<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _______________
Commission file number 0-23622
--------------------
VECTRA BANKING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of issuer as
specified in its charter)
Colorado 84-1087703
- ------------------------------------ -----------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1650 South Colorado Boulevard, Suite 320, Denver, CO 80222
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(303) 782-7440
- --------------------------------------------------------------------------------
(Registrant's telephone number including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date: 3,198,779
--------------
<PAGE> 2
VECTRA BANKING CORPORATION
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited interim financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All adjustments which are, in the opinion
of management, of a normal recurring nature necessary to a fair statement of
results for the interim periods presented have been made. The results of
operations for such interim periods are not necessarily indicative of results
of operations for a full year. The statements should be read in conjunction
with the summary of significant accounting policies and notes to consolidated
financial statements included in the Company's (or "Vectra's") Form 10-K for
the fiscal year ended December 31, 1995.
2
<PAGE> 3
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
------------ -----------
ASSETS (Dollars in thousands)
<S> <C> <C>
Cash and due from banks $ 26,990 $ 17,320
Federal funds sold - 2,000
Securities available for sale, at market value 191,619 170,384
Securities held to maturity 276 814
Federal Home Loan Bank stock 6,620 5,173
Loans 300,476 206,664
------------ -----------
Less allowance for loan losses (4,045) (2,493)
Net loans 296,431 204,171
Real estate acquired by foreclosure 1,346 919
Premises and equipment, net 12,323 10,575
Intangible asset, net 8,016 273
Deferred income taxes 2,848 2,422
Other assets 4,775 3,755
------------ -----------
Total assets $ 551,244 $ 417,806
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 107,965 $ 80,058
NOW and money market 87,404 63,704
Savings 129,950 99,254
Time deposits under $100,000 62,672 49,511
Time deposits $100,000 and over 25,524 14,558
------------ -----------
Total deposits 413,515 307,085
Federal Home Loan Bank advances and federal funds purchased 78,700 70,345
Securities and loans sold under repurchase agreements 8,801 7,429
Notes payable 4,050 1,051
Accounts payable and other liabilities 2,273 1,711
------------ -----------
Total liabilities 507,339 387,621
------------ -----------
Shareholders' equity:
Preferred stock 19,021 8,050
Common stock 25,713 25,604
Retained earnings (deficit) 3,138 170
------------ -----------
Realized shareholders' equity 47,872 33,824
Unrealized loss on securities available for sale (3,967) (3,639)
------------ -----------
Total shareholders' equity 43,905 30,185
------------ -----------
Total liabilities and shareholders' equity $ 551,244 $ 417,806
============ ===========
Realized shareholders' equity per common share $9.02 $8.07
============ ===========
Book value per common share $7.78 $6.93
============ ===========
Tangible book value per pro forma fully converted
common share $6.91 $6.84
============ ===========
Common shares outstanding at end of period 3,198,779 3,195,279
============ ===========
Pro forma fully converted common shares at end of period 4,026,771 3,195,279
============ ===========
Capital ratios:
Total tier 1 and tier 2 capital to risk-weighted assets 11.94% 13.69%
Tier 1 capital to risk-weighted assets 10.84% 12.74%
Tier 1 capital to tangible assets 6.96% 7.69%
Equity to total assets 7.96% 7.22%
</TABLE>
3
<PAGE> 4
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the quarters ended For the nine months ended
----------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------- ---------- --------- ---------
(Dollars in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,593 $ 5,137 $ 18,644 14,770
Interest on investments and federal funds sold 3,078 3,248 8,472 11,142
----------- ---------- --------- ---------
Total interest income 10,671 8,385 27,116 25,912
----------- ---------- --------- ---------
Interest expense:
Interest on deposits:
NOW, money market and savings accounts 1,911 1,467 5,000 4,016
