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, 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 July 31, 1995, 36,122,911 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
June 30, December 31,
Dollars in thousands 1995 1994 1994
----------- ----------- -----------
Assets
Cash and due from banks $529,144 $414,289 $632,577
Federal funds sold, securities purchased under
agreements to resell and other 186,384 137,321 112,516
----------- ----------- -----------
Securities:
Available for sale 1,163,333 1,029,817 1,139,765
Held to maturity 600,655 603,736 581,155
----------- ----------- -----------
Total securities 1,763,988 1,633,553 1,720,920
----------- ----------- -----------
Loans:
Real estate - mortgage 2,336,830 2,012,316 2,207,247
Real estate - construction 332,183 256,190 319,228
Commercial and agricultural 2,346,348 2,160,629 2,205,459
Consumer 1,236,307 1,092,395 1,172,616
Leases 167,069 149,941 160,873
----------- ----------- -----------
Total loans 6,418,737 5,671,471 6,065,423
Allowance for credit losses (83,038) (78,202) (81,757)
----------- ----------- -----------
Net loans 6,335,699 5,593,269 5,983,666
----------- ----------- -----------
Premises and equipment 125,317 125,026 128,506
Interest receivable 67,310 50,870 66,605
Other assets 148,271 137,342 147,909
----------- ----------- -----------
Total assets $9,156,113 $8,091,670 $8,792,699
=========== =========== ===========
Liabilities
Deposits:
Noninterest bearing $1,353,015 $1,177,294 $1,397,843
Interest bearing demand 685,682 710,342 749,755
Regular and money market savings 2,019,345 2,130,398 2,086,718
Time certificates under $100,000 1,903,758 1,584,783 1,755,013
Time certificates $100,000 and over 900,116 711,897 821,553
----------- ----------- -----------
Total deposits 6,861,916 6,314,714 6,810,882
Federal funds purchased and securities
sold under agreements to repurchase 516,254 528,554 804,161
Other short-term borrowings 674,996 373,393 122,153
Long-term debt 321,970 129,142 253,073
Other liabilities 88,816 90,322 86,661
----------- ----------- -----------
Total liabilities 8,463,952 7,436,125 8,076,930
----------- ----------- -----------
Shareholders' equity
Common stock - $1.00 par value; 75,000,000 shares
authorized; 36,888,265, 35,070,083 and 36,745,368
shares issued 36,888 35,070 36,745
Capital surplus 324,633 316,187 327,879
Retained earnings 405,330 306,959 364,041
Unrealized gain (loss) on securities, net of tax 2,681 (2,671) (12,896)
Treasury stock - 2,269,494 shares at cost (77,371) - -
----------- ----------- -----------
Total shareholders' equity 692,161 655,545 715,769
----------- ----------- -----------
Total liabilities and shareholders' equity $9,156,113 $8,091,670 $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 For the six months ended
June 30, June 30,
Dollars in thousands except per share 1995 1994 1995 1994
--------- --------- --------- ---------
Interest income
Loans $145,451 $113,499 $283,059 $219,042
Short-term investments 964 981 2,698 1,422
Interest and dividends on securities:
United States Treasury and
Government agencies 12,136 7,677 22,647 14,292
State and municipal bonds 7,626 7,557 15,131 14,714
Mortgage-backed securities 3,934 3,871 7,800 7,380
Other 2,395 2,372 4,579 5,093
--------- --------- --------- ---------
Total interest income 172,506 135,957 335,914 261,943
--------- --------- --------- ---------
Interest expense
Deposits 63,696 41,452 122,694 79,314
Federal funds purchased and securities
sold under agreements to repurchase 8,347 5,189 16,078 8,873
Other short-term borrowings 3,718 2,898 5,909 5,075
Long-term debt 5,258 1,814 9,728 3,575
--------- --------- --------- ---------
Total interest expense 81,019 51,353 154,409 96,837
--------- --------- --------- ---------
Net interest income 91,487 84,604 181,505 165,106
Provision for credit losses 3,311 3,787 6,470 7,776
--------- --------- --------- ---------
Net interest income after
provision for credit losses 88,176 80,817 175,035 157,330
--------- --------- --------- ---------
Noninterest income
Trust fees and commissions 4,018 3,803 7,497 7,346
Service charges on deposit accounts 10,370 9,913 20,439 18,897
Other service charges, fees
and commitments 15,064 11,917 28,827 22,541
Other 4,031 4,816 5,872 8,103
Loss on securities (33) (327) (148) (485)
--------- --------- --------- ---------
Total noninterest income 33,450 30,122 62,487 56,402
--------- --------- --------- ---------
Noninterest expense
Employee compensation and benefits 37,675 35,001 76,744 69,039
Outside services 10,285 8,112 18,669 15,576
