SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1999
------------------
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 0-22861
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FIRST INTERNATIONAL BANCORP, INC.
---------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 06-1151731
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
280 TRUMBULL STREET, HARTFORD, CT 06103
--------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 860-727-0700
------------
Indicate by a check 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 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. The number of shares of common
stock, par value $.10 per share, issued and outstanding on November 1, 1999 was
8,260,431.
1
INDEX
FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 1999
and 1998 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 31
Item 3. Defaults upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31-32
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
------
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1999 1998
------------- ------------
(UNAUDITED)
Cash and cash equivalents.............................. $ 48,332 $ 58,335
Investment securities.................................. 47,461 35,619
Loans, net............................................. 104,801 117,535
Premises and equipment, net............................ 4,370 3,815
Receivable from loans sold............................. 28,356 38,902
Prepaid expenses and other assets...................... 29,304 19,520
------------- ------------
Total assets....................................... $262,624 $273,726
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1999 1998
------------- ------------
(UNAUDITED)
Deposits............................................... $198,069 $217,675
Other liabilities...................................... 10,561 6,980
------------- ------------
Total liabilities.................................. 208,630 224,655
Stockholders' equity:
Preferred stock ($0.10 par value; 2,000,000 shares
authorized; no shares issued and outstanding)........ - -
Common stock ($0.10 par value; 12,000,000 shares
authorized; shares issued and outstanding: 8,260,431
at September 30, 1999 and 7,952,637 at
December 31, 1998)................................... 826 795
Paid-in capital in excess of par value, net............ 34,788 32,561
Stockholder note receivable............................ (1,980) (941)
Accumulated other comprehensive income................. 451 428
Retained earnings...................................... 19,909 16,228
------------- ------------
Total stockholders' equity......................... 53,994 49,071
------------- ------------
Total liabilities and stockholders' equity......... $262,624 $273,726
============= ============
See accompanying notes to unaudited condensed consolidated financial statements.
3
FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
INTEREST INCOME:
Loans, including net fees................................. $3,889 $3,764 $10,082 $11,619
Investment securities..................................... 683 339 2,205 890
Federal funds sold........................................ 137 742 1,131 1,214
---------- ---------- ---------- ----------
Total interest income................................... 4,709 4,845 13,418 13,723
INTEREST EXPENSE:
Deposits.................................................. 2,547 2,149 7,862 5,739
Other..................................................... 312 6 656 21
---------- ---------- ---------- ----------
Total interest expense.................................. 2,859 2,155 8,518 5,760
---------- ---------- ---------- ----------
Net interest income....................................... 1,850 2,690 4,900 7,963
PROVISION FOR POSSIBLE LOAN LOSSES.......................... 413 659 2,401 2,565
---------- ---------- ---------- ----------
Net interest income after
provision for possible loan losses...................... 1,437 2,031 2,499 5,398
NON-INTEREST INCOME:
Gain (loss) on sale of:
Guaranteed loans........................................ 2,180 2,011 8,052 7,983
Other loans............................................. 131 99 388 121
Loan-backed securitizations............................. 1,401 433 4,358 2,798
Loans to commercial paper conduit....................... (181) _ (28) -
---------- ---------- ---------- ----------
Total gains on loan sales............................. 3,531 2,543 12,770 10,902
Loan servicing income and fees............................ 1,599 986 4,421 2,971
Service charges and other deposit fees.................... - 106 74 397
Gain on sale of branch.................................... - - 8,915 -
Other income.............................................. 36 16 87 251
---------- ---------- ---------- ----------
Total non-interest income............................... 5,166 3,651 26,267 14,521
---------- ---------- ---------- ----------
Total operating income.................................... 6,603 5,682 28,766 19,919
NON-INTEREST EXPENSE:
Salaries and benefits..................................... 3,679 2,604 13,898 7,606
Occupancy................................................. 449 376 1,326 1,124
Office expenses........................................... 272 223 755 605
Marketing................................................. 427 406 1,439 1,003
Furniture and equipment................................... 317 252 917 720
Outside services.......................................... 1,097 301 2,149 687
Other..................................................... 116 161 756 409
---------- ---------- ---------- ----------
Total non-interest expense.............................. 6,357 4,323 21,240 12,154
---------- ---------- ---------- ----------
Income before income taxes................................ 246 1,359 7,526 7,765
PROVISION FOR INCOME TAXES.................................. 103 474 3,109 3,036
---------- ---------- ---------- ----------
NET INCOME.............................................. $ 143 $ 885 $ 4,417 $ 4,729
========== ========== ========== ==========
BASIC EARNINGS PER COMMON SHARE............................. $0.02 $0.11 $0.55 $0.60
========== ========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE........................... $0.02 $0.11 $0.53 $0.58
========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
4
FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities................. ($29,657) $14,310
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans.................................... 55,377 (30,552)
Purchase of investment securities available for sale................ (80,653) (8,468)
Purchase of equity securities available for sale.................... (177) (709)
Proceeds from maturities and principal repayments of investment
securities available for sale..................................... 66,815 4,678
Proceeds from maturities and principal repayments of investment
securities held to maturity....................................... 683 4,714
Proceeds from sale of investment securities......................... - 1,102
Proceeds from redemption of equity securities....................... 934 -
Proceeds from sale of other real estate owned....................... 91 -
Proceeds from sale of branch premises............................... 185 -
Capital expenditures, net........................................... (1,237) (1,903)
--------- ---------
Net cash used provided by (used in) activities.................... 42,018 (31,138)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits................................. (21,804) 30,527
Net decrease in other borrowings.................................... (1,048) (67)
Proceeds from sale of common stock.................................. 2,257 199
Principal payment on stockholder note receivable.................... 941 -
Principal advance on stockholder note receivable.................... (1,980) -
Dividends paid...................................................... (730) (710)
--------- ---------
Net cash provided by (used in) financing activities............... (22,364) 29,949
--------- ---------
Net increase (decrease) in cash and cash equivalents.................. (10,003) 13,121
Cash and cash equivalents at beginning of period...................... 58,335 17,394
--------- ---------
Cash and cash equivalents at end of period............................ $48,332 $30,515
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
5
FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
General
- -------
The condensed consolidated financial statements included herein are unaudited
and represent the accounts of First International Bancorp, Inc. (the "Company")
and its wholly-owned subsidiary, First International Bank (the "Bank"). The
Bank has a number of special purpose subsidiaries to facilitate loan
securitizations and the sale of loans to a commercial paper conduit; the Bank
also has a subsidiary organized in New Jersey for the purpose of facilitating
the Bank's business in New Jersey. Intercompany accounts and transactions have
been eliminated in consolidation. The Bank has representative offices which are
responsible for regional loan origination efforts in Hartford, Connecticut;
Boston and Springfield, Massachusetts; Providence, Rhode Island; Morristown, New
Jersey; Rochester, New York; Pittsburgh and Philadelphia, Pennsylvania; Detroit,
Michigan; Cleveland, Ohio; St. Louis, Missouri; and Washington, D. C. The Bank
also has international representatives in Argentina, Brazil, Central America,
Egypt, India, Indonesia, Korea, Mexico, the Philippines, Poland, South Africa,
Turkey and West Africa. The Bank's primary revenues are derived from net
interest income and the origination and sale, on a servicing retained basis, of
commercial loans. The Bank is a national leader in the use of loan guarantee
programs offered by the U. S. Small Business Administration (the "SBA"), the U.
S. Department of Agriculture (the "USDA") and the Export-Import Bank of the
United States ("Ex-Im Bank"). The Company maintains a web site at
www.firstinterbank.com.
- ----------------------
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all disclosures necessary for a complete presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of only normal recurring adjustments) that are necessary for a fair
presentation of the interim financial statements have been included. The
results of operations for the interim periods shown are not necessarily
indicative of the results to be expected for the entire fiscal year or any
interim period. This unaudited interim financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 which is filed with the Securities and Exchange Commission.
Certain 1998 amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no impact on net income.
Comprehensive Income
- --------------------
SFAS No. 130 "Reporting Comprehensive Income," which is effective for years
beginning after December 15, 1997, established standards for the reporting and
display of comprehensive income, defined as the change in the equity of a
business enterprise during a period from nonowner sources. The adoption of SFAS
No. 130 requires the Company to present the impact of any change in the market
value of the "available for sale" investment portfolio or other components of
comprehensive income. For the nine-month periods ended September 30, 1999 and
1998, such comprehensive income totaled $23,000 and $347,000 after income taxes,
respectively. All amounts are comprised only of changes in the valuation
allowance for the investment portfolio.
