UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1999March 31, 2000
Commission File Number: 1-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA
94-2156203
(State or other jurisdiction (I.R.S. Employerof
incorporation or organization)
94-2156203
(I.R.S. Employer
Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (415) 257-8000
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 [ ]
Indicate the number of shares outstanding of each of the
registrant classes of common stock, as of the latest practicable
date:
Title of Class
Common Stock,
No Par Value
Shares outstanding as of NovemberMay 1, 1999
Common Stock, 37,604,840
No Par Value2000
36,273,615
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
At September 30,March 31, At December 31,
2000 1999 1998 19981999
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $212,122 $203,423 $229,734$206,226 $194,609 $255,738
Money market assets 250 250 250
Investment securities available for sale 1,014,018 1,020,235 987,661976,020 996,076 982,337
Investment securities held to maturity,
with market values of:
$239,914$234,735 at September 30,March 31, 2000
$241,281 at March 31, 1999
$249,694 at September 30, 1998
$233,790$235,147 at December 31, 1998 240,360 241,803 226,9931999 237,156 235,527 237,154
Loans, gross, net of allowance for
loan losses of:
$51,645$51,990 at September 30,March 31, 2000
$51,703 at March 31, 1999
$51,124 at September 30, 1998
$51,304$51,574 at December 31, 1998 2,271,240 2,244,939 2,246,5931999 2,259,276 2,236,982 2,269,272
Other real estate owned 2,189 5,247 4,3152,908 3,862 3,269
Premises and equipment, net 44,351 45,882 45,97143,320 45,305 44,016
Interest receivable and other assets 107,332 100,767 102,781103,999 114,466 101,151
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total assets $3,891,862 $3,862,546 $3,844,298
=========================================================================================$3,829,155 $3,827,077 $3,893,187
======================================================================================
LIABILITIES
Deposits:
Non-interest bearing $912,013 $811,040 $842,919$932,675 $801,035 911,556
Interest bearing:
Transaction 461,583 537,279 600,502510,557 565,040 485,860
Savings 876,945 896,219 903,141844,498 874,909 840,644
Time 830,019 832,504 842,443831,282 855,777 827,284
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total deposits 3,080,560 3,077,042 3,189,0053,119,012 3,096,761 3,065,344
Short-term borrowed funds 416,792 302,222 203,671352,447 265,656 462,345
Liability for interest, taxes and
other expenses 31,575 54,673 35,526
Debt financing and notes26,702 59,851 23,406
Notes payable 46,500 52,500 47,50038,036 47,600 41,500
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,575,427 3,486,437 3,475,7023,536,197 3,469,868 3,592,595
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Authorized -
150,000 shares Commonof common stock
issuedIssued and outstanding:
37,770 shares36,412 at September 30,March 31, 2000
39,313 at March 31, 1999
40,494 shares at September 30, 1998
39,828 shares37,125 at December 31, 1998 189,689 191,127 195,1561999 183,039 196,915 186,435
Accumulated other comprehensive income:
Unrealized gain on securities
available for sale, net 1,732 23,884 20,184
Retained earnings 125,014 161,098 153,256
- -----------------------------------------------------------------------------------------
Total shareholders' equity 316,435 376,109 368,596
- -----------------------------------------------------------------------------------------
Total liabilities
and shareholders' equity $3,891,862 $3,862,546 $3,844,298
=========================================================================================
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
- --------------------------------------------------------------------------------------------------
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $46,995 $49,590 $139,617 $147,662
Money market assets and cash equivalents -- 42 -- 42
Investment securities available for sale
Taxable 11,806 11,995 34,986 35,824
Tax-exempt 2,765 2,391 7,906 7,316
Investment securities held to maturity
Taxable 1,277 1,522 4,048 4,520
Tax-exempt 2,056 1,916 5,985 5,741
- --------------------------------------------------------------------------------------------------
Total interest income 64,899 67,456 192,542 201,105
INTEREST EXPENSE
Transaction deposits 930 1,662 2,867 5,005
Savings deposits 4,843 6,056 14,740 18,189
Time deposits 9,313 10,608 28,045 31,001
Funds purchased 3,893 3,200 9,986 9,568
Debt financing and notes payable 817 920 2,468 2,761
- --------------------------------------------------------------------------------------------------
Total interest expense 19,796 22,446 58,106 66,524
- --------------------------------------------------------------------------------------------------
NET INTEREST INCOME 45,103 45,010 134,436 134,581
Provision for loan losses 1,195 1,195 3,585 3,985
- --------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 43,908 43,815 130,851 130,596
NON-INTEREST INCOME
Service charges on deposit accounts 5,101 5,014 14,897 15,049