Time deposits under $100,000 848 735 2,207 1,564
Time deposits $100,000 and over 353 187 759 441
Advances from the Federal Home Loan Bank
and federal funds purchased 832 1,563 2,631 6,219
Securities and loans sold under agreements to repurchase 102 65 236 168
Notes payable 83 24 129 73
----------- ---------- --------- ---------
Total interest expense 4,129 4,041 10,962 12,481
----------- ---------- --------- ---------
Net interest income 6,542 4,344 16,154 13,431
Provision for loan losses 239 175 607 658
----------- ---------- --------- ---------
Net interest income after provision for loan losses 6,303 4,169 15,547 12,773
----------- ---------- --------- ---------
Other income:
Service fees on deposit accounts 874 666 2,295 1,955
Gain on sale of loans 311 306 1,077 562
Net gain/(loss) on sale of securities (151) (9) (314) 38
Other 28 51 116 192
----------- ---------- --------- ---------
Total other income 1,062 1,014 3,174 2,747
----------- ---------- --------- ---------
Other expenses:
Salaries and employee benefits 2,807 2,169 7,354 6,199
Net occupancy 701 595 1,956 1,708
Amortization of intangible assets 93 14 131 15
Other 1,273 1,283 3,555 3,934
----------- ---------- --------- ---------
Total other expenses 4,874 4,061 12,996 11,856
----------- ---------- --------- ---------
Earnings before income taxes 2,491 1,122 5,725 3,664
Income tax expense 928 435 1,968 1,265
----------- ---------- --------- ---------
Net earnings 1,563 687 3,757 2,399
Preferred stock dividend 385 193 790 572
----------- ---------- --------- ---------
Net earnings available to common shareholders $ 1,178 $ 494 $ 2,967 1,827
=========== ========== ========= =========
Earnings per average common share outstanding:
Primary earnings per share $0.36 $0.15 $0.91 $0.57
=========== ========== ========= =========
Average common shares and equivalents outstanding 3,279,925 3,195,279 3,267,201 3,195,279
=========== ========== ========= =========
Earnings per fully diluted share $0.33 $0.15 $0.89 $0.56
=========== ========== ========= =========
Fully diluted common shares outstanding 4,107,917 3,240,608 3,581,475 3,233,945
=========== ========== ========= =========
</TABLE>
4
<PAGE> 5
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
-----------------------------
September 30, September 30,
1996 1995
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 5,309 $ 4,160
---------- ---------
Cash flows from investing activities:
Net increase in loans from existing offices (20,808) (8,818)
Loans acquired in the Southwest State Bank acquisition (73,745) -
Purchase of securities available for sale (29,685) (4,925)
Purchase of securities held to maturity - (3,675)
Securities acquired in the Southwest State Bank acquisition (18,963) -
Proceeds from sales of securities available for sale 16,056 45,805
Proceeds from maturities of securities available for sale 10,425 5,081
Proceeds from maturities of securities held to maturity 550 4,622
Federal funds acquired in the Southwest State Bank acquisition (11,900) -
Net decrease (increase) in federal funds sold 13,900 (1,340)
Other 165 (1,102)
---------- ---------
Net cash provided (used) by investing activities (114,005) 35,648
---------- ---------
Cash flows from financing activities:
Net increase in deposits from existing offices 10,005 27,936
Deposits acquired in the Southwest State Bank acquisition 96,424 -
Net increase (decrease) in FHLB advances and federal funds purchased 8,355 (66,390)
Repayment of note payable (1,051) (53)
Proceeds from note payable 4,050 -
Preferred stock dividend (789) (572)
Net decrease in securities and loans sold under agreements to repurchase 1,372 434
---------- ---------
Net cash provided (used) by financing activities 118,366 (38,645)
---------- ---------
Net increase (decrease) in cash and due from banks 9,670 1,163
Cash and due from banks at beginning of period 17,320 17,249
---------- ---------
Cash and due from banks at end of period $ 26,990 $ 18,412
========== =========
</TABLE>
5
<PAGE> 6
Note 1. Basis of Presentation
The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC)
and in management's opinion, include all adjustments necessary for a fair
presentation of results for such interim periods. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to SEC regulations; however, the Company believes that the disclosures
made are adequate to make the information presented not misleading.