6
2. RECENT ACCOUNTING PRONOUNCEMENTS
In September 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which was amended by Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133 and amendment of FASB Statement No.
133," and is effective for the Company's financial statements issued after
December 31, 2000. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities, and requires
that all derivatives be recognized as either assets or liabilities in the
entity's balance sheet and be measured at fair value. Changes in the fair value
of the derivative instruments are to be recognized depending on the intended use
of the derivative and whether or not it has been designated as a hedge. This
statement is not expected to have a significant impact upon the Company's
financial position, results of operations or cash flows.
3. DIVIDEND POLICY
The Company paid cash dividends in the amount of $0.03 per share on May 12, 1999
and August 13, 1999. On October 26, 1999, the Company declared a dividend of
$0.03 per share payable on November 12, 1999 to shareholders of record as of the
close of business on November 5, 1999.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, this Quarterly Report on
Form 10-Q may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results of operations may differ materially
from those projected or suggested in the forward-looking statements due to
certain risks and uncertainties, including without limitation (i) the
continuation in their present form of the government guarantee loan programs of
the U. S. Small Business Administration ("SBA"), the U. S. Department of
Agriculture ("USDA") and the Export-Import Bank of the United States ("Ex-Im
Bank") upon which a significant portion of the Company's business depends, (ii)
the Company's ability to continue its recent growth by relying on non-interest
income, principally gains on the sale of domestic and international commercial
loans and related servicing income, in an increasingly competitive market for
loan originations, (iii) a disruption in the U.S. capital markets which may
delay or prevent the Company from receiving funding under warehouse lines of
credit or completing loan sales or securitizations, and (iv) the Company's
ability to accurately estimate loan losses and calculate the value of its
servicing assets, including related interest-only strips. Additional information
concerning certain risks and uncertainties that would cause actual results to
differ materially from those projected or suggested in the forward-looking
statements is contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, which is filed with the Securities and Exchange
Commission. The forward-looking statements contained herein represent the
Company's judgment as of the date of this Form 10-Q, and the Company cautions
readers not to place undue reliance on such statements.
OVERVIEW
First International Bancorp, Inc. (the "Company") is a Delaware corporation
formed in 1985 and serves as the bank holding company for First International
Bank. Established in 1955 as a nationally chartered bank, First International
Bank became a Connecticut bank and trust company on July 1, 1999. The Bank is
headquartered in Hartford, Connecticut. The Company specializes in providing
innovative credit, trade and financial solutions to small and medium size
industrial companies located in the United States and international emerging
markets, and is the nation's largest combined user of loan guarantee programs
made available by the SBA, USDA and Ex-Im Bank.
GENERAL
The Company's earnings have been historically derived from (i) the origination,
sale and securitization of government guaranteed and other commercial loans,
(ii) net interest income, which is the difference between interest earned on
interest-earning assets (principally loans) and interest-bearing liabilities
(principally deposits), and (iii) fee income on loans serviced for others.
8
On March 26, 1999, the Company sold its last retail branch and its checking and
savings accounts. The Company retained its certificates of deposit and
continues to issue retail and brokered certificates of deposit. The Company
also expects to obtain funding for its operations from warehouse lines of
credit, the sale of loans on a loan-by-loan basis, private placement
securitizations and from the sale of loans to commercial paper conduits.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30, 1998:
FOR THE NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------
1999 1998 % CHANGE
------------ ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Net interest income ................. $ 4,900 $ 7,963 (38%)
Provision for loan losses ........... 2,401 2,565 (6)
------- ------- -------
Net interest income after
provision........................ 2,499 5,398 (54)
Gain on loan sales .................. 12,770 10,902 17
Other non-interest income ........... 4,582 3,619 27
Gain on sale of branch .............. 8,915 - NM
Non-interest expense ................ 21,240 12,154 75
------- ------- -------
Income before income taxes ........ 7,526 7,765 (3)
Income taxes ........................ 3,109 3,036 2
------- ------- -------
Net income ...................... $ 4,417 $ 4,729 (7%)
======= ======= =======
Basic earnings per share ......... $ 0.55 $ 0.60
======= =======
Diluted earnings per share ....... $ 0.53 $ 0.58
======= =======
Weighted average shares-basic .... 8,115 7,897
======= =======
Weighted average share-diluted ... 8,312 8,198
======= =======
NET INCOME. Net income decreased 7% or $312,000 for the nine-month period
ended September 30, 1999 when compared to the nine-month period ended September
30, 1998. The decrease is the result of reduced net interest income and
increased non-interest expenses. Increases in gain on loan sales and other non-
interest income, primarily loan servicing income, resulted from increased loan
originations and an increase in the balance of loans managed for others. In
March 1999, the Company recognized a gain of $8.9 million from the sale of its
retail branch facility and its checking, savings and money market deposit
accounts.
Diluted earnings per share decreased 9% or $.05 to $.53 per share for the nine-
month period ended September 30, 1999 from $.58 for the nine-month period ended
September 30, 1998.
NET INTEREST INCOME. Net interest income decreased 38% or $3.1 million for the
nine-month period ended September 30, 1999 when compared to the same period
ended September 30, 1998.
9
Average earning assets increased 15% or $31.4 million while average
interest-bearing liabilities increased 39% or $59.0 million. The increase in
interest-bearing liabilities reflects the shift in funding sources to brokered
certificates of deposit and short term warehouse borrowings that resulted from
the first quarter branch sale.
The net interest spread for the nine-month period ended September 30, 1999
decreased 163 basis points when compared to the period ended September 30, 1998.
The decrease is partially attributable to the increase in the average balance of
LIBOR-based loans included on the balance sheet for the nine-month period ended
September 30, 1999 compared to the period ended September 30, 1998. A 75 basis
point decrease in the prime rate during the last four months of 1998 and
increased funding costs associated with the replacement of the Bank's core
deposits with brokered certificates of deposit and warehouse borrowings also
contributed to a decrease in the spread. Two prime rate increases, totaling 50
basis points, which occurred in July and August 1999, have mitigated the prior
year decreases but have not fully compensated for them.
