FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
For the quarterly period ended . . . . . . . .
December 31,
1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE
ACT OF 1934
For the transition period from
to
For Quarter Ended December 31, 1998
Commission file number
0 25454
WASHINGTON FEDERAL, INC.
(Exact name of registrant as specified in its
charter)
Washington
91-1661606
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
425 Pike Street Seattle, Washington 98101
(Address of principal executive offices and Zip Code)
(206) 624-7930
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last
report.)
Indicate by check mark whether the registrant (1) has filed all
reports
required to
be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such
shorter
period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements
for the
past 90 days.
(1) Yes X . No .
(2) Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of
common
stock, as of the latest practicable date.
Title of class:
at
February
1, 1999
Common stock, $1.00 par value
50,857,019
shares<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The Consolidated Financial Statements of Washington
Federal, Inc. and
Subsidiaries
filed as a part of the report are as follows:
Consolidated Statements of Financial Condition
as of December 31, 1998 and September 30, 1998 . . . .
. . . .
Page 3
Consolidated Statements of Operations for the three
months ended December 31, 1998 and 1997. . . . . . .
. . Page 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1998 and 1997 . . . .
. .
Page 5
Notes to Consolidated Financial Statements. . . . . .
. .
Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . .
. .
Page 8
PART II
Item 1. Legal Proceedings . . . . . . . . . . . . ..
. . . .
Page 13
Item 2. Changes in Securities. . . . . . . . . . . ..
. . . .
Page 13
Item 3. Defaults upon Senior Securities. . . . . . . ..
. . . .
Page 13
Item 4. Submission of Matters to a Vote of Stockholders ..
. . . . .
.
Page 13
Item 5. Other Information . . . . . . . . . . . . ..
. . . .
Page 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . ..
. . . .
Page 13
Signatures . . . . . . . . . . . . . . . . .
.Page 14<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
. . . . . . . . . . . . . . . . . . . . . . .December 31,
1998September 30,
1998
(In thousands, except per share data)
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 52,568
$ 22,215
Available-for-sale securities, including mortgage-backed
securities of
$684,891
. . . . . . . . . . . . . . . . . . . . .871,540 . . . . . .
764,188
Held-to-maturity securities, including mortgage-backed securities
of $386,370
. . . . . . . . . . . . . . . . . . . . .407,844 . .445,871
Loans receivable . . . . . . . . . . . . . . . . . 4,129,064
4,143,525
Interest receivable. . . . . . . . . . . . . . . . 34,322
35,175
Premises and equipment, net. . . . . . . . . . . . 49,423
48,882
Real estate held for sale. . . . . . . . . . . . . 14,880
16,193
FHLB stock . . . . . . . . . . . . . . . . . . . . 103,024
101,050
Costs in excess of net assets acquired . . . . . . 52,125
53,639
Other assets . . . . . . . . . . . . . . . . . . . 8,283
6,273
$5,723,073
$5,637,011
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts. . . . . . . . . . $3,163,886
$3,071,175
Repurchase agreements with customers . . . . . 96,647
85,027
. . . . . . . . . . . . . . .3,260,533 3,156,202
FHLB advances. . . . . . . . . . . . . . . . . . . 1,325,000
1,356,500
Other borrowings, primarily securities sold under agreements to
repurchase
236,916
. . . . . . . . . . . . . . . . . . . . .221,819
Advance payments by borrowers for taxes and insurance. . . . .
10,787
25,332
Federal and state income taxes . . . . . . . . . . 80,907
63,969
Accrued expenses and other liabilities . . . . . . 44,875
46,017
4,959,018
4,869,839
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized;
56,440,798 and 56,423,961 shares issued; 50,855,966 and
51,446,129 shares outstanding . . . . . . . . 56,441
56,424
Paid-in capital. . . . . . . . . . . . . . . . . . 714,877
714,700
Valuation adjustment for available-for-sale securities, net of
taxes
30,000
. . . . . . . . . . . . . . . . . . . . . 35,000
Treasury stock, at cost; 5,584,832 and 4,977,832 shares. . . .
