<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 September 30, 1997
------------------
|_| 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 registrant as
specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Colorado 84-1087703
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
</TABLE>
1650 South Colorado Boulevard, Suite 320, Denver, CO 80222
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(303) 782-7440
- --------------------------------------------------------------------------------
(Registrant's telephone number including area code)
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
The number of shares outstanding of each of the registrant's class of
common stock as of November 14, 1997: 4,865,709
<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, 1996.
2
<PAGE> 3
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September December
30, 1997 31, 1996
-------------- --------------
ASSETS (Dollars in thousands except
- -------------------------------------------------------- share and per share amounts)
<S> <C> <C>
Cash and due from banks $ 40,587 $ 32,688
Securities available for sale, at market value 201,270 180,995
Securities held to maturity 4,397 263
Federal Home Loan Bank stock 5,097 3,610
Loans 409,803 319,905
Less allowance for loan losses (5,721) (4,238)
-------------- --------------
Net loans 404,082 315,667
Real estate acquired by foreclosure 1,041 955
Premises and equipment, net 12,121 11,949
Goodwill, net 11,759 7,975
Deferred income taxes 2,772 3,036
Other assets 7,370 4,673
-------------- --------------
Total assets $ 690,496 $ 561,811
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------
Deposits:
Demand $ 132,713 $ 122,713
NOW and money market 99,183 88,466
Savings 126,668 126,146
Time deposits under $100,000 108,527 67,617
Time deposits $100,000 and over 48,127 34,409
-------------- --------------
Total deposits 515,218 439,351
Customer sweep accounts 15,931 10,733
-------------- --------------
Total customer funding 531,149 450,084
Federal Home Loan Bank advances and federal funds purchased 91,700 59,700
Notes payable 4,050 4,050
Accounts payable and other liabilities 3,353 2,542
-------------- --------------
Total liabilities 630,252 516,376
-------------- --------------
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Junior Subordinated Debentures 17,500 -
-------------- --------------
Shareholders' equity:
Preferred stock 10,875 19,021
Common stock 25,923 25,748
Retained earnings 8,518 4,441
-------------- --------------
Realized shareholders' equity 45,316 49,210
Unrealized loss on securities available for sale (2,572) (3,775)
-------------- --------------
Total shareholders' equity 42,744 45,435
-------------- --------------
Total liabilities and shareholders' equity $ 690,496 $ 561,811
============== ==============
Per share data assuming conversion of $10,971 convertible preferred:
Book value $7.02 $6.18
============== ==============
Tangible book value $5.09 $4.86
============== ==============
Common shares outstanding at end of period 4,853,472 4,803,618
============== ==============
Pro forma fully converted common shares at end of period 6,084,650 6,045,606
============== ==============
Capital ratios:
Total tier 1 and tier 2 capital to risk-weighted assets 10.83% 11.58%
Tier 1 capital to risk-weighted assets 9.28% 10.50%
Tier 1 capital to tangible assets 6.74% 6.98%
Equity to total assets 6.19% 8.09%
</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, June 30, September 30, September 30, September 30,
1997 1997 1996 1997 1996
------------- -------------- ------------- --------- ----------
(Dollars in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,846 $ 8,855 $ 7,593 $ 26,780 $ 18,644
Interest on investments and federal funds sold 3,259 2,995 3,078 9,153 8,472
------------- -------------- ------------- --------- ----------
Total interest income 13,105 11,850 10,671 35,933 27,116
------------- -------------- ------------- --------- ----------
Interest expense:
Interest on deposits:
NOW, money market and savings accounts 1,926 1,804 1,911 5,526 5,000
Time deposits under $100,000 1,419 1,073 848 3,458 2,207
Time deposits $100,000 and over 659 523 353 1,677 759
Customer sweep accounts 186 172 102 506 236
Advances from the Federal Home Loan Bank