Merchant credit card 984 863 2,650 2,365
Financial services commissions 798 433 2,184 1,226
Mortgage banking 158 338 555 1,177
Trust fees 156 161 500 471
Other 2,744 2,642 7,942 7,732
- --------------------------------------------------------------------------------------------------
Total non-interest income 9,941 9,451 28,728 28,020
NON-INTEREST EXPENSE
Salaries and related benefits 12,500 12,572 37,973 38,468
Occupancy 3,040 2,915 9,003 8,626
Equipment 1,717 1,897 5,171 5,487
Data processing 1,485 1,531 4,445 4,422
Professional fees 395 583 1,138 1,704
Other real estate owned 20 53 209 138
Other 5,601 5,602 16,520 17,007
- --------------------------------------------------------------------------------------------------
Total non-interest expense 24,758 25,153 74,459 75,852
- --------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 29,091 28,113 85,120 82,764
Provision for income taxes 9,802 9,677 28,558 28,130
- --------------------------------------------------------------------------------------------------
NET INCOME $19,289 $18,436 $56,562 $54,634
==================================================================================================
Comprehensive income:
Unrealized (loss) gain on securities
available for sale net (4,935) 4,346 (18,452) 5,961(6,585) 16,065 (4,521)
Retained earnings 116,504 144,229 118,678
- --------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $14,354 $22,782 $38,110 $60,595
==================================================================================================
Average shares outstanding 38,266 41,600 38,976 42,312
Diluted average shares outstanding 38,872 42,265 39,601 43,048
PER SHARE DATA
Basic earnings $0.50 $0.44 $1.45 $1.29
Diluted earnings 0.50 0.44 1.43 1.27
Dividends paid 0.16 0.14 0.48 0.38--------------------------------------------------------------------------------------
Total shareholders' equity 292,958 357,209 300,592
- --------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $3,829,155 $3,827,077 $3,893,187
======================================================================================
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
- ---------------------------------------------------------------------------
(Unaudited)
Three months ended
March 31,
2000 1999
- ---------------------------------------------------------------------------
INTEREST INCOME
Loans $47,227 $46,239
Money market assets and funds sold 4 --
Investment securities available for sale
Taxable 11,649 11,499
Tax-exempt 2,852 2,514
Investment securities held to maturity
Taxable 1,245 1,431
Tax-exempt 2,069 1,951
- ---------------------------------------------------------------------------
Total interest income 65,046 63,634
INTEREST EXPENSE
Transaction deposits 916 949
Savings deposits 4,503 5,052
Time deposits 10,450 9,461
Funds purchased 4,509 2,659
Debt financing and notes payable 692 829
- ---------------------------------------------------------------------------
Total interest expense 21,070 18,950
- ---------------------------------------------------------------------------
NET INTEREST INCOME 43,976 44,684
Provision for loan losses 945 1,195
- ---------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 43,031 43,489
NON-INTEREST INCOME
Service charges on deposit accounts 5,221 4,805
Merchant credit card 939 844
Financial services commissions 413 565
Mortgage banking 210 232
Trust fees 162 173
Other 3,010 2,528
- ---------------------------------------------------------------------------
Total non-interest income 9,955 9,147
NON-INTEREST EXPENSE
Salaries and related benefits 12,337 12,918
Occupancy 3,059 2,942
Equipment 1,621 1,741
Data processing 1,542 1,464
Professional fees 360 413
Other real estate owned 29 34
Other 5,474 5,461
- ---------------------------------------------------------------------------
Total non-interest expense 24,422 24,973
- ---------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 28,564 27,663
Provision for income taxes 9,338 9,258
- ---------------------------------------------------------------------------
NET INCOME $19,226 $18,405
===========================================================================
Comprehensive income:
Unrealized loss on securities
available for sale, net (2,064) (4,119)
COMPREHENSIVE INCOME $17,162 $14,286
===========================================================================
Average shares outstanding 36,625 39,632
Diluted average shares outstanding 37,058 40,272
PER SHARE DATA
Basic earnings $0.52 $0.46
Diluted earnings 0.52 0.46
Dividends paid 0.18 0.16
WESTAMERICA BANCORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------------------
(Unaudited)
For the ninethree months
ended September 30,March 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $56,562 $54,634$19,226 $18,405
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,265 6,5571,918 2,066
Loan loss provision 3,585 3,985945 1,195
Amortization of deferred net loan (cost)/fees 1,155 1
(Increase) decrease138 568
Decrease (increase) in interest income receivable (1,101) 37
