SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 2000
-----------------------------------
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 number 0-5519
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Associated Banc-Corp
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1098068
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
1200 Hansen Road, Green Bay, Wisconsin 54304
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(920) 491-7000
- -------------------------------------------------------------------------------
(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 April 30, 2000, was 62,878,670.
<PAGE>
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets -
March 31, 2000, March 31, 1999
and December 31, 1999
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999
Consolidated Statement of Changes in
Stockholders' Equity - Three Months Ended
March 31, 2000
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
See Footnote (5) in Part I Item I
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Balance Sheets
(Unaudited)
March 31, March 31, December 31,
2000 1999 1999
---- ---- ----
(In thousands, except share data)
ASSETS
Cash and due from banks $ 289,243 $ 253,036 $ 284,652
Interest-bearing deposits in
other financial institutions 4,550 5,600 4,394
Federal funds sold and securities
purchased under agreements to resell 83,285 33,225 25,120
Investment securities:
Held to maturity-at amortized cost
(fair value of $401,951, $520,819,
and $413,107, respectively) 406,227 512,340 414,037
Available for sale-at fair value
(amortized cost of $2,853,866,
$2,492,237, and $2,901,607,
respectively) 2,786,209 2,516,992 2,856,346
Loans held for sale 7,284 127,893 11,955
Loans 8,589,984 7,463,922 8,343,100
Allowance for loan losses (116,297) (103,064) (113,196)
------------------------------------
Loans, net 8,473,687 7,360,858 8,229,904
Premises and equipment 136,092 140,130 140,100
Other assets 548,043 351,742 553,394
------------------------------------
Total assets $12,734,620 $11,301,816 $12,519,902
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 1,112,924 $ 940,883 $ 1,103,931
Interest-bearing deposits 8,084,860 7,496,753 7,587,898
------------------------------------
Total deposits 9,197,784 8,437,636 8,691,829
Short-term borrowings 2,381,852 1,815,020 2,775,090
Long-term debt 122,834 27,848 24,283
Accrued expenses and other liabilities 111,362 117,781 118,911
------------------------------------
Total liabilities 11,813,832 10,398,285 11,610,113
Stockholders' equity
Preferred stock --- --- ---
Common stock (Par value $0.01 per share,
authorized 100,000,000 shares, issued
63,389,734, shares) 634 634 634
Surplus 226,042 225,757 226,042
Retained earnings 750,683 663,328 728,754
Accumulated other comprehensive
income (loss) (43,590) 15,716 (38,782)
Treasury stock at cost (454,072,
58,826 and 189,610 shares,
respectively) (12,981) (1,904) (6,859)
------------------------------------
Total stockholders' equity 920,788 903,531 909,789
------------------------------------
Total liabilities and
stockholders' equity $12,734,620 $11,301,816 $12,519,902
====================================
See accompanying notes to consolidated financial statements.
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
2000 1999
---- ----
(In thousands except
per share data)
INTEREST INCOME
Interest and fees on loans $ 172,239 $ 150,383
Interest and dividends on investment securities:
Taxable 41,722 40,179
Tax exempt 8,196 4,739
Interest on deposits in other financial institutions 64 161
Interest on federal funds sold and securities
purchased under agreements to resell 552 238
-------------------
Total interest income 222,773 195,700
INTEREST EXPENSE
Interest on deposits 81,558 77,399
Interest on short-term borrowings 41,421 21,061
Interest on long-term borrowings 1,445 442
-------------------
Total interest expense 124,424 98,902
-------------------
NET INTEREST INCOME 98,349 96,798
Provision for loan losses 5,715 4,451
-------------------
Net interest income after provision
for loan losses 92,634 92,347
NONINTEREST INCOME
Trust service fees 10,123 9,581
Service charges on deposit accounts 7,474 6,917
Mortgage banking 4,590 11,392
Credit card and other nondeposit fees 5,276 4,558
Retail commission income 5,608 3,886
Asset sale gains, net 8,264 282
Investment securities gains (losses), net (1,702) 3,589
Other 6,311 4,002
------------------
Total noninterest income 45,944 44,207
NONINTEREST EXPENSE
Salaries and employee benefits 38,638 38,230
Occupancy 6,144 5,926
Equipment 4,097 3,692
Data processing 5,679 5,295
Business development and advertising 3,230 3,059
Stationery and supplies 1,824 1,871
FDIC expense 477 862
Other 18,522 19,649
------------------
Total noninterest expense 78,611 78,584
------------------
Income before income taxes 59,967 57,970
Income tax expense 16,886 19,019
------------------
NET INCOME $ 43,081 $ 38,951
==================
Earnings per share:
Basic $ 0.68 $ 0.62
Diluted $ 0.68 $ 0.61
Average shares outstanding:
Basic 63,186 63,214
Diluted 63,466 63,752
See accompanying notes to consolidated financial statements.
