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 March 31, 1995
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 April 28, 1995, 36,870,767 shares of the registrant's common stock,
$1 par value, were outstanding.
EXHIBIT INDEX IS LOCATED ON PAGE 11
Page 1
CONSOLIDATED BALANCE SHEETS (Unaudited)
WEST ONE BANCORP AND SUBSIDIARIES
March 31, December 31,
Dollars in thousands 1995 1994 1994
----------- ----------- -----------
Assets
Cash and due from banks $509,088 $455,096 $632,577
Federal funds sold, securities purchased under
agreements to resell and other 72,704 133,152 112,516
----------- ----------- -----------
Securities:
Available for sale 1,117,852 994,006 1,139,765
Held to maturity 577,809 575,576 581,155
----------- ----------- -----------
Total securities 1,695,661 1,569,582 1,720,920
----------- ----------- -----------
Loans:
Real estate 2,558,954 2,185,034 2,526,475
Commercial and agricultural 2,194,036 2,024,951 2,205,459
Consumer 1,194,784 1,061,828 1,172,616
Leases 162,231 158,843 160,873
----------- ----------- -----------
Total loans 6,110,005 5,430,656 6,065,423
Allowance for credit losses (82,271) (77,204) (81,757)
----------- ----------- -----------
Net loans 6,027,734 5,353,452 5,983,666
----------- ----------- -----------
Premises and equipment 127,178 122,692 128,506
Interest receivable 65,376 53,352 66,605
Other assets 158,960 126,488 147,909
----------- ----------- -----------
Total assets $8,656,701 $7,813,814 $8,792,699
=========== =========== ===========
Liabilities
Deposits:
Noninterest bearing $1,352,827 $1,191,396 $1,397,843
Interest bearing demand 715,333 734,430 749,755
Regular and money market savings 2,118,658 2,030,402 2,086,718
Time certificates under $100,000 1,840,428 1,503,643 1,755,013
Time certificates $100,000 and over 843,616 619,703 821,553
----------- ----------- -----------
Total deposits 6,870,862 6,079,574 6,810,882
Federal funds purchased and securities
sold under agreements to repurchase 489,744 368,518 804,161
Other short-term borrowings 123,501 500,548 122,153
Long-term debt 309,926 115,112 253,073
Other liabilities 116,896 110,658 86,661
----------- ----------- -----------
Total liabilities 7,910,929 7,174,410 8,076,930
----------- ----------- -----------
Shareholders' equity
Common stock - $1.00 par value; 75,000,000 shares
authorized; 36,835,096, 34,967,500 and 36,745,368
shares outstanding 36,835 34,968 36,745
Capital surplus 329,488 313,850 327,879
Retained earnings 384,205 287,348 364,041
Unrealized gain (loss) on securities, net of tax (4,756) 3,238 (12,896)
----------- ----------- -----------
Total shareholders' equity 745,772 639,404 715,769
----------- ----------- -----------
Total liabilities and shareholders' equity $8,656,701 $7,813,814 $8,792,699
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
Page 2
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
WEST ONE BANCORP AND SUBSIDIARIES
For the quarter ended
March 31,
Dollars in thousands except per share data 1995 1994
--------- ---------
Interest income
Loans $137,608 $105,543
Short-term investments 1,734 441
Interest and dividends on securities:
United States Treasury and
Government agencies 10,511 6,615
State and municipal bonds 7,505 7,157
Mortgage-backed securities 3,866 3,509
Other 2,184 2,721
--------- ---------
Total interest income 163,408 125,986
--------- ---------
Interest expense
Deposits 58,998 37,862
Federal funds purchased and securities
sold under agreements to repurchase 7,731 3,684
Other short-term borrowings 2,191 2,177
Long-term debt 4,470 1,761
--------- ---------
Total interest expense 73,390 45,484
--------- ---------
Net interest income 90,018 80,502
Provision for credit losses 3,159 3,989
--------- ---------
Net interest income after
provision for credit losses 86,859 76,513
--------- ---------
Noninterest income
Trust fees and commissions 3,479 3,543
Service charges on deposit accounts 10,069 8,984
Other service charges, fees and commissions 13,763 10,624
Other 1,841 3,287
Loss on securities (115) (158)
--------- ---------
Total noninterest income 29,037 26,280
--------- ---------
Noninterest expense
Employee compensation and benefits 39,069 34,038
Outside services 8,384 7,464
Equipment 5,524 5,483
Net occupancy 5,355 4,718
Insurance and miscellaneous taxes 5,083 4,762
Marketing 2,389 2,474
Postage and courier 2,700 2,347
Supplies 1,865 1,799
Telephone 1,951 1,784
Other 4,576 5,604
--------- ---------
Total noninterest expense 76,896 70,473
--------- ---------
Income before taxes 39,000 32,320