Decrease (increase)61 (552)
(Increase) decrease in other assets 415 (8,983)
(Decrease) increase(3,532) 107
Increase in income taxes payable (261) 8,596
(Decrease) increase9,338 7,564
Increase (decrease) in interest expense payable (770) 897
Increase (decrease)170 (390)
(Decrease) increase in other liabilities 6,497 (2,588)
Gain(4,791) 8,208
Write down/(gain on sales/write-downsales) of equipment (43) (40)21 (46)
Originations of loans for resale (17,850) (7,117)(1,021) (7,554)
Proceeds from sale of loans originated for resale 17,133 6,5601,021 7,228
Net gain on sale of property acquired
in satisfaction of debt (298) (851)
Write-down(135) (105)
Write down on property
acquired in satisfaction of debt 88 3762 --
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 71,377 62,06423,361 36,694
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net disbursementsrepayments of loans (29,184) (40,318)8,627 7,916
Purchases of investment securities available for sale (327,557) (311,242)(22,626) (116,585)
Purchases of investment securities held to maturity (29,579) (42,951)(1,751) (14,158)
Purchases of property, plant and equipment (2,513) (2,422)(563) (707)
Proceeds from maturity of securities available for sale 268,788 266,79524,962 100,879
Proceeds from maturity of securities held to maturity 16,212 32,1081,749 5,624
Proceeds from sale of securities available for sale 572 37,731419 182
Proceeds from sale of property and equipment 20 46 691
Proceeds from property acquired in satisfaction
of debt 2,850 5,866
- --------------------------------------------------------------------------------------------
Net cash used in by investing activities (100,365) (53,742)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (108,445) (1,459)
Net increase in short-term borrowings 213,121 37,374
Repayments of notes payable (1,000) --
Exercise of stock options/issuance of shares 4,139 5,141
Repurchases/retirement of stock (77,627) (80,582)
Dividends paid (18,812) (16,197)780 816
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 11,617 (15,987)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 53,668 (92,244)
Net (decrease) increase in short-term borrowings (109,898) 61,985
(Repayments) additions to notes payable (3,464) 100
Exercise of stock options/issuance of shares 355 5,378
Retirement of stock (18,538) (24,675)
Dividends paid (6,613) (6,376)
- --------------------------------------------------------------------------------------------
Net cash used in financing activities 11,376 (55,723)(84,490) (55,832)
- --------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (17,612) (47,401)(49,512) (35,125)
Cash and cash equivalents at beginning of period 255,738 229,734 250,824
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $212,122 $203,423$206,226 $194,609
============================================================================================
Supplemental disclosure of non-cash activities:
Loans transferred to other real estate owned $514 $3,257$286 $258
Depreciation of fixed assets charged against reserves -- 37 127
Supplemental disclosure of cash flow activity:
Unrealized (loss) gain on securities available for sale (18,452) 5,961(2,064) (4,119)
Interest paid for the period 58,877 66,242
Income tax payments for the period 28,790 20,80720,900 19,340
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this discussion includes
certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company's
actual results may differ materially from those included in the
forward-looking statements. The forward-looking statements involve
risks and uncertainties which include, but are not limited to,
changes in general economic conditions; competitive conditions in
the geographic and business areas in which the Company conducts its
operations; regulatory or tax changes that affect the cost of or
demand for the Company's products; the resolution of legal
proceedings and related matters. The reader is directed to
Westamerica Bancorporation's annual report on Form 10-K for the
year ended December 31, 1998,1999, particularly the section entitled
"Cautionary Statement," for the purpose of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995
for a discussion of factors which could affect the Company's
business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
For further information on the subject, please refer to the
"Forward-Looking Statement Disclosure" section of this report.
Westamerica Bancorporation (the "Company"), parent company of
Westamerica Bank, Bank of Lake County, Community Banker Services
Corporation and Westamerica Commercial Credit Inc., reported thirdfirst
quarter 19992000 net income of $19.3$19.2 million or $.50$.52 diluted earnings
per share. These results compare to net income of $18.4 million or
$.44$.46 diluted earnings per share for the third quarter of 1998. On
a year-to-date basis, the Company reported net income of $56.6and $19.5 million representing $1.43or $.51 diluted
earnings per share, compared to
$54.6 million or $1.27 diluted earnings per sharerespectively, for the same
periodfirst and fourth quarters
of 1998.
