FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR (15d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9876
WEST ONE BANCORP
Idaho 82-0362647
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 South Capitol Boulevard, P.O. Box 8247, Boise, Idaho 83733
(Address of principal executive offices) (Zip Code)
(208) 383-7000
(Registrant's telephone number, including area code)
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. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 28, 1994, 35,121,643 shares of the registrant's common stock, $1
par value, were outstanding.
EXHIBIT INDEX IS LOCATED ON PAGE 9
CONSOLIDATED BALANCE SHEETS
WEST ONE BANCORP AND SUBSIDIARIES (Unaudited)
June 30, June 30, December 31,
(Dollars in thousands) 1994 1993 1993
----------- ----------- -----------
Assets
Cash and due from banks $412,589 $465,140 $450,384
Due from banks - interest bearing 1,700 1,480 599
Federal funds sold, securities purchased under
agreements to resell and other 137,321 2,551 14,055
----------- ----------- -----------
Securities:
Available for sale 1,029,817 159,009 1,060,650
Held to maturity 603,736 1,523,743 565,165
----------- ----------- -----------
Total securities 1,633,553 1,682,752 1,625,815
----------- ----------- -----------
Loans:
Real estate 2,268,506 1,886,201 2,150,835
Commercial and agricultural 2,160,629 2,013,722 1,996,865
Consumer 1,092,395 956,726 1,038,678
Leases 149,941 153,368 168,119
----------- ----------- -----------
Total loans 5,671,471 5,010,017 5,354,497
Allowance for credit losses (78,202) (71,822) (74,923)
----------- ----------- -----------
Net loans 5,593,269 4,938,195 5,279,574
----------- ----------- -----------
Premises and equipment 125,026 125,137 122,828
Interest receivable 50,870 49,456 50,141
Other assets 137,342 127,126 127,957
----------- ----------- -----------
Total assets $8,091,670 $7,391,837 $7,671,353
=========== =========== ===========
Liabilities
Deposits:
Noninterest bearing $1,177,294 $1,088,297 $1,260,869
Interest bearing demand 710,342 676,912 729,247
Regular and money market savings 2,130,398 1,845,385 1,971,211
Time certificates under $100,000 1,584,783 1,583,393 1,505,177
Time certificates $100,000 and over 711,897 481,686 470,543
----------- ----------- -----------
Total deposits 6,314,714 5,675,673 5,937,047
Federal funds purchased and securities
sold under agreements to repurchase 528,554 553,412 568,295
Other short-term borrowings 373,393 428,566 330,609
Long-term debt 129,142 119,714 116,460
Other liabilities 90,322 84,871 95,376
----------- ----------- -----------
Total liabilities 7,436,125 6,862,236 7,047,787
----------- ----------- -----------
Shareholders' equity
Common stock - $1.00 par value; 75,000,000 shares
authorized; 35,070,083, 32,690,448 and 34,718,731
shares outstanding 35,070 32,690 34,719
Capital surplus 316,187 254,401 304,413
Retained earnings 306,959 242,510 275,351
Unrealized gain on securities, net of tax (2,671) - 9,083
----------- ----------- -----------
Total shareholders' equity 655,545 529,601 623,566
----------- ----------- -----------
Total liabilities and shareholders' equity $8,091,670 $7,391,837 $7,671,353
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF INCOME
WEST ONE BANCORP AND SUBSIDIARIES (Unaudited)
For the quarter ended, For the six months ended,
June 30, June 30,
(Dollars in thousands, except per share data) 1994 1993 1994 1993
--------- --------- --------- ---------
Interest income
Loans $113,499 $98,544 $219,042 $192,409
Short-term investments 981 286 1,422 1,149
Interest and dividends on securities:
United States Treasury and
Government agencies 7,677 8,172 14,292 16,943
State and municipal bonds 7,557 6,202 14,714 11,631
Mortgage-backed securities 3,871 6,320 7,380 12,745
Other 2,372 4,299 5,093 8,366
--------- --------- --------- ---------
Total interest income 135,957 123,823 261,943 243,243
--------- --------- --------- ---------
Interest expense
Deposits 41,452 40,454 79,314 82,600
Federal funds purchased and securities
sold under agreements to repurchase 5,189 4,900 8,873 8,805
Other short-term borrowings 2,898 1,610 5,075 2,575
Long-term debt 1,814 2,054 3,575 4,573
--------- --------- --------- ---------
Total interest expense 51,353 49,018 96,837 98,553
--------- --------- --------- ---------
Net interest income 84,604 74,805 165,106 144,690
Provision for credit losses 3,787 3,414 7,776 6,506
--------- --------- --------- ---------
Net interest income after
provision for credit losses 80,817 71,391 157,330 138,184
--------- --------- --------- ---------
Noninterest income
