Payout Ratio
- This Quarter 37.66% 36.99% 38.57% 36.99% 32.84%
Dividend Payout Ratio
- Year to Date 37.33% 36.99% 35.27% 34.15% 32.58%
- -------------------------------------------------------------------------------
As of June 30, 1996, the Corporation's tier 1 risk-based capital ratio, total
risk-based capital (tier 1 and tier 2) ratio and tier 1 leverage ratio were
well in excess of regulatory minimums. Management of the Corporation expects
to continue to exceed the minimum standards in the future.
Similar capital guidelines are also required of the individual banking
subsidiaries of the Corporation. As of June 30, 1996, each banking subsidiary
exceeded the minimum ratios for tier 1 capital, total capital and the tier 1
leverage ratio.
Management actively reviews capital strategies for the Corporation and each of
its subsidiaries to ensure that capital levels are appropriate based on the
perceived business risks, future growth opportunities, industry standards and
regulatory requirements.
RECENT DEVELOPMENTS
On July 19, 1996, the Corporation completed its merger with F&M Bankshares of
Reedsburg, Inc. F&M Bankshares is a Wisconsin bank holding company with $139
million in assets, including its commercial bank subsidiary, Farmers &
Merchants Bank (Wisconsin).
On July 31, 1996, the Corporation completed its merger with Mid-America
National Bancorp, and its $39 million asset subsidiary, Mid-America National
Bank of Chicago, in a cash transaction.
On April 10, 1996, the Corporation announced the signing of a letter of intent
under which the Corporation would acquire Centra Financial, Inc., and its
subsidiary, Central Bank of West Allis, in a stock-for-stock merger
transaction. The transaction, which is contingent on completion of a
definitive agreement and approval by regulatory authorities and the
shareholders of Centra Financial, Inc. is expected to be completed in the first
quarter of 1997.
ACCOUNTING DEVELOPMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. The Statement prescribes the accounting for the
impairment of long-lived assets and goodwill related to those assets. The new
rules specify when assets should be reviewed for impairment, how to determine
whether an asset or group of assets is impaired, how to measure an impairment
loss, and what financial statement disclosures are necessary. Also prescribed
is the accounting for long-lived assets and identifiable intangibles that a
company plans to dispose of, other than those that are a part of a discontinued
operation. Any impairment of a long-lived asset resulting from management's
review is to be recognized as a component of noninterest expense. The
Corporation adopted SFAS 121 on January 1, 1996. The impact of adoption did
not have a material effect on the consolidated financial statements of the
Corporation.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective in 1996. The statement requires that a fair
value-based method be used to value employee compensation plans that include
stock-based awards. The statement permits a company to recognize compensation
expense under SFAS 123, or continue to use the prior accounting rules which did
not consider the market value of stock in certain award plans. If adoption of
the statement's fair value procedures are not used in the computation of
compensation expense in the income statement, the company must disclose in a
footnote to the financial statements the pro forma impact of adoption. The
Corporation will be adopting the disclosure method of the statement.
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The corporation held its Annual Meeting of Shareholders on April
24, 1996. Proxies were solicited by corporation management
pursuant to Regulation 14A under the Securities Exchange Act of
1934.
(b) Directors elected at the Annual Meeting were John S. Holbrook,
Jr., William R. Hutchinson, and James F. Janz. Directors
continuing in office after the meeting were Harry B. Conlon,
Robert Feitler, Robert C. Gallagher, Ronald R. Harder, John C.
Meng, and J. Douglas Quick.
(c) The matters voted upon and the results of the voting were as
follows:
(i) Election of the below-named nominees to the Board of
Directors of the corporation:
For Withheld
All Nominees 12,148,317.5760 54,833.3710
By Nominee:
Holbrook 12,155,095.5440 55,238.8050
Hutchinson 12,155,500.9780 54,833.3710
Janz 12,148,317.5760 62,016.7730
(ii) Ratification of the selection of KPMG Peat Marwick as
independent certified public accountants for the corporation
for the year ending December 31, 1995.
For Against Abstain
12,152,670.7900 12,371.7000 45,291.8590
(d) Not applicable.
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
Page No.
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Statements re Computation of Per Share Earnings
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six
months ended June 30, 1996.
ASSOCIATED BANC-CORP
EXHIBIT (11)
Statement Re Computation of Per Share Earnings
June 30, 1996 June 30, 1995
------------- -------------
As Reported:
Net income $26,661,035 $22,970,000
Weighted average common shares
outstanding 17,827,548 17,471,000
Net income per share $ 1.50 $ 1.31
Primary:
Net income $26,661,035 $22,970,000
Weighted average common shares
outstanding 17,827,548 17,471,000
Common stock equivalents 250,807 173,001
Adjusted weighted average common
shares outstanding 18,078,355 17,644,001
Net income per share $ 1.47 $ 1.30
Fully Diluted:
Net income $26,661,035 $22,970,000
Weighted average common shares
outstanding 17,827,548 17,471,000
Common stock equivalents 265,369 196,862
Adjusted weighted average common
shares outstanding 18,092,917 17,667,862
Net income per share $ 1.47 $ 1.30
Note: The primary and fully diluted numbers are not disclosed in the reported
financials because any dilution that is less than 3% of earnings per common
shares outstanding is not considered to be material.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSOCIATED BANC-CORP
(Registrant)
Date: August 14, 1996
/s/ Harry B. Conlon
-----------------------------------
Harry B. Conlon
Chairman & Chief Executive Officer
Date: August 14, 1996
/s/ Joseph B. Selner
-----------------------------------
Joseph B. Selner
Principal Financial Officer
INDEX TO EXHIBITS
Exhibit No. Page No.
(11) Computations of Earnings Per Share and Average
Number of Common Shares Outstanding
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