Following is a summary of the components of net income for
the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
-------------------- --------------------
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Net interest income* $48.3 $47.8 $143.6 $142.9
Provision for loan losses (1.2) (1.2) (3.6) (4.0)
Non-interest income 9.9 9.5 28.7 28.0
Non-interest expense (24.8) (25.2) (74.5) (75.9)
Provision for income taxes* (12.9) (12.5) (37.6) (36.4)
- ------------------------------------------------------------------------------------
Net income $19.3 $18.4 $56.6 $54.6
====================================================================================
Average total assets $3,839.0 $3,799.3 $3,810.1 $3,772.8
Net income (annualized) as
a percentage of average
total assets 1.99% 1.93% 1.98% 1.94%
====================================================================================1999.
Following is a summary of the components of net income for
the periods indicated:
- -------------------------------------------------------------------------
For the three months ended
March 31, December 31,
-------------------- ------------
(In millions) 2000 1999 1999
- -------------------------------------------------------------------------
Net interest income* $47.4 $47.6 $48.1
Provision for loan losses (0.9) (1.2) (1.2)
Non-interest income 10.0 9.1 11.4
Non-interest expense (24.4) (25.0) (25.7)
Provision for income taxes* (12.9) (12.1) (13.1)
- -------------------------------------------------------------------------
Net income $19.2 $18.4 $19.5
=========================================================================
Average total assets $3,822.6 $3,774.5 $3,882.7
Net income (annualized) as
a percentage of average
total assets 2.02% 1.98% 2.00%
=========================================================================
* Fully taxable equivalent basis (FTE)
During the third quarterfirst three months of 1999,2000, the Company's net income was
$19.3$19.2 million, $900$800 thousand higher than the same period in 1998.
Higher net interest income, higher1999.
Improvements in non-interest income, and
continuing reductions in operating costs, account for the change.
Comparing the first nine months of 1999 to the same period of 1998,
net income increased $2.0 million. Included in this change is lowerreduced operating costs and
a lower loan loss provision combined with
increasedfrom continued improvements in credit
quality were partially offset by lower net interest income, mainly
resulting from increased cost of funds in connection with increases
in higher-costing short-term borrowings, partially offset by higher
earning-asset volume and yields. Completing the change, the
provision for income taxes was higher than in the first quarter of
1999 primarily as a result of higher pretax earnings.
Comparing the first quarter of 2000 to the prior quarter, net
income decreased $300 thousand. Included in this change is lower
service charges and other
fee income.
Net Interest Income
Following is a summary of the components of net interest income
for the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
-------------------- --------------------
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Interest income $64.9 $67.5 $192.5 $201.1
Interest expense (19.8) (22.4) (58.1) (66.5)
FTE adjustment 3.2 2.7 9.2 8.3
- ------------------------------------------------------------------------------------
Net interest income (FTE) $48.3 $47.8 $143.6 $142.9
====================================================================================
Net interest margin (FTE) 5.45% 5.46% 5.48% 5.51%
====================================================================================
income and reduced net interest income, principally
due to lower earning-asset average balances and lower low-cost
deposits resulting in higher cost of funds, partially offset by
higher earning-asset yields. Partially offsetting these changes,
non-interest expense was lower than the prior quarter and so were
the provisions for loan losses and income taxes.
Net Interest Income
Following is a summary of the components of net interest income
for the periods indicated:
- -------------------------------------------------------------------------
For the three months ended
March 31, December 31,
- -------------------------------------------------------------------------
(In millions) 2000 1999 1999
- -------------------------------------------------------------------------
Interest income $65.1 $63.6 $65.1
Interest expense (21.1) (18.9) (20.3)
FTE adjustment 3.4 2.9 3.3
- -------------------------------------------------------------------------
Net interest income (FTE) $47.4 $47.6 $48.1
=========================================================================
Average earning assets $3,524.3 $3,463.0 $3,555.2
Net interest margin (FTE) 5.39% 5.53% 5.39%
=========================================================================
The Company's primary source of revenue is net interest income, or
the difference between interest income on earning assets and
interest expense on interest-bearing liabilities. Net interest
income (FTE) during the thirdfirst quarter of 1999 increased $5002000 decreased $208 thousand
from the same period in 19981999 to $48.3$47.4 million. Comparing the first
nine monthsquarter of 19992000 with the previous year,quarter, net interest income
(FTE) increased $700 thousand to $143.6 million.decreased $728 thousand.