Trust fees and commissions 3,803 3,507 7,346 6,744
Service charges on deposit accounts 9,913 9,196 18,897 17,620
Other service charges, fees and commissions 11,917 10,303 22,541 19,508
Other 4,816 2,320 8,103 4,617
Securities gains (losses) (327) 36 (485) 28
--------- --------- --------- ---------
Total noninterest income 30,122 25,362 56,402 48,517
--------- --------- --------- ---------
Noninterest expense
Employee compensation and benefits 35,001 30,946 69,039 62,324
Outside services 8,112 7,002 15,576 13,191
Equipment 5,621 5,452 11,104 10,423
Net occupancy 5,027 4,670 9,745 9,673
Insurance and miscellaneous taxes 4,701 4,345 9,463 8,441
Marketing 2,468 2,576 4,942 4,625
Postage and courier 2,398 2,136 4,745 4,157
Supplies 1,859 1,773 3,658 3,632
Telephone 1,812 1,552 3,596 3,068
Other 5,848 5,611 11,452 10,630
--------- --------- --------- ---------
Total noninterest expense 72,847 66,063 143,320 130,164
--------- --------- --------- ---------
Income before taxes 38,092 30,690 70,412 56,537
Provision for income taxes 12,169 9,876 21,574 17,558
--------- --------- --------- ---------
Net income $25,923 $20,814 $48,838 $38,979
========= ========= ========= =========
Primary earnings per share $.73 $.63 $1.38 $1.18
Fully diluted earnings per share .69 .60 1.31 1.13
Dividends declared per share .18 .155 .36 .155
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
WEST ONE BANCORP AND SUBSIDIARIES (Unaudited)
For the six months ended
June 30,
(Dollars in thousands) 1994 1993
--------- ---------
Cash flows from operating activities:
Net income $48,838 $38,979
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 7,776 6,506
Depreciation of premises and equipment 8,038 7,764
Amortization and accretion of premiums and discounts 5,830 7,129
Amortization of intangible and other assets 5,650 5,422
Originations of real estate loans held for sale (170,331) (191,692)
Proceeds from real estate loans sold 199,256 159,970
Net gain on sale of real estate loans (2,228) (1,167)
Net loss (gain) on sale of securities 485 (28)
Purchase of trading account securities (33,253) (16,790)
Sale of trading account securities 28,755 17,449
Change in assets and liabilities:
Interest receivable (181) 529
Other assets 4,817 (10,857)
Other liabilities (10,975) 8,400
--------- ---------
Net cash provided by operating activities 92,477 31,614
--------- ---------
Cash flows from investing activities:
Change in short-term investments, maturities less than 90 days (117,739) 187,689
Purchase of securities available for sale (316,625) (9,976)
Maturity of securities available for sale 200,897 39,679
Sale of securities available for sale 150,482 --
Purchase of securities held to maturity (59,362) (314,396)
Maturity of securities held to maturity 19,414 268,403
Change in net loans and leases (336,177) (427,510)
Purchase of premises and equipment (9,193) (11,765)
Sale of premises and equipment 141 63
Additions to intangible assets (6,653) (4,859)
Sale of other real estate owned 4,482 6,050
Cash provided by acquisition 172,322 2,019
--------- ---------
Net cash used by investing activities (298,011) (264,603)
--------- ---------
Cash flows from financing activities:
Change in deposits 160,110 7,074
Change in short-term borrowings, maturities less than 90 days 6,006 167,476
Proceeds from short-term borrowings 34,075 22,914
Payments on short-term borrowings (37,310) (19,811)
Additions to long-term debt 20,000 27,500
Payments on long-term debt (7,320) (25,687)
Proceeds from issuance of common stock 4,722 2,727
Cash dividends paid (12,544) (9,226)
--------- ---------
Net cash provided by financing activities 167,739 172,967
--------- ---------
Net decrease in cash and due from banks (37,795) (60,022)
Cash and due from banks - January 1 450,384 525,162
--------- ---------
Cash and due from banks - June 30 $412,589 $465,140
========= =========
Supplemental information:
Interest paid 96,534 98,870
Income taxes paid 25,172 18,995
Noncash activities:
Reclassification of securities available for sale -- 28,248
Securities purchased not settled 10,568 5,575
Loans held for sale transferred to the loan portfolio 16,036 17,855
Loan charge-offs 8,986 7,726
Transfer of loans to other real estate owned 5,543 969
Tax benefit of stock options exercised 776 96
Dividends declared not paid 6,313 5,073
Acquisitions:
Investments 17,532 10,123
Loans 18,081 21,819
Premises and equipment 1,191 612
Intangible assets 11,249 --
Deposits 217,557 32,260
Equity 2,086 3,041
========= =========
The accompanying notes are an integral part of the financial statements.
