<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) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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 small business 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
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date: 3,198,779
---------
Transitional Small Business Disclosure Format (Check one): Yes ; No X
---- -----
<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>
June December
30, 1996 31, 1995
----------- -----------
ASSETS (Dollars in thousands)
<S> <C> <C>
Cash and due from banks $ 29,032 $ 17,320
Federal funds sold - 2,000
Securities available for sale, at market value 189,177 170,384
Securities held to maturity 295 814
Federal Home Loan Bank stock 3,938 5,173
Loans 289,752 206,664
Less allowance for loan losses (3,837) (2,493)
----------- -----------
Net loans 285,915 204,171
Real estate acquired by foreclosure 1,068 919
Premises and equipment, net 12,241 10,575
Intangible asset, net 8,160 273
Deferred income taxes 3,040 2,422
Other assets 5,499 3,755
----------- -----------
Total assets $ 538,365 $ 417,806
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 117,244 $ 80,058
NOW and money market 92,077 63,704
Savings 125,050 99,254
Time deposits under $100,000 62,885 49,511
Time deposits $100,000 and over 24,914 14,558
----------- -----------
Total deposits 422,170 307,085
Federal Home Loan Bank advances and federal funds purchased 61,730 70,345
Securities and loans sold under repurchase agreements 6,688 7,429
Notes payable 4,050 1,051
Accounts payable and other liabilities 1,454 1,711
----------- -----------
Total liabilities 496,092 387,621
----------- -----------
Shareholders' equity:
Preferred stock 19,021 8,050
Common stock 25,713 25,604
Retained earnings (deficit) 1,961 170
----------- -----------
Realized shareholders' equity 46,695 33,824
Unrealized loss on securities available for sale (4,422) (3,639)
Total shareholders' equity 42,273 30,185
----------- -----------
Total liabilities and shareholders' equity $ 538,365 $ 417,806
=========== ===========
Realized shareholders' equity per common share $8.65 $8.07
=========== ===========
Book value per common share $7.27 $6.93
=========== ===========
Common shares outstanding at end of period 3,198,779 3,195,279
Capital ratios:
Total capital to risk-weighted assets 11.58% 13.69%
Tier 1 capital to risk-weighted assets 10.53% 12.74%
Tier 1 capital to tangible assets 6.85% 7.69%
Equity to total assets 7.85% 7.22%
</TABLE>
3
<PAGE> 4
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the quarters ended For the six months ended
------------------------- ----------------------------
June 30, June 30, June 30, June 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 $ 5,745 $ 4,922 $ 11,051 9,633
Interest on investments and federal funds sold 2,813 3,893 5,394 7,895
----------- ----------- -------------- ----------
Total interest income 8,558 8,815 16,445 17,528
----------- ----------- -------------- ----------
Interest expense:
Interest on deposits:
NOW, money market and savings accounts 1,568 1,310 3,089 2,550
Time deposits under $100,000 678 503 1,359 829
Time deposits $100,000 and over 205 150 406 254
Advances from the Federal Home Loan Bank and
federal funds purchased 879 2,234 1,799 4,656
Securities and loans sold under agreements to
repurchase 63 59 134 102
Notes payable 22 24 46 50
----------- ----------- -------------- ----------
Total interest expense 3,415 4,280 6,833 8,441
----------- ----------- -------------- ----------
Net interest income 5,143 4,535 9,612 9,087
Provision for loan losses 189 284 368 484
----------- ----------- -------------- ----------
Net interest income after provision for loan losses 4,954 4,251 9,244 8,603
----------- ----------- -------------- ----------
Other income:
Service fees on deposit accounts 715 655 1,421 1,288
Gain on sale of loans 376 178 766 257
Net gain/(loss) on sale of securities (163) 56 (163) 47
Other 41 117 88 142
----------- ----------- -------------- ----------
Total other income 969 1,006 2,112 1,734
----------- ----------- -------------- ----------
Other expenses:
Salaries and employee benefits 2,280 2,041 4,547 4,029
Net occupancy 622 574 1,255 1,113
Other 1,186 1,427 2,320 2,652
----------- ----------- -------------- ----------
Total other expenses 4,088 4,042 8,122 7,794
----------- ----------- -------------- ----------
Earnings before income taxes 1,835 1,215 3,234 2,543
Income tax expense 630 367 1,040 831
----------- ----------- -------------- ----------
Net earnings 1,205 848 2,194 1,712
Preferred stock dividend 219 193 404 378
----------- ----------- -------------- ----------
Net earnings available to common shareholders $ 986 $ 655 $ 1,790 1,334
=========== =========== ============== ==========