Equipment 5,578 5,621 11,102 11,104
Net occupancy 5,390 5,027 10,745 9,745
Insurance and miscellaneous taxes 5,094 4,701 10,177 9,463
Marketing 2,754 2,468 5,143 4,942
Postage and courier 2,762 2,398 5,462 4,745
Supplies 1,958 1,859 3,823 3,658
Telephone 2,009 1,812 3,960 3,596
Other 5,854 5,848 10,430 11,452
--------- --------- --------- ---------
Total noninterest expense 79,359 72,847 156,255 143,320
--------- --------- --------- ---------
Income before taxes 42,267 38,092 81,267 70,412
Provision for income taxes 13,519 12,169 24,251 21,574
--------- --------- --------- ---------
Net income $28,748 $25,923 $57,016 $48,838
========= ========= ========= =========
Primary earnings per share $.79 $.73 $1.55 $1.38
Fully diluted earnings per share .75 .69 1.47 1.31
Dividends declared per share .22 .18 .44 .36
========= ========= ========= =========
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 six months ended
June 30,
(Dollars in thousands) 1995 1994
--------- ---------
Cash flows from operating activities:
Net income $57,016 $48,838
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 6,470 7,776
Depreciation of premises and equipment 8,811 8,038
Amortization and accretion of premiums and discounts 5,521 5,830
Amortization of intangible and other assets 5,472 5,650
Originations of real estate loans held for sale (118,727) (170,331)
Proceeds from real estate and other loans sold 98,137 199,256
Net gain on sale of real estate loans (2,765) (2,228)
Net loss on sale of securities 148 485
Purchase of trading account securities (67,020) (33,253)
Sale of trading account securities 61,967 28,755
Change in assets and liabilities:
Interest receivable (705) (181)
Other assets (6,345) (2,548)
Other liabilities (280) (3,610)
--------- ---------
Net cash provided by operating activities 47,700 92,477
--------- ---------
Cash flows from investing activities:
Change in short-term investments, maturities less than 90 days (68,068) (117,739)
Purchase of securities available for sale (280,393) (316,625)
Maturity of securities available for sale 156,896 200,897
Sale of securities available for sale 115,758 150,482
Purchase of securities held to maturity (42,613) (59,362)
Maturity of securities held to maturity 18,718 19,414
Sale of securities held to maturity 3,424 --
Change in net loans and leases (336,761) (336,177)
Purchase of premises and equipment (5,802) (9,193)
Sale of premises and equipment 130 141
Additions to intangible assets (4,663) (6,653)
Sale of other real estate owned 4,598 4,482
Cash provided by acquisitions -- 172,322
--------- ---------
Net cash used by investing activities (438,776) (298,011)
--------- ---------
Cash flows from financing activities:
Change in deposits 51,034 160,110
Change in short-term borrowings, maturities less than 90 days 228,087 6,006
Proceeds from short-term borrowings 64,154 34,075
Payments on short-term borrowings (27,512) (37,310)
Additions to long-term debt 105,236 20,000
Payments on long-term debt (28,722) (7,320)
Proceeds from issuance of common stock 2,351 4,722
Repurchase of common stock (90,897) --
Cash dividends paid (16,188) (12,544)
--------- ---------
Net cash provided by financing activities 287,543 167,739
--------- ---------
Net decrease in cash and due from banks (103,533) (37,795)
Cash and due from banks - January 1 632,577 450,384
--------- ---------
Cash and due from banks - June 30 $529,044 $412,589
========= =========
Supplemental information:
Interest paid 153,439 96,534
Income taxes paid 25,247 25,172
Noncash activities:
Loans held for sale transferred to the loan portfolio 8,168 16,036
Loan charge-offs 10,010 8,986
Transfer of loans to other real estate owned 1,808 5,543
Tax benefit of stock options exercised 510 776
Dividends declared not paid 7,616 6,316
Securities purchased not settled -- 10,568
Acquisitions:
Securities and short-term investments -- 18,532
Net loans -- 17,331
Premises and equipment -- 1,191
Intangible assets -- 11,249
Deposits -- 217,557
Other liabilities, net -- 982
Equity -- 2,086
========= =========
The accompanying notes are an integral part of the financials
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.
SALE OF HELD-TO-MATURITY SECURITIES
In the first six months of 1995, securities for three issuers which were
classified as held-to-maturity were sold due to downgrades in credit quality
which caused the securities to fall below West One's investment policy
guidelines. The combined amortized cost was $3.4 million and a net gain of
$36 thousand was recognized on the sales.