and federal funds purchased 1,248 1,047 832 3,235 2,631
Notes payable 83 82 83 243 129
Trust preferred capital securities 422 282 - 704 -
------------- -------------- ------------- --------- ----------
Total interest expense 5,943 4,983 4,129 15,349 10,962
------------- -------------- ------------- --------- ----------
Net interest income 7,162 6,867 6,542 20,584 16,154
Provision for loan losses 198 224 239 652 607
------------- -------------- ------------- --------- ----------
Net interest income after provision for loan losses 6,964 6,643 6,303 19,932 15,547
------------- -------------- ------------- --------- ----------
Other income:
Service fees on deposit accounts 846 896 874 2,637 2,295
Gain on sale of loans 365 315 311 910 1,077
Net gain/(loss) on sale of securities 8 (9) (151) (32) (314)
Other 37 31 28 95 116
------------- -------------- ------------- --------- ----------
Total other income 1,256 1,233 1,062 3,610 3,174
------------- -------------- ------------- --------- ----------
Other expenses:
Salaries and employee benefits 3,206 2,883 2,807 8,947 7,354
Net occupancy 840 743 701 2,277 1,956
Amortization of goodwill 119 87 93 301 131
Other 1,367 1,322 1,273 3,821 3,555
------------- -------------- ------------- --------- ----------
Total other expenses 5,532 5,035 4,874 15,346 12,996
------------- -------------- ------------- --------- ----------
Earnings before income taxes 2,688 2,841 2,491 8,196 5,725
Income tax expense 929 1,075 928 2,999 1,968
------------- -------------- ------------- --------- ----------
Net earnings 1,759 1,766 1,563 5,197 3,757
Preferred stock dividend 192 552 385 1,121 790
============= ============== ============= ========= ==========
Net earnings available to common shareholders $ 1,567 $ 1,214 $ 1,178 $ 4,076 $ 2,967
============= ============== ============= ========= ==========
Earnings per average common share outstanding:
Earnings per common and common equivalent share $0.31 $0.24 $0.24 $0.82 $0.61
Average common shares and equivalents outstanding 5,057,534 4,981,597 4,919,888 5,000,691 4,900,802
============= ============== ============= ========= ==========
Earnings per common share assuming full dilution $0.28 $0.23 $0.20 $0.75 $0.59
============= ============== ============= ========= ==========
Common and common equivalent shares outstanding
assuming full dilution 6,288,712 6,223,585 6,161,876 6,231,869 5,372,213
============= ============== ============= ========= ==========
</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,
1997 1996
-------------------------------
(Dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 6,756 $ 5,309
------------- -------------
Cash flows from investing activities:
Net increase in loans (38,686) (20,808)
Purchase of securities available for sale (65,200) (29,685)
Purchase of securities held to maturity (4,217) -
Proceeds from sales of securities available for sale 57,006 16,056
Proceeds from maturities of securities available for sale 8,526 10,425
Proceeds from maturities of securities held to maturity 82 550
Net decrease in federal funds sold 3,360 13,900
Net assets acquired in business combinations, net of cash acquired (11,099) (8,184)
Other (932) 165
------------- -------------
Net cash used by investing activities (51,160) (17,581)
------------- -------------
Cash flows from financing activities:
Net increase in deposits 7,995 10,005
Net increase in customer sweep accounts 4,898 1,372
Net increase in FHLB advances and federal funds purchased 32,000 8,355
Proceeds from note payable - 4,050
Repayment of note payable - (1,051)
Net proceeds from trust preferred capital securities 16,501 -
Redeemption of preferred stock (8,050) -
Preferred stock dividend (1,121) (789)
Proceeds from sale of stock 80 -
------------- -------------
Net cash provided by financing activities 52,303 21,942
------------- -------------
Net increase in cash and due from banks 7,899 9,670
Cash and due from banks at beginning of period 32,688 17,320
------------- -------------
Cash and due from banks at end of period $ 40,587 $ 26,990
============= =============
</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 three and nine months ended September 30, 1997 and
1996, 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, 1996.
