<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, 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)
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)
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 July 31, 1997: 4,803,618
1
<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>
June December
30, 1997 31, 1996
--------- ----------
ASSETS (Dollars in thousands except
share and per share amounts)
<S> <C> <C>
Cash and due from banks $ 31,509 $ 32,688
Securities available for sale, at market value 179,335 180,995
Securities held to maturity 874 263
Federal Home Loan Bank stock 4,601 3,610
Loans 355,979 319,905
Less allowance for loan losses (4,410) (4,238)
---------- ----------
Net loans 351,569 315,667
Real estate acquired by foreclosure 932 955
Premises and equipment, net 11,919 11,949
Goodwill, net 7,648 7,975
Deferred income taxes 3,154 3,036
Other assets 6,161 4,673
---------- ----------
TOTAL ASSETS $ 597,702 $ 561,811
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 111,805 $ 122,713
NOW and money market 78,829 88,466
Savings 123,330 126,146
Time deposits under $100,000 78,451 67,617
Time deposits $100,000 and over 37,177 34,409
---------- ----------
Total deposits 429,592 439,351
Customer sweep accounts 13,619 10,733
---------- ----------
Total customer funding 443,211 450,084
Federal Home Loan Bank advances and federal funds purchased 90,500 59,700
Notes payable 4,050 4,050
Accounts payable and other liabilities 2,321 2,542
---------- ----------
Total liabilities 540,082 516,376
---------- ----------
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Junior Subordinated Debentures 17,500 --
---------- ----------
Shareholders' equity:
Preferred stock 10,971 19,021
Common stock 25,748 25,748
Retained earnings 6,950 4,441
---------- ----------
Realized shareholders' equity 43,669 49,210
Unrealized loss on securities available for sale (3,549) (3,775)
---------- ----------
Total shareholders' equity 40,120 45,435
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 597,702 $ 561,811
========== ==========
PER SHARE DATA ASSUMING CONVERSION OF $10,971 CONVERTIBLE PREFERRED:
Book value $ 6.64 $ 6.18
========== ==========
Tangible book value $ 5.37 $ 4.86
========== ==========
Common shares outstanding at end of period 4,803,618 4,803,618
========== ==========
Pro forma fully converted common shares at end of period 6,045,606 6,045,606
========== ==========
CAPITAL RATIOS:
Total tier 1 and tier 2 capital to risk-weighted assets 13.46% 11.58%
Tier 1 capital to risk-weighted assets 11.75% 10.50%
Tier 1 capital to tangible assets 8.08% 6.98%
Equity to total assets 6.71% 8.09%
</TABLE>
3
<PAGE> 4
VECTRA BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the quarters ended For the years ended
---------------------------------------- ------------------------
June 30, March 31, June 30, June 30, June 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 $ 8,855 $ 8,079 $ 5,745 $ 16,934 $ 11,051
Interest on investments and federal
funds sold 2,995 2,899 2,813 5,894 5,394
--------- --------- --------- --------- ---------
Total interest income 11,850 10,978 8,558 22,828 16,445
--------- --------- --------- --------- ---------
INTEREST EXPENSE:
Interest on deposits:
NOW, money market and savings accounts 1,804 1,796 1,568 3,600 3,089
Time deposits under $100,000 1,073 966 678 2,039 1,359
Time deposits $100,000 and over 523 495 205 1,018 406
Customer sweep accounts 172 148 63 320 134
Advances from the Federal Home Loan Bank
and federal funds purchased 1,047 940 879 1,987 1,799
Notes payable 82 78 22 160 46
Trust preferred capital securities 282 - - 282 0
--------- --------- --------- --------- ---------
Total interest expense 4,983 4,423 3,415 9,406 6,833
--------- --------- --------- --------- ---------
NET INTEREST INCOME 6,867 6,555 5,143 13,422 9,612
Provision for loan losses 224 230 189 454 368
--------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 6,643 6,325 4,954 12,968 9,244
--------- --------- --------- --------- ---------
OTHER INCOME:
Service fees on deposit accounts 896 895 715 1,791 1,421
Gain on sale of loans 315 230 376 545 766
Net gain/(loss) on sale of securities (9) (31) (163) (40) (163)
Other 31 27 41 58 88
--------- --------- --------- --------- ---------