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
West One Bancorp and Subsidiaries
These statements are unaudited financial statements and should be read
in conjunction with the 1993 Annual Report of West One Bancorp and Subsidiaries
(West One). All adjustments (consisting only of normal recurring accruals and
the acquisitions as discussed below) which are, in the opinion of management,
necessary to present fairly the consolidated financial position and results of
operations have been made in the accompanying financial statements. Related
historical data has been adjusted for the August 1993 two-for-one stock split.
RECLASSIFICATION
Certain reclassifications of 1993 amounts were made in order to conform
to the 1994 presentation, none of which affect previously reported net income.
ACQUISITIONS
On April 15, 1994, West One Bancorp acquired ten Far West Federal
Savings Bank branches in Oregon with deposits of $173 million from the
Resolution Trust Corporation. The transaction was accounted for as a purchase.
On January 21, 1994, Idaho State Bank with assets of $50 million was
acquired in exchange for 133,332 shares of West One Bancorp common stock. The
transaction was accounted for as a pooling of interests. Because Idaho State
Bank's operations and financial position are immaterial to West One's results
of operations and financial position, historic data has not been restated.
On May 28, 1993, West One Bancorp acquired all outstanding common stock
of Ben Franklin National Bank in exchange for 206,254 shares of West One
Bancorp common stock. The combination was accounted for as a pooling of
interests. Since Ben Franklin National Bank's results of operations and
financial position is immaterial to West One's results of operations and
financial position, historic financial data was not restated.
OTHER EVENTS
On May 9, 1994, West One Bancorp announced the signing of a definitive
agreement under which West One Bancorp will acquire National Security Bank
Holding Company and its subsidiary, National Security Bank, a five-branch, $133
million bank located in Newport, Oregon. The agreement calls for an exchange
of West One Bancorp common stock for all the outstanding shares of National
Security Bank Holding Company common stock. The number of shares issued is
dependent upon the purchase price and a calculated average market price for
West One Bancorp common stock. The transaction is subject to various
regulatory and shareholder approvals.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PERFORMANCE SUMMARY
West One Bancorp reported net income of $25.9 million for the second
quarter of 1994, the highest quarterly earnings in the Corporation's history
and a 25% increase from the $20.8 million earned in the second quarter of 1993.
Net income per share was $.69 for the current quarter compared to $.60 for the
same quarter last year. The increase in earnings was attributable to higher
net interest income reflecting a wider net interest margin and an improvement
in the volume and composition of earning assets. West One achieved a return
on average assets of 1.31% and a return on average shareholders' equity of
16.15% in the second quarter of 1994 compared to 1.15% and 16.16%,
respectively, for the second quarter of 1993.
West One's strong second quarter results were primarily attributable to
the ability to maintain a stable net interest margin despite economic
uncertainty fueled by speculation regarding the Federal Reserve Board's
monetary policy. The continuation of double digit loan growth and dynamic
regional economic conditions resulted in higher net interest income. Net
interest margin was maintained even though no loans were acquired with the
April 15, 1994 acquisition of $173 million of deposits from Far West Savings
Bank in Oregon. Further expansion in Oregon is planned with the acquisition
of National Security Bank Holding Company, a five-branch institution with
assets of $133 million.
West One's service area of Idaho, Washington, Oregon and Utah continued
to outperform the national economy in the second quarter of 1994. During the
first two months of the quarter, nearly 16,000 new nonfarm jobs were added to
the regional payroll, with gains posted in all four states. Utah and Idaho
ranked second and third in the nation in nonfarm employment growth during the
past year. Idaho, Washington and Utah each reported annual gains in employment
in both manufacturing and service sectors. Washington's gains have been
limited to the service sector due to declines in aerospace employment.
Residential construction permit activity declined nationally during the second
quarter as a result of rising interest rates; however, the number of housing
units authorized in all four states remained above second quarter 1993
averages. Annual gains in dwelling unit permits were 12% in Washington, 19%
in Oregon, 22% in Idaho and 55% in Utah.