Earnings per weighted average common
share outstanding:
Earnings per share $ 0.31 $ 0.20 $ 0.56 $ 0.42
=========== =========== ============== ==========
Weighted average common shares outstanding 3,196,446 3,195,279 3,195,862 3,195,279
=========== =========== ============== ==========
Earnings per fully diluted share $ 0.30 $ 0.20 $ 0.55 $ 0.41
=========== =========== ============== ==========
Fully diluted common shares outstanding 3,260,525 3,231,524 3,257,531 3,230,608
=========== =========== ============== ==========
</TABLE>
4
<PAGE> 5
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30, June 30,
1996 1995
(Dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 1,442 $ 2,873
----------- --------------
Cash flows from investing activities:
Net increase in loans from existing offices (9,734) (5,222)
Loans acquired in the Southwest State Bank acquisition (73,745)
Purchase of securities available for sale (18,829) (4,408)
Purchase of securities held to maturity - (1,462)
Securities acquired in the Southwest State Bank acquisition (18,963) -
Proceeds from sales of securities available for sale 11,658 36,544
Proceeds from maturities of securities available for sale 5,847 4,793
Proceeds from maturities of securities held to maturity 531 2,136
Federal funds acquired in the Southwest State Bank acquisition (11,900) -
Net decrease (increase) in federal funds sold 13,900 (3,640)
Other 3,181 (251)
----------- --------------
Net cash provided (used) by investing activities (98,054) 28,490
----------- --------------
Cash flows from financing activities:
Net increase in deposits from existing offices 18,661 13,045
Deposits acquired in the Southwest State Bank acquisition 96,424 -
Net decrease in FHLB advances and federal funds purchased (8,615) (44,990)
Repayment of note payable (1,051) (44)
Proceeds from note payable 4,050 -
Preferred stock dividend (404) (378)
Net decrease in securities and loans sold under - -
agreements to repurchase (741) (528)
----------- --------------
Net cash provided (used) by financing activities 108,323 (32,895)
----------- --------------
Net increase (decrease) in cash and due from banks 11,712 (1,532)
Cash and due from banks at beginning of period 17,320 17,249
----------- --------------
Cash and due from banks at end of period $ 29,032 $ 15,717
=========== ==============
</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 June 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
JUNE 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. Total purchase price was $22.3 million paid $11.4 million
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 June 30, 1996, the purchase accounting adjustments
resulted in an increase in goodwill of $7.9 million. Vectra's results of
operations for the periods ended June 30, 1996 included the results of SWSB
only for the twelve days from June 18 to June 30, 1996.
ASSETS. The total assets of the company increased $120.6 million, or
28.9%, to $538.4 million at June 30, 1996 from $417.8 million at December 31,
1995. Securities available for sale increased $18.8 million to $189.2 at June
30, 1996 from $170.4 million at December 31, 1995. Loans increased $83.1
million to $289.8 million at June 30, 1996 from $206.7 million at December 31,
1995. Vectra's acquistion of SWSB contributed significantly to the growth in
loans and deposits, as well as in premises and intangible assets. At June 30,
1996, securities available for sale included $2.0 million of securities
classified as trading. Such securities were sold in July, 1996.
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 six
months ended months ended
------------- ------------
June 30, June 30,
1996 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Balance, beginning of period $2,596 $ 2,493
Acquired through acquisition 1,346 1,346
Provision for loan losses 189 368
Recoveries 26 59
Charge offs (320) (429)
------ --------
Balance, end of period $3,837 $ 3,837
====== ========
</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>
June 30, Dec. 31,
1996 1995
-------- --------
(Dollars in thousands)
<S> <C> <C>
Loans 90 days or more delinquent and still accruing interest $ 405 $ 83
Nonaccrual loans 1,657 1,292
Restructured loans - -
Total nonperforming loans 2,062 1,375
Real estate and other assets acquired by foreclosure 1,128 994
------ ------
Total nonperforming assets $3,190 $2,369
====== ======
Nonperforming assets to total assets 0.59% 0.57%
Nonperforming assets to total equity 7.55% 7.85%
Nonperforming loans to total loans 0.71% 0.67%
Allowance for loan losses to nonperforming loans 186.08% 181.31%
Allowance for loan losses to total loans 1.32% 1.21%
</TABLE>
The $821,000 increase from December 31, 1995 to June 30, 1996 is primarily
a result of nonperforming assets owned by SWSB at the time of closing.