Provision for income taxes 10,732 9,405
--------- ---------
Net income $28,268 $22,915
========= =========
Primary earnings per share $.76 $.65
Fully diluted earnings per share .72 .62
Dividends declared per share .22 .18
========= =========
The accompanying notes are an integral part of the financial statements
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
WEST ONE BANCORP AND SUBSIDIARIES (Unaudited)
For the three months ended
March 31,
Dollars in thousands 1995 1994
--------- ---------
Cash flows from operating activities:
Net income $28,268 $22,915
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 3,159 3,989
Depreciation of premises and equipment 4,370 3,986
Amortization and accretion of premiums and discounts 2,868 2,963
Amortization of intangible and other assets 2,733 2,734
Originations of real estate loans held for sale (37,737) (101,434)
Proceeds from real estate and other loans sold 39,624 116,160
Net gain on sale of real estate loans (333) (414)
Net loss on sale of securities 115 158
Purchase of trading account securities (18,842) (14,197)
Sale of trading account securities 18,258 14,406
Change in assets and liabilities:
Interest receivable 1,229 (2,663)
Other assets (6,097) (4,505)
Other liabilities 11,785 6,106
--------- ---------
Net cash provided by operating activities 49,400 50,204
--------- ---------
Cash flows from investing activities:
Change in short-term investments, maturities less than 90 days 40,680 (119,952)
Purchase of securities available for sale (141,032) (112,050)
Maturity of securities available for sale 78,449 101,752
Sale of securities available for sale 100,133 89,827
Purchase of securities held to maturity (8,817) (16,815)
Maturity of securities held to maturity 9,448 14,498
Sale of securities held to maturity 3,223 --
Change in net loans and leases (49,861) (77,866)
Purchase of premises and equipment (3,131) (2,755)
Sale of premises and equipment 39 65
Additions to intangible assets (1,327) (641)
Sale of other real estate owned 2,084 2,076
Cash provided by acquisition -- 10,251
--------- ---------
Net cash provided (used) by investing activities 29,888 (111,610)
Page 4
Cash flows from financing activities:
Change in deposits 59,980 98,053
Change in short-term borrowings, maturities less than 90 days (313,585) (32,260)
Proceeds from short-term borrowings 1,721 5,277
Payments on short-term borrowings (1,195) (2,970)
Additions to long-term debt 70,105 --
Payments on long-term debt (13,087) (1,349)
Proceeds from issuance of common stock 1,268 2,616
Cash dividends paid (8,084) (6,249)
--------- ---------
Net cash provided (used) by financing activities (202,877) 63,118
--------- ---------
Net increase (decrease) in cash and due from banks (123,589) 1,712
Cash and due from banks - January 1 632,577 450,384
--------- ---------
Cash and due from banks - March 31 $508,988 $452,096
========= =========
Supplemental information:
Interest paid 72,260 44,511
Income taxes paid 195 2,035
Noncash activities:
Loans held for sale transferred to the loan portfolio 4,344 10,443
Loan charge-offs 4,731 4,509
Transfer of loans to other real estate owned 1,357 3,090
Tax benefit of stock options exercised 433 405
Dividends declared not paid 8,104 6,294
Securities purchased not settled 6,061 16,345
Acquisitions:
Securities and short-term investments -- 18,532
Net loans -- 17,331
Premises and equipment -- 1,191
Deposits -- 44,474
Other liabilities, net -- 745
Equity -- 2,086
========= =========
The accompanying notes are an integral part of the financial statements
Page 5
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 1994 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, results of operations and cash flows have been made in
the accompanying financial statements.
RECLASSIFICATION
Certain reclassifications of 1994 amounts were made in order to conform to
the 1995 presentation, none of which affect previously reported net income.
ACQUISITIONS
West One acquired the financial institutions listed below in transactions
accounted for as poolings of interests. The acquisitions were not material
to West One's financial position, results of operations and cash flows and
prior year financial statements have not been restated.
- - November 10, 1994, National Security Bank with assets of $132 million
in exchange for 1,101,832 shares of West One Bancorp common stock.
- - September 2, 1994, Valley Commercial Bank, a two-branch $64 million
bank headquartered in Clarkston, WA, in exchange for 404,523 shares of
West One Bancorp common stock.