NET INTEREST INCOME AND MARGIN
Taxable equivalent net interest income was $89.9 million in the second
quarter of 1994, up 13% from the same period last year. Earning assets
averaged $7.2 billion during the quarter, a 10% increase from the same quarter
in 1993. Average loans increased 15% over the same period. Loans accounted
for 77% of earning assets in the current quarter compared to 73% in the second
quarter of 1993. Loan growth and an improved mix of earning assets contributed
to a 16 basis point improvement in net interest margin to 4.98% in the second
quarter of 1994 compared to 4.82% in the same quarter last year. Loans
increased at an annualized rate of 13% from the first to second quarter of
1994. Taxable equivalent net interest income for the first six months of 1994
totaled $175.5 million, an increase of 14% from the same period in 1993, as the
net interest margin increased 18 basis points to 4.99% and earning assets grew
10%.
ASSET QUALITY
Asset quality continued to improve in the second quarter of 1994 as
nonperforming assets declined 27% from a year ago to $23.4 million at June 30,
1994, representing only .29% of total assets. Nonperforming assets were $26.4
million at March 31, 1994 and $28.4 million at December 31, 1993. Credit loss
allowance coverage of nonperforming loans increased to 437% at June 30, 1994,
from 261% a year ago. West One provided $3.8 million for credit losses in the
second quarter of 1994 compared to $3.4 million for the same quarter of 1993.
Net charge-offs totaled $2.8 million or .20% of average loans in the second
quarter of 1994 compared to .22% of average loans in the corresponding quarter
last year. The allowance for credit losses was $78.2 million at June 30, 1994,
up 9% from $71.8 million a year ago. For the six months ended June 30, 1994,
West One provided $7.8 million for credit losses compared to $6.5 million for
the first six months of 1993. Net charge-offs totaled $5.2 million or .19% of
average loans for the first six months of 1994 compared to $3.3 million or .14%
of average loans in the first half of 1993.
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $4.8 million or 19% to $30.1 million in the
second quarter of 1994 compared to the second quarter of 1993. The increase
included $1.7 million of interest income from Federal income tax receivables,
representing the settlement of prior years' tax litigation. Excluding the
income tax settlement and net losses on the sale of investment securities,
noninterest income for the quarter was 13% above the same quarter last year due
primarily to bankcard income, brokerage commissions and service charges.
Noninterest income for the first six months of 1994 totaled $56.4 million
and exceeded the prior year by 16%. Excluding the income tax settlement and
net losses on the sale of investment securities, year-to-date noninterest
income increased 14%.
Noninterest expense increased 10% to $72.8 million in the second quarter
of 1994 and 10% to $143.3 million in the first six months of 1994 compared to
the corresponding periods of 1993. The increases were primarily attributable
to growth. Excluding the impact of 1994 acquisitions, noninterest expense
increased 8% in the second quarter and the first half of 1994 compared to the
same periods last year.
West One also progressed during the quarter in achieving its stated
objective of reducing the efficiency ratio to 60% by the end of 1994. The
efficiency ratio improved to 60.53% in the second quarter of 1994 from 63.13%
in the same quarter last year and 62.91% in the first quarter of 1994.
CAPITAL ADEQUACY
Shareholders' equity was $655.5 million at June 30, 1994, a 24% increase
from a year ago and represented 8.10% of assets compared to 7.16% last year.
Capital adequacy levels established by the Federal Reserve Board require
minimum leverage, Tier 1 and total capital ratios of 3%, 4% and 8%,
respectively. In addition, regulators deem a financial institution well
capitalized, the highest rating available, when leverage, Tier 1 and total
capital ratios total at least 5%, 6% and 10%, respectively. West One's
leverage, Tier 1 and total capital ratios were 7.75%, 9.74% and 11.94%,
respectively, at June 30, 1994 compared to 6.79%, 8.56% and 10.98% at June 30,
1993.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal proceedings arising in the normal course of
business are pending against West One and its subsidiaries.
In the opinion of management, liability, if any, resulting
from these proceedings will not have a material impact on West
One's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Statement regarding computation
of per share earnings - Page 11.
(b) Reports on Form 8-K - No reports were filed
on Form 8-K for the quarter ended June 30,
1994.
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
under-signed thereunto duly authorized.
WEST ONE BANCORP
Date: August 10, 1994
/s/ Scott M. Hayes
Scott M. Hayes
Executive Vice President and
Chief Financial Officer
/s/ Jim A. Peterson
Jim A. Peterson
Senior Vice President
and Controller
(Principal Accounting Officer)