7
<PAGE> 8
LIABILITIES. Total deposits increased $115.1 million, or 37.5%, to
$422.2 million at June 30, 1996 from $307.1 million at December 31, 1995. The
acquisition of SWSB contributed $98 million to the deposit increase. Federal
Home Loan Bank advances and federal funds purchased decreased $8.6 million to
$61.7 million at June 30, 1996 from $70.3 million at December 31, 1995. Notes
payable increased $3.0 million to $4.1 million at June 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 $12.1
million to $42.3 million at June 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 acquisiton 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 $783,000
increase in unrealized loss on securities available for sale to $4.2 million at
June 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 second quarter of 1996 compared with the second quarter of
1995.
<TABLE>
For the three months Impact on
ended June 30, net income
------------------------------ increase %
1996 1995 (decrease) change
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Interest income $ 8,558 $ 8,815 $ (257) (2.92%)
Interest expense (3,415) (4,280) 865 (20.21%)
---------- ---------- ------
Net interest income 5,143 4,535 608 13.41%
Provision for loan losses (189) (284) 95 (33.45%)
---------- ---------- ------
Net interest income after
provision for loan losses 4,954 4,251 703 16.54%
Total other income 969 1,006 (37) (3.68%)
Total other expenses (4,088) (4,042) (46) 1.14%
---------- ---------- ------
Income before income taxes 1,835 1,215 620 51.03%
Income tax expense (630) (367) (263) 71.66%
---------- ---------- ------
Net earnings $ 1,205 $ 848 $ 357 42.10%
========== ========== ======
Earnings per weighted average
common share outstanding $ 0.31 $ 0.20 $ 0.11 55.00%
========== ========== ======
</TABLE>
8
<PAGE> 9
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.
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. Because the balances resulting from
the SWSB acquisition were included in the averages for only the last twelve
days of the quarter, the average balances for the quarter were substantially
lower than the balances as of June 30, 1996.
9
<PAGE> 10
Vectra Banking Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the three months ended June 30,
---------------------------------------------------------------
1996 1995
----------------------------- ------------------------------
Interest Average Interest Average
Average earned yield Average earned yield
balance or paid or cost balance or paid or cost
------- ------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
ASSETS
Investments $177,913 2,748 6.21% $224,205 3,774 6.75%
Federal Home Loan Bank stock 3,848 65 6.79% 7,932 119 6.02%
Loans (1) 218,293 5,745 10.58% 183,451 4,922 10.76%
------------------- -------------------
Total interest-earning assets 400,054 8,558 8.60% 415,588 8,815 8.51%
Noninterest-earning assets
Cash and due from banks 18,480 15,430
Allowance for loan losses (2,670) (2,218)
Other 19,554 18,989
-------- --------
Total assets $435,418 $447,789
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 68,696 425 2.49% $ 64,955 492 3.04%
Savings 108,080 1,143 4.25% 81,209 818 4.04%
Certificates of deposit:
Under $100,000 49,191 678 5.54% 36,658 503 5.50%
$100,000 and over 15,261 205 5.40% 10,704 150 5.62%
------------------- -------------------
Total interest-bearing deposits 241,228 2,451 4.09% 193,526 1,963 4.07%
Federal Home Loan Bank advances and
federal funds purchased 65,333 879 5.41% 144,237 2,234 6.21%
Securities sold under repurchase agreements 5,660 63 4.48% 4,796 59 4.93%
Notes Payable 1,143 22 7.74% 1,079 24 8.92%
------------------- -------------------
Total interest-bearing liabilities 313,364 3,415 4.38% 343,638 4,280 5.00%
Noninterest-bearing demand accounts 87,249 75,034
-------- --------
Total deposits and interest-
bearing liabilities 400,613 418,672
Other noninterest-bearing liabilities 2,233 2,451
-------- --------
Total liabilities 402,846 421,123
Shareholders' equity 32,572 26,666
-------- --------
Total liabilities and
shareholders' equity $435,418 $447,789
======== ========
Net interest income $ 5,143 $ 4,535
======== ========
Net interest spread 4.22% 3.51%
===== =====
Net interest margin 5.17% 4.38%
===== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities 128% 121%
======== ========
</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 - $355,000; 1995 - $269,000
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 June 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 $ (779) $ (247) $ (1,026)
Investment in the stock of the Federal Home Loan Bank (61) 7 (54)
Loans 935 (112) 823
-------- ------- ---------
Total interest earning assets 95 (352) (257)
Interest bearings deposits
NOW and money market accounts (28) 95 67
Savings (271) (54) (325)
Time certificates of deposit under $100,000 (172) (3) (175)
Time certificates of deposit $100,000 and over (64) 9 (55)