10
AVERAGE BALANCES, INTEREST, YIELDS AND RATES
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
-----------------------------------------------------
AVERAGE INTEREST EARNED/ AVERAGE YIELD/
BALANCE PAID RATE
----------------------------------------------------
(dollars in thousands)
ASSETS:
Loans (1):
Commercial ................................ $ 162,477 $ 9,904 8.13%
Residential ............................... 2,386 136 7.60%
Other consumer ............................ 643 42 8.74%
------------ ------------ -----------
Total loans ................................... 165,506 10,082 8.12%
Investment securities .......................... 43,383 2,205 6.78%
Federal funds sold ............................ 31,862 1,131 4.75%
------------ ------------ -----------
Total investment securities and funds sold .... 75,245 3,336 5.92%
------------ ------------ -----------
Total earning assets .......................... 240,751 13,418 7.43%
Total non-earning assets ...................... 37,263
------------
Total assets .................................. $ 278,014
============
LIABILITIES:
Deposits:
Interest bearing demand deposits .......... $ 4,193 $ 72 2.30%
Premier money market ...................... 33,410 1,203 4.81%
Other savings ............................. 3,430 98 3.82%
Retail and IRA certificates of deposit .... 38,885 1,509 5.19%
Brokered certificates of deposit .......... 124,920 4,980 5.33%
------------ ------------ -----------
Total deposits ................................ 204,838 7,862 7.74%
Warehouse borrowings .......................... 3,656 646 23.62%
Other borrowings ............................... 242 10 5.52%
------------ ------------ -----------
Total interest bearing liabilities ............ 208,736 8,518 5.46%
------------ ------------ -----------
Non-interest bearing liabilities:
Demand deposits ........................... 14,486
Other liabilities ......................... 3,615
------------
Total non-interest bearing liabilities ........ 18,101
Stockholders' equity .......................... 51,177
------------
Total liabilities and stockholders' equity .... $ 278,014
============
Net interest income/net interest spread ....... $ 4,900 1.97%
============ ===========
Net interest margin 2.70%
===========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
--------------------------------------------------
AVERAGE INTEREST EARNED/ AVERAGE YIELD/
BALANCE PAID RATE
--------------------------------------------------
(dollars in thousands)
ASSETS:
Loans (1):
Commercial ................................ $ 153,859 $ 11,193 9.70%
Residential ............................... 5,421 328 8.07%
Other consumer ............................ 1,411 98 9.29%
------------ ------------ ------------
Total loans ................................... 160,691 11,619 9.64%
Investment securities .......................... 19,530 890 6.08%
Federal funds sold ............................ 29,141 1,214 5.57%
------------ ------------ ------------
Total investment securities and funds sold .... 48,671 2,104 5.77%
------------ ------------ ------------
Total earning assets .......................... 209,362 13,723 8.74%
Total non-earning assets ...................... 20,266
------------
Total assets .................................. $ 229,628
============
LIABILITIES:
Deposits:
Interest bearing demand deposits .......... $ 8,567 $ 152 2.37%
Premier money market ...................... 89,136 3,582 5.37%
Other savings ............................. 9,184 205 2.98%
Retail and IRA certificates of deposit .... 29,603 1,282 5.79%
Brokered certificates of deposit .......... 12,588 518 5.50%
------------ ------------ ------------
Total deposits ................................ 149,078 5,739 7.76%
Warehouse borrowings .......................... 0 0 0.00%
Other borrowings ............................... 615 21 4.57%
------------ ------------ ------------
Total interest bearing liabilities ............ 149,693 5,760 5.14%
------------ ------------ ------------
Non-interest bearing liabilities:
Demand deposits ........................... 34,933
Other liabilities ......................... 2,470
------------
Total non-interest bearing liabilities ........ 37,403
Stockholders' equity .......................... 42,532
------------
Total liabilities and stockholders' equity .... $ 229,628
============
Net interest income/net interest spread ....... $ 7,963 3.60%
============ ============
Net interest margin............................ 5.06%
============
1999 COMPARED TO 1998
CHANGES DUE TO (2):
------------------------------------------------
VOLUME RATE TOTAL
------------------------------------------------
(dollars in thousands)
ASSETS:
Loans (1):
Commercial ................................ $ 525 $ (1,814) (1,289)
Residential ............................... (173) (19) (192)
Other consumer ............................ (50) (6) (56)
------------ ------------ ------------
Total loans ................................... 302 (1,839) (1,537)
Investment securities .......................... 1,212 103 1,315
Federal funds sold ............................ 97 (180) (83)
------------ ------------ ------------
Total investment securities and funds sold .... 1,309 (77) 1,232
------------ ------------ ------------
Total earning assets .......................... 1,611 (1,916) (305)
Total non-earning assets ......................
Total assets ..................................
LIABILITIES:
Deposits:
Interest bearing demand deposits .......... $ (75) $ (5) $ (80)
Premier money market ...................... (2,007) (372) (2,379)
Other savings ............................. (164) 57 (107)
Retail and IRA certificates of deposit .... 360 (133) 227
Brokered certificates of deposit .......... 4,478 (16) 4,462
------------- ------------ ------------
Total deposits ................................ 2,592 (469) 2,123
Warehouse borrowings .......................... 646 0 646
Other borrowings ............................... (15) 4 (11)
------------- ------------ ------------
Total interest bearing liabilities ............ 3,223 (465) 2,758
------------- ------------ ------------
Non-interest bearing liabilities:
Demand deposits ...........................
Other liabilities .........................
Total non-interest bearing liabilities ........
Stockholders' equity ..........................
Total liabilities and stockholders' equity ....
Net interest income/net interest spread ....... $ (1,612) $ (1,451) $ (3,063)
============ ============ ============
Net interest margin............................
(1) For purposes of these computations, non-accruing loans are included in the
average balance.
(2) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amount of the change in each.
11
INTEREST INCOME. Interest income decreased 2% or $305,000 to $13.4 million for
the nine-month period ended September 30, 1999 from $13.7 million for the nine-
month period ended September 30, 1998. The yield on earning assets decreased 131
basis points. Although the average balance of loans increased by 3% or $4.8
million to $165.5 million from $160.7 million, the average yield on loans for
the nine-month period decreased 152 basis points. Interest income on loans for
the nine-months ended September 30, 1999 was reduced by $210,000 related to the
recoverability of certain accrued interest and deferred costs. The yield on
investment securities and funds sold increased by 15 basis points.
Commercial loan originations increased 26% or $75.3 million to $367.8 million
for the nine-month period ended September 30, 1999 thereby contributing to a
higher average balance of loans for the period. However, 22% or $81.5 million
of the originations were LIBOR-based international loans including $46.6 million
of privately insured loans. These privately insured loans were included on the
balance sheet from origination until sale of the loans to the Company's
commercial paper conduit in September 1999. Unlike Ex-Im term loans, which are
also LIBOR based, the privately insured loans are not sold individually at the
time of origination. The average balance of LIBOR-based loans for the nine-month
period ended September 30, 1999 was $28.2 million compared to $6.3 million for
the same period of 1998. Loans indexed to LIBOR are priced, on average, at LIBOR
plus 278 basis points, which for the nine-month period approximates the prime
rate plus 19 basis points. However, prime based loans are priced, on average, at
prime plus 129 basis points. The loan yield was also impacted by three prime
rate decreases totaling 75 basis points which occurred during the last four
months of 1998. During 1999 the prime rate has increased twice for a total of 50
basis points. However, while these increases, which occurred in July and late
August, mitigate the prior year decreases they do not fully compensate for them.
The increase in the average balance of investment securities and federal funds
sold partially mitigated the decrease in the loan yield. The average balance of
investment securities increased $23.9 million to $43.4 million for the nine-
month period ended September 30, 1999. The yield on these investments increased
70 basis points. The increase in the investment yields reflects the retained,
subordinated notes of the Company's loans securitizations which are prime and
LIBOR based investments whose yields generally exceed that of the Company's
historical investment vehicles (e.g. treasuries and agencies). For the nine
months ended September 30, 1999 the average balance of these investments was
$17.8 million as compared to an average balance of $891,000 for the nine-month
period ended September 30, 1998. The average balance of federal funds sold for
the nine-month period ended September 30, 1999 increased $2.7 million to $31.9
million but the yield on these investments decreased by 82 basis points. The
decrease in the yield was a result of the late 1998 decreasing rate environment
that also impacted the loan yield as noted above.
INTEREST EXPENSE. Interest expense increased $2.7 million to $8.5 million for
the nine-month period ended September 30, 1999 from $5.8 million for the nine-
month period ended September 30, 1998 as the average balance of interest bearing
liabilities increased 39% or $59.0 million. The increase represents the change
in funding sources following the sale of the Company's checking, savings and
money market deposit accounts in March 1999.
12
The average balance of brokered certificates of deposit increased by $112.3
million for the nine-month period ended September 30, 1999 compared to the nine-
month period ended September 30, 1998. Additionally, interest expense included
$646,000 of expense related to the $75 million warehouse line of credit which is
available to fund qualifying commercial term loans. During the nine-month period
ended September 30, 1999, the average balance outstanding on this line was $3.7
million. Interest expense on these borrowings totaled $182,000. The remaining
warehouse borrowings expense relates to the amortization of fees paid at
origination of the line in December 1998 which are amortized as interest expense
over the term of the facility.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
totaled $2.4 million for the nine-month period ended September 30, 1999 compared
to $2.6 million for the nine-month period ended September 30, 1998. The
Allowance for Loan Losses has increased to $4.6 million from $4.0 million at
December 31, 1998 due to an increasing percentage of unguaranteed commercial
loans, the seasoning of the loan portfolio, and the introduction of new loan
products for which the Company has limited historical experience. See
"Allowance for Loan Losses" for further discussion.
NON-INTEREST INCOME. Non-interest income is comprised of the following items:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------ ----------- -----------
NON-INTEREST INCOME 1999 1998 % CHANGE
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
Gain on loan sales:
SBA sales ........................... $ 4,088 $ 4,142 (1)%
USDA sales .......................... 2,605 1,553 68
Ex-Im working capital sales ......... 354 423 (16)
Ex-Im medium term sales ............. 1,005 1,865 (46)
-------- -------- --------
Gain on guaranteed loan sales ..... 8,052 7,983 1
Other loan sales .................... 388 121 221
Loan backed securitizations ......... 4,358 2,798 56
Loans to commercial paper conduit ... (28) -- --
-------- -------- --------
Total gain on loan sales .......... 12,770 10,902 17
Loan servicing income and fees ....... 4,421 2,971 49
Service charges and other deposit
fees ............................... 74 397 (81)
Gain on sale of branch ............... 8,915 -- --
Other income ......................... 87 251 (65)
-------- -------- --------
Total non-interest income ............ $ 26,267 $ 14,521 81%
======== ======== ========
13
The 81% or $11.7 million increase in non-interest income for the nine-month
period ended September 30, 1999 as compared to the nine-month period ended
September 30, 1998 was due primarily to the first quarter gain of $8.9 million
recognized on the sale of the Company's last branch facility and the related
$151 million of checking, savings and money market deposit accounts.