Total other income 1,233 1,121 969 2,354 2,112
--------- --------- --------- --------- ---------
OTHER EXPENSES:
Salaries and employee benefits 2,883 2,858 2,280 5,741 4,547
Net occupancy 743 694 622 1,437 1,255
Amortization of goodwill 87 95 24 182 38
Other 1,322 1,132 1,162 2,454 2,282
--------- --------- --------- --------- ---------
Total other expenses 5,035 4,779 4,088 9,814 8,122
--------- --------- --------- --------- ---------
Earnings before income taxes 2,841 2,667 1,835 5,508 3,234
Income tax expense 1,075 995 630 2,070 1,040
--------- --------- --------- --------- ---------
NET EARNINGS 1,766 1,672 1,205 3,438 2,194
Preferred stock dividend 522 377 219 929 404
--------- --------- --------- --------- ---------
NET EARNINGS AVAILABLE TO COMMON
SHAREHOLDERS $ 1,214 $ 1,295 $ 986 $ 2,509 $ 1,790
========= ========= ========= ========= =========
EARNINGS PER AVERAGE COMMON SHARE
OUTSTANDING:
Earnings per common and common equivalent
share $0.24 $0.26 $0.20 $0.50 $0.37
========= ========= ========= ========= =========
Average common shares and equivalents
outstanding 4,981,597 4,968,491 4,896,126 4,975,569 4,792,919
========= ========= ========= ========= =========
Earnings per common share assuming
full dilution $0.23 $0.24 $0.20 $0.47 $0.37
========= ========= ========= ========= =========
Common and common equivalent shares
outstanding assuming full dilution 6,223,585 6,210,479 5,059,905 6,217,557 4,864,235
========= ========= ========= ========= =========
</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,
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 3,897 $ 1,442
-------- --------
Cash flows from investing activities:
Net increase in loans (36,395) (9,734)
Purchase of securities available for sale (27,250) (18,829)
Purchase of securities held to maturity (679) --
Proceeds from sales of securities available
for sale 23,626 11,658
Proceeds from maturities of securities available
for sale 4,578 5,847
Proceeds from maturities of securities held to
maturity 67 531
Net increase in federal funds sold -- 13,900
Net assets acquired in business combinations, net
of cash acquired -- (8,184)
Other (573) 3,181
-------- --------
Net cash used by investing activities (36,626) (1,630)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (9,759) 18,661
Net increase (decrease) in customer sweep
accounts 2,886 (741)
Net increase (decrease) in FHLB advances and
federal funds purchased 30,800 (8,615)
Proceeds from note payable -- 4,050
Repayment of note payable -- (1,051)
Net proceeds from trust preferred capital
securities 16,602 --
Redemption of preferred stock (8,050) --
Preferred stock dividend (929) (404)
-------- --------
Net cash provided by financing activities 31,550 11,900
-------- --------
Net increase (decrease) in cash and due from
banks (1,179) 11,900
Cash and due from banks at beginning of period 32,688 17,320
-------- --------
Cash and due from banks at end of period $ 31,509 $ 29,032
======== ========
</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 six months ended June 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. Subsequent Event - Acquisition of Professional Bank
Vectra closed its previously announced acquisition of Professional Bank of
Denver on August 1, 1997. Vectra paid a total of $13.3 million in cash for the
two-branch bank. With the acquisition, Vectra will have over $650 million in
assets, over $400 million in loans and 15 banking locations.
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
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS. The total assets of Vectra increased $35.9 million, or 6.4%, to
$597.7 million at June 30, 1997 from $561.8 million at December 31, 1996. Loans
increased $36.1 million, or 11.3%, to $356 million at June 30, 1997 from $319.9
million at December 31, 1996.
ALLOWANCE FOR LOAN LOSSES. The following table sets forth information
regarding changes in the Vectra's allowance for loan losses.
<TABLE>
<CAPTION>
For the six months ended
June 30, 1997
------------------------
(Dollars in thousands)
<S> <C>
Balance, beginning of period $4,238
Provision for loan losses 454
Recoveries 122
Charge offs (404)
------
Balance, end of period $4,410
======
</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.