Note 2. Offering of Capital Securities by VBC Capital 1
On April 30, 1997 Vectra and its wholly-owned subsidiary, VBC Capital 1 (the
"Trust"), completed the sale of $17.5 million of 9.5% Cumulative Capital
Securities of the Trust. Net proceeds were approximately $16.5 million after
payment of sales commissions and other offering costs, and were invested in
Junior Subordinated Debentures issued by Vectra to the Trust in connection with
the public offering. Interest on the Junior Subordinated Debentures will be
paid by Vectra to the Trust, will be the sole revenues of the Trust and the
source for distributions by the Trust to the holders of the Capital Securities.
For financial reporting purposes, the Trust will be treated as a subsidiary of
Vectra and, accordingly, the accounts of the Trust will be included in the
consolidated financial statements of Vectra. The Capital Securities are
presented as a separate line item in the consolidated balance sheets under the
caption "Company Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures." For financial
reporting purposes, Vectra records distributions payable on the Capital
Securities as interest expense in the consolidated statements of operations.
Vectra used the net proceeds from the issuance of the Junior Subordinated
Debentures for the redemption of its outstanding $.95 Series A Cumulative
Preferred Stock (approximately $8.3 million) and contributed $8 million of
capital into Vectra Bank. The Capital Securities qualify as Tier 1 capital
under the capital guidelines of the Federal Reserve subject to regulatory
limitations.
Note 3. Stock Split
On May 31, 1997 Vectra declared a three-for-two stock split. All per share
amounts have been adjusted accordingly.
6
<PAGE> 7
Note 4. Acquisition of Professional Bank
On August 1, 1997, Vectra completed the acquisition of Professional Bank of
Denver ("PB") in a transaction accounted for using purchase accounting. Vectra
paid a total of $13.3 million in cash for the two-branch bank. At the closing
date, PB had total loans of $52 million, deposits of $38 million and
investments of $24 million. 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, 1997, the purchase accounting adjustments
resulted in an increase in goodwill of $4.1 million.
Note 5. Agreement by Vectra Banking Corporation to merge with Zions
Bancorporation
Vectra on September 23, 1997 agreed to be acquired by Zions Bancorporation with
Zions being the surviving entity. The transaction will be accounted for as a
pooling of interests. Zions will exchange .685 shares of its common stock for
each common share of Vectra. Zions will also exchange 7.755 shares of its
common stock for each Vectra convertible preferred share. This transaction is
expected to close in the first quarter of 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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, 1996 and 1995,
included in Vectra's Form 10-K for the fiscal year ended December 31, 1996.
COMPARISON OF STATEMENTS OF CONDITION AT
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS. The total assets of Vectra increased $128.7 million,
or 22.9%, to $690.5 million at September 30, 1997 from $561.8 million at
December 31, 1996. Loans increased $89.9 million, or 28.1%, to $409.8 million
at September 30, 1997 from $319.9 million at December 31, 1996. Vectra's
acquisition of PB contributed significantly to the growth in loans and
goodwill.
7
<PAGE> 8
ALLOWANCE FOR LOAN LOSSES. The following table sets forth information
regarding changes in the Vectra's allowance for loan losses.
<TABLE>
<CAPTION>
For the nine
months ended
September 30,
1997
-------------
(Dollars in
thousands)
<S> <C>
BALANCE, BEGINNING OF PERIOD $ 4,238
Acquired through acquisition 1,235
Provision for loan losses 652
Recoveries 173
Charge offs (577)
-------
Balance, end of period $ 5,721
=======
</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.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Loans 90 days or more delinquent and still accruing interest $ 735 $ 1,292
------------- -------------
Nonaccrual loans 2,011 1,247
Restructured loans - -
------------- -------------
Total nonperforming loans 2,746 2,539
Real estate and other assets acquired by foreclosure 1,185 1,011
============= =============
Total nonperforming assets $ 3,931 $ 3,550
============= =============
Nonperforming assets to total assets 0.57% 0.63%
Nonperforming assets to total equity 9.20% 7.81%
Nonperforming loans to total loans 0.67% 0.79%
Allowance for loan losses to nonperforming loans 208.34% 166.92%
Allowance for loan losses to total loans 1.40% 1.32%
</TABLE>
The increase in nonperforming assets is primarily due to one loan of $443,000.