Gains on loan sales increased 17% or $1.9 million to $12.8 million for the nine-
month period of 1999 compared to the same period of 1998. The average gain on
SBA loan sales (measured as gain compared to SBA guaranteed portion of loan
sold) for the nine-month period ended September 30, 1999 decreased to 625 basis
points from 731 basis points for the same period in 1998. The decrease is
reflective of market pricing deterioration observed during the second and third
quarters of 1999 which the Company believes to be a result of accelerated
prepayment assumptions utilized in the marketplace and liquidity pressures in
the capital markets. The Company's prepayment and default experience on its SBA
and USDA guaranteed loans, as well as its experience on the securitized pools,
continues to be favorable compared to the rates assumed in the original
calculations at the time of sale. The actual performance of each portfolio is
monitored quarterly.
The relative gain on sale of USDA loans increased to 845 basis points for the
period ended September 30, 1999 compared to 818 basis points for the period
ended September 30, 1998. The increase is the result of higher loan interest
rates of the underlying loans for the period ended September 30, 1999.
Although the return on Ex-Im medium term loan sales increased to 413 basis
points for the nine-month period ended September 30, 1999 from 403 basis points
for the same period of 1998, gains from these loan sales decreased 46% or
$860,000. The decrease reflects the 25% or $11.7 million decrease in the volume
of originations of this loan product. During 1999 the Company's international
lenders have originated more loans under privately insured short and medium term
loan programs, which are attractive to borrowers because they allow financing of
non-U.S. made goods and provide the Company with greater discretionary authority
to approve and close the loans. In September 1999, $26.2 million of privately
insured loans were sold, for the first time since introduction of the product,
to the Company's commercial paper conduit.
During 1999, $18.7 million of revolving commercial loans, $26.2 million
privately insured sale and of $2.6 million of Ex-Im insured short term loans
have been sold to the Company's commercial paper facility resulting in a net
loss of $28,000. A $250,000 loss was incurred on the privately insured and Ex-Im
insured sales reflecting the establishment of a reserve for estimated losses and
the pricing, associated with the deductible and the uninsured loan portions
retained by the Company.
In September 1999, the Company completed a $65 million securitization of
commercial term loans which included a $6.5 million pre-funding amount and
resulted in a gain of $1.1 million.
14
The securities issued were as follows:
RATINGS
-------
AMOUNT TYPE MOODY'S INVESTOR SERVICE/DUFF & PHELPS
$56.55 million Senior Aaa/AAA
$2.6 million Subordinate A2/A
$2.6 million Subordinate Baa2/BBB
$3.25 million Subordinate Unrated
The Company retained the $3.25 million unrated security in its investment
portfolio. In connection with this transaction the Company recorded an
interest-only strip totaling $2.0 million which represents the net present value
of estimated cash flows due to the Company as servicer, after providing for
estimated losses and prepayments on the underlying loans.
In June 1999 the Company completed a securitization of the unguaranteed portions
of SBA loans totaling $37.4 million which resulted in a gain of $3.1 million.
The $33.7 million senior security issued as part of the securitization was rated
Aaa by Moody's Investors Service. The Company retained a $750,000 subordinated
certificate and a $3.0 million A2 rated subordinate certificate. An interest-
only strip totaling $1.9 million was recorded. The gain on loan sales for the
nine-months ended September 30, 1998 includes a $2.8 million gain on a $27
million securitization of the unguaranteed portions of SBA loans.
Included in securitization gains for the nine-months ended September 30, 1999,
is $150,000 which represents the portion of the gain on the Company's December
1998 $65 million securitization of commercial term loans attributable to the
loans delivered under the prefunding provision of the securitization.
Loan servicing income is comprised of the servicing fees received on loans sold
on a servicing-retained basis, net of amortization of the servicing asset. The
amount of the servicing fee varies in accordance with the terms of the loan
sale.
15
Detailed below are the components of this servicing income:
LOAN SERVICING INCOME AND FEES FOR THE NINE MONTHS ENDED
- ------------------------------ SEPTEMBER 30,
-------------------------
1999 1998
------------ -----------
(DOLLARS IN THOUSANDS)
Loan Servicing Income:
SBA guaranteed loans ...................... $ 2,411 $ 1,089
USDA guaranteed loans ..................... 677 228
Ex-Im working capital loans ............... 160 178
Ex-Im medium term loans ................... 182 262
Ex-Im short term loans .................... - -
Loan securitizations ...................... 250 23
Other loans ............................... 222 148
-------- --------
Loan servicing income .................... 3,902 1,928
Servicing asset reduction................... (265) -
-------- --------
Net loan servicing income................. 3,637 1,928
Other fees.................................. 784 1,043
-------- --------
Total loan servicing income and fees........ $ 4,421 $ 2,971
======== ========
LOANS MANAGED FOR OTHERS
- ------------------------
Average balance............................. $701,891 $484,958
======== ========
Ending balance.............................. $850,271 $540,053
======== ========
The 102% increase in loan servicing income and fees reflects the 45% or $217
million increase in the average balance of loans serviced for others to $702
million for the nine-month period ended September 30, 1999 and the favorable
prepayment performance of the loans originated when the Company first entered
this line of business.
Servicing income for Ex-Im working capital loans has decreased by 10% or $18,000
as a result of a 17% or $2.4 million decrease in the average balance of these
loans under management due to lower utilization by borrowers.
During the nine-month period ended September 30, 1999, the Company has
recognized an impairment equal to $265,000 in the carrying value of the
servicing asset related to certain Ex-Im Bank medium term loans. $239,000 of
this impairment relates to loans made to borrowers in Brazil, a country subject
to macroeconomic pressures, following payment defaults on the underlying loans.
Ex-Im Bank has paid the claims in full to the investors under the Ex-Im Bank
guarantee. Management will continue to monitor the actual and projected
defaults and prepayments, which could result in a reduction of the remaining
life of the servicing asset and which would warrant a further write down of the
asset if such impairment is expected.
16
Other loan fee income of $784,000 for the period ended September 30, 1999 is
comprised of $425,000 of letter of credit fees, $252,000 of late fees collected
and $107,000 in advisory fees paid by clients to the Company in conjunction with
non-loan related services.
NON-INTEREST EXPENSE. Non-interest expense is comprised of the following items:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
NON-INTEREST EXPENSE 1999 1998 % CHANGE
------- ------- --------
(DOLLARS IN THOUSANDS)
Salaries and benefits ................. $13,898 $ 7,606 83%
Occupancy ............................. 1,326 1,124 18
Office expenses ....................... 755 605 25
Marketing expenses .................... 1,439 1,003 43
Furniture and equipment ............... 917 720 27
Outside services ...................... 2,149 687 213
Other ................................. 756 409 85
------- ------- ---
Total non-interest expense........ $21,240 $12,154 75%
======= ======= ===
The 75% or $9.1 million increase in non-interest expense for the nine-month
period ended September 30, 1999 as compared to the same period ended September
30, 1998 is primarily attributable to a $6.3 million increase in salaries and
benefits. In connection with the re-negotiation of the employment agreement
between the Company and its Chairman and Chief Executive Officer, a $1.7 million
bonus was paid in March 1999 to enable the Chief Executive Officer to retire the
$980,000 note receivable held by the Company and to pay the income taxes
associated with the bonus. The note receivable was provided in 1994 to finance
the Chief Executive Officer's purchase of 614,000 shares of common stock. The
stock purchased is currently restricted, although the Company has agreed
pursuant to a registration rights agreement that such shares may be registered
for sale in the future.
In March 1999, as compensation for the sale of the Company's last retail branch
and deposits, the Chief Executive Officer and six members of senior management
received cash bonuses totaling $940,000.