Federal Home Loan Bank advances and federal funds purchased 1,222 133 1,355
Securities and loans sold under repurchase agreements (11) 7 (4)
Notes Payable (1) 3 2
-------- ------- ---------
Total interest bearing liabilities 675 190 865
Net increase (decrease) in net interest income $ 770 $ (162) $ 608
======== ======= =========
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
INTEREST INCOME. Interest income decreased $257,000 to $8.6 million in
the second quarter of 1996 from $8.8 million in the same quarter of 1995. The
primary factors contributing to this decrease were the asset mix change with
average loans increasing by $34.8 million while average investments declined by
$46.3 million. These changes are consistent with management's desire to
continue the expansion of the loan portfolio while allowing investments to
decline as a percent of total assets. In addition to the volume changes, lower
average interest rates in the second quarter of 1996 compared to 1995 also
contributed to the decrease in interest income. Management continues to focus
on loan growth. Most of the Company's investments are in floating rate
securities tied to a variety of indices. The yield on investments in the
second quarter of 1996 decreased 0.54% compared to the same period in 1995, due
to declines in the indices to which the variable rate securities are tied.
11
<PAGE> 12
INTEREST EXPENSE. Interest expense decreased $865,000 to $3.4 million in
the second quarter of 1996 from $4.3 million in the same period of 1995. This
decrease was primarily a result of a $78.9 million decrease in average FHLB
borrowings which together with a 0.80% decline in the average cost of such
borrowings contributed $1.4 million to the decline in interest expense.
Partially offsetting the decline related to FHLB borrowings was a $47.7 million
increase in average interest-bearing deposits which, combined with a slight
0.02% increase in average cost of such deposits, contributed a $488,000
increase in interest expense. During 1995 and continuing in the second quarter
of 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 $608,000 in the second
quarter of 1996 compared to the same period in 1995. The increase in net
interest income resulted from an increase in net interest margin to 5.17% in
1996 from 4.38% in 1995, partially offset by a decrease of $15.5 million in
average interest earning assets. 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 0.71% to 4.22% in
the second quarter of 1996 from 3.51% in the same period in 1995 resulting from
an improvement in the yield on interest earning assets and a decline in the
average cost of interest-bearing liabilites.
OTHER INCOME. Other income decreased $37,000 to $969,000 in the second
quarter of 1996 from $1.0 million in the same period of 1995, principally as a
result of a $163,000 loss on sales of securities in the second quarter of 1996
compared to a $56,000 gain in the same period in 1995. The Company's purchase
of MacWest Mortgage Company on June 30, 1995, which substantially increased the
Company's mortgage lending capacity, resulted in an increase in gain on sales
of mortgage loans by $222,000 to $283,000 in the second quarter of 1996
compared to $61,000 in the same quarter of 1995. A $24,000 decrease in gain on
sales of SBA loans to $94,000 from $118,000 in the corresponding periods
partially offset the increase in gains from mortgages.
OTHER EXPENSES. Other expenses increased $46,000 to $4.1 million in the
second quarter of 1996 from $4.0 million in the same period of 1995. The
increase consisted of a $239,000 increase in salaries and employee benefits, a
$48,000 increase in net occupancy, a $29,000 increase in printing, supplies and
postage, a $24,000 increase in amortization of intangible assets and other
lesser net increases of $42,000 offset by a decrease in FDIC premiums of
$185,000 and in business development of $151,000. The increase in the mortgage
lending staff caused $174,000 of the increase in salaries and employee benefits
with merit increases and other changes accounting for the remainder. The
increases in net occupancy related primarily to depreciation of new computer
hardware and software. The decline in FDIC premiums resulted from a reduction
in rates effective June 1, 1995. The decrease in business development expenses
related to marketing of deposit programs in the second quarter of 1995 which
were not repeated in 1996.
12
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
INTEREST INCOME. Interest income decreased $1.1 million to $16.4 million
in 1996 from $17.5 million in 1995. This decrease is primarily due to a net
decrease in the level of interest-earning assets combined with a shift in the
mix of assets. Average loans increased $29.7 million to $211.2 million in 1996
from $181.5 million in 1995 while average investments decreased $54.8 million
to $174.8 million in 1996 from $229.6 in 1995.