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
Accumulated
Common Other
Stock Retained Comprehensive Treasury
Amount Surplus Earnings Income (Loss) Stock Total
--------------------------------------------------------------------------------
($ in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 634 $ 226,042 $ 728,754 $ (38,782) $ (6,859) $ 909,789
Comprehensive income:
Net income --- --- 43,081 --- --- 43,081
Net unrealized holding
losses arising
during the period --- --- --- (9,250) --- (9,250)
Add back:
reclassification
adjustment for net
lossesrealized in
net income --- --- --- 1,702 --- 1,702
Income tax effect --- --- --- 2,740 --- 2,740
-------
Comprehensive income 38,273
Cash dividends, $0.29 per
share --- --- (18,340) --- --- (18,340)
Common stock issued:
Incentive stock options --- --- (2,812) --- 4,641 1,829
Purchase of treasury stock --- --- --- --- (10,763) (10,763)
================================================================================
Balance, March 31, 2000 $ 634 $ 226,042 $ 750,683 $ (43,590) $ (12,981) $ 920,788
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 43,081 $ 38,951
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 5,715 4,451
Depreciation and amortization 5,078 4,399
Amortization (accretion) of:
Mortgage servicing rights 2,429 2,258
Intangibles 2,024 1,703
Investment premiums and discounts 293 350
Deferred loan fees and costs 807 378
(Gain) loss on sales of securities, net 1,702 (3,589)
Gain on other asset sales, net (8,264) (282)
Gain on sales of loans held for sale, net (439) (5,847)
Decrease in loans held for sale, net 5,110 43,124
Decrease in interest receivable
and other assets 11,909 6,309
Decrease in interest payable and
other liabilities (7,549) (1,429)
------------------------
Net cash provided by operating activities 61,896 90,776
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in federal funds sold and
securities purchased under agreements
to resell (58,165) (17,340)
Net (increase) decrease in interest-bearing
deposits in other financial institutions (156) 194,884
Net increase in loans (251,442) (86,817)
Mortgage servicing rights additions (739) (4,731)
Purchases of:
Securities available for sale (281,127) (373,775)
Premises and equipment, net of disposals (2,664) (4,068)
Proceeds from:
Sales of securities available for sale 262,634 35,054
Maturities of securities available for sale 79,159 220,841
Maturities of securities held to maturity 7,739 38,225
Sales of other real estate owned and other assets 3,461 1,853
Net cash received in acquisition of subsidiary --- 3,956
------------------------
Net cash provided by (used in) investing activities (241,300) 8,082
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 588,325 (272,297)
Net increase (decrease) in short-term borrowings (393,238) 126,213
Repayment of long-term debt (1,448) (234)
Proceeds from issuance of long-term debt 100,000 ---
Cash dividends (18,340) (18,477)
Proceeds from exercise of stock options 1,829 1,087
Sales of branch deposits (82,370) ---
Purchase of treasury stock (10,763) (13,646)
------------------------
Net cash provided by financing activities 183,995 (177,354)
------------------------
Net increase (decrease) in cash
and cash equivalents 4,591 (78,496)
Cash and due from banks at
beginning of period 284,652 331,532
========================
Cash and due from banks at end of period $ 289,243 $ 253,036
========================
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 122,781 $ 102,651
Income taxes 3,275 2,168
Supplemental schedule of noncash
investing activities:
Loans transferred to other real estate 1,137 5,503
========================
See accompanying notes to consolidated financial statements.
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
NOTE 1: Basis of Presentation
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, and all such adjustments are of a normal
recurring nature. The consolidated financial statements include the accounts of
all subsidiaries. All material intercompany transactions and balances are
eliminated. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
These interim consolidated financial statements have been prepared according to
the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally presented in
accordance with generally accepted accounting principles have been omitted or
abbreviated. The information contained in the consolidated financial statements
and footnotes in the Corporation's 1999 annual report on Form 10-K, should be
referred to in connection with the reading of these unaudited interim financial
statements.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses and the valuation of investments
and mortgage servicing rights.
NOTE 2: Reclassifications
Certain items in the prior period consolidated financial statements have been
reclassified to conform with the March 31, 2000 presentation.
NOTE 3: Business Combinations
The following table summarizes completed business combination transactions
during 1999. There were no completed or pending business combination
transactions in first quarter 2000.
<TABLE>
Consideration Paid
------------------------
Shares of
Name of Acquired Date Method of Common Total
($ in millions) Acquired Accounting Stock Cash Assets Loans Deposits Intangibles
- ---------------------------------- --------- ----------- ----------- ------------ -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BNC Financial Corporation ("BNC") 12/31/99 Purchase --- $ 5.3 $ 35 $ 33 $ --- $ 1
St Cloud, Minnesota
Riverside Acquisition Corp. 8/31/99 Purchase 2,434,005 $ --- 374 $ 266 $ 337 $ 67
("Riverside")
Minneapolis, Minnesota
Windsor Bancshares, Inc. 2/3/99 Purchase 799,961 $ --- $ 182 $ 113 $ 152 $ 17
("Windsor")
Minneapolis, Minnesota
</TABLE>
The consolidated financial statements include the results of operations for the
acquisitions accounted for under the purchase method since the date of
acquisition.
<PAGE>
During first quarter, Riverside and Windsor merged and became Associated Bank
Minnesota. Effective March 31, 2000, BNC operates as Associated Commercial
Finance, Inc.
NOTE 4: Adoption of Statements of Financial Accounting Standards ("SFAS")
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," requires
derivative instruments be carried at fair value on the balance sheet. The
statement continues to allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used to determine when hedge
accounting can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value or cash flow that represent the ineffective portion of a hedge are
required to be recognized in earnings and cannot be deferred. For derivative
instruments not accounted for as hedges, changes in fair value are required to
be recognized in earnings.
The Corporation plans to adopt the provisions of this statement, as amended, for
its quarterly and annual reporting beginning January 1, 2001, the statement's
effective date. The impact of adopting the provisions of this statement on the
Corporation's financial position, results of operations, and cash flow
subsequent to the effective date is not currently estimable and will depend on
the financial position of the Corporation and the nature and purpose of the
derivative instruments in use at that time.
NOTE 5: Earnings Per Share
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is calculated by dividing net income by the weighted
average number of shares adjusted for the dilutive effect of outstanding stock
options.
Presented below are the calculations for basic and diluted earnings per share:
For the three months ended March 31,
------------------------------------
2000 1999
---- ----
(in thousands, except per share data)
Net income available to
common stockholders $ 43,081 $ 38,951
Weighted average shares outstanding 63,186 63,214
Effect of dilutive stock options
outstanding 280 538
-----------------------------------
Diluted weighted average
shares outstanding $ 63,466 $ 63,752
===================================
Basic earnings per common share $ 0.68 $ 0.62
Diluted earnings per common share $ 0.68 $ 0.61
===================================
<PAGE>
NOTE 6: Interest Rate Swaps
As part of managing the Corporation's interest rate risk, a variety of
derivative financial instruments could be used to hedge market values and to
alter the cash flow characteristics of certain on-balance sheet instruments. The
Corporation has principally used interest rate swaps. The derivative instruments
used to manage interest rate risk are linked with a specific asset or liability
or a group of related assets or liabilities at the inception of the derivative
contract and have a high degree of correlation with the related balance sheet
item during the hedge period. The pay fixed interest rate swaps hedge money
market deposits, and the pay variable interest rate swap hedges certificates of
deposit.