The average number of full time equivalent employees for the nine-month period
ended September 30, 1999 was 187 compared to 157 for the nine-month period ended
September 30, 1998. The increase reflects the opening of representative offices
in Detroit, Cleveland and St. Louis, the addition of Energy Finance and
Equipment Finance business units, the full staffing of existing domestic
representative offices, and the addition of staff to the credit administration,
loan servicing and information technology areas. For the nine-month period
ended September 30, 1999, benefit expense, including the Company's portion of
401K contributions, increased 54% or $357,000 when compared to the same period
of 1998.
17
The 18% or $202,000 increase in occupancy expense reflects the addition of new
offices in late 1998 in Detroit and Cleveland and in 1999 in St. Louis as well
as an increase in the leased square footage in the Company's Hartford
headquarters building to accommodate new hires. The increase of 25% or $150,000
in office expenses and 27% or $197,000 in furniture and equipment reflects the
increase in personnel.
The 43% or $436,000 increase in marketing expense includes $71,000 of
advertising expense related to a retail certificate of deposit campaign
undertaken in March 1999 and a general increase in marketing related to new
representative offices and new product lines. Included in marketing expense is
$350,000 of domestic and international travel expenses and $296,000 of master
agent expenses reflecting an increased presence throughout the United States and
international markets.
The 213% or $1.5 million increase in outside service expense reflects increases
in legal fees associated with regulatory matters and with the establishment of
agent relationships and/or representative offices status in several of the
Company's international markets. For the nine-month period ended September 30,
1999, additional matters as to which legal expenses were incurred included
expenses associated with various projects: changing the Company's name;
conversion from a nationally chartered Bank to a Connecticut bank and trust
company; and,the establishment of a business relationship with CIGNA Financial
Services, Inc. and Connecticut General Life Insurance Company with respect to
the referrals for investment, discount brokerage, cash management and retirement
account services. Due to various corporate matters and projects underway, the
company expects that legal expenses will continue to be above historical levels
in the quarter ended December 31, 1999. Outside service expense also includes
expenses incurred in the use of outside contractors to prepare files for the
securitization and sale of loans.
The other expenses increase of $347,000 includes a $339,000 expense incurred in
March 1999 for the loss of a government guarantee on a single SBA loan managed
for investors. Excluding this claim, since 1990, the Company has made repairs
on government guaranteed loans totaling less than $100,000. At September 30,
1999, the Company services guaranteed loans totaling $477.1 million.
INCOME TAXES. The Company's effective tax rate increased to 41% for the nine-
month period ended September 30, 1999 from 39% for the nine-month period ended
September 30, 1998 due to the non-deductibility of the portion of the Chief
Executive Officer's compensation over $1 million.
18
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30, 1998
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
1999 1998 % CHANGE
---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net interest income............................... $1,850 $2,690 (31)%
Provision for loan losses......................... 413 659 (37)
---------- ---------- ----------
Net interest income after provision.......... 1,437 2,031 (29)
Gain on loan sales................................ 3,531 2,543 39
Other non-interest income......................... 1,635 1,108 48
Non-interest expense.............................. 6,357 4,323 47
---------- ---------- ----------
Income before income taxes................... 246 1,359 (82)
Income taxes...................................... 103 474 (78)
---------- ---------- ----------
Net income.............................. $ 143 $ 885 (84)%
========== ========== ==========
Basic earnings per share.................. $ 0.02 $ 0.11
========== ==========
Diluted earnings per share................ $ 0.02 $ 0.11
========== ==========
Weighted average shares - basic........... 8,224 7,916
========== ==========
Weighted average shares - diluted......... 8,405 8,180
========== ==========
NET INCOME. The 84% or $742,000 decrease in net income for the quarter ended
September 30, 1999 as compared to the quarter ended September 30, 1998 is the
result of a decrease in the net interest margin and an increase in non-interest
expenses, partially mitigated by an increase in gains on loans sales and non-
interest income.
Diluted earnings per share decreased 82% or $.09 to $.02 for the quarter ended
September 30, 1999 from $.11 per share for the quarter ended September 30, 1998.
NET INTEREST INCOME. Net interest income decreased 31% or $840,000 for the
quarter ended September 30, 1999 as compared to the quarter ended September 30,
1998. Although average earning assets for the quarter ended September 30, 1999
were relatively flat compared to the same period of 1998, average interest-
bearing liabilities increased 22% or $36.5 million period to period. The
increase in interest-bearing liabilities reflects the shift from traditional
funding sources to brokered certificates of deposit and short term warehouse
borrowings following the sale of the Company's checking, savings and money
market deposit accounts in March 1999. The net interest spread decreased 58
basis points as a result of a 12 basis point decrease in the yield on earning
assets and a 46 basis point increase in the cost of funds.
19
AVERAGE BALANCES, INTEREST, YIELDS AND RATES
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED 1999 COMPARED TO 1998
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 CHANGES DUE TO (2):
------------------------------ --------------------------- -----------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE VOLUME RATE TOTAL
------------------------------ --------------------------- -----------------------
(DOLLARS IN THOUSANDS)
ASSETS:
Loans (1)
Commercial.............. $178,367 $3,836 8.60% $150,585 $3,670 9.75% $ 596 $(431) $ 165
Residential............. 1,983 38 7.66% 3,344 70 8.37% (26) (6) (32)
Other consumer.......... 653 15 9.11% 982 24 9.70% (7) (1) (8)
-------- ------ ------ -------- ----- ----- ---- ----- ----
Total loans................ 181,003 3,889 8.59% 154,911 3,764 9.72% 563 (438) 125
Investment securities...... 32,869 683 8.31% 21,476 339 6.31% 237 107 344
Federal funds sold......... 11,389 137 4.77% 52,084 742 5.65% (490) (115) (605)
-------- ----- ------ -------- ----- ----- ---- ----- ----
Total investment securities
and funds sold............. 44,258 820 7.40% 73,560 1,081 5.85% (253) (8) (261)
-------- ----- ------ -------- ----- ----- ---- ----- ----
Total earning assets........ 225,261 4,709 8.36% 228,471 4,845 8.48% 310 (446) (136)
Total non-earning assets.... 46,692 21,438
-------- --------
Total assets................ $271,953 249,909
======== ========
LIABILITIES:
Deposits:
Interest bearing demand
deposits................. $ 2,238 $ 13 2.30% $ 9,390 $ 53 2.24% $ (42) $ 2 $ (40)
Premier money market..... 1 0 3.57% 100,705 1,360 5.36% (906) (454) (1,360)
Other savings............ 27 0 0.00% 10,344 82 3.15% 0 (82) (82)
Retail and IRA
certificates of deposit.. 47,866 607 5.03% 26,217 395 5.98% 275 (63) 212
Brokered certificates
of deposit............... 144,058 1,927 5.31% 21,321 259 4.82% 1,642 26 1,668
-------- ----- ------ -------- ----- ----- ----- ----- -----
Total deposits.............. 194,190 2,547 5.20% 167,977 2,149 5.08% 969 (571) 398
Warehouse borrowings........ 10,685 310 11.51% 0 0 0.00% 310 0 310
Other borrowings............ 133 2 5.97% 545 6 4.37% (6) 2 (4)
-------- ----- ------ -------- ----- ----- ----- ----- -----
Total interest bearing
liabilities................. 205,008 2,859 5.53% 168,522 2,155 5.07% 1,273 (569) 704
-------- ----- ------ -------- ----- ----- ----- ----- ----
Non-interest bearing
liabilities:
Demand deposits.......... 5,477 32,753
Other liabilities........ 7,909 2,997
-------- --------
Total non-interest bearing
liabilities................. 13,386 35,750
Stockholders' equity........ 53,559 45,637
-------- --------
Total liabilities and
stockholders' equity........ $271,953 $249,909
======== ========
Net interest income/
net interest spread......... $1,850 2.83% $2,609 3.41% $ (963) $ 123 $(840)
====== ====== ====== ===== ===== ===== =====
Net interest margin......... 3.33% 4.74%
====== =====
(1) For purposes of these computations, non-accuring loans are included in the
average balance.
(2) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amount of the change in each.
20
INTEREST INCOME. Interest income decreased 3% or $136,000 for the quarter ended
September 30, 1999 as compared to the quarter ended September 30, 1998. Although
the average balance of loans increased by 17% or $26 million to $181 million
from $155 million, the average yield on loans for the three-month period
decreased 113 basis points. The average balance of investment securities and
federal funds sold for the three-month period ended September 30, 1999 decreased
by 40% or $29.3 million when compared to the average balance for the same period
of 1998, while the yield improved 155 basis points as a greater percentage of
liquid investments were used to fund loan and line of credit commitments.