( 106,694)(
92,221)
Retained earnings. . . . . . . . . . . . . . . . . 69,431
53,269
764,055
767,172
$5,723,073
$5,637,011
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share. . . . . . . . . . $ 15.02
$ 14.91
Stockholders' equity to total assets. . . . . . . 13.35%
13.61%
Loans serviced for others . . . . . . . . . . . . $ 65,184
$ 73,606
Weighted average rates at period end
Loans and mortgage-backed securities. . . . . . 7.79%
7.98%
Investment securities*. . . . . . . . . . . . . 7.90%
7.76%
Combined rate on loans, mortgage-backed securities and
investment
securities
. . . . . . . . . . . . . . . . . . . . . . . . . 7.80%
7.96%
Customer accounts . . . . . . . . . . . . . . . 4.99%
5.09%
Borrowings. . . . . . . . . . . . . . . . . . . 5.37%
5.50%
Combined cost of customer accounts and borrowings. . . . .
5.11%
5.23%
Interest rate spread. . . . . . . . . . . . . . 2.69%
2.73%
*Includes municipal bonds at tax equivalent yields
<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended
December 31,
. . . . . . . . . . . . . . . . . . . 1998
1997
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans . . . . . . . . . . . . . . . . . . . . . . $89,952
$92,141
Mortgage-backed securities. . . . . . . . . . . . 18,866
17,339
Investment securities . . . . . . . . . . . . . .
5,575
6,752
. . . . . . . . . . . . . . . . . . . . 114,393
116,232
INTEREST EXPENSE
Customer accounts . . . . . . . . . . . . . . . . 40,744
39,200
FHLB advances and other borrowings. . . . . . . . 21,096
26,076
. . . . . . . . . . . . . . . . . . . 61,840
65,276
Net interest income . . . . . . . . . . . . . . . 52,553
50,956
Provision for loan losses . . . . . . . . . . . . 179
159
Net interest income after provision for loan losses. . . . .
52,374
50,797
OTHER INCOME
Gain on sale of securities. . . . . . . . . . . . ---
745
Other . . . . . . . . . . . . . . . . . . . . . . 3,427
1,148
. . . . . . . . . . . . . . . . . . . . 3,427
1,893
OTHER EXPENSE
Compensation and fringe benefits. . . . . . . . . 6,635
5,817
Regulatory assessments. . . . . . . . . . . . . . 434
446
Occupancy expense . . . . . . . . . . . . . . . . 984
1,050
Other . . . . . . . . . . . . . . . . . . . . . . 3,417
3,487
. . . . . . . . . . . . . . . . . . . 11,470
10,800
Gain on real estate owned, net. . . . . . . . . .
48
101
Income before income taxes. . . . . . . . . . . . 44,379
41,991
Income taxes. . . . . . . . . . . . . . . . . . . 16,061
14,907
NET INCOME. . . . . . . . . . . . . . . . . . . . $28,318
$27,084
PER SHARE DATA
Basic earnings per share. . . . . . . . . . . . . $ .56
$ .52
Diluted earnings per share. . . . . . . . . . . . $
.55
$ .51
Cash dividends. . . . . . . . . . . . . . . . . . $ .24
$ .22
Weighted average number of shares outstanding,
including dilutive stock options. . . . . . . .
51,421,697
52,972,059
Return on average assets. . . . . . . . . . . . . 2.02%
1.91%<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter
Ended December 31,
1998
1997
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . $ 28,318
$ 27,084
Adjustments to reconcile net income to net cash provided by
operating
activities
Amortization of fees, discounts and premiums, net. . . . .
( 7,915) (
5,815)
Amortization of costs in excess of net assets acquired . .
1,514
1,502
Depreciation. . . . . . . . . . . . . . . . . . 570
585
Gains on investment securities and real estate held for sale
(48)
. . . . . . . . . . . . . . . . . . . . . . . . . ( 845)
Decrease (increase) in accrued interest receivable . . . .