The interim results for the periods ended September 30, 1996 and 1995, are not
necessarily indicative of results for the full calendar year. These financial
statements should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements included in the Form
10-K for the fiscal year ended December 31, 1995.
Item 2. Management's Discussion and Analysis
It is presumed that readers of these interim financial statements have read or
have access to the Management's Discussion and Analysis of Financial Condition
and Results of Operation for the years ended December 31, 1995 and 1994,
included in Vectra's Form 10-K for the fiscal year ended December 31, 1995 and
in Vectra's Form 8-K, filed June 28, 1996, with respect to the acquisition of
Bank Land Co. and Southwest State Bank.
COMPARISON OF STATEMENTS OF CONDITION AT
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ACQUISITION OF BANK LAND COMPANY AND SOUTHWEST STATE BANK. On June
18, 1996, Vectra completed the acquisition of Bank Land Company and its
subsidiary, Southwest State Bank (collectively "SWSB") in a transaction
accounted for using purchase accounting. As such, the assets and liabilities
of SWSB are recorded at their fair values on Vectra's books as of the closing
date. The excess of the total purchase price over the net fair value of SWSB's
assets and liabilities is recorded as goodwill and will be amortized on a
straight line basis over 25 years. The total purchase price was $22.3 million,
of which $11.4 million was paid in cash and $10.9 million in a new issue of
convertible preferred stock. At the closing date, SWSB had total loans of $72
million, deposits of $98 million and securities of $19 million. Upon
acquisition, Vectra classified all of SWSB's securities as available-for-sale.
Final determination of the fair value of all assets and liabilities as of the
closing date has not been completed, but based on estimates as of September 30,
1996, the purchase accounting adjustments resulted in an increase in goodwill of
$7.9 million.
ASSETS. The total assets of Vectra increased $133.4 million,
or 31.9%, to $551.2 million at September 30, 1996 from $417.8 million at
December 31, 1995. Securities available for sale increased $21.2 million to
$191.7 million at September 30, 1996 from $170.4 million at December 31, 1995.
Loans increased $93.8 million to $300.5 million at September 30, 1996 from
$206.7 million at December 31, 1995. Vectra's acquisition of SWSB contributed
significantly to the growth in loans and deposits, as well as in premises and
intangible assets.
6
<PAGE> 7
ALLOWANCE FOR LOAN LOSSES. The following table sets forth
information regarding changes in the Vectra's allowance for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, September 30,
1996 1996
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Balance, beginning of period $ 3,837 $ 2,493
Acquired through acquisition 0 1,346
Provision for loan losses 239 607
Recoveries 31 90
Charge offs (62) (491)
----------- ----------
Balance, end of period $ 4,045 $ 4,045
=========== ==========
</TABLE>
Vectra maintains its allowance for loan losses at a level considered by
management to be adequate to cover the risk of loss in the loan portfolio at a
particular point in time. Management's judgment as to whether an additional
amount should be added to the reserve in excess of the amount of loan losses
takes into consideration a number of factors, including loss experience in
relation to outstanding loans and existing level of the reserve for losses, a
continuing review of problem loans and overall portfolio quality, regular
examinations of loan portfolios conducted by Vectra's staff and by state and
federal supervisory authorities, and economic conditions.
NONPERFORMING ASSETS. The following table sets forth information
concerning Vectra's nonperforming assets as of the dates indicated (in
thousands).