Interest Income
During the thirdfirst quarter of 2000 interest income (FTE) increased
$1.9 million from the same period in 1999. Higher earning-asset
yields and average balances were the primary reasons for the change.
Loan yields increased 9 basis points from prior year, mostly in
categories where loans are tied to the prime rate which, on average
rose 91 basis points from the first quarter of 1999. In addition,
following market trends, investment securities yields rose 4 basis
points from 1999. Adding to the favorable impact of higher yields,
average earning-asset balances increased $61.4 million from the
first quarter of 1999, as loans and investments increased $20.4
million and $41.0 million, respectively. The increase in loan
balances was mainly concentrated in the sought-after indirect
lending and commercial loans with real estate collateral
categories, partially offset by decreases in commercial, real
estate residential and direct consumer loans. The increase in the
investment securities portfolio is the result of increases in U.S.
Agency and tax-free securities, combined with balance runoffs in
U.S Treasury and asset-backed securities and collateralized
mortgage obligations.
Comparing the first quarter of 2000 with the fourth quarter of
1999, interest income (FTE) decreased
$2.1 million from the same period in 1998. Lower earning-asset
yields were partially offset by increased average balances. Loan
yields decreased 47 basis points from prior year. All loan
categories contributed to this unfavorable change, particularly
those tied to the prime rate which decreased, on average, 40 basis
points from the third quarter of 1998. Following the general trend
of declining market rates, investment securities yields decreased 4
basis points from the comparable period of 1998. With the exception
of securities of U.S. Agencies, all categories of securities
contributed to this change, particularly U.S. Treasury securities.
Partially offsetting these changes, earning-asset average balances
increased $37.1 million from the third quarter of 1998. Loan
balances were $12.6 million higher, as improved volume of
commercial and indirect consumer lending was partially offset by
lower construction, residential real estate and other consumer
lending. Investment securities average balances increased $27.5
million from the third quarter of 1998. Increases in corporate,
U.S. Agency and tax-free securities, were partially offset by
reductions in U.S. Treasury and participation certificates.
Comparing the first nine months of 1999 with the same period of
1998, interest income (FTE) decreased $7.7remained at $68.4 million. The effect of
a 3813 basis point reductionincrease in average earning-asset yields was partially offset by
a $37.8$30.9 million seasonal reduction in earning-assets average
balances, accounting for the quarter-to-quarter change. The
increase in average yields reflect market trends, as does an
increase of 32 basis points in the Company's index rate. Lower
earning-asset average balances accountswere comprised of a $18.2 million
decrease in investment securities, particularly asset-backed and
U.S Treasury securities, and a $12.7 million decrease in loans, for
this year-to-year change. With the exception of U.S. Agencies, allmost part in the commercial category, partially offset by an
increase in indirect dealer paper. All categories of earning-assetloan yields
were lower than 1998, reflectiveincreased from prior quarter for a combined total of generally declining market rates. Loan15 basis
points; investment yields increased by 7 basis points from the same
period mainly in the tax-free, participation certificates and investmentU.S.
Treasury securities average volumes were $27.3categories.
Interest Expense
For the first quarter of 2000 interest expense was $2.12 million and $11.5 million,
respectively,
higher than the first nine monthsquarter of 1998, partially
offsetting the unfavorable income effect of the decline in yields.
As in the 1999-1998 third quarter comparison, increased balances of
commercial and indirect consumer lending were partially offset by
declining volume of other consumer loans. The1999. Following a general increase
in investment securities balances follows the same trend as described
in the quarter-to-quarter comparison.
Interest Expense
For the third quarter of 1999 interest expense was $2.6 million
lower than the third quarter of 1998. Following market trendsrates paid on deposits and borrowed funds reflective of a
general reduction inincrease market rates, total interest-bearing liability
rates decreased 41increased 33 basis points from the thirdfirst quarter of 1998.1999. The
adverse effect on net interest income of interest-bearing
liabilities rate increases was partially offset by a $26.1 million
reduction in the corresponding average balances, including a
reduction of $129.8 million in deposits, and reductions in debt
financing and long-term debt of $5.0 million and $3.4 million,
respectively, partially offset by an increase of $112.1 million in
short-term borrowed funds. In addition, interest-free demand
deposit account average
balancesdeposits increased $92.2$121.4 million from the first quarter of 1999,
which includes the transfer, during the third quarter of 1998, in
part due to the transfer1999, of
certain interest-bearing transaction deposits into the non interest-bearingnon-interest
bearing category.