The loan yield for the three-months ended September 30, 1999 reflects the three
prime rate decreases totaling 75 basis points that occurred in the last four
months of 1998. The effect of these rate decreases were partially offset during
the third quarter of 1999 by two prime rate increases totaling 50 basis points.
The yield was also impacted by a greater relative percentage of lower yielding,
privately insured international LIBOR based loans included in the Company's loan
portfolio. For the quarter ended September 30, 1999 the average balance of
LIBOR based loans was $34.9 million compared to an average balance of $4.1
million for the quarter ended September 30, 1998.
INTEREST EXPENSE. Interest expense increased 33% or $704,000 for the three-
month period ended September 30, 1999 compared to the three-month period ended
September 30, 1998. The increase was primarily the result of the increase in
brokered certificates of deposit. For the three-month period ended September
30, 1999 the average balance of these deposits was $144.1 million as compared to
an average balance of $21.3 million for the same period of 1998. Brokered
certficates of deposits were used to fund an increase in balance sheet and loans
as evidenced by the 17% or $26.1 million increase in average loans for the three
month period ended September 30, 1999 compared to the three month period ended
September 30, 1998. The Company has placed more reliance on brokered
certificates of deposits following the sale of the Company's transaction deposit
accounts in March 1999. During the three-month period ended September 30, 1999,
warehouse borrowings were also used to fund loan volume. The borrowings were
repaid as part of the term securitization completed in September. For the three-
month period ended September 30, 1999, the average balance outstanding on this
line was $10.7 million. Interest expense on these borrowings totaled $178,000
for the three-month period. The remaining warehouse borrowings expense relates
to the amortization of fees paid at origination of the line in December 1998
which are amortized as interest expense over the term of the facility.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
totaled $413,000 for the quarter ended September 30, 1999 as compared to
$659,000 for the quarter ended September 30, 1998. See "Allowance for Loan
Losses" for further analysis of the provision and related data.
21
NON-INTEREST INCOME. Non-interest income is comprised of the following
items:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------ ----------- -----------
NON-INTEREST INCOME 1999 1998 % CHANGE
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
Gain on loan sales:
SBA sales ........................... $ 1,077 $ 1,144 (6)%
USDA sales .......................... 656 417 57
Ex-Im working capital sales ......... 138 145 (5)
Ex-Im medium term sales ............. 309 305 1
-------- -------- --------
Gain on guaranteed loan sales ..... 2,180 2,011 8
Other loan sales .................... 131 99 32
Loan backed securitizations ......... 1,401 433 224
Loans to commercial paper conduit ... (181) -- --
-------- -------- --------
Total gain on loan sales .......... 3,531 2,543 39
Loan servicing income and fees ....... 1,599 986 62
Service charges and other deposit
fees ................................. -- 106 (100)
Other income ......................... 36 16 125
-------- -------- --------
Total non-interest income ............ $ 5,166 $ 3,651 41%
======== ======== ========
The 41% or $1.5 million increase in non-interest income for the three-month
period ended September 30, 1999 as compared to the three-month period ended
September 30, 1998 was primarily due to a 39% or $988,000 increase in gains on
loan sales and a 62% or $613,000 increase in loan servicing income and fees.
The increase in gains on loan sales was primarily attributable to the September
1999 term loan securitization which resulted in a $1.1 million gain. Also
included in securitization gains for the quarter is $300,000 which represents
the portion of the gain on the Company's June 1999 securitization of the
unguaranteed portion of SBA loans attributable to the loans delivered during the
third quarter under the prefunding provision of the securitization.
The increase in loan servicing and other fee income includes an 82% or $629,000
increase in loan servicing income which reflects the 44% or $231 million
increase in the average balance of loans managed for others and the impact of
favorable prepayment experience of the loans originated when the Company first
entered this line of business.
22
LOAN SERVICING INCOME AND FEES
- ------------------------------ FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------ -----------
(DOLLARS IN THOUSANDS)
Loan Servicing Income:
SBA guaranteed loans ................ $ 899 $ 463
USDA guaranteed loans ............... 250 80
Ex-Im working capital loans ......... 48 67
Ex-Im medium term loans ............. 58 82
Ex-Im short term loans .............. -- --
Loan securitizations ................ 72 23
Other loans ......................... 66 49
-------- --------
Loan servicing income............. 1,393 764
Servicing asset reduction............. (27) --
-------- --------
Net loan servicing income.......... 1,366 764
Other fees ........................... 233 222
-------- --------
Total loan servicing income and fees.. $ 1,599 $ 986
======== ========
LOANS MANAGED FOR OTHERS
- ------------------------
Average balance ...................... $762,158 $530,720
======== ========
Ending balance ....................... $850,271 $540,053
======== ========
NON-INTEREST EXPENSE. Non-interest expense is comprised of the following items:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------ ----------- -----------
1999 1998 % CHANGE
------------ ----------- -----------
NON-INTEREST EXPENSE: (DOLLARS IN THOUSANDS)
Salaries and benefits ................. $ 3,679 $ 2,604 41%
Occupancy ............................. 449 376 19
Office expenses ....................... 272 223 22
Marketing expenses .................... 427 406 5
Furniture and equipment ............... 317 252 26
Outside services ...................... 1,097 301 264
Other ................................. 116 161 (28)
------------ ----------- -----------
Total non-interest expense........ $ 6,357 $ 4,323 47%
============ =========== ===========
The 47% or $2.0 million increase in non-interest expenses for the quarter ended
September 30, 1999 as compared to the quarter ended September 30, 1998 reflects
the increase in the number of full time employees for the periods and the annual
increase in salaries as of January 1999. At September 30, 1999, the number of
full time employees was 191 compared to 169 for the quarter ended September 30,
1998.
23
For the three-month period ended September 30, 1999, benefit expense, including
the Company's portion of 401k contributions, increased 45% or $114,000 when
compared to the same period of 1998.
The increase is the result of rising medical benefit rates and the increase in
the number of employees eligible for medical benefits and 401k participation.
Outside services, which includes legal fees and consultants, increased $796,000
for the three-month period ended September 30, 1999 compared to the same period
of 1998. The increase relates to legal fees incurred in the establishment of
domestic and international representative offices and to various regulatory
matters.
INCOME TAXES. The Company's effective tax rate for the quarter ended September
30, 1999 increased to 41.9% from 35% for the quarter ended September 30, 1998.
The 1999 rate reflects the non-deductibility of the Chief Executive Officer's
compensation over $1 million. The 1998 rate reflected a $34,000 State of
Connecticut tax refund that had resulted from a statutory change relating to the
1991 through 1995 tax years received in September 1998.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION TO SEPTEMBER 30, 1999 FROM DECEMBER
31, 1998
GENERAL. Total assets decreased 4% or $11.1 million from December 31, 1998 to
September 30, 1999.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased 17% or $10.0
million to $48.3 million at September 30, 1999 from the December 31, 1998
balance of $58.3 million. The decrease reflects the use of excess liquidity to
fund loan originations which were securitized in June and September. The Company
retains an interest in the loans in the form of investment securities. Cash and
cash equivalents includes $12.8 million of restricted cash accounts pledged as
credit enhancements for the Company's securitizations.
PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses and other assets increased
50% or $9.8 million to $29.3 million at September 30, 1999 from $19.5 million at
December 31, 1998. The increase is primarily attributable to the increase in
servicing assets to $19.5 million at September 30, 1999 from $13.7 million at
December 31, 1998. The servicing asset has increased as a result of the sale
and securitization of loans totaling $300.1 million during the nine-month period
ended September 30, 1999. As discussed above, a valuation of the servicing
asset, which includes monitoring the actual and projected prepayment and default
experience of each servicing portfolio, is performed quarterly. Any impairment
deemed to be permanent would result in a write down of the asset.