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Loans 90 days or more delinquent and still accruing interest $ 753 $ 83
Nonaccrual loans 904 1,292
Restructured loans - -
----------- ----------
Total nonperforming loans 1,657 1,375
Real estate and other assets acquired by foreclosure 1,406 994
----------- ----------
Total nonperforming assets $ 3,063 $ 2,369
=========== ==========
Nonperforming assets to total assets 0.56% 0.57%
Nonperforming assets to total equity 6.98% 7.85%
Nonperforming loans to total loans 0.55% 0.67%
Allowance for loan losses to nonperforming loans 244.12% 181.31%
Allowance for loan losses to total loans 1.35% 1.21%
</TABLE>
The $821,000 increase from December 31, 1995 to September 30, 1996 is primarily
a result of nonperforming assets owned by SWSB at the time of its acquisition
by Vectra. Management does not consider the increase to represent a negative
trend in asset quality.
7
<PAGE> 8
LIABILITIES. Total deposits increased $106.4 million, or 34.6%, to
$413.5 million at September 30, 1996 from $307.1 million at December 31, 1995.
The acquisition of SWSB contributed $98 million to the deposit increase as of
the date of closing. Federal Home Loan Bank advances and federal funds
purchased increased $8.4 million to $78.7 million at September 30, 1996 from
$70.3 million at December 31, 1995. Notes payable increased $3.0 million to
$4.1 million at September 30, 1996 from $1.1 million at December 31, 1995.
This increase represents a new note payable obtained in connection with the
purchase of SWSB which is to be repaid over ten years.
SHAREHOLDERS' EQUITY. Vectra's shareholders' equity increased $13.7
million to $43.9 million at September 30, 1996 from $30.2 million at December
31, 1995. Of the increase, $10.9 million is attributable to the issuance of
preferred stock for the acquisition of SWSB.
The Company has chosen to designate substantially all of its securities
investment portfolio as available-for-sale. Accounting standards require that
unrealized gains and losses in the estimated value of the available-for-sale
portfolio (net of tax) be "marked-to-market" and reflected as a separate item
in the shareholders' equity section of the balance sheet. This results in
fluctuations in equity (both increases and decreases) resulting from changes in
the market value of the entire securities portfolio. There was a $328,000
increase in unrealized loss on securities available for sale to $4.0 million at
September 30, 1996 from $3.6 million at December 31, 1995.
COMPARISONS OF STATEMENTS OF OPERATIONS
The following table provides a summary of the major elements of income and
expense for the third quarter of 1996 compared with the third quarter of 1995.
<TABLE>
<CAPTION>
For the three months Impact on
ended September 30, net income
--------------------------- increase %
1996 1995 (decrease) change
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Interest income $ 10,671 $ 8,385 $ 2,286 27.26%
Interest expense (4,129) (4,041) (88) 2.18%
----------- ---------- ----------
Net interest income 6,542 4,344 2,198 50.60%
Provision for loan losses (239) (175) (64) 36.57%
----------- ---------- ----------
Net interest income after
provision for loan losses 6,303 4,169 2,134 51.19%
Total other income 1,062 1,014 48 4.73%
Total other expenses (4,874) (4,061) (813) 20.02%
----------- ---------- ----------
Income before income taxes 2,491 1,122 1,369 122.01%
Income tax expense (928) (435) (493) 113.33%
----------- ---------- ----------
Net earnings $ 1,563 $ 687 $ 876 127.51%
=========== ========== ==========
</TABLE>
NET INTEREST INCOME. For most financial institutions, the primary
component of earnings is net interest income. Net interest income is the
difference between interest income, principally from loans and investment
securities, and interest expense, principally on customer deposits and
borrowings. Changes in net interest income result from changes in volume, net
interest spread and net interest margin. Volume refers to the average dollar
levels of interest-earning assets and interest-bearing liabilities. Net
interest spread refers to the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
Net interest margin refers to net interest income divided by average
interest-earning assets and is influenced by the level and relative mix of
interest-earning assets and interest-bearing liabilities.