853
(591)
Increase in income taxes payable. . . . . . . . 16,053
18,675
FHLB stock dividends. . . . . . . . . . . . . . ( 1,974)
( 1,887)
Decrease (increase) in other assets . . . . . . 875
(109)
Increase (decrease) in accrued expenses and other liabilities
(1,142)
. . . . . . . . . . . . . . . . . . . . . . . . . 2,435
Net cash provided by operating activities . . . . 37,104
41,034
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property. . . . . . . . . . . (246,594)
( 161,655)
Construction loans. . . . . . . . . . . . . . . ( 86,705)
(107,131)
Land loans. . . . . . . . . . . . . . . . . . . ( 31,357)
( 24,306)
Loans refinanced. . . . . . . . . . . . . . . . ( 66,723)
( 28,972)
. . . . . (431,379)
(322,064)
Savings account loans originated. . . . . . . . . ( 1,141)
( 1,516)
Loan principal repayments . . . . . . . . . . . . 470,512
319,202
Decrease in undisbursed loans in process. . . . . ( 18,960)
( 9,272)
Loans purchased . . . . . . . . . . . . . . . . . ( 62)
( 434)
Purchase of available-for-sale securities . . . .
(201,597)
(10,000)
Principal payments and maturities of available-for-sale
securities
88,427
. . . . . . . . . . . . . . . . . . . . . . . . . 16,584
Sales of available-for-sale securities. . . . . . ---
10,744
Principal payments and maturities of held-to-maturity securities
38,431
. . . . . . . . . . . . . . . . . . . . . . . . . 24,041
Proceeds from sale of real estate held for sale . 3,181
3,165
Premises and equipment purchased, net . . . . . .
(1,111)
(1,232)
Net cash (used) provided by investing activities. (53,699)
29,218
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts . . . . . . . . 104,331
4,209
Net decrease in short-term borrowings . . . . . . ( 16,403)
(38,533)
Proceeds from exercise of common stock options. . 194
346
Dividends . . . . . . . . . . . . . . . . . . . . (12,156)
( 11,413)
Treasury stock purchases. . . . . . . . . . . . . (14,473)
---
Decrease in advance payments by borrowers for taxes and insurance
(
14,545)
. . . . . . . . . . . . . . . . . . . . . . . . . ( 15,084)
Net cash (used) provided by financing activities.
46,948 (
60,475)
Increase in cash. . . . . . . . . . . . . . . . . 30,353
9,777
Cash at beginning of period . . . . . . . . . . . 22,215
23,444
Cash at end of period . . . . . . . . . . . . . . $ 52,568
$ 33,221
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure. . . . $ 1,820 $
3,213
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . . . 64,808
68,311
Income taxes. . . . . . . . . . . . . . . . . . ---
---
<PAGE>
NOTE A - Basis of Presentation
The consolidated interim financial statements included in this
report have
been
prepared by Washington Federal, Inc.
(Company) without audit. In the opinion of management, all
adjustments
(consisting
only of normal recurring accruals)
necessary for a fair presentation are reflected in the interim
financial
statements.
The September 30, 1998 Consolidated
Statement of Financial Condition was derived from audited
financial
statements.
NOTE B - Cash Dividend Paid
Dividends per share increased to 24 cents for the quarter ended
December 31,
1998
compared with 22 cents for the same
period one year ago. On January 22, 1999 the Company paid its
64th
consecutive
quarterly cash dividend.
NOTE C - Stock Dividend
On January 27, 1999, the Board of Directors of the Company
declared an
eleven-for-ten
stock split in the form of a 10%
stock dividend to stockholders of record on February 12, 1999 to
be
distributed on
February 26, 1999. All previously
reported per share amounts will be adjusted accordingly.
NOTE D - Comprehensive Income
During the quarter ended December 31, 1998, the Company adopted
the provisions
of
Statement of Financial Accounting
Standards (SFAS) No. 130,"Reporting Comprehensive Income". The
standard
requires that
comprehensive income and its
components be disclosed in the financial statements. The
Company's
comprehensive
income includes all items which
comprise net income plus the unrealized holding gains on
available-for-sale
securities. In accordance with the provisions
of SFAS No. 130, the Company's total comprehensive income for
the quarters
ending
December 31, 1998 and December
31, 1997 totaled $23,318,000 and $30,084,000, respectively. The
difference
between
the Company's net income and total
comprehensive income for these periods equals the change in the
net
unrealized gain
and loss on securities available-for-sale
during the applicable periods.
Note E - Earnings per Share
SFAS No. 128, "Earnings per Share" was issued in February, 1997.
Under SFAS
No. 128,
the Company is required to
present both basic and diluted EPS on the face of its statement
of
operations. The
following table provides a reconciliation
of the numerators and denominators of the basic and diluted
computations.