24
LOANS. The Company's Loan portfolio and loans managed for others portfolio were
as follows:
SEPTEMBER 30, DECEMBER 31,
LOAN PORTFOLIO 1999 1998
- -------------- ------------- ------------
(DOLLARS IN THOUSANDS)
SBA loans........................................ $ 3,043 $ 22,774
USDA loans....................................... 9,955 14,017
Ex-Im working capital loans...................... 4,759 4,796
Ex-Im term loans................................. 3,389 62
Insured term loans............................... 1,503 14,210
Import loans..................................... 2,237 4,681
Equipment finance loans.......................... 641 4,020
Other commercial loans........................... 26,148 35,785
Owner occupied commercial mortgages.............. 4,875 6,917
Non-owner occupied commercial mortgages.......... 1,569 3,139
Other loans...................................... 2,629 3,545
-------- --------
Total loans................................. 60,748 113,946
Loans held for sale.............................. 51,058 8,577
Less:
Discount on retained loans.................. 2,625 1,419
Net deferred loan origination costs......... (170) (431)
Allowance for loan losses................... 4,550 4,000
-------- --------
Loans, net.................................. $104,801 $117,535
======== ========
LOANS MANAGED FOR OTHERS
- ------------------------
Guaranteed Loans
SBA......................................... $252,362 $245,073
USDA........................................ 101,306 75,526
Ex-Im working capital....................... 17,116 14,788
Ex-Im term.................................. 100,155 102,638
Inventory buyer credit...................... 5,686 300
FHLMC....................................... 446 455
-------- --------
477,071 438,780
Unguaranteed Portions and Unguaranteed Loans
SBA......................................... 117,202 74,033
USDA........................................ 5,793 6,173
Other commercial............................ 222,713 135,380
Insured term................................ 26,012 -
Home equity lines........................... 1,480 2,166
-------- --------
373,200 217,752
-------- --------
Total loans managed for others................... $850,271 $656,532
======== ========
Total loans under management..................... $962,077 $779,055
======== ========
25
Loans and loans held for sale decreased $10.7 million to $111.8 million at
September 30, 1999 from $122.5 million at December 31, 1998. The decrease is
the result of the sale and securitization of $300.1 million of loans during the
nine-month period ended September 30, 1999. Loan originations, including the
origination of lines of credit, were $367.8 million for the period. Loans held
for sale include only those loans the Company expects to sell in the next 90
days.
ALLOWANCE FOR LOAN LOSSES. The Company reviews the adequacy of the Allowance
for Loan Losses quarterly. At September 30, 1999, the Allowance totaled $4.6
million and represents 4.1% of loans and loans held for sale. The Allowance
totaled $4.0 million at December 31, 1998 and represented 3.3% of loans. In
establishing the level of the Allowance, the Company considers the percentage of
unguaranteed commercial loans, the seasoning of the commercial loan portfolio,
and the introduction of new loan products where the Company has limited
historical experience. Net charge-offs for the nine-month period ended
September 30, 1999 increased $386,000 to $1.8 million from $1.4 million for the
nine-month period ended September 30, 1998. The Allowance at September 30, 1999
covered 1998 annual charge-offs 2.10 times.
ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
FOR THE YEAR
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, DECEMBER 31,
---------------------- --------------------- -------------
1999 1998 1999 1998 1998
--------- --------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
Balance of allowance for loan losses
at the beginning of the period............. $ 4,550 $ 4,000 $ 4,000 $ 3,100 $ 3,100
Charge-offs:
SBA loans.................................. 9 179 166 479 775
Ex-Im working capital loans................ 25 -- 213 -- --
Insured term loans......................... -- -- 112 -- --
Other commercial loans..................... 399 1 1,148 618 959
Import loans............................... -- -- 265 -- --
Non-owner occupied commercial mortgages.... -- 290 -- 513 582
Other loans................................ -- -- -- 8 8
-------- -------- -------- -------- --------
Total charge-offs..................... 433 470 1,904 1,618 2,324
Recoveries:
SBA loans.................................. -- 2 2 2 --
Other commercial loans..................... 20 9 51 28 30
Non-owner occupied commercial mortgages.... -- -- -- 123 123
-------- -------- -------- -------- --------
Total recoveries...................... 20 11 53 153 153
-------- -------- -------- -------- --------
Net charge-offs................................. 413 459 1,851 1,465 2,171
Provision for loan losses....................... 413 659 2,401 2,565 3,071
-------- -------- -------- -------- --------
Balance of allowance for loan
losses at end of period.................... $ 4,550 $ 4,200 $ 4,550 $ 4,200 $ 4,000
======== ======== ======== ======== ========
Total loans and loans held for sale............. $111,806 $162,824 $111,806 $162,824 $122,523
======== ======== ======== ======== ========
Allowance to total loans........................ 4.1% 2.6% 4.1% 2.6% 3.3%
======== ======== ======== ======== ========
26
Non-performing loans for the nine-month period ended September 30, 1999
increased $1.1 million to $4.2 million from December 31, 1998. Non-performing
loans relative to total loans increased to 3.77% at September 30, 1999 from
2.53% at December 31, 1998.
The following table sets forth information regarding the Company's non-
performing loans at the dates indicated:
SEPTEMBER 30, DECEMBER 31,
NON-PERFORMING LOANS 1999 1998
- -------------------- ------------- ------------
(DOLLARS IN THOUSANDS)
Commercial:
Unguaranteed portions:
SBA and USDA loans......................... $1,680 $1,533
Ex-Im working capital loans................ 361 418
Ex-Im term loans........................... 93 --
Insured term loans............................ 563 112
Other commercial loans........................ 980 890
Import loans.................................. 306 --
Owner occupied commercial mortgages........... 95 6
Consumer loans................................... 135 145
-------- --------
Total non-performing loans................. $4,213 $3,104
======== ========
Total non-performing loans to total loans........ 3.77% 2.53%
======== ========
Total non-performing loans to total assets....... 1.60% 1.13%
======== ========
Allowance to total non-performing loans.......... 108% 129%
======== ========
The following table sets forth the breakdown of the Allowance for Loan Losses by
loan category at the dates indicated. Management believes that the Allowance
can be allocated by category only on an approximate basis, and therefore
allocation of the Allowance to each category is not necessarily indicative of
future losses and does not restrict use of the Allowance to absorb losses in any
category. The unallocated portion of the Allowance represents an amount that is
not specifically allocable to one of the loan portfolios. Loans to foreign
entities at September 30, 1999 represented 4% of total loans. Such loans are
U.S. dollar denominated and either 100% Ex-Im Bank guaranteed and sold at
origination or carry private insurance equal to 80-90% of the loan balance. The
Company's private credit insurance policies include a deductible which provides
that the Company is responsible for the first loss on the uninsured portion of
the loan. The increase in the unallocated reflects a reserve for some of the
Company's new lines of business with which the Company has limited experience
27
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ALLOCATION OF THE ALLOWANCE BY
CATEGORY OF LOANS:
Unguaranteed Portions of:
SBA loans................................... $ 244 $ 841
USDA loans.................................. 521 209
Ex-Im working capital loans................. 134 245
Ex-Im term loans............................ 62 2
Insured term loans............................... 364 479
Import loans..................................... 192 94
Equipment finance loans.......................... 8 55
Other commercial loans........................... 1,461 1,311
Owner occupied commercial mortgages.............. 73 128
Non-owner occupied commercial mortgages.......... 32 63
Other loans...................................... 37 43
Unallocated...................................... 1,422 530
-------- --------
Total allowance for loan losses............. $4,550 $4,000
======== ========
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS:
Unguaranteed Portions of:
SBA loans................................... 2.7% 18.6%
USDA loans.................................. 8.9 11.4
Ex-Im working capital loans................. 4.3 3.9
Ex-Im term loans............................ 3.0 0.1
Insured term loans............................... 1.3 11.6
Import loans..................................... 2.0 3.8
Equipment finance................................ 0.6 3.3
Other commercial................................. 23.4 29.2
Owner occupied commercial mortgages.............. 4.4 5.6
Non-owner occupied commercial mortgages.......... 1.4 2.6
Other loans...................................... 2.4 2.9
Loans held for sale.............................. 45.6 7.0
------- --------
Total....................................... 100% 100%
======= ========
STOCKHOLDERS' EQUITY. Stockholders' equity increased 10% or $4.9 million to
$54.0 million at September 30, 1999 from $49.0 million at December 31, 1998 due
to the retention of earnings net of a quarterly dividend of $.03 per share or
$732,000 for the nine-month period ended September 30, 1999.