8
<PAGE> 9
The following table sets forth information for the periods indicated with
regard to average balances of assets and liabilities, as well as the total
dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities, resultant yields or costs, net
interest income, net interest spread, net interest margin and the ratio of
average interest-earning assets to average interest-bearing liabilities for
Vectra. These schedules include no adjustments related to tax-exempt interest
as such interest has not been significant. Net interest income for the three
months ended September 30, 1996, was 50% higher than for the same quarter in
1995 primarily because of the addition of the SWSB assets.
9
<PAGE> 10
VECTRA BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the three months ended September 30,
-----------------------------------------------------------------------------
1996 1995
-------------------------------------- ----------------------------------
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost balance or paid or cost
---------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments $ 189,984 3,010 6.30% $ 202,547 3,153 6.18%
Federal Home Loan Bank stock 4,016 68 6.74% 6,159 95 6.12%
Loans (1) 293,424 7,593 10.29% 189,656 5,137 10.75%
------------------------ ---------------------
Total interest-earning assets 487,424 10,671 8.71% 398,362 8,385 8.35%
Noninterest-earning assets
Cash and due from banks 24,969 15,293
Allowance for loan losses (3,939) (2,311)
Other 29,411 19,574
---------- ---------
Total assets $ 537,865 $ 430,918
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 92,214 598 2.58% $ 64,270 435 2.69%
Savings 128,348 1,313 4.07% 88,536 1,032 4.62%
Certificates of deposit:
Under $100,000 63,109 848 5.35% 49,813 735 5.85%
$100,000 and over 25,663 353 5.47% 12,524 187 5.92%
------------------------ ---------------------
Total interest-bearing deposits 309,334 3,112 4.00% 215,143 2,389 4.41%
Federal Home Loan Bank advances and federal
funds purchased 60,681 832 5.45% 102,816 1,563 6.03%
Securities sold under repurchase agreements 8,647 102 4.69% 5,248 65 4.91%
Notes Payable 4,050 83 8.15% 1,061 24 8.97%
------------------------ ---------------------
Total interest-bearing liabilities 382,712 4,129 4.29% 324,268 4,041 4.94%
---------- ---------
Noninterest-bearing demand accounts 109,195 75,915
Total deposits and interest-
bearing liabilities 491,907 400,183
Other noninterest-bearing liabilities 2,780 2,779
---------- ---------
Total liabilities 494,687 402,962
Shareholders' equity 43,178 27,956
---------- ---------
Total liabilities and
shareholders' equity $ 537,865 $ 430,918
========== =========
Net interest income $ 6,542 $ 4,344
========== ========
Net interest spread 4.42% 3.41%
===== =====
Net interest margin 5.34% 4.33%
===== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities 127% 123%
========== =========
</TABLE>
(1) Loans are net of unearned discount. Nonaccruals are included in average
loans outstanding. Loan fees are included in interest income as follows:
1996 - $290,000; 1995 - $312,000
10
<PAGE> 11
The following table illustrates, for the periods indicated, the changes in
Vectra's net interest income due to changes in volume and changes in interest
rate. Changes in net interest income due to both volume and rate have been
included in the changes due to rate.