Income Shares Per-Share
(Numerator) (Denominator)
Amount
Basic EPS
Income available to common
stockholders 28,318,000 50,976,106
.56
Diluted EPS
Income available to common stockholders
plus assumed conversions28,318,000 51,421,697
.55<PAGE>
GENERAL
Washington Federal, Inc. (the Company) is a savings and loan
holding company.
The
Company's primary operating
subsidiary is Washington Federal Savings (the Association).
YEAR 2000
This discussion constitutes a "Year 2000 Readiness Disclosure"
within the
meaning of
the Year 2000 Information and
Readiness Disclosure Act of 1998 and contains forward-looking
statements that
have
been prepared on the basis of the
Company's best judgment and currently available information.
These
forward-looking
statements are inherently subject to
significant business, third-party and regulatory uncertainties
and
contingencies,
many of which are beyond the control of
the Company. In addition, these forward-looking statements are
based on the
Company's
current assessments and renovation
plans, which are based on certain representations of third-party
servicers
and are
subject to change. Accordingly, there can
be no assurance that the Company's results of operations will
not be
adversely
affected by difficulties or delays in the
Company's or third-party's Year 2000 readiness efforts. See
below for a
discussion
of factors that may cause such forward-
looking statements to differ from actual results.
Most existing computer programs use only two digits to identify
the year in a
date
field, making the assumption that the
year's first two digits will always be 19. These programs were
developed
without
considering the impact of the upcoming
change in the century. If not corrected, many computer
applications could
fail or
create erroneous results on or after
January 1, 2000. For example, if an interest calculation were
made for the
month of
January 2000, but the system assumed
the year was 1900, the results could be materially erroneous.
A few years ago, the Company began to assess the Year 2000 issue,
including
upgrades
to its software and hardware. Based
on this assessment, the Company implemented a plan to renovate
and implement
its
computer applications by December
31, 1998. As of December 31, 1998, 100% of the renovation and
implementation
of
mission critical systems had been
completed.
The Company's assessment segregated computer applications into
three
categories:
mission critical systems, secondary
systems and embedded systems. The mission critical systems were
identified as
those
systems necessary to deliver our
products to our customer base. The success of our Year 2000
renovation
relies, in
part, on the representations of third-party
servicers. The mission critical applications, which were all
written
internally, have
been renovated and are now being tested
by the Company's information systems department.
The Company's secondary systems are primarily personal
computer-based software
programs which provide financial data
for internal use. Examples of these secondary systems include
payroll, fixed
assets
and accounts payable. Most of these
systems were written by third-party servicers and the Company
relies on their
written
representations that their software
is Year 2000 compliant.
The Company's embedded systems include items as diverse as the
computer chips
in the
heating, ventilation and air
conditioning system to office building elevators. The Company
has identified
those
systems and relies on written
representations of the third-party servicers.
Every two months, the Company reports to its Board of Directors
the progress
made in
addressing the Year 2000 issue,
including time lines and percentage of completion. Management
has met its
target of
December 31, 1998, to have its
systems renovated and implemented. Validation testing will
continue
throughout 1999.
Management recently reported the
results of an Office of Thrift Supervision examination of the
Company's Year
2000
compliance issues to the Board of
Director, which found the report to be satisfactory.
Through December 31, 1998, the Company has not incurred any
material
incremental costs
to become Year 2000 compliant.
The Company's mission critical systems are being renovated and
tested by the
already
existing information systems staff.
Less than $1 million has been spent on the Year 2000 project to
date. The
Company
estimates the total amount of time and
money expended to become Year 2000 compliant will have no
material impact on
the
Company's results of operations or
financial condition.
Based on its current assessments and renovation plans, which are
based in part
on
certain representations of third-party
servicers, the Company does not expect that it will experience a
significant
disruption of its operations as a result of the
change to the new millennium. Although the Company has no reason
to conclude
that a
failure will occur, the most
reasonably likely worst-case Year 2000 scenario would entail a
disruption or
failure
of the Company's power supply or
voice and data transmission suppliers, a computer system, a
third-party
servicer, or
a facility. If such a failure were to
occur, the Company would implement its contingency plan. The
Company
continues
enhancing its existing contingency
plans to service our customers in case events beyond our control
impact our
computer
system. While it is impossible to
quantify the impact of such a scenario, the most reasonably
likely worst-case
scenario would entail a diminishment of
service levels, some customer inconvenience, and additional
costs from the
contingency plan implementation, which are
not currently estimable. While the Company has contingency plans
to address a
temporary disruption in these services, there
can be no assurance that any disruption or failure will be only
temporary,
that the
Company's contingency plans will
function as anticipated, or that the results of operations of
the Company
will not
be adversely affected in the event of a
prolonged disruption or failure
.