Net interest income or expense on derivative contracts used for interest rate
risk management is recorded in the consolidated statements of income as a
component of interest income or interest expense depending on the financial
instrument to which the swap is designated. Realized gains and losses on
contracts, either settled or terminated, are deferred and are recorded as either
an adjustment to the carrying value of the related on-balance sheet asset or
liability or in other assets or other liabilities. Deferred amounts are
amortized into interest income or expense over either the remaining original
life of the derivative instrument or the expected life of the related asset or
liability. Unrealized gains or losses on these contracts are not recognized on
the balance sheet. The table below summarizes the Corporation's interest rate
swaps at March 31, 2000. There were no interest rate swaps at March 31, 1999.
<TABLE>
Estimated Weighted Average
---------------------------------------------------------
Notional Fair Market Pay Rate Receive Rate Remaining Maturity
Amount Value
- -------------------------- ----------- ---------------- ------------ -------------------- -----------------------
($ in Thousands)
<S> <C> <C> <C> <C> <C>
Pay fixed swaps $300,000 $3,661 6.36% 6.01% 26 months
Pay variable swap $ 10,000 $ (30) 5.62% 6.35% 12 months
</TABLE>
NOTE 7: Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires selected financial and descriptive information about
reportable operating segments. The statement replaces the "industry segment"
concept of SFAS No. 14 with a "management approach" concept as the basis for
identifying reportable segments. The management approach is based on the way
that management organizes the segments within the enterprise for making
operating decisions, allocating resources, and assessing performance.
Consequently, the segments are evident from the structure of the enterprise's
internal organization, focusing on financial information that an enterprise's
chief operating decision-makers use to make decisions about the enterprise's
operating matters.
The Corporation's reportable segment is banking, conducted through its bank,
leasing, mortgage, insurance and brokerage subsidiaries. For purposes of segment
disclosure under this statement, these entities have similar economic
characteristics and the nature of their products, services, processes,
customers, delivery channels and regulatory environment are similar.
The "other" segment is comprised of smaller nonreportable segments, including
asset management, consumer finance, treasury, holding company investments, as
well as inter-segment eliminations and residual revenues and expenses,
representing the difference between actual amounts incurred and the amounts
allocated to operating segments.
Selected segment information is presented below.
Consolidated
Banking Other Eliminations Total
------------------------------------------------
As of and for the
three months ended ($ in Thousands)
March 31, 2000
Total assets $13,297,757 $1,200,585 $(1,763,722) $12,734,620
==================================================
Interest income $ 234,803 $ 5,027 $ (17,057) $ 222,773
Interest expense 137,699 3,782 (17,057) 124,424
--------------------------------------------------
Net interest income 97,104 1,245 --- 98,349
Provision for loan losses 5,497 218 --- 5,715
Noninterest income 46,511 33,179 (33,746) 45,944
Depreciation and
amortization 7,037 2,500 --- 9,537
Other noninterest expense 75,667 27,153 (33,746) 69,074
Income taxes 15,432 1,454 --- 16,886
--------------------------------------------------
Net income $ 39,982 $ 3,099 $ --- $ 43,081
==================================================
As of and for the
three months ended
March 31, 1999
Total assets $11,784,341 $1,259,726 $(1,742,251) $11,301,816
==================================================
Interest income $ 198,211 $ 4,872 $ (7,383) $ 195,700
Interest expense 102,270 4,015 (7,383) 98,902
--------------------------------------------------
Net interest income 95,941 857 --- 96,798
Provision for loan losses 4,335 116 --- 4,451
Noninterest income 40,242 29,157 (25,192) 44,207
Depreciation and
amortization 6,422 1,922 --- 8,344
Other noninterest expense 71,364 24,065 (25,189) 70,240
Income taxes 17,890 1,524 (395) 19,019
==================================================
Net income $ 36,172 $ 2,387 $ 392 $ 38,951
==================================================
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations
Forward-Looking Statements
Forward-looking statements have been made in this document that are subject to
risks and uncertainties. These forward-looking statements describe future plans
or strategies and include Associated Banc-Corp's expectations of future results
of operations. The words "believes," "expects," "anticipates," or other similar
expressions identify forward-looking statements.
Shareholders should note that many factors, some of which may be discussed
elsewhere in this document could affect the future financial results of
Associated Banc-Corp (the "Corporation") and could cause those results to differ
materially from those expressed in forward-looking statements contained in this
document. These factors include the following:
- - operating, legal, and regulatory risks;
- - economic, political, and competitive forces affecting the Corporation's
banking, securities, asset management, and credit services businesses; and
- - the risk that the Corporation's analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them could be
unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements.
Overview
The following discussion and analysis is presented to assist in the
understanding and evaluation of the Corporation's financial condition and
results of operations. It is intended to complement the unaudited financial
statements, footnotes, and supplemental financial data appearing elsewhere in
this Form 10-Q and should be read in conjunction therewith.
The following discussion refers to the impact of the Corporation's business
combination activity (see Note 3 of the notes to consolidated financial
statements).
Management continually evaluates strategic acquisitions and other various
strategic alternatives that could involve the sale or acquisition of branches or
other assets.
Results of Operations - Summary
Net income for the three months ended March 31, 2000 totaled $43.1 million, or
$.68 for basic and diluted earnings per share ("EPS"). Comparatively, net income
for the first quarter of 1999 ("1Q99") was $39.0 million, or $.62 and $.61 for
basic and diluted EPS, respectively. Operating results for the first quarter of
2000 ("1Q00") generated an annualized return on average assets ("ROA") of 1.38%
and an annualized return on average equity ("ROE") of 19.33%, compared to 1.42%
and 17.44%, respectively, for the comparable period in 1999. The net interest
margin for 1Q00 was 3.46% compared to 3.78% for 1Q99.