A restructuring of this loan is anticipated in the near future with no loss
expected.
8
<PAGE> 9
LIABILITIES. Advances from the Federal Home Loan Bank increased $32
million to $91.7 million at September 30, 1997 from $59.7 million at December
31, 1996. Deposits increased $75.9 million to $515.2 million at September 30,
1997 from $439.4 million at December 31, 1997. Customer sweep accounts
increased $5.2 million to $15.9 million at September 30, 1997 from $10.7
million at December 31, 1996. PB contributed $67.9 million to the deposit
increase as of the closing date.
The increase of $17.5 million of company obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely Junior Subordinated
Debentures is attributable to the public offering of Cumulative Capital
Securities by VBC Capital l.
SHAREHOLDERS' EQUITY. Shareholders' equity decreased $2.7 million
to $42.7 million at September 30, 1997 from $45.4 million at December 31, 1996.
This decrease was a result of the redemption of Series A Cumulative Preferred
Stock of $8.05 million and the early redemption premium of $241,000 in the form
of a dividend, offset by $4.1 million increase from earnings available to
common shareholders and a $1.2 million decrease in the unrealized loss on
securities available for sale.
COMPARISONS OF STATEMENTS OF OPERATIONS
The following table provides a summary of the major elements of income and
expense for the third quarter of 1997 compared with the third quarter of 1996.
<TABLE>
<CAPTION>
For the three months Impact on
ended September 30, net income
------------------------------ increase %
1997 1996 (decrease) change
------------- ------------ ---------- -------
<S> <C> <C> <C> <C>
Interest income $ 13,105 $ 10,671 $ 2,434 22.81%
Interest expense (5,943) (4,129) (1,814) 43.93%
-------- -------- -------- -----
Net interest income 7,162 6,542 620 9.48%
Provision for loan losses (198) (239) 41 (17.15%)
-------- -------- -------- -----
Net interest income after
provision for loan losses 6,964 6,303 661 10.49%
Total other income 1,256 1,062 194 18.27%
Total other expenses (5,532) (4,874) (658) 13.50%
-------- -------- -------- -----
Income before income taxes 2,688 2,491 197 7.91%
Income tax expense (929) (928) (1) 0.11%
======== ======== ======== =====
Net earnings $ 1,759 $ 1,563 $ 196 12.54%
======== ======== ======== =====
</TABLE>
9
<PAGE> 10
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. These schedules
have been adjusted to a fully taxable equivalent basis for 1997. There were no
adjustments for 1996 related to tax-exempt interest, as such interest was not
significant.
10
<PAGE> 11
VECTRA BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the three months ended Septemer 30,
---------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------
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 $ 205,101 3,233 6.25%$ 189,984 3,010 6.30%
Federal Home Loan Bank stock 4,752 88 7.35% 4,016 68 6.74%
Loans (1) 386,756 9,901 10.16% 293,424 7,593 10.29%
------------------------ -------------------
Total interest-earning assets 596,609 13,222 8.79% 487,424 10,671 8.71%
Noninterest-earning assets
Cash and due from banks 29,842 24,969
Allowance for loan losses (5,305) (3,939)
Other 33,218 29,411
=========== =========
Total assets $ 654,364 $ 537,865
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 96,662 618 2.54%$ 92,214 598 2.58%
Savings 125,938 1,308 4.12% 128,348 1,313 4.07%
Certificates of deposit:
Under $100,000 98,913 1,419 5.69% 63,109 848 5.35%
$100,000 and over 44,835 659 5.83% 25,663 353 5.47%
------------------------ -------------------
Total interest-bearing deposits 366,348 4,004 4.34% 309,334 3,112 4.00%
Customer sweep accounts 14,476 186 5.10% 8,647 102 4.69%
Federal Home Loan Bank advances and federal funds purchased 86,408 1,248 5.73% 60,681 832 5.45%
Notes Payable 4,050 83 8.13% 4,050 83 8.15%
Trust preferred capital securities 17,500 422 9.57% - - -
------------------------ -------------------
Total interest-bearing liabilities 488,782 5,943 4.82% 382,712 4,129 4.29%