Partially offsetting the resulting effect of a lower cost of funds,
interest-bearing liabilities average balancesInterest expense increased $5.9
million$721 thousand from the thirdfourth quarter of
1998, comprised1999, as an increase of a $72.3
million decrease in deposits, including the effect of the
above-mentioned interest bearing deposits transferred to
interest-free demand and a $6.0 million decrease in medium- and
long-term debt average balances, offset by an $84.2 million
increase in short-term borrowed funds.
During the first nine months of 1999, interest expense decreased
$8.4 million from the same period of 1998, as a decrease of 4917 basis points on the rates paid on
interest-bearing liabilities and a $45.1$36.3 million increasedecrease in demand
deposit average balances were partially offset by a $46.5$13.0 million
increasedecrease in interest-bearing liability average balances. Reflecting
market conditions, rates paid decreasedincreased in almost all categories of
interest-bearing liabilities, with the exception of long-term
certificates of deposits and purchased funds,
whilecore savings and money market saving
deposits. There were no significant changes to the net increase in interest-bearing average balances
resulted primarily from a $50.0 million increase inbalance
of short-term borrowed funds partially offset by a $5.5and the average balance of long-term
debt decreased $2.3 million reduction in
debt financing average balances.from the previous quarter.
In all periods, the Company has attempted continuously to reduce
high-rate time deposits while increasing the balances of more
profitable, lower-cost transaction accounts minimizing the effect
of adverse cyclical quarterly trends.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net
interest margin for the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Yield on earning assets 7.68% 8.01% 7.70% 8.08%
Rate paid on interest-bearing
liabilities 3.02% 3.44% 2.96% 3.45%
- ------------------------------------------------------------------------------------
Net interest spread 4.66% 4.57% 4.74% 4.63%
Impact of all other net
non-interest bearing funds 0.79% 0.89% 0.74% 0.88%
- ------------------------------------------------------------------------------------
Net interest margin 5.45% 5.46% 5.48% 5.51%
====================================================================================
Net Interest Margin (FTE)
The following summarizes the components of the Company's net
interest margin for the periods indicated:
- -------------------------------------------------------------------------
For the three months ended
March 31, December 31,
- -------------------------------------------------------------------------
2000 1999 1999
- -------------------------------------------------------------------------
Yield on earning assets 7.79% 7.75% 7.66%
Rate paid on interest-bearing
liabilities 3.28% 2.95% 3.12%
- -------------------------------------------------------------------------
Net interest spread 4.51% 4.80% 4.54%
Impact of all other net
non-interest bearing funds 0.88% 0.73% 0.85%
- -------------------------------------------------------------------------
Net interest margin 5.39% 5.53% 5.39%
=========================================================================
During the thirdfirst quarter of 1999,2000, the Company's net interest margin
was 114 basis pointpoints lower than the thirdfirst quarter of 19981999, as the
favorableunfavorable impact of a 42 basis points decreasean increase in the cost of funds, triggered
by rising market rates, was partially offset by the effect of a
33moderate increase of 4 basis points in earning-asset yields. Further
reducing the combined 29 basis points decrease in earning-asset yields and the unfavorable impact of lower market
rates on the Company's non-interest bearing funds
balances. The Company's share repurchase programs had a significant
impact on the third quarter 1999 average equity capital, which
decreased $54.4 millionnet interest
spread from the same period in 1998.
On a September year-to-date basis,first quarter of 1999, the net interest margin was
3favorably impacted by the effect of a 15 basis points lower thanincrease
resulting from higher volume of net non-interest bearing funds.
This change reflects mostly a $121.4 million increase in
interest-free demand deposit accounts, partially offset by the previous year. The adverse
effect of lower average balances of non-interest bearing funds, mostly due tothe Company's share repurchase programs, which more than
offset the capital contributions originated from higher net income,
resulting in a $53.1$47.5 million decrease in average equity capital
from the first quarter of 1999.
The net interest margin remained unchanged from the prior quarter
as the effects of a more rapid rise in part offset
bythe cost of funds than the
yield on earning assets - a $45.116 basis points increase million in average demand deposits,the rates
paid on interest-bearing liabilities was partially offset by an 11a 13
basis points higher net interest spread,
asincrease in earning-asset yields - was offset by a 493
basis points reduction inincrease primarily due to the rate paidfavorable impact of
higher market rates on interest-bearing
liabilities more than offset the unfavorable effect of a 38 basis
points decline in earning-asset yields.net non-interest bearing fund average
balances.