Net income for 1Q00 was down $1.3 million from the fourth quarter of 1999
("4Q99"). Diluted EPS was $.68 compared to $.69 for 4Q99. ROA decreased by 4
basis points and ROE increased by 28 basis points, respectively, over the ratios
for 4Q99, with the net interest margin down 19 basis points from the 3.65% for
4Q99.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
TABLE 1
Summary Results of Operations: Trends
($ in Thousands, except per share)
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
2000 1999 1999 1999 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (Qtr) $ 43,081 $ 44,334 $ 41,782 $ 39,876 $ 38,951
Net income (YTD) $ 43,081 $ 164,943 $ 120,609 $ 78,827 $ 38,951
Earnings per share - basic (Qtr) $ 0.68 $ 0.70 $ 0.65 $ 0.63 $ 0.62
Earnings per share - basic (YTD) $ 0.68 $ 2.60 $ 1.90 $ 1.25 $ 0.62
Earnings per share - diluted (Qtr) $ 0.68 $ 0.69 $ 0.65 $ 0.62 $ 0.61
Earnings per share - diluted (YTD) $ 0.68 $ 2.57 $ 1.88 $ 1.23 $ 0.61
ROA (Qtr) 1.38% 1.42% 1.40% 1.40% 1.42%
ROA (YTD) 1.38% 1.41% 1.40% 1.41% 1.42%
ROE (Qtr) 19.33% 19.05% 18.01% 17.64% 17.44%
ROE (YTD) 19.33% 18.04% 17.70% 17.54% 17.44%
Efficiency ratio (Qtr) * 55.19% 52.31% 52.15% 54.57% 56.17%
Efficiency ratio (YTD) * 55.19% 53.78% 54.28% 55.37% 56.17%
Net interest margin (Qtr) 3.46% 3.65% 3.70% 3.74% 3.78%
Net interest margin (YTD) 3.46% 3.74% 3.74% 3.76% 3.78%
</TABLE>
* Noninterest expense divided by sum of taxable equivalent net interest
income plus noninterest income, excluding investment securities gains, net,
and asset sales gains, net.
Net Interest Income and Net Interest Margin
Net interest income on a fully taxable equivalent basis ("FTE NII") for the
three months ended March 31, 2000 was $103.1 million, up $3.5 million or 3.5%
over the comparable quarter last year. As indicated in Tables 2 and 3, changes
in the volume and mix of average earning assets ("EAs") and interest-bearing
liabilities ("IBLs") contributed $11.5 million to FTE NII, while changes in the
rate environment impacted FTE NII unfavorably by $8.0 million. The net interest
margin ("NIM") was 3.46% for 1Q00, down 32 basis points ("bp") from 3.78% for
1Q99.
EAs increased by $1.4 billion (13.0%) over the comparable quarter last year,
while IBLs grew $1.3 billion (14.4%). EA growth occurred in loans, up an average
of $960 million or 12.8% (of which $299 million was acquired with Riverside and
BNC), and in investments, up $403 million or 13.5% (of which $284 million was in
municipal securities). IBL growth was principally in wholesale funding, up $1.2
billion (68.1%); this funding source represented 27.9% of total IBLs in 1Q00
compared to 19.0% in 1Q99. Interest-bearing deposits grew $134 million (1.8%)
(with $199 million acquired with Riverside and $348 million increase in average
brokered CDs). During 1Q00, five branches with $83 million in deposits were
sold, and 3 branches with $55 million in deposits were sold during 4Q99.
Incremental reliance and cost on wholesale funds was incurred to replace sold
and reduced deposit dollars.
FTE NII and NIM exhibited compression from the rising interest rate environment
and competitive pricing pressures. On a comparable quarter basis, the Fed funds
rate was 6.00% at March 31, 2000, up 125 bp from the prior year (and up 93 bp on
average). Given the liability sensitive nature of the balance sheet, the yield
on total earning assets showed less elasticity to the rising rate environment,
while the funding side continued to re-price and price new volumes at higher
rates.
The NIM for 1Q00 was 3.46%, down 32 bp from 3.78% in 1Q99. The interest rate
spread (the difference between the average earning asset yield and the average
rate paid on interest-bearing liabilities) dropped 32 bp, attributable to a 6 bp
rise in the yield on EAs and a 38 bp increase in the rate on IBLs. Yields on
both loans and investments and other rose (6 bp to 8.12% for loans and 7 bp to
6.50% for investments and other). See Table 2. Wholesale funding costs climbed
85 bp (to 5.77% in 1Q00). The rate on total interest-bearing deposits increased
11 bp (to 4.31%), a combination of a 72 bp increase in brokered CDs and a 3 bp
increase in retail interest-bearing deposits. In addition, the lower margin
reflects the cost of funding the Corporation's share repurchases during late
1999 and early 2000 and the purchase of an additional $100 million in bank owned
life insurance ("BOLI") (a non-interest earning asset). The Corporation may
continue to experience further compression due to interest rate increases and
competitive pricing pressures.
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
TABLE 2
Net Interest Income Analysis
($ in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000 Three months ended March 31, 1999
--------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 8,459,281 $ 172,513 8.12% $ 7,499,049 $ 150,599 8.06%
Investments and other 3,382,629 54,977 6.50 2,979,190 47,881 6.43
-------------------------- --------------------------
Total earning assets 11,841,910 227,490 7.66 10,478,239 198,480 7.60
Other assets, net 730,617 675,773
------------- -------------
Total assets $ 12,572,527 $ 11,154,012
============= =============
Interest-bearing deposits $ 7,603,932 81,558 4.31 $ 7,469,985 77,399 4.20
Wholesale funding 2,936,597 42,866 5.77 1,746,911 21,503 4.92
-------------------------- --------------------------
Total interest-bearing liabilities 10,540,529 124,424 4.72 9,216,896 98,902 4.34
--------- -------
Demand, non-interest bearing 1,027,325 903,939
Other liabilities 108,133 127,154
Stockholders' equity 896,540 906,023
------------- -------------
Total liabilities and equity $ 12,572,527 $ 11,154,012
============= =============
Interest rate spread 2.94 3.26
Net free funds 0.52 0.52
---- ----
Net interest income and net interest
margin $ 103,066 3.46% $ 99,578 3.78%
========== ==========
Tax equivalent adjustment $ 4,717 $ 2,780
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TABLE 3
Volume / Rate Variance
($ in Thousands)
-------------------------------------------------------------------------------
Comparison of
Three months ended March 31, 2000 versus 1999
---------------------------------------------
Income/ Variance Attributable to
Expense ------------------------
Variance * **Volume Rate **
- --------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 21,915 $ 20,713 $ 1, 202
Investments and Other 7,095 6,567 528
------
Total interest income 29,010 27,350 1,660
INTEREST EXPENSE
Interest-bearing deposits $ 4,159 $ 2,045 $ 2,114
Wholesale funding 21,363 17,043 4,320
------
Total interest expense 25,522 15,854 9,668
------
Net interest income $ 3,488 $ 11 ,496 $ (8,008)
========
* The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the relationship
of the absolute dollar change in each. ** Variances are computed on a
line-by-line basis and are non-additive.