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, Washington, 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.
Page 6
OTHER EVENTS
On May 5, 1995, U. S. Bancorp 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.
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.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights." The statement is effective for fiscal years beginning after
December 15, 1995. This statement is not expected to have a material effect
on West One's financial condition, results of operations, cash flows or
related disclosures.
During the first quarter of 1995, West One implemented 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 $28.7 million for the second quarter
of 1995, the highest quarterly earnings in the Corporation's history and an
11% increase from the $25.9 million earned in the second quarter of 1994.
Fully diluted net income per share was $.75 for the quarter compared to $.69
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 1.31% and a return on average
shareholders' equity of 15.87% in the second quarter of 1995.
The regional economy served by West One Bancorp expanded during the second
quarter of 1995 but at a slower pace than recently experienced. Employment
conditions remained exceptionally strong in Utah as nonfarm jobs increased
5.8% in the twelve months ended May 1995. Annual rates of job growth in
Idaho, Oregon and Utah ranked each of the states in the top ten nationally
based on percentage change. Continued staff reductions in Washington's
important aerospace industry resulted in modest job growth; however,
Washington's nonmanufacturing sector created 63,000 jobs in the last twelve
months. Although residential construction slowed in the second quarter,
housing permit activity improved in all four states following lows posted
in March and April, as home buyers responded to lower interest rates.
NET INTEREST INCOME AND MARGIN
Taxable equivalent net interest income was $96.6 million in the second
quarter of 1995, up $6.7 million or 7% from the same period of last year.
Earning assets averaged $8.1 billion during the quarter, an 11% increase
from the same quarter in 1994. Average loans increased 13% over the same
period due to growth in all four states and in commercial, agricultural,
real estate and consumer loans. Net interest margin was 4.81% in the second
quarter of 1995 compared to 4.98% in the same quarter of last year due to a
shift in funding mix from transaction and savings accounts to higher cost
certificates of deposit and long-term debt. Loans increased at an
annualized rate of 15% from the first quarter to the second quarter of 1995.
Taxable equivalent net interest income for the first six months of 1995
totaled $191.7 million, an increase of 9% from the same period in 1994.
As previously announced, West One repurchased shares of common stock during
the second quarter of 1995 to obtain the shares required for the conversion
of 7.75% convertible subordinated debentures due 2006 and callable July 1,
1995. The repurchased shares resulted in treasury stock of 2.3 million
shares at June 30, 1995.
Page 8
ASSET QUALITY
West One provided $3.3 million for credit losses and incurred $2.5 million
in net charge-offs for the second quarter of 1995. Net charge-offs amounted
to .16% of average loans during this period. During the second quarter of
1994, West One provided $3.8 million for credit losses and net charge-offs
totaled .20% of average loans. Nonperforming assets totaled $20.9 million
at June 30, 1995 compared to $23.4 million a year ago. Nonperforming assets
represented .23% of total assets and .33% of loans and other real estate
owned at June 30, 1995 compared to .29% and .41%, respectively, a year ago.
Accruing loans past due 90 days or more, a precursor of problem loans,
totaled only $1.3 million at June 30, 1995. The allowance for credit losses
was $83.0 million at June 30, 1995, up 6% from $78.2 million a year ago.
Credit loss allowance coverage of nonperforming loans was 467% at June 30,
1995. For the six months ended June 30, 1995, West One provided $6.5
million for credit losses compared to $7.8 million for the first six months
of 1994. Net charge-offs to average loans declined to .17% for the current
year-to-date period from .19% for the comparable period last year.
NONINTEREST INCOME AND EXPENSE
Noninterest income was $33.5 million in the second quarter of 1995, up 11%
from the second quarter of 1994. Results for the current quarter included a
$1.7 million nonrecurring gain on the sale of real estate servicing rights.
Interest on a federal income tax settlement of $1.7 million was reported in
the second quarter of 1994. Noninterest income for the six months ended
June 30, 1995 totaled $62.5 million and exceeded the prior year by 11%.
Noninterest expense increased 9% to $79.4 million in the second quarter of
1995 and 9% to $156.3 million in the first six months of 1995 compared to
the corresponding periods. Outside services included $1.3 million of
investment banker fees related to the merger agreement with U.S. Bancorp
announced in May 1995.
CAPITAL ADEQUACY
Shareholders' equity was $692 million at June 30, 1995, a 6% increase from 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 7.40%, 9.19% and
10.96%, respectively, at June 30, 1995.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 June 30, 1995.
Page 10
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.
WEST ONE BANCORP
Date: August 14, 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 11