INTEREST EXPENSE. Interest expense decreased $1.6 million to $6.8 million
in 1996 from $8.4 million in 1995. For the six month period in 1996, average
FHLB borrowings decreased by $87.1 million to $65.9 million in 1996 from $153.0
million in 1995. During the same period, average interest-bearing deposits
increased by $44.5 million to $235.2 million in 1996 from $190.7 million in
1995. This change in funding mix to the less costly deposits contributed to
the reduction in interest expense.
NET INTEREST INCOME. Net interest income increased $525,000 to $9.6
million in 1996 from $9.1 million in 1995. The increase in net interest margin
to 4.95% in 1996 from 4.37% in 1995 was largely due to the change in mix of
assets and liabilities.
OTHER INCOME. Other income increased $378,000 to $2.1 million in 1996
from $1.7 million in 1995. Service fees on deposit accounts increased by
$133,000. The $509,000 increase in gains on sales of loans consisted of a
$433,000 increase in gain on sales of mortgages and a $76,000 increase in gain
on the sales of SBA loans. Offsetting the above gains was a $210,000 increase
in the loss on sales of securities consisting of a $163,000 loss in 1996
compared to a $47,000 gain in 1995.
OTHER EXPENSES. Other expenses increased $328,000 to $8.1 million in 1996
from $7.8 million in 1995. This increase consisted of $518,000 in salaries and
employee benefits, $142,000 in net occupancy and $123,000 of other net
increases partially offset by decreases of $327,000 in FDIC premiums and
$128,000 in business development. The increase in salaries and employee
benefits was primarily due to the addition of 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. The decrease in FDIC
premiums was the result of a reduction in rates effective June 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.
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
a. A special meeting of shareholders was held on June 18, 1996.
b. Not applicable
c. The special meeting was held to consider and to act upon a proposal to
approve the issuance of Vectra Banking Corporation's ("VBC") securities pursuant
to the Agreement and Plan of Merger under which Bank Land Co. and Southwest
State Bank would merge with and into Vectra Bank and under which shareholders
of Bank Land Co. and Southwest State Bank would receive $100 Series A
Convertible Preferred Stock of VBC, VBC contingent Warrants to purchase VBC
Common Stock, and cash. The results of the voting were as follows:
<TABLE>
<S> <C>
Number of shares eligible to vote 3,195,279
Total number of shares voted 1,710,185
Shares voted for 1,707,095
Shares voted against none
Number of abstentions 3,090
</TABLE>
d. Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. 27 - Financial Data Schedule.
b. On June 28, 1996, Registrant filed a report on form 8-K. Reference is
made to such report with commission file number 0-23622. Items reported in
such report were Item 2. Acquisition or Disposition of Assets in which the
completion of the acquisition of Bank Land Co. was reported and Item 7.
Financial Statements and Exhibits in which reference was made to Form S-4 of
the Registrant, No. 333-3248 which contained all the required financial
statements disclosures required by the Form 8-K.
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: 08/12/96 By: /s/ Ray L. Nash
----------- --------------------------------
Ray L. Nash, Chief Financial Officer
(Chief Accounting Officer)
Authorized Signatory
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 29,032
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,989
<INVESTMENTS-HELD-FOR-SALE> 187,188
<INVESTMENTS-CARRYING> 295
<INVESTMENTS-MARKET> 295
<LOANS> 289,752
<ALLOWANCE> 3,837
<TOTAL-ASSETS> 538,365
<DEPOSITS> 422,170
<SHORT-TERM> 68,418
<LIABILITIES-OTHER> 1,454
<LONG-TERM> 4,050
0
19,021
<COMMON> 25,713
<OTHER-SE> (2,461)
<TOTAL-LIABILITIES-AND-EQUITY> 538,365
<INTEREST-LOAN> 11,051
<INTEREST-INVEST> 5,394
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,445
<INTEREST-DEPOSIT> 4,854
<INTEREST-EXPENSE> 6,833
<INTEREST-INCOME-NET> 9,612
<LOAN-LOSSES> 368
<SECURITIES-GAINS> (163)
<EXPENSE-OTHER> 8,122
<INCOME-PRETAX> 3,234
<INCOME-PRE-EXTRAORDINARY> 2,194
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,194
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
<YIELD-ACTUAL> 0
<LOANS-NON> 1,657
<LOANS-PAST> 405
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,493
<CHARGE-OFFS> 429
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 3,837
<ALLOWANCE-DOMESTIC> 3,837
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