Provision for Loan Losses
The provision for loan losses ("PFLL") for 1Q00 was $5.7 million, up slightly
from 4Q99 of $5.7 million, and up $1.2 million from 1Q99 of $4.5 million.
Annualized net charge-offs as a percent of average loans for 1Q00 decreased to
0.12% from 0.18% and 0.17% for 4Q99 and 1Q99, respectively. See Table 8.
The PFLL is a function of the methodology used to determine the adequacy of the
allowance for loan losses. See additional discussion under the "Allowance for
Loan Losses" section.
Noninterest Income
Noninterest income for 1Q00 was $45.9 million, up $1.7 million or 3.9% over
1Q99. Primary components impacting the change between comparable quarters were
mortgage banking income (which decreased $6.8 million), and the combined net
gains (losses) on investment securities and asset sales (which were up $2.7
million). Noninterest income excluding these items increased $5.8 million or
20.2%, with all categories up over 1Q99.
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
TABLE 4
Noninterest Income
($ in Thousands)
- --------------------------------------------------------------------------------------------------------------------
1st Qtr. 1st Qtr. Dollar Percent
2000 1999 Change Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust service fees $ 10,123 $ 9,581 $ 542 5.7%
Service charges on deposit accounts 7,474 6,917 557 8.1
Mortgage banking income 4,590 11,392 (6,802) (59.7)
Credit card and other nondeposit fees 5,276 4,558 718 15.8
Retail commission income 5,608 3,886 1,722 44.3
Asset sale gains, net 8,264 282 7,982 N/M
BOLI income 2,899 1,278 1,621 126.8
Other 3,412 2,724 688 25.3
- --------------------------------------------------------------------------------------------------------------------
Subtotal 47,646 40,618 7,028 17.3
Investment securities gains (losses), net (1,702) 3,589 (5,291) (147.4)
- --------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 45,944 $ 44,207 $ 1,737 3.9%
====================================================================================================================
Subtotal, excluding asset sale gains $ 39,382 $ 40,336 $ (954) (2.4)%
Subtotal, excluding asset sale gains and
mortgage banking income $ 34,792 $ 28,944 $ 5,848 20.2%
====================================================================================================================
</TABLE>
N/M = not meaningful
Trust service fees increased $542,000 between comparable first quarter periods
as a function of continued improvement in trust business volume. Service charges
on deposit accounts were up $557,000 between comparable first quarter periods,
primarily due to 1Q00 benefiting from the 1999 mid-year increases and changes in
NSF and other service charges. Credit card and other nondeposit fees increased
$718,000 between comparable quarters, predominantly due to increased credit card
volume processing fees.
Retail commission income (which includes commissions from insurance and
brokerage product sales) was up $1.7 million or 44.3% over 1Q99, primarily due
to growth in annuity and brokerage product sales and a stronger stock market
environment between the comparable quarters. BOLI income more than doubled to
$2.9 million. The increase was primarily attributable to the timing of the BOLI
investments purchased, with $100 million in October 1998 and an additional $100
million investment made in May 1999. BOLI income is included in other
noninterest income on the consolidated statements of income.
Mortgage banking income consists of servicing fees, the gain or loss on sales of
mortgage loans to the secondary market, and production-related revenue
(origination, underwriting and escrow waiver fees). Mortgage banking income
decreased $6.8 million, or 59.7% versus 1Q99. The decrease was primarily a
result of an 88% decline in secondary mortgage loan production between
comparable periods. The lower production levels adversely impacted gains on
sales of mortgages (down $5.4 million) and volume related fees (down $1.2
million). While the mortgage portfolio serviced for others increased to $5.6
billion compared to $5.4 billion at March 31, 1999, servicing fees decreased
$205,000, as the mix of the servicing portfolio changed and higher servicing
spread business has paid off.
Net asset sale gains increased $8.0 million over 1Q99, of which $8.2 million was
attributable to the net premium on deposits of the five branches sold during
1Q00.
Net investment securities gains (losses) decreased $5.3 million from 1Q99. The
1Q00 net losses of $1.7 million were from securities sold to mitigate interest
rate risk and enhance future yields. The 1Q99 net gains of $3.6 million were due
to the partial sale of an agency security.
Noninterest Expense
Noninterest expense ("NIE") remained relatively unchanged between comparable
periods, at $78.6 million for 1Q00, despite carrying a full quarter of expenses
for Riverside and BNC in 1Q00 versus none in 1Q99. Excluding the impact of the
timing of the acquisitions NIE decreased $4.3 million or 5.5%.
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
TABLE 5
Noninterest Expense
($ in Thousands)
- --------------------------------------------------------------------------------------------------------------------
1st Qtr. 1st Qtr. Dollar Percent
2000 1999 Change Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 38,638 $ 38,230 $ 408 1.1%
Occupancy 6,144 5,926 218 3.7
Equipment 4,097 3,692 405 11.0
Data processing 5,679 5,295 384 7.3
Business development and advertising 3,230 3,059 171 5.6
Stationery and supplies 1,824 1,871 (47) (2.5)
FDIC expense 477 862 (385) (44.7)
Other 18,522 19,649 (1,127) (5.7)
====================================================================================================================
Total noninterest expense $ 78,611 $ 78,584 $ 27 0.0%
====================================================================================================================
</TABLE>
Salaries and employee benefits were $38.6 million, up only $408,000 or 1.1% over
the comparable quarter. While both the additional headcount added by
acquisitions and base merit increases between the first quarter periods
represented increases to personnel expense, the number of full time equivalent
employees (FTEs) have been reduced primarily in operational areas as
centralization of processes and other operational-related synergies were
achieved throughout 1999 (with approximately 100 fewer FTEs at March 31, 2000
than a year ago).
Occupancy expense was increased primarily due to increased rent. Equipment
expense rose predominantly in computer depreciation expense associated with
computer upgrades during 1999. Data processing costs increased due to higher
processing volumes and software maintenance needs. FDIC expense was lower than
1Q99 largely due to the more favorable combined FDIC rate charged between the
comparable quarterly periods.