Noninterest-bearing demand accounts 120,051 109,195
----------- ---------
Total deposits and interest-
bearing liabilities 608,833 491,907
Other noninterest-bearing liabilities 3,727 2,780
----------- ---------
Total liabilities 612,560 494,687
Shareholders' equity 41,804 43,178
----------- ---------
Total liabilities and
shareholders' equity $ 654,364 $ 537,865
=========== =========
Net interest income $ 7,279 $ 6,542
=========== ========
Net interest spread 3.97% 4.42%
======== =====
Net interest margin 4.84% 5.34%
======== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities 122% 127%
=========== =========
</TABLE>
(1) Loans are net of unearned discount. Nonaccruals are included in average
loans outstanding. Loan fees are included in interest income as follows: 1997 -
$315,000; 1996 - $290,000
11
<PAGE> 12
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,
1997 compared to 1996:
increase (decrease) in
net interest income
due to changes in
-----------------------------------
Volume Rate Total
----------- ----------- --------
(Dollars in thousands)
INTEREST EARNING ASSETS
<S> <C> <C> <C>
Investments $ 240 $ (17) $ 223
Investment in the stock of the Federal Home Loan Bank 12 8 20
Loans 2,415 (107) 2,308
-----------------------------------
Total interest earning assets 2,667 (116) 2,551
INTEREST BEARINGS DEPOSITS
NOW and money market accounts (29) 9 (20)
Savings 25 (20) 5
Time certificates of deposit under $100,000 (481) (90) (571)
Time certificates of deposit $100,000 and over (264) (42) (306)
Customer sweep accounts (69) (15) (84)
Federal Home Loan Bank advances and federal funds purchased (353) (63) (416)
Notes Payable - - -
Trust preferred capital securities (422) - (422)
-----------------------------------
Total interest bearing liabilities (1,593) (221) (1,814)
Net increase in net interest income $ 1,074 $ (337) $ 737
=========== =========== ========
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
INTEREST INCOME. Interest income increased $2.6 million to $13.2 million in
the third quarter of 1997 from $10.7 million in the same quarter of 1996. The
primary factor contributing to this increase was the $93.4 million increase in
average loans to $386.8 million in the third quarter of 1997 from $293.4 million
in the same quarter of 1996. PB contributed approximately $34.6 million to the
increase in average loan balances. Lower average interest rates earned on loans
in the third quarter of 1997 compared to 1996 partially offset the increase from
the higher average balances. A $15.1 million increase in average investments, of
which PB contributed $11.9 million, coupled with an increase in the average
fully tax effective yield on investments resulted in a $223,000 increase in
interest earned on investments. Management continues to focus on loan growth and
has allowed investments to decline as a percent of total assets.
12
<PAGE> 13
INTEREST EXPENSE. Interest expense increased $1.8 million to $5.9 million
in the third quarter of 1997 from $4.1 million in the same period of 1996. This
increase was primarily a result of increases in average balances of
interest-bearing deposits and customer sweep accounts. Average balances in these
accounts increased $63 million from the same period a year ago causing interest
expense on these accounts to increase $976,000 from the third quarter in 1996. A
35 basis point increase in interest rates paid on these accounts contributed
$280,000 to interest paid compared to the same period a year ago. PB contributed
$43.4 million in average interest-bearing deposits. Also contributing to the
increase was the interest on the Capital Securities of $422,000, which was not
outstanding in 1996. Averages borrowings from the FHLB increased $25.7 million
to $86.4 million in the quarter from $60.7 million in the same quarter of 1996.
Contributing to the increase in interest paid was the average cost of these
borrowings which increased 28 basis points to 5.73% in the third quarter of 1997
from 5.45% in the same quarter of 1996.