7
<PAGE> 8
NONPERFORMING ASSETS. The following table sets forth information
concerning Vectra's nonperforming assets as of the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Loans 90 days or more delinquent and still
accruing interest $ 565 $ 1,292
Nonaccrual loans 1,982 1,247
Restructured loans -- --
------------- -------------
Total nonperforming loans 2,547 2,539
Real estate and other assets acquired by
foreclosure 1,069 1,011
------------- -------------
Total nonperforming assets $ 3,616 $ 3,550
============= =============
Nonperforming assets to total assets 0.60% 0.63%
Nonperforming assets to total equity 9.01% 7.81%
Nonperforming loans to total loans 0.72% 0.79%
Allowance for loan losses to nonperforming
loans 173.14% 166.92%
Allowance for loan losses to total loans 1.24% 1.32%
</TABLE>
LIABILITIES. Advances from the Federal Home Loan Bank increased $30.8
million to $90.5 million at June 30, 1997 from $59.7 million at December 31,
1996. Deposits decreased $9.8 million to $429.6 million at June 30, 1997 from
$439.4 million at December 31, 1997. Customer sweep accounts increased $2.9
million to $13.6 million at June 30, 1997 from $10.7 million at December 31,
1996.
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 1.
SHAREHOLDERS' EQUITY. Shareholders' equity decreased $5.3 million to $40.1
million at June 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 $2.5 million increase from earnings available to common shareholders.
8
<PAGE> 9
COMPARISONS OF STATEMENTS OF OPERATIONS
The following table provides a summary of the major elements of income and
expense for the second quarter of 1997 compared with the second quarter of
1996.
<TABLE>
<CAPTION>
For the three months Impact on
ended June 30, net income
------------------------ increase %
1997 1996 (decrease) change
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income $ 11,850 $ 8,558 $ 3,292 38.47%
Interest expense (4,983) (3,415) (1,568) 45.92%
-------- --------- ---------
Net interest income 6,867 5,143 1,724 33.52%
Provision for loan losses (224) (189) (35) 18.52%
-------- --------- ---------
Net interest income after
provision for loan losses 6,643 4,954 1,689 34.09%
Total other income 1,233 969 264 27.24%
Total other expenses (5,035) (4,088) (947) 23.17%
-------- --------- ---------
Income before income taxes 2,841 1,835 1,006 54.82%
Income tax expense (1,075) (630) (445) 70.63%
-------- --------- ---------
Net earnings $ 1,766 $ 1,205 $ 561 46.56%
======== ========= =========
</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.
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. Net interest income for the three months ended
June 30, 1997, was 45.9% higher than for the same quarter in 1996 primarily
because of the addition of the Southwest State Bank (SWSB) assets acquired in a
June 1996 acquisition accounted for using purchase accounting.
9
<PAGE> 10
VECTRA BANKING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the three months ended June 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 $180,950 2,950 6.54% $177,913 2,748 6.21%
Federal Home Loan Bank stock 4,332 77 7.13% 3,848 65 6.79%
Loans(1) 344,242 8,855 10.32% 218,293 5,745 10.58%
-------- ------- -------- ------
Total interest-earning assets 529,524 11,882 9.00% 400,054 8,558 8.60%
Noninterest-earning assets
Cash and due from banks 28,107 18,480
Allowance for loan losses (4,387) (2,670)
Other 29,614 19,554
-------- --------
Total assets $582,858 $435,418
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 86,256 531 2.47% $ 68,696 425 2.49%
Savings 123,900 1,273 4.12% 108,080 1,143 4.25%
Certificates of deposit:
Under $100,000 76,629 1,073 5.62% 49,191 678 5.54%
$100,000 and over 35,813 523 5.86% 15,261 205 5.40%
-------- ------- -------- ------
Total interest-bearing deposits 322,598 3,400 4.23% 241,228 2,451 4.09%
Customer sweep accounts 13,603 172 5.07% 5,660 63 4.48%
Federal Home Loan Bank advances and federal funds purchased 73,781 1,047 5.69% 65,333 879 5.41%
Notes Payable 4,050 82 8.12% 1,143 22 7.74%
Trust preferred capital securities 11,923 282 9.49% - - 0.00%
-------- ------- -------- ------
Total interest-bearing liabilities 425,955 4,983 4.69% 313,364 3,415 4.38%
Noninterest-bearing demand accounts 109,758 87,249
-------- --------
Total deposits and interest-bearing liabilities 535,713 400,613
Other noninterest-bearing liabilities 3,255 2,233
-------- --------
Total liabilities 538,968 402,846
Shareholders' equity 43,890 32,572
-------- --------
Total liabilities and shareholders' equity $582,858 $435,418
======== ========