Following the award of a bonus specifically for this purpose, the Company's
Chief Executive Officer repaid the promissory note that was issued in 1994 in
connection with his purchase of 614,600 shares of common stock. On March 31,
1999, the Company sold an additional 200,000 shares of common stock at fair
market value to the Chief Executive Officer for an aggregate purchase price of
$2,000,000, or $10 per share. The stock purchased by the Chief Executive
Officer is currently restricted, although the Company has agreed, pursuant to a
registration rights
28
agreement that such shares may be registered for sale in the future. The Company
received a cash payment of $20,000 and a promissory note in the amount of
$1,980,000 for the shares. Principal plus interest, accruing at a rate of 7%
compounded annually, is payable on the note to the Company at the April 1, 2002
maturity date. The interest and principal may be forgiven by the Company in
certain circumstances. The sale of the stock will increase stockholders' equity
only when principal payments are received, as such stockholder note receivable
is carried as a reduction to stockholders' equity since it is collateralized by
the stock of the Company. For the nine-month period ended September 30, 1999 the
Company has accrued $70,000 of interest income related to this note.
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of liquidity and
funding are certificates of deposit, a warehouse line of credit, a commercial
paper conduit and loan sales and securitizations. Secondary sources of
liquidity include a Federal Home Loan Bank line of credit and federal funds
purchased.
Management considers scheduled cash flows from existing clients and borrowers
and projected deposit levels, estimated liquidity needs for maturing
certificates of deposit, approved extensions of credit, and unadvanced
commitments to existing borrowers in determining the level and maturity of
funding necessary to support operations. The on-going sale of the government
guaranteed portions of loans at origination also provides cash to fund
operations. Such loan sales totaled $300.1 million for the nine-month period
ended September 30, 1999, and represented 82% of the $367.8 million total loan
originations for the nine-month period.
As of September 30, 1999 the Company had outstanding commitments to fund loans
and lines of credit of $98.1 million and had issued letters of credit totaling
$40.2 million.
The Company believes that it will continue to have access to liquidity sources
to provide funding sufficient to support operating activities, loan originations
and commitments, and certificate of deposit maturities.
A subsidiary of the Bank entered into an interest rate swap with a notional
amount of $28 million in December 1998. The intent of the swap is to mitigate
interest rate risk inherent in the sale of revolving commercial loans to a
commercial paper facility. The swap provides for net settlement on a monthly
basis which is recorded as an adjustment to interest income. For the nine-month
period ended September 30, 1999, $19,000 of interest expense had been recorded
related to the swap.
The Bank is subject to various regulatory capital requirements administered by
federal banking agencies and maintains a "well-capitalized" status with a total
capital to risk-weighted assets ratio of 21.14% and a Tier 1 capital to assets
or leverage ratio of 19.19% at September 30, 1999.
29
YEAR 2000 COMPLIANCE
As the Year 2000 approaches, a critical business issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. In brief, many existing application software products in the
market place were designed to accommodate only a two digit position which
represents the year (e.g. '95 is stored on the system and represents the year
1995). As a result, the year 1999 (i.e., '99) could be the maximum date value
these systems will be able to accurately process.
Utilizing the framework provided by the Federal Financial Institutions
Examination Council ("FFIEC"), the Company developed a Year 2000 Compliance
Program as discussed below. The Company's Year 2000 Compliance Workplan
("Workplan") includes the following broad components:
1. Review of Mission Critical Systems for Year 2000 Readiness
2. Renovation of Internal Mission Critical Systems
3. Renovation of External Mission Critical Systems
4. Testing of Mission Critical Systems
5. Development of Business Resumption Contingency Plan
6. Assessment of Customer Risk
7. Remediation Contingency Plan
Senior management and the Technology Committee of the Board of Directors are
responsible for monitoring compliance with the Workplan. In addition, the
Company's banking regulators perform periodic off-site inquiries and on-site
visitations to assess the status of the Company's Year 2000 readiness and
progress against the Workplan and federal regulations. While the Company has
devoted a significant amount of human resources to address its Year 2000
readiness, management does not believe that the resultant deferral of other
information technology (IT) projects has had a material impact on the Company's
financial condition or results of operations.
The Company has reviewed all mission critical systems, prioritized the details
of the plan and its resources, and has established deadlines for each of the
components of the Workplan. The Company's primary internal mission critical
systems included a deposit item processing system, wide area network which
supports word processing and spreadsheet applications as well as other external
software systems, and an AS/400 operating system. The Company determined that
the deposit item processing system could not be readily made Year 2000 compliant
and, therefore, outsourced this function in the first quarter of 1998. Total
annual costs for this third party service are estimated at $36,000. The
Company's word processing and spreadsheet software applications and the AS/400
operating system were upgraded to Year 2000 compliant versions in the first half
of 1998. Total costs of such software upgrades approximated $55,000. Certain
hardware components were also upgraded in conjunction with these software
initiatives at an estimated cost of $20,000. Management estimates that
additional costs to be incurred to execute the Workplan will not exceed $20,000.
30
Third party vendors support the Company's other mission critical IT and non-IT
systems. The Company has developed a plan to monitor and test all such systems.
Non-IT systems include the Company's facility-related operating systems and are
included in the Company's Workplan.
As required by the FFIEC, the Business Resumption Contingency Plan has been
developed. Although the Company expects that each mission critical system will
be Year 2000 compliant, the Plan was designed to mitigate serious disruptions to
the Company's business flow. The plan has been tested by the Company's internal
auditor in accordance with FFIEC guidelines.
The Company's Workplan also requires that the Year 2000 readiness of major
borrowers, wholesale time deposit brokers, investment bankers providing
borrowing facilities to the Company, and primary loan purchasers be evaluated.
Documentation has been received from these parties and it appears to meet the
FFIEC standards for determining Year 2000 preparedness and provides information
to assess any potential risk to the Company. The Company has reviewed the
documentation and it appears that the parties have adequately assessed Year 2000
risks and undertaken efforts to mitigate potential problems.
The above expectations are subject to uncertainties. If for example, the
Company fails to identify and address all Year 2000 problems in the mission
critical operations, fails to develop a comprehensive contingency plan, or is
affected by the inability of critical third parties to continue operations due
to such problems, the results of the Company's operations or financial condition
could be materially impacted. Such impact might result from operational
difficulties of the Company's borrowers and their resultant inability to repay
their loans to the Company; an inability of the Company to access wholesale
funds providers or other borrowing facilities; or an inability of the Company to
normally process deposit, loan or loan investor transactions.
Based on the current information and the efforts to date, however, it is not
expected that Year 2000 problems will have a material effect on the Company's
results of operations or financial condition. It also does not appear that a
Remediation Contingency Plan will be required. If it is subsequently determined
that such a plan is required, it will be developed pursuant to the applicable
FFIEC guidance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's interest rate risk position
since December 31, 1998. Other types of market risk, such as foreign exchange
risk and commodity price risk, do not arise in the normal course of the
Company's business activities. A comprehensive qualitative and quantitative
discussion and analysis regarding market risk was disclosed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 which is filed
with the Securities and Exchange Commission.
31
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Because the nature of the business of the Registrant involves the
collection of numerous accounts, the validity of liens and compliance
with state and federal laws, the Registrant is subject to claims and
legal actions in the ordinary course of its business. While it is
impossible to estimate with certainty the ultimate legal and financial
liability with respect to such claims and actions, the Registrant
believes that the ultimate resolution of such actions is unlikely to
have a material adverse effect on the financial position, results of
operations or cash flows of the Registrant.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
11.1 Computation of Per Share Earnings.
27 Financial Data Schedule.
* Denotes an exhibit which has previously been filed as an exhibit to
the Company's Registration Statement on Form S-1, Commission File No.
333-31339.
32
Reports on Form 8-K
-------------------
The Registrant did not file any reports on Form 8-K during the third
quarter of 1999.
33
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.
First International Bancorp, Inc.
---------------------------------
(Registrant)
Date: November 12, 1999 By: /s/ Brett N. Silvers
------------------ ----------------------------
Brett N. Silvers
Its Chief Executive Officer
and Chairman of the Board
Date: November 12, 1999 By: /s/ Leslie A. Galbraith
------------------ ----------------------------
Leslie A. Galbraith
Its Chief Operating Officer,
Executive Vice President,
and Secretary
Date: November 12, 1999 By: /s/ Shaun P. Williams
------------------ ----------------------------
Shaun P. Williams
Its Chief Financial Officer,
Executive Vice President,
and Treasurer
34
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.1 Computation of Per Share Earnings
27 Financial Data Schedule
35