NET INTEREST INCOME. Net interest income increased $737,000 in the third
quarter of 1997 compared to the same period in 1996. The increase resulted from
the $109.2 million increase in average interest-bearing assets offset by a
decrease in net interest margin to 4.84% in 1997 from 5.34% in 1996. The
principal reason for the decrease in net interest margin is due to the interest
expense on the trust preferred capital securities. Excluding the trust preferred
securities, net interest margin decreased primarily due to increased funding
costs resulting from the PB acquisition.
OTHER INCOME. Other income increased $194,000 in the third quarter of 1997
from the same period in 1996, primarily due to gains on sale of securities of
$8,000 compared to a $151,000 loss in the same period in 1996 and higher gains
on sale of loans of $54,000 partially offset by lower service charge income of
$28,000.
OTHER EXPENSES. Other expenses increased $658,000 to $5.5 million in the
third quarter of 1997 from $4.9 million in the same period of 1996. The increase
in operating expenses is primarily due to the addition of PB. With the
acquisition of PB, additional staff, facilities, equipment and additional
operating expenses due to a larger customer base were necessary. The increase
primarily consisted of a $399,000 increase in salaries and employee benefits
largely from the addition of the PB employees, $139,000 increase in occupancy
and an $26,000 increase in amortization of goodwill related to the PB
acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
INTEREST INCOME. Interest income increased $8.8 million to $35.9 million in
1997 from $27.1 million in 1996. 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 becoming a lesser percentage.
INTEREST EXPENSE. Interest expense increased $4.3 million to $15.3 million
in 1997 from $11 million in 1996. Average FHLB borrowings increased by $12.5
million to $76.7 million in 1997 from $64.2 million in 1996. During the same
period, average interest-bearing deposits
13
<PAGE> 14
increased by $75.5 million to $335.4 million in 1997 from $259.9 million in
1996. Customer sweeps and notes payable increased by $6.8 million and $2 million
respectively in 1997 compared to 1996. Approximately $704,000 of the increase in
interest expense is attributable to the Capital Securities issued in April 1997.
The increase in average interest-bearing deposits from acquisitions and internal
growth combined with a 16BP increase in the costs of these deposits compared to
1996 contributed to the increase in interest expense.
NET INTEREST INCOME. Net interest income increased $4.4 million to $20.6
million in 1997 from $16.2 million in 1996. The decrease in net interest margin
to 5.04% in 1997 from 5.10% in 1996 was largely due to the trust preferred
securities issued in April.
OTHER INCOME. Other income increased $436,000 to $3.6 million in 1997 from
$3.2 million in 1996. Service fees on deposit accounts increased by $342,000 due
to the growth in deposit balances both from internal growth and from the
Southwest State Bank ("SWSB") and PB acquisitions. SWSB was acquired in June
1996. Losses on the sale of securities improved $282,000 from 1996. Offsetting
the above gains was $167,000 decrease in gains on sales of loans resulting from
lower mortgage loan origination volume in 1997 compared to 1996.
OTHER EXPENSES. Other expenses increased $2.3 million to $15.3 million in
1997 from $13 million in 1996. This increase consisted of $1.5 million in
salaries and employee benefits, $321,000 in net occupancy, $170,000 of
amortization of intangible assets, $154,000 in printing, supplies and postage,
$100,000 in telephone and $11,000 in other operating expenses. The increase in
salaries and employee benefits was primarily due to the addition of SWSB and PB
and the addition of certain positions to support asset growth, pay increases and
increased benefits expenses. The increases in net occupancy, printing, supplies
and postage, telephone and other operating expenses were primarily due to the
SWSB and PB acquisition.
14
<PAGE> 15
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
None
15
<PAGE> 16
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: 11/14/97 By: /s/ RAY L. NASH
------------------------------------
Ray L. Nash, Chief Financial Officer
(Chief Accounting Officer)
and Duly Authorized Officer
16
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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0
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