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated,
information regarding the Company's consolidated average assets,
liabilities and shareholders' equity, the amounts of interest
income from average earning assets and the resulting yields, and
the amount of interest expense paid on interest-bearing
liabilities. Average loan balances include non-performing loans.
Interest income includes proceeds from loans on non-accrual status
only to the extent cash payments have been received and applied as
interest income. Yields on securities and certain loans have been
adjusted upward to reflect the effect of income thereon exempt from
federal income taxation at the current statutory tax rate.
Distribution of assets, liabilities and shareholders' equity:
- -------------------------------------------------------------------------------------
For the three months ended
September 30, 1999
March 31, 2000
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Assets
Money market assets and cash equivalents $311funds sold $466 $4 3.45 %
Investment securities:
Available for sale
Taxable 767,670 11,649 6.10
Tax-exempt 220,651 4,192 7.64
Held to maturity
Taxable 81,845 1,245 6.12
Tax-exempt 155,260 3,035 7.86
Loans:
Commercial 1,483,244 32,043 8.69
Real estate construction 46,779 1,321 11.36
Real estate residential 335,441 5,779 6.93
Consumer 432,993 9,166 8.51
- -------------------------------------------------------------------------
Earning assets 3,524,349 68,434 7.79
Other assets 298,242
- -----------------------------------------------------------
Total assets $3,822,591
===========================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $916,153 $-- -- %
Savings and interest-bearing
transaction 1,326,499 5,419 1.64
Time less than $100,000 392,218 4,610 4.73
Time $100,000 or more 451,539 5,840 5.20
- -------------------------------------------------------------------------
Total interest-bearing deposits 2,170,256 15,869 2.94
Funds purchased 369,959 4,509 4.90
Debt financing and notes payable 39,174 692 7.11
- -------------------------------------------------------------------------
Total interest-bearing liabilities 2,579,389 21,070 3.28
Other liabilities 31,689
Shareholders' equity 295,360
- -----------------------------------------------------------
Total liabilities and
shareholders' equity $3,822,591
===========================================================
Net interest spread (1) 4.51 %
Net interest income and interest margin (2) $47,364 5.39 %
=====================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Distribution of assets, liabilities and shareholders' equity:
- -------------------------------------------------------------------------------------
For the three months ended
March 31, 1999
- -------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- -------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $250 $-- -- %
Investment securities:
Available for sale
Taxable 782,479 11,806 5.99758,674 11,499 6.15
Tax-exempt 214,202 3,972 7.36191,536 3,593 7.61
Held to maturity
Taxable 85,278 1,277 5.9488,839 1,431 6.53
Tax-exempt 152,663 2,943 7.65145,579 2,776 7.73
Loans:
Commercial 1,503,291 32,272 8.521,472,275 31,055 8.55
Real estate construction 51,833 1,438 11.0156,140 1,489 10.76
Real estate residential 341,335 5,872 6.83373,006 6,517 7.09
Consumer 397,547 8,512 8.50376,680 8,162 8.79
- ----------------------------------------------------------------------------------------------------------------------------------------------
Earning assets 3,528,939 68,092 7.683,462,979 66,522 7.75
Other assets 310,066311,487
- ------------------------------------------------------------------------------------------------------------------
Total assets $3,839,005
=======================================================$3,774,466
===========================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $888,966$794,758 $-- -- %
Savings and interest-bearing
transaction 1,380,415 5,773 1.661,450,817 6,001 1.68
Time less than $100,000 404,576 4,415 4.33423,983 4,727 4.52
Time $100,000 or more 426,501 4,898 4.56425,325 4,734 4.51
- ----------------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,211,492 15,086 2.71
Short-term borrowed funds 341,135 3,893 4.532,300,125 15,462 2.73
Funds purchased 257,855 2,659 4.18
Debt financing and notes payable 46,500 817 6.9747,545 829 7.07
- ----------------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,599,127 19,796 3.022,605,525 18,950 2.95
Other liabilities 29,81031,314
Shareholders' equity 321,102342,869
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $3,839,005
=======================================================$3,774,466
===========================================================
Net interest spread (1) 4.664.80 %
Net interest income and interest margin (2) $48,296 5.45$47,572 5.53 %
=====================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Distribution of assets, liabilities and shareholders' equity:
- -------------------------------------------------------------------------------------
For the three months ended
September 30, 1998
December 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
(Dollars in thousands)
- ------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $3,261 $42 5.11$421 $4 3.64 %
Investment securities:
Available for sale
Taxable 783,073 11,995 6.08782,564 11,852 6.01
Tax-exempt 185,774 3,452219,997 4,089 7.37
Held to maturity
Taxable 95,867 1,522 6.3083,653 1,265 6.00
Tax-exempt 142,445 2,714 7.56157,418 3,039 7.66
Loans:
Commercial 1,436,690 32,824 9.061,501,453 31,938 8.44
Real estate construction 58,229 1,720 11.7251,534 1,455 11.20
Real estate residential 399,713 7,130 7.08339,287 5,815 6.80
Consumer 386,783 8,864 9.09418,912 8,984 8.51
- ----------------------------------------------------------------------------------------------------------------------------------------------
Earning assets 3,491,835 70,263 8.013,555,239 68,441 7.66
Other assets 307,443327,486
- ------------------------------------------------------------------------------------------------------------------
Total assets $3,799,278
=======================================================$3,882,725
===========================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $796,789$952,423 $-- -- %
Savings and interest-bearing
transaction 1,450,941 7,718 2.111,357,554 5,751 1.68
Time less than $100,000 433,089 5,454 5.00397,765 4,483 4.47
Time $100,000 or more 399,765 5,154 5.11422,705 5,024 4.71
- ----------------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,283,795 18,326 3.18
Short-term borrowed funds 256,955 3,200 4.942,178,024 15,258 2.78
Funds purchased 369,528 4,299 4.62
Debt financing and notes payable 52,500 920 6.9544,833 793 7.02
- ----------------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,593,250 22,446 3.442,592,385 20,350 3.12
Other liabilities 33,71431,678
Shareholders' equity 375,525306,239
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $3,799,278
=======================================================$3,882,725
===========================================================
Net interest spread (1) 4.574.54 %
Net interest income and interest margin (2) $47,817 5.46$48,091 5.39 %
=====================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Rate and volume variances.
The following tables set forth a summary of the changes in interest
income and interest expense from changes in average asset and
liability balances (volume) and changes in average interest rates
for the periods indicated. Changes not solely attributable to
volume or rates have been allocated in proportion to the respective
volume and rate components. As previously stated, appropriate
amounts are calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
Distribution of assets, liabilities and shareholders' equity:
For the nine months ended
September 30, 1999
- ------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $271 $-- -- %
Investment securities:
Available for sale
Taxable 774,003 34,986 6.04
Tax-exempt 202,062 11,325 7.49
Held to maturity
Taxable 87,377 4,048 6.19
Tax-exempt 148,525 8,542 7.69
Loans:
Commercial 1,490,243 95,001 8.52
Real estate construction 53,255 4,367 10.96
Real estate residential 357,007 18,520 6.94
Consumer 385,614 24,870 8.62
- ---------------------------------------------------------------------
Earning assets 3,498,357 201,659 7.70
Other assets 311,735
- -------------------------------------------------------
Total assets $3,810,092
=======================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $826,059 $-- -- %
Savings and interest-bearing
transaction 1,426,670 17,607 1.65
Time less than $100,000 414,201 13,622 4.40
Time $100,000 or more 427,031 14,423 4.52
- ---------------------------------------------------------------------
Total interest-bearing deposits 2,267,902 45,652 2.69
Short-term borrowed funds 305,929 9,986 4.36
Debt financing and notes payable 47,032 2,468 7.02
- ---------------------------------------------------------------------
Total interest-bearing liabilities 2,620,863 58,106 2.96
Other liabilities 29,947
Shareholders' equity 333,223
- -------------------------------------------------------
Total liabilities and shareholders' equity $3,810,092
=======================================================
Net interest spread (1) 4.74 %
Net interest income and interest margin (2) $143,553 5.48 %
=====================================================================================
(1) Net interest spread represents the average yield earned on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Distribution of assets, liabilities and shareholders' equity:
For the nine months ended
September 30, 1998
- ------------------------------------------------------------------------------------
Interest Rates
Average income/ earned/
(Dollars in thousands) balance expense paid
- ------------------------------------------------------------------------------------
Assets
Money market assets and funds sold $1,254 $42 4.48 %
Investment securities:
Available for sale
Taxable 773,563 35,824 6.19
Tax-exempt 188,502 10,501 7.45
Held to maturity
Taxable 97,435 4,520 6.20
Tax-exempt 141,031 8,112 7.69
Loans:
Commercial 1,421,642 97,387 9.16
Real estate construction 61,215 5,377 11.74
Real estate residential 385,829 20,922 7.25
Consumer 390,128 26,754 9.17
- ---------------------------------------------------------------------
Earning assets 3,460,599 209,439 8.08
Other assets 312,235