- - January 21, 1994, Idaho State Bank with assets of $50 million in
exchange for 133,332 shares of West One Bancorp common stock.
On April 15, 1994, West One Bancorp acquired ten Far West Federal Savings
Bank branches in Oregon from the Resolution Trust Corporation. The
transaction included the receipt of $160 million in cash, $2 million of
premises and equipment, $11 million of intangible assets and the assumption
of $173 million of deposits and other liabilities. The transaction was
accounted for as a purchase.
OTHER EVENTS
On May 5, 1995, U. S. Bancorp, an Oregon corporation, entered into an
Agreement and Plan of Merger (the "Merger Agreement") with West One
Bancorp, an Idaho corporation ("West One"), pursuant to which West One will
be merged with and into U. S. Bancorp (the "Merger"). As a result of the
Merger, each outstanding share of West One's common stock, par value $1.00
per share ("West One Common Stock"), will be converted into 1.47 shares of
U. S. Bancorp Common Stock, par value $5.00 per share ("U. S. Bancorp
Common Stock"). The Merger is conditioned upon, among other things,
approval by shareholders of U. S. Bancorp and by shareholders of West One,
and upon certain regulatory approvals. The Merger is expected to be
completed by year-end 1995. The Merger Agreement is attached as Exhibit 2
hereto and its terms are incorporated herein by reference.
Page 6
As a condition to entering into the Merger Agreement, on May 6, 1995, U. S.
Bancorp and West One entered into (i) a Stock Option Agreement between West
One, as issuer, and U. S. Bancorp, as grantee (the "West One Stock Option
Agreement"), pursuant to which West One granted to U. S. Bancorp the right
upon the terms and subject to the conditions set forth therein, to purchase
up to 19.9% of the outstanding shares of West One Common Stock at a price
of $34.00 per share, and (ii) a Stock Option Agreement between U. S.
Bancorp, as issuer, and West One as grantee (the "U. S. Bancorp Stock
Option Agreement"), pursuant to which U. S. Bancorp granted to West One the
right to purchase up to 19.9% of the outstanding shares of U. S. Bancorp
Common Stock at a price of $28.00 per share. The West One Stock Option
Agreement and the U. S. Bancorp Stock Option Agreement are attached as
Exhibits 10.1 and 10.2 hereto, respectively, and their terms are
incorporated herein by reference.
During the first quarter of 1995, West One implemented Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," SFAS No. 116, "Accounting for Contributions Received
and Contributions Made" and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." None of these
statements had a material effect on West One's financial condition, results
of operations, cash flows or related disclosures.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY
West One Bancorp reported net income of $28.3 million for the first quarter
of 1995, the highest quarterly earnings in the Corporation's history and a
23% increase from the $22.9 million earned in the first quarter of 1994.
Fully diluted net income per share was $.72 for the quarter compared to
$.62 for the same quarter last year. Loan growth and lower credit related
costs contributed to the earnings improvement in the current quarter. West
One earned a return on average assets of 1.34% and a return on average
shareholders' equity of 15.63% in the first quarter of 1995 compared to
1.22% and 14.91%, respectively, for the first quarter of 1994.
Strong banking fundamentals contributed to a successful first quarter of
1995. Loan growth, excellent asset quality and a stable net interest
margin, despite economic uncertainties and competitive pressures, favorably
impacted West One's performance. A fortress balance sheet, characterized
by a strong and growing capital base, reserves well in excess of problem
loans and core deposit growth, contributed to an excellent first quarter.
The regional economy served by West One Bancorp continued to expand during
the first quarter of 1995 but at a slower pace than experienced a year ago.
Nonfarm employment posted above average gains in Idaho, Washington, Oregon
and Utah, although the increases were more moderate than in 1994. Further
employment gains are expected in 1995 according to current state forecasts
and are expected to exceed the national average. Soil moisture and
snowpack accumulations are adequate throughout the region, assuring ample
water supplies for the region's important tourism and agricultural
industries after drought conditions in 1994. Export activity has been a
bright spot in the regional economy as the Pacific Northwest is favorably
situated to take advantage of the recently devalued dollar, particularly in
Pacific Rim trade. Export markets provide an additional measure of
strength and stability to the economies of Washington, Oregon and Idaho.
NET INTEREST INCOME AND MARGIN
Taxable equivalent net interest income was $95.1 million in the first
quarter of 1995, up $9.5 million or 11% from the same period of last year.