The largest variance between the comparable quarters was other expense, which
decreased $1.1 million. The decrease was primarily the net result of lower
professional fees (down $2.1 million between the comparable first quarters,
principally due to $1.8 million of Year 2000 consulting expenses in 1Q99),
offset by an increase in intangibles amortization expense associated with the
timing of the acquisitions (up $550,000 between quarters).
Income Taxes
Income tax expense for 1Q00 was $16.9 million, down $2.1 million or 11.2% from
1Q99. The effective tax rate (income tax expense divided by income before taxes)
was 28.2% and 32.8% for 1Q00 and 1Q99, respectively. This decrease is primarily
the result of the tax benefit of increased municipal securities (the average
balance of municipal securities increased 67% since 1Q99), BOLI income, and the
utilization of tax loss carryforwards.
Balance Sheet
At March 31, 2000, total assets were $12.7 billion, an increase of $1.4 billion,
or 12.7%, over March 31, 1999. The growth is in part due to the timing of the
purchase acquisitions (see Note 3 in the notes to consolidated financial
statements). Riverside and BNC accounted for $477 million (including
intangibles) of the increase between the comparable first quarter periods.
Excluding the two acquisitions and the additional $100 million BOLI investment
purchased in mid-1999, the year-over-year growth rate of total assets was 7.6%.
Loan growth (including loans held for sale) since 1Q99 was $1.0 billion or 13.2%
(of which $299 million came from Riverside and BNC; excluding the acquisitions,
loans grew by 9.3%). Total deposits excluding brokered CDs ("retail deposits")
were up $85 million or 1.0%; however, excluding the acquisitions and branch
sales, retail deposits were down $115 million or 1.4%.
Since year-end 1999, total assets grew $215 million, primarily due to loan
growth. Loans (including loans held for sale) increased $242 million (11.7%
annualized), to $8.6 billion at March 31, 2000.
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 6
Period End Loan Composition
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
March 31, % of March 31, % of Dec. 31, % of
2000 Total 1999 Total 1999 Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial & agricultural
("CF&A loans") $ 1,489,403 17% $ 1,122,419 15% $ 1,412,338 17%
Real estate-construction 530,514 6 472,456 6 560,450 7
Real estate-mortgage/commercial 2,109,211 25 1,495,344 20 1,903,633 23
Real estate-mortgage/ residential 3,716,102 43 3,718,457 49 3,695,299 44
Installment loans to individuals 733,094 9 758,503 10 760,106 9
Leases financing 18,944 -- 24,636 -- 23,229 --
- ----------------------------------------------------------------------------------------------------------------------
Total loans (including loans held for
sale) $ 8,597,268 100% $ 7,591,815 100% $ 8,355,055 100%
======================================================================================================================
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 7
Period End Deposit Composition
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
March 31, % of March 31, % of Dec. 31, % of
2000 Total 1999 Total 1999 Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand $ 1,112,924 12% $ 940,883 11% $ 1,103,931 13%
Savings 991,191 11 930,303 11 838,201 9
NOW 829,490 9 780,421 9 868,514 10
Money market 1,379,980 15 1,322,389 16 1,483,779 17
Brokered CDs 835,896 9 25,738 0 337,243 4
Other time 4,048,303 44 4,437,902 53 4,060,161 47
======================================================================================================================
Total deposits $ 9,197,784 100% $ 8,437,636 100% $ 8,691,829 100%
=====================================================================================================================
</TABLE>
On average, total assets for 1Q00 increased to $12.6 billion, or $1.4 billion
(12.7%) over 1Q99. Excluding the acquisitions, total assets were up 7.3% on
average. Average earning assets for 1Q00 were $11.8 billion which, excluding the
acquisitions, increased $877 million over 1Q99. Loan growth in the first quarter
accounted for essentially all the earning asset growth.
On average, loans were $8.5 billion for 1Q00, growing $960 million over 1Q99
(12.8%). Without the acquisitions, average loans grew 7.8% over 1Q99. As a
result of the Corporation's focus on increasing the mix of commercial lending in
its loan portfolio, the majority of loan growth has come primarily from
commercial loans.
Historical trends support a seasonal first quarter dip in average deposit
balances compared to fourth quarter. On average, deposits were $8.6 billion for
1Q00, decreasing $353 million versus 4Q99 (down 15.8% annualized) and increasing
$257 million since 1Q99 (3.1%). Without the acquisitions, average deposits were
down 18.1% on an annualized basis for the sequential quarters and down 2.2% for
the comparable first quarters.
Allowance for Loan Losses
The loan portfolio is the Corporation's primary asset subject to credit risk.
Credit risk is controlled and monitored through the use of lending standards, a
thorough review of potential borrowers, and on-going review of loan payment
performance. Active asset quality administration, including early problem loan
identification and timely resolution of problems, further ensures appropriate
management of credit risk and minimization of loan losses.
As of March 31, 2000, the allowance for loan losses ("AFLL") was $116.3 million,
representing 1.35% of loans outstanding, compared to $103.1 million, or 1.38% of
loans, at March 31, 1999, and $113.2 million, or 1.36% at year-end 1999. At
March 31, 2000, the AFLL was 311% of nonperforming loans compared to 225% and
307% at March 31 and December 31, 1999, respectively. The AFLL was increased in
part by balances acquired from the purchase acquisitions. The loan portfolios of
the acquired entities were predominantly comprised of commercial loans.
Table 8 provides additional information regarding activity in the AFLL.
The March 31, 2000, AFLL increased $13.2 million since March 31, 1999, of which
$6.0 million was acquired with the purchase transactions. Period end loans grew
$1.1 billion since March 31, 1999, predominately in commercial-oriented loans
(CF&A loans, commercial real estate and real estate construction loans included
in Table 6) which by their nature carry greater inherent credit risk. The mix of
commercial-oriented loans increased as a percent of total loans to 48% at March
31, 2000 when compared to 42% at March 31, 1999.
The March 31, 2000, AFLL increased $3.1 million since December 31, 1999.
Additionally, period end loans grew $247 million since year-end. Loan growth has
been predominantly in commercial-oriented loans. These commercial-oriented loans
increased as a percent of total loans to 48% at March 31, 2000 compared to 47%
at December 31, 1999.