Net interest income $ 6,899 $5,143
======= ======
Net interest spread 4.31% 4.22%
====== ======
Net interest margin 5.23% 5.17%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 124% 128%
======== ========
</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 -
$392,000; 1996 - $355,000
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,
1997 compared to 1996:
increase (decrease) in
net interest income
due to changes in
-----------------------------------
Volume Rate Total
---------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Investments $ 47 $ 155 $ 202
Investment in the stock of the
Federal Home Loan Bank 8 4 12
Loans 3,315 (205) 3,110
------- ----- -------
Total interest earning assets 3,370 (46) 3,324
INTEREST BEARINGS DEPOSITS
NOW and money market accounts (109) 3 (106)
Savings (167) 37 (130)
Time certificates of deposit under
$100,000 (378) (17) (395)
Time certificates of deposit
$100,000 and over (276) (42) (318)
Customer sweep accounts (88) (21) (109)
Federal Home Loan Bank advances and
federal funds purchased (114) (54) (168)
Notes Payable (56) (4) (60)
Trust preferred capital securities (282) -- (282)
------- ----- -------
Total interest bearing liabilities (1,470) (98) (1,568)
Net increase in net interest income $ 1,900 $(144) $ 1,756
======= ===== =======
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
INTEREST INCOME. Interest income increased $3.3 million to $11.9 million
in the second quarter of 1997 from $8.6 million in the same quarter of 1996.
The primary factor contributing to this increase was the $125.9 million
increase in average loans to $344.2 million in the second quarter of 1997 from
$218.3 million in the same quarter of 1996. SWSB contributed approximately
$64.1 million to the increase in average loan balances. Lower average interest
rates earned on loans in the second quarter of 1997 compared to 1996 partially
offset the increase from the higher average balances. A $3.5 million increase
in average investments coupled with an increase in the average fully tax
effective yield on investments resulted in a $202,000 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. 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 $1.6 million to $5 million in
the second quarter of 1997 from $3.4 million in the same period of 1996. This
increase was primarily a result of increases in average balances of
interest-bearing deposit and customer sweep accounts. Average balances in these
accounts increased $89.3 million from the same period a year ago causing
interest expense on these accounts to increase $1.1 million from the second
quarter in 1996. A 16 basis point increase in interest rates paid on these
accounts contributed $40,000 to interest paid compared to the same period a
year ago. SWSB contributed $71 million in average interest-bearing deposits.
Also contributing to the increase was the interest on the Capital Securities of
$282,000, which was not included in 1996. Averages borrowings from the FHLB
increased $8.4 million to $73.8 million in the quarter from $65.3 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 5.69% in
the second quarter of 1997 from 5.41% in the same quarter of 1996.
NET INTEREST INCOME. Net interest income increased $1.7 million in the
second quarter of 1997 compared to the same period in 1996. The increase
resulted from the $129.4 million increase in average interest-bearing assets
combined with an increase in net interest margin to 5.23% in 1997 from 5.17% in
1996. The principal reasons for the increase in net interest margin relates to
changes in the mix of assets and liabilities. Higher yielding loans have
increased and have been largely funded with lower costing deposits rather than
higher costing FHLB borrowings. Average FHLB borrowings as a percent of average
assets declined to 12.7% in the second quarter of 1997 compared to 15% in the
same period a year ago. Net interest spread also increased 9 basis points to
5.23% in the second quarter of 1997 from 5.17% in the same period in 1996.
OTHER INCOME. Other income increased $264,000 in the second quarter of
1997 from the same period in 1996, principally as a result higher service
charge income of $181,000 driven by the increased deposit base. Losses on the
sale of securities of $9,000 were $154,000 better than the same period a year
ago. These increases were offset by $61M decrease in gains on sale of loans in
the second quarter of 1997 compared to the same period in 1996. Such decreases
reflect lower mortgage loan origination volume in the second quarter of 1997
compared to the same period a year ago.