<TABLE>
<CAPTION>
For the three months ended September 30,
1996 compared to 1995:
increase (decrease) in
net interest income
due to changes in
--------------------------------------
Volume Rate Total
------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest earning assets
Investments $ (196) $ 53 $ (143)
Investment in the stock of the Federal Home Loan Bank (33) 6 (27)
Loans 2,811 (355) 2,456
--------------------------------------
Total interest earning assets 2,582 (296) 2,286
Interest bearings deposits
NOW and money market accounts (189) 26 (163)
Savings (464) 183 (281)
Time certificates of deposit under $100,000 (196) 83 (113)
Time certificates of deposit $100,000 and over (196) 30 (166)
Federal Home Loan Bank advances and federal funds purchased 642 90 731
Securities and loans sold under repurchase agreements (42) 5 (37)
Notes Payable (68) 9 (59)
--------------------------------------
Total interest bearing liabilities (514) 426 (88)
Net increase (decrease) in net interest income $ 2,068 $ 130 $ 2,198
======== ======= ========
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
INTEREST INCOME. Interest income increased $2.3 million to $10.7
million in the third quarter of 1996 from $8.4 million in the same quarter of
1995. The primary factor contributing to this increase was the $103.8 million
increase in average loans to $293.4 million in the quarter from $189.7 million
in the same quarter of 1995. Lower average interest rates earned on loans in
the third quarter of 1996 compared to 1995 partially offset the increase from
the higher average balances. A $12.5 million decrease in average investments
partially offset by a slight increase in the average yield on investments
resulted in a $143,000 decline in interest earned on investments. Management
continues to focus on loan growth. and has allowed investments to decline as a
percent of total assets. Most of the Company's investments are in floating rate
securities tied to a variety of indices.
11
<PAGE> 12
INTEREST EXPENSE. Interest expense increased $88,000 to $4.1 million
in the third quarter of 1996 from $4.0 million in the same period of 1995.
This increase was primarily impacted by two offsetting changes. The first was
a $731,000 decrease in interest expense on FHLB borrowings and the second was a
$723,000 increase in interest expense on interest-bearing deposits. Averages
borrowings from FHLB declined $42.1 million to $60.7 million in the quarter
from $102.8 million in the same quarter of 1995. In addition to the decline in
average balance, the average cost of these borrowings declined 58 basis points
to 5.45% in the third quarter of 1996 from 6.03% in the same quarter of 1995.
The increase in interest expense on interest-bearing deposits resulted from a
$94.2 million increase in average balances to $309.3 in 1996 compared to $215.1
million in the same quarter of 1995. The effect of these increases in deposit
balances was partially offset by a 41 basis point decline in rates paid.
During 1995 and continuing in 1996, the Company focused on replacing FHLB
borrowings with deposits which have a lower average cost. Expansion of the
depositor base also provides added customer cross selling opportunities. The
Company expects, however, to continue to supplement its deposit funding with
borrowed funds to fund loan demand and to finance its investment portfolio.
NET INTEREST INCOME. Net interest income increased $2.2 million in
the third quarter of 1996 compared to the same period in 1995. The increase
resulted from the $89.1 million increase in average interest-bearing assets
combined with an increase in net interest margin to 5.34% in 1996 from 4.33% in
1995. The principal reasons for the increase in net interest margin relate to
changes in the mix of assets and liabilities. Higher yielding loans have
increased while lower yielding investments have declined and higher costing
FHLB borrowings have declined and been replaced in part by lower costing
deposits. Net interest spread also increased 1.01 % to 4.42% in the third
quarter of 1996 from 3.41% in the same period in 1995.
OTHER INCOME. Other income increased $48,000 to $1.1 million in the
third quarter of 1996 from $1.0 million in the same period of 1995, principally
as a result of a $208,000 increase in service charges on deposit accounts
driven by the increased deposit base partially offset by a $151,000 loss on
sales of securities in the third quarter of 1996 compared to a $9,000 loss in
the same period in 1995.
OTHER EXPENSES. Other expenses increased $813,000 to $4.9 million in
the third quarter of 1996 from $4.1 million in the same period of 1995. The
increase consisted of a $638,000 increase in salaries and employee benefits
largely from the addition of the SWSB employees in 1996, a $117,000 increase in
amortization of intangible assets related to the SWSB acquisition and a
$106,000 increase in net occupancy also largely resulting from the SWSB
acquisition and to depreciation of new computer hardware and software.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
INTEREST INCOME. Interest income increased $1.2 million to $27.1
million in 1996 from $25.9 million in 1995. This increase is primarily due to
a net increase in the level of interest-earning assets combined with a shift in
the mix of assets with loans becoming a larger percentage of total assets and
investments a lesser percentage.