- --------------------------------------------------------------------------------
TABLE 8
Allowance for Loan Losses and Nonperforming Assets
($ in Thousands)
- --------------------------------------------------------------------------------
At and for the At and for the
three months ended Year ended
March 31, December 31,
- --------------------------------------------------------------------------------
2000 1999 1999
- --------------------------------------------------------------------------------
Allowance for Loan Losses (AFLL):
Balance at beginning of period $ 113,196 $ 99,677 $ 99,677
Balance related to acquisitions --- 2,037 8,016
Provision for loan losses 5,715 4,451 19,243
Charge-offs (3,296) (3,679) (16,621)
Recoveries 682 578 2,881
------------------------------------------
Net loan charge-offs (NCOs) (2,614) (3,101) (13,740)
------------------------------------------
Balance at end of period $ 116,297 $ 103,064 $ 113,196
==========================================
Nonperforming Assets:
Nonaccrual loans $ 32,716 $ 39,749 $ 32,076
Accruing loans past due
90 days or more 4,615 5,358 4,690
Restructured loans 10 776 148
------------------------------------------
Total nonperforming loans (NPLs) 37,341 45,883 36,914
Other real estate owned (OREO) 3,366 10,568 3,740
------------------------------------------
Total nonperforming
assets (NPAs) $ 40,707 $ 56,451 $ 40,654
==========================================
Ratios:
Ratio of AFLL to NCOs
(annualized) 11.06% 8.20% 8.24%
Ratio of NCOs to average
loans (annualized) 0.12% 0.17% 0.18%
Ratio of AFLL to total loans 1.35% 1.38% 1.36%
Ratio of NPLs to total loans 0.43% 0.61% 0.44%
Ratio of NPAs to total assets 0.32% 0.50% 0.32%
Ratio of AFLL to NPLs 311% 225% 307%
- --------------------------------------------------------------------------------
Charge-offs were $3.3 million for the three months ending March 31, 2000, $3.7
million for the comparable period ending March 31, 1999 and $16.6 million for
year-end 1999, while recoveries for the corresponding periods were $0.7 million,
$0.6 million and $2.9 million, respectively.
The AFLL represents management's estimate of an amount adequate to provide for
losses inherent in the loan portfolio. Management's evaluation of the adequacy
of the AFLL is based on management's ongoing review and grading of the loan
portfolio, consideration of past loan loss experience, trends in past due and
nonperforming loans, risk characteristics of the various classifications of
loans, current economic conditions, the fair value of underlying collateral, and
other factors which could affect credit losses.
Management believes the AFLL to be adequate at March 31, 2000. While management
uses available information to recognize losses on loans, future adjustments to
the AFLL may be necessary based on changes in economic conditions and the impact
of such change on the Corporation's borrowers. As an integral part of their
examination process, various regulatory agencies also review the AFLL. Such
agencies may require that changes in the AFLL be recognized when their credit
evaluations differ from those of management, based on their judgments about
information available to them at the time of their examination.
Nonperforming Loans and Other Real Estate Owned
Management's philosophy of the identification of nonaccrual and problem loans is
embodied through the ongoing monitoring and reviewing of all pools of risk in
the loan portfolio to ensure that problem loans are identified quickly and the
risk of loss is minimized.
Nonperforming loans ("NPLs") are considered an indicator of future loan losses.
NPLs are defined as nonaccrual loans, loans 90 days or more past due but still
accruing and restructured loans. The Corporation specifically excludes student
loan balances that are 90 days or more past due and still accruing and that have
contractual government guarantees as to collection of principal and interest,
from its definition of NPLs. The Corporation had $16 million, $17 million and
$11 million of these loans at March 31, 2000, December 31, 1999, and March 31,
1999, respectively.
Table 8 provides detailed information regarding nonperforming assets. Total NPLs
at March 31, 2000 were down $427,000 and $8.5 million, from year-end 1999, and
1Q99 respectively. The ratio of nonperforming loans to total loans was .43% at
1Q00, as compared to .44% and .61% at year-end 1999, and 1Q99 respectively.
Nonaccrual loans account for approximately $8 million of the decrease in NPLs
between comparable first quarter periods. Nonaccrual loans decreased in all
categories, and the decline is primarily in commercial and consumer loans, each
down approximately $3.5 million.
OREO was $3.4 million at 1Q00, down slightly ($374,000) from 4Q99, and down
significantly ($7.2 million) from 1Q99. Approximately $4 million of the change
between comparable first quarter periods was predominately due to one large
commercial property that was included in OREO at 1Q99 and subsequently sold
before year-end 1999. 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. At March 31,
2000, potential problem loans totaled $94 million. The loans that have been
reported as potential problem loans are not concentrated in a particular
industry. Management does not presently expect significant losses from credits
in this category.
Liquidity
Effective liquidity management ensures the cash flow requirements of depositors
and borrowers, as well as the operating cash needs of the Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, lines of credit with major banks, the ability
to acquire large deposits, and the ability to securitize or package loans for
sale. Additionally, liquidity is provided from loans and securities repayments
and maturities.
The parent company's primary funding sources to meet its liquidity requirements
are dividends and service fees from subsidiaries, borrowings with major banks,
and proceeds from the issuance of equity. The parent company manages its
liquidity position to provide the funds necessary to pay dividends to
stockholders, service debt, invest in subsidiaries, repurchase common stock, and
satisfy other operating requirements. Additionally, the parent company had $225
million of established lines of credit with nonaffiliated banks, of which $91
million was outstanding at March 31, 2000.
The subsidiary banks are subject to regulation and, among other things, may be
limited in their ability to pay dividends or transfer funds to the parent
company. Accordingly, consolidated cash flows as presented in the consolidated
statements of cash flows may not represent cash immediately available for the
payment of cash dividends to the Corporation's stockholders.
During 1999, the parent company and its four largest subsidiary banks were rated
by Moody's and Standard and Poor's (S&P). These ratings, along with the
Corporation's other ratings, provide opportunity for greater funding capacity
and funding alternatives.