OTHER EXPENSES. Other expenses increased $947,000 to $5 million in the
second quarter of 1997 from $4.1 million in the same period of 1996. The
increase in operating expenses is primarily due to the addition of SWSB. With
the acquisition of SWSB, additional staff, facilities, equipment and additional
operating expenses due to a larger customer base were necessary. The increase
primarily consisted of a $603,000 increase in salaries and employee benefits
largely from the addition of the SWSB employees, $131,000 increase in
occupancy, $121,000 increase in marketing and an $63,000 increase in
amortization of intangible assets related to the SWSB acquisition.
12
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
INTEREST INCOME. Interest income increased $6.4 million to $22.9 million
in 1997 from $16.4 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 $2.6 million to $9.4 million
in 1997 from $6.8 million in 1996. Average FHLB borrowings increased by $5.9
million to $71.8 million in 1997 from $65.9 million in 1996. During the same
period, average interest-bearing deposits increased by $84.7 million to $319.9
million in 1997 from $235.2 million in 1996. Customer sweeps and notes payable
increased by $7.3 million and $3 million respectively in 1997 compared to 1996.
Approximately $282,000 of the increase in interest expense is attributable to
the Capital Securities issued in April 1997. The increase in average
interest-bearing deposits, offset by the change in funding mix, and combined
with the lower cost of deposits compared to FHLB borrowings, contributed to the
increase in interest expense.
NET INTEREST INCOME. Net interest income increased $3.8 million to $13.4
million in 1997 from $9.6 million in 1996. The increase in net interest margin
to 5.16% in 1997 from 4.96% in 1996 was largely due to the change in mix of
assets and liabilities as discussed above.
OTHER INCOME. Other income increased $242,000 to $2.4 million in 1997 from
$2.1 million in 1996. Service fees on deposit accounts increased by $370,000
due to the growth in deposit balances both from internal growth and from the
SWSB acquisition. Losses on the sale of securities improved $123,000 from 1996.
Offsetting the above gains was $221,000 decrease in gains on sales of loans
resulting from lower mortgage loan origination volume in 1997 compared to 1996.
OTHER EXPENSES. Other expenses increased $1.7 million to $9.8 million in
1997 from $8.1 million in 1996. This increase consisted of $1.2 million in
salaries and employee benefits, $182,000 in net occupancy, $144,000 of
amortization of intangible assets, $127,000 in printing, supplies and postage
and $45,000 in other operating expenses. The increase in salaries and employee
benefits was primarily due to the addition of SWSB 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 and
other operating expenses were primarily due to the SWSB acquisition.
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
None
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: 08/14/97 By: /s/ Ray L. Nash
----------- --------------------------------------------
Ray L. Nash, Chief Financial Officer (Chief
Accounting Officer)
and Duly Authorized Officer
15
<PAGE> 16
INDEX TO EXHIBIT
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,509
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 179,335
<INVESTMENTS-CARRYING> 874
<INVESTMENTS-MARKET> 874
<LOANS> 355,979
<ALLOWANCE> 4,410
<TOTAL-ASSETS> 597,702
<DEPOSITS> 429,592
<SHORT-TERM> 104,119
<LIABILITIES-OTHER> 2,321
<LONG-TERM> 21,550
0
10,971
<COMMON> 25,748
<OTHER-SE> 3,401
<TOTAL-LIABILITIES-AND-EQUITY> 597,702
<INTEREST-LOAN> 16,934
<INTEREST-INVEST> 5,894
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 22,828
<INTEREST-DEPOSIT> 6,657
<INTEREST-EXPENSE> 9,406
<INTEREST-INCOME-NET> 13,422
<LOAN-LOSSES> 454
<SECURITIES-GAINS> (40)
<EXPENSE-OTHER> 9,814
<INCOME-PRETAX> 5,508
<INCOME-PRE-EXTRAORDINARY> 3,438
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,438
<EPS-PRIMARY> .50
<EPS-DILUTED> .47
<YIELD-ACTUAL> 0
<LOANS-NON> 1,982
<LOANS-PAST> 565
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,238
<CHARGE-OFFS> 404
<RECOVERIES> 122
<ALLOWANCE-CLOSE> 4,410
<ALLOWANCE-DOMESTIC> 4,410
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