INTEREST RATE RISK
The Company accepts a high level of interest rate volatility as a
result of
its policy
to originate fixed-rate single family home
loans which are longer-term than the short-term characteristics
of its
liabilities
of customer accounts and borrowed money.
At December 31, 1998 the Company had a negative one year
maturity gap of
approximately 42% of total assets.
The interest rate spread declined to 2.69% at December 31, 1998
from 2.73% at
September 30, 1998. The decline was,
in large part, due to the continuing flat yield curve. During
this phase of
the
interest rate cycle the Company chose to
control its asset growth, strengthen its capital position and
deleverage the
balance
sheet by reducing its borrowed money.
FHLB advances and other borrowed money declined to an equivalent
of 27.3% of
total
assets at December 31, 1998,
compared to 28.0% of total assets at September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company s net worth at December 31, 1998 was $764,055,000 or
13.4% of
total
assets. This is a decrease of
$3,117,000 from September 30, 1998, when net worth was
$767,172,000 or 13.6%
of total
assets. The $3,117,000
decrease in the Company's net worth includes $12,156,000 of cash
dividends
paid,
stock repurchases of $14,473,000 and
a $5,000,000 reduction in the valuation reserve for
available-for-sale
securities.
Net worth was increased by the
$28,318,000 generated from net income. During the quarter ended
December 31,
1998,
607,000 shares of common stock
were repurchased at an average price of $23.84 under the
September 1998
common stock
repurchase program.
The Company's percentage of net worth to total assets is among
the highest in
the
nation and the Association's regulatory
capital ratios are over three times the minimum required under
Office of
Thrift
Supervision ("OTS") regulations.
Management believes this strong net worth position will help
protect earnings
against
interest rate risk and enable it to
compete more effectively for controlled growth through
acquisitions and
customer
deposits increases.
The Company s cash and investment securities amounted to
$260,691,000, a
$4,463,000
increase from a quarter ago.
The minimum liquidity levels of the Association are governed by
the
regulations of the
OTS. Liquidity is defined as the
ratio of average cash and eligible unpledged investment
securities and
mortgage-
backed securities to the sum of average
withdrawable savings plus short-term (one year) borrowings.
Currently, the
Association is required to maintain total
liquidity at four percent. At December 31, 1998, total
liquidity was 27.15%.
CHANGES IN FINANCIAL POSITION
Available-for-sale and held-to-maturity securities. The Company
purchased
$201,597,000
of mortgage-backed securities
during the first quarter of fiscal 1999, all of which have been
categorized
as
available-for-sale. As of December 31, 1998,
the Company had unrealized gains of $30,000,000, net of tax,
which are
recorded as
part of stockholders' equity.
Loans receivable. Loans receivable declined less than 1% during
the quarter
to
$4,129,064,000 at December 31, 1998
from $4,143,525,000 at September 30, 1998. The loans receivable
balance
decreased
even though loan originations
increased to $431,379,000, an increase of 34% from the prior
year quarter.
The Company measures loans that will not be repaid in accordance
with their
contractual terms using a discounted cash flow
methodology or the fair value of the collateral for certain
loans. Smaller
balance
loans are excluded with limited exceptions.
At December 31, 1998, the Company's recorded investment in
impaired loans was
$23,074,000, of which $21,182,000
had allocated reserves of $2,982,000. The average balance of
impaired loans
during
the quarter was $15,704,000 and
interest income(cash received) from impaired loans was $96,000.
Costs in excess of net assets acquired. The Company periodically
monitors
these assets
for potential impairment of which
there was none at December 31, 1998. The Company will continue
to evaluate
these
assets and, if appropriate, provide
for any diminuition in value of these assets.