Capital
Stockholders' equity at March 31, 2000 increased to $920.8 million, compared to
$903.5 million at March 31, 1999. The increase in equity between the two periods
was primarily composed of the retention of earnings and the exercise of stock
options, with offsetting decreases to equity from the payment of dividends and
the repurchase of common stock. Additionally, stockholders' equity at March 31,
2000, included a $43.6 million equity component (included in accumulated other
comprehensive income (loss)) related to unrealized losses on securities
available-for-sale, net of the tax effect, predominantly due to the impact of
the rising rate environment on that portfolio. At March 31, 1999, stockholder's
equity included $15.7 million related to unrealized gains on securities
available-for-sale, net of the tax effect. The ratio of period-end equity to
assets at March 31, 2000 was 7.23%, compared to 7.99% at March 31, 1999.
Stockholders' equity grew $11.0 million since year-end 1999. The increase in
equity between the two periods was primarily composed of the retention of
earnings and the exercise of stock options, with offsetting decreases to equity
from the payment of dividends and the repurchase of common stock. Additionally,
stockholders' equity at year-end, included a $38.8 million equity component
(included in accumulated other comprehensive income (loss)) related to
unrealized losses on securities available-for-sale, net of the tax effect,
predominantly due to the impact of the rising rate environment on that
portfolio. The ratio of period-end equity to assets at March 31, 2000 was 7.23%
compared to 7.27% December 31, 1999.
Cash dividends of $0.29 per share were paid in 1Q00, representing a payout ratio
of 42.65% for the quarter.
The Board of Directors ("BOD") has authorized management to repurchase shares of
the Corporation's common stock each quarter in the market, to be made available
for issuance in connection with the Corporation's employee incentive plans and
for other corporate purposes. The BOD authorized the repurchase of up to 300,000
shares per quarter in 2000. In March 2000, the BOD also authorized the
repurchase and cancellation of up to 5% of the Corporation's outstanding shares,
not to exceed approximately 3.2 million shares. During 1Q00, 403,000 shares were
repurchased under these authorizations.
The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management. The capital ratios of the Corporation
and its banking affiliates are greater than minimums required by regulatory
guidelines. The Corporation's capital ratios are summarized in Table 9.
<PAGE>
TABLE 9
Capital Ratios
- --------------------------------------------------------------------------------
Tier I Capital Total Capital Tier I Leverage
- --------------------------------------------------------------------------------
March 31, 2000 9.97% 11.24% 6.83%
December 31, 1999 9.72% 10.99% 6.80%
March 31, 1999 10.79% 12.15% 7.49%
Regulatory minimum
requirements 6.00% 10.00% 5.00%
- --------------------------------------------------------------------------------
Subsequent Events
The Corporation continually reviews its branch distribution network for
efficiencies and utilization of resources. In addition to the three branches
sold during 4Q99 and the five branches sold during 1Q00, the Corporation signed
an agreement in April 2000 for the sale of deposits of a branch location with
$27 million in deposits with an estimated deposit premium of approximately $3
million. The branch sale is expected to be completed in third quarter 2000.
Effective April 1, 2000, the Corporation sold approximately $128 million in
credit card receivables to Citibank USA ("Citi"). A gain of approximately $13
million will be recognized in second quarter 2000. In addition, the Corporation
will recognize revenue from a revenue sharing arrangement in a five-year agency
agreement signed with Citi.
On April 26, 2000, the Board of Directors declared a 10% stock dividend, payable
June 15 to shareholders of record at the close of business on June 1. All share
data will be adjusted retroactively to reflect the stock split effected in the
form of a stock dividend at that time. Any fractional shares resulting from the
dividend will be paid in cash.
These subsequent events have not been reflected in the accompanying consolidated
financial statements.
Year 2000
The Corporation's Year 2000 Project has been completed. As of May 15, 2000, the
Corporation has not experienced any significant disruptions of normal business
operations. Additionally, no customer disruptions, which could have resulted in
significant financial difficulties, have been brought to the attention of
management through May 15, 2000.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Corporation has not experienced any material changes to its market risk
position since December 31, 1999, from that disclosed in the Corporation's 1999
Form 10-K Annual Report.
<PAGE>
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11, Statement regarding computation of
per-share earnings. See Note 5 of the notes to
consolidated financial statements in Part I Item I.
Exhibit 27, Financial data schedule. Included in the
electronically filed document as required.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months
ended March 31, 2000.
<PAGE>
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: May 15, 2000 /s/ H. B. Conlon
--------------------------------------
H. B. Conlon
Chairman and Chief Executive Officer
Date: May 15, 2000 /s/ Joseph B. Selner
--------------------------------------
Joseph B. Selner
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000007789
<NAME> ASSOCIATED BANC-CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 289,243
<INT-BEARING-DEPOSITS> 4,550
<FED-FUNDS-SOLD> 83,285
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,786,209
<INVESTMENTS-CARRYING> 406,227
<INVESTMENTS-MARKET> 401,951
<LOANS> 8,589,984
<ALLOWANCE> (116,297)
<TOTAL-ASSETS> 12,734,620
<DEPOSITS> 9,197,784
<SHORT-TERM> 2,381,852
<LIABILITIES-OTHER> 111,362
<LONG-TERM> 122,834
0
0
<COMMON> 634
<OTHER-SE> 920,154
<TOTAL-LIABILITIES-AND-EQUITY> 12,734,620
<INTEREST-LOAN> 172,239
<INTEREST-INVEST> 49,918
<INTEREST-OTHER> 616
<INTEREST-TOTAL> 222,773
<INTEREST-DEPOSIT> 81,558
<INTEREST-EXPENSE> 124,424
<INTEREST-INCOME-NET> 98,349
<LOAN-LOSSES> 5,715
<SECURITIES-GAINS> (1,702)
<EXPENSE-OTHER> 18,522
<INCOME-PRETAX> 59,967
<INCOME-PRE-EXTRAORDINARY> 59,967
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,081
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 7.66
<LOANS-NON> 32,716
<LOANS-PAST> 4,615
<LOANS-TROUBLED> 10
<LOANS-PROBLEM> 94,000
<ALLOWANCE-OPEN> 113,196
<CHARGE-OFFS> 3,296
<RECOVERIES> 682
<ALLOWANCE-CLOSE> 116,297
<ALLOWANCE-DOMESTIC> 116,297
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