INTEREST EXPENSE. Interest expense decreased $1.5 million to $11.0
million in 1996 from $12.5 million in 1995. For the nine month period in 1996,
average FHLB borrowings decreased by $72.1 million to $64.2 million in 1996 from
$136.3 million in 1995. During the same period, average interest-bearing
deposits increased by $61.1 million to $259.9 million in 1996 from $198.9
million in 1995. This change in funding mix combined with the lower cost of
deposits compared to FHLB borrowings contributed to the reduction in interest
expense.
12
<PAGE> 13
NET INTEREST INCOME. Net interest income increased $2.7 million to
$16.2 million in 1996 from $13.4 million in 1995. The increase in net interest
margin to 5.10% in 1996 from 4.35% in 1995 was largely due to the change in mix
of assets and liabilities as discussed above.
OTHER INCOME. Other income increased $427,000 to $3.2 million in 1996
from $2.7 million in 1995. Service fees on deposit accounts increased by
$340,000 due to the growth in deposit balances both from internal growth and
from the SWSB acquisition. The $515,000 increase in gains on sales of loans
consisted of a $392,000 increase in gain on sales of mortgages and a $123,000
increase in gain on the sales of SBA loans. Offsetting the above gains was a
$410,000 increase in the loss on sales of securities consisting of a $330,000
loss in 1996 compared to an $80,000 gain in 1995.
OTHER EXPENSES. Other expenses increased $1.1 million to $13.0
million in 1996 from $11.9 million in 1995. This increase consisted of $1.2
million in salaries and employee benefits, $248,000 in net occupancy and
$116,000 of amortization of intangible assets partially offset by decreases of
$379,000 in other expenses (primarily FDIC premiums and business development.
The increase in salaries and employee benefits was primarily due to the
addition of SWSB and mortgage lending staff and the addition of certain
positions to support asset growth, pay increases and increased benefits
expenses. The increases in net occupancy were primarily due to depreciation of
new computer hardware and software and the additions due to the SWSB
acquisition. The decrease in FDIC premiums was the result of a reduction in
rates effective September 1, 1995 and the decrease in business development
expense was due to an increased emphasis on marketing of deposit programs the
first half of 1995 which was not repeated in 1996.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 - Financial Data Schedule
b. Not applicable.
14
<PAGE> 15
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 thereunto duly authorized.
Date: 11/13/96 By: /s/ Ray L. Nash
--------------- ---------------------------------------
Ray L. Nash, Chief Financial Officer
(Chief Accounting Officer)
Authorized Signatory
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,990
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 191,619
<INVESTMENTS-CARRYING> 276
<INVESTMENTS-MARKET> 276
<LOANS> 300,476
<ALLOWANCE> 4,045
<TOTAL-ASSETS> 551,244
<DEPOSITS> 413,515
<SHORT-TERM> 87,501
<LIABILITIES-OTHER> 2,273
<LONG-TERM> 4,050
0
19,021
<COMMON> 25,713
<OTHER-SE> (829)
<TOTAL-LIABILITIES-AND-EQUITY> 551,244
<INTEREST-LOAN> 18,644
<INTEREST-INVEST> 8,472
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,116
<INTEREST-DEPOSIT> 7,966
<INTEREST-EXPENSE> 10,962
<INTEREST-INCOME-NET> 16,154
<LOAN-LOSSES> 607
<SECURITIES-GAINS> (314)
<EXPENSE-OTHER> 12,996
<INCOME-PRETAX> 5,725
<INCOME-PRE-EXTRAORDINARY> 3,757
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,757
<EPS-PRIMARY> .91
<EPS-DILUTED> .89
<YIELD-ACTUAL> 0
<LOANS-NON> 904
<LOANS-PAST> 753
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,493
<CHARGE-OFFS> 491
<RECOVERIES> 90
<ALLOWANCE-CLOSE> 4,045
<ALLOWANCE-DOMESTIC> 4,045
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