Customer accounts. Customer accounts increased $104,331,000, or
3%, to
$3,260,533,000
at December 31, 1998
compared with $3,156,202,000 at September 30, 1998.
FHLB advances and other borrowings. Total borrowings decreased to
$1,561,916,000. See
Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income increased $1,597,000 (3%) to $52,553,000 for
the December
1998
quarter from $50,956,000 a year
ago despite a drop in the interest rate spread. The net interest
spread was
2.69% at
December 31, 1998 compared to 2.73%
at September 30, 1998 and 2.80% at December 31, 1997. This
increase resulted
largely
from the increase in amortization
of deferred fees and discounts due to the high prepayments in
the loan and
mortgage-
backed securities portfolio.
Interest income on loans decreased $2,189,000 (2%) to $89,952,000
for the
quarter
ended December 1998 from
$92,141,000 a year ago. Average interest rates on loans
decreased to 7.93%
from
8.27% a year ago.
Interest income on mortgage-backed securities increased
$1,527,000 (9%) to
$18,866,000
for the quarter ended December
31, 1998 versus $17,339,000 the same period one year ago. The
weighted
average yield
of 7.24% at December 31, 1998
was lower than the 7.56% at December 31, 1997.
Interest on investments decreased $1,177,000 (17%) in the quarter
versus the
year ago
quarter. The weighted average yield
increased to 7.90% at December 31, 1998 compared with 7.70% at
December 31,
1997.
The combined investment
securities and FHLB stock portfolio decreased to $311,147,000
at December
31, 1998
versus $387,372,000 one year ago.
Interest expense on customer accounts increased $1,544,000 (4%)
to $40,744,000
for the
quarter ended December 31, 1998
from $39,200,000 for the same period one year ago. The average
cost of
customer
accounts decreased to 4.99% at quarter
end compared to 5.16% one year ago.
Interest on FHLB advances and other borrowings decreased
$4,980,000 (19%) to
$21,096,000 for the December 1998
quarter compared with $26,076,000 for the same quarter a year
ago. The
average rates
paid at December 31, 1998
decreased to 5.37% versus 5.57% at December 31, 1997.
Other income increased $1,534,000 (81%) for the December 1998
quarter compared
with
the December 1997 quarter. The
increase in other income included several non-recurring real
estate
transactions, the
largest of which provided the Company
$1 million of pre-tax net income. There were no gains on sale of
available-for-sale
securities in the December 1998 quarter
versus $745,000 in gains in the December 1997 quarter.
Other expense increased $837,000 (8%) for the quarter ended
December 1998
compared
with the December 1997 quarter,
after adjusting for the $167,000 increase in deferred loan
origination costs
associated with higher loan volumes. Other
expense for the December 1998 quarter equalled .82% of average
assets
compared to
.76% for the same quarter a year
ago, while the number of staff, including part-time employees on
a full-time
equivalent basis, were 682 and 660 for the
two periods, respectively.
Income taxes increased $1,154,000 (8%) in the December 1998
quarter due to a
higher
taxable income base. The effective
tax rate was 36.2% for December 1998 and 35.5%for the December
1997 quarter.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related Notes presented
elsewhere
herein
have been prepared in accordance with
generally accepted accounting principles, which require the
measurement of
financial
position and operating results in terms
of historical dollars without considering changes in the
relative purchasing
power
of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets
and
virtually all
of the liabilities of the Company are
monetary in nature. As a result, interest rates have a more
significant
impact on
the Company's performance than the
general level of inflation. Over short periods of time,
interest rates may
not
necessarily move in the same direction or in
the same magnitude as inflation.<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
From time to time the Company or its subsidiaries are engaged in
legal
proceedings in
the ordinary course of business, none
of which are considered to have a material impact on the
Company's financial
position
or results of operations.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior
Securities
Not applicable
Item 4. Submission of Matters
to a Vote of
Stockholders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and Reports on
Form 8-K
Not applicable
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.
\S\ Guy C. Pinkerton
February 12, 1999 GUY C. PINKERTON
Chairman, President and
Chief Executive Officer
\S\ Ronald L. Saper
February 12, 1999 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
\S\ Keith D. Taylor
February 12, 1999 KEITH D. TAYLOR
Senior Vice-President and
Treasurer
<PAGE>