The increase included a $1.5 million interest income recovery from the
payoff of a hotel loan in Salt Lake City. Earning assets averaged $7.8
billion during the quarter, a 13% increase from the same quarter in 1994.
Average loans increased 12.5% over the same period due to growth in all
four states and in the key lending categories of real estate, consumer,
commercial and agricultural loans. Net interest margin was 4.93% in the
first quarter of 1995 compared to 5.00% in the same quarter of last year.
Excluding the interest income recovery, net interest margin was 4.86% in
the first quarter of 1995 compared to 4.88% in the fourth quarter of 1994.
Loans increased at an annualized rate of 7.5% from the fourth quarter of
1994 to the first quarter of 1995, despite the seasonal decline in
outstanding agricultural loan balances.
Page 8
ASSET QUALITY
West One provided $3.2 million for credit losses and incurred $2.6 million
in net charge-offs for the first quarter of 1995. Net charge-offs amounted
to .18% of average loans during this period. During the first quarter of
1994, West One provided $4.0 million for credit losses. Nonperforming
assets totaled $26.9 million at March 31, 1995 compared to $26.4 million a
year ago. Nonperforming assets represented .31% of total assets and .44%
of loans and other real estate owned at March 31, 1995 compared to .35% and
.49%, respectively, a year ago. Accruing loans past due 90 days or more, a
precursor of problem loans, totaled only $1.7 million at March 31, 1995.
The allowance for credit losses was $82.3 million at March 31, 1995, up 7%
from $77.2 million a year ago. Credit loss allowance coverage of
nonperforming loans was 378% at March 31, 1995.
NONINTEREST INCOME AND EXPENSE
Noninterest income was $29.0 million in the first quarter of 1995, up 10.5%
from the first quarter of 1994. Other service charges, fees and
commissions included increases in real estate servicing fees and bankcard
income. Higher mortgage rates curtailed real estate loan originations
causing a decline in other income.
Noninterest expense was $76.9 million in the first quarter of 1995, up 9%
from the first quarter of 1994. Excluding the impact of 1994 acquisitions,
noninterest expense increased 7%. The provision for income taxes in the
first quarter of 1995 included $1.0 million of federal research and
experimental tax credits earned under new regulations applicable to prior
years.
CAPITAL ADEQUACY
Shareholders' equity was $746 million at March 31, 1995, a 17% increase
from a year ago. Equity represented 8.61% of assets at March 31, 1995
compared to 8.18% a year ago. Capital adequacy levels established by the
Federal Reserve Board require minimum leverage, tier one 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 one and total capital ratios total at least 5%, 6% and
10%, respectively. West One's leverage, tier one and total capital ratios
were 8.44%, 10.50% and 12.51%, respectively, at March 31, 1995 compared to
7.87%, 9.85% and 12.13%, respectively, at March 31, 1994.
Page 9
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, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Shareholders' Meeting of West One Bancorp was
held on April 20, 1995. The following matters were voted on
by the shareholders:
Proposal No. 1: Election of four Class I members of the
Board of Directors with the votes cast as follows:
Broker
In Favor Withheld Non-votes
Harry Bettis 30,017,546 470,762 17,047
Norma Cugini 30,022,792 466,023 16,540
John B. Fery 30,019,001 469,307 17,047
Stuart A. Hall 30,023,173 465,134 17,048
The other directors whose terms of office continue after the
meeting are: William J. Deasy, Jack B. Little, Warren E.
McCain, Douglas W. McCallum, Daniel R. Nelson, Allen T.
Noble and Philip B. Soulen.
Proposal No. 2: Ratification of selection of Coopers &
Lybrand, L.L.P. as the Corporation's Independent Certified
Public Accountants for the current fiscal year ending
December 31, 1995.
In Favor Against Abstain
30,389,042 48,426 67,886
Page 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2 - Agreement and Plan of Merger between
U. S. Bancorp and West One Bancorp dated May 5,
1995.
Exhibit 10.1 - West One Stock Option Agreement dated
May 6, 1995.
Exhibit 10.2 - U. S. Bancorp Stock Option Agreement
dated May 6, 1995.
Exhibit 11 - Statement regarding computation of per
share earnings.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K - No reports were filed on Form 8-K
for the quarter ended March 31, 1995.
Page 11
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: May 12, 1995
/s/ Scott M. Hayes
Executive Vice President and
Chief Financial Officer
/s/ Jim A. Peterson
Senior Vice President
and Controller
(Principal Accounting Officer)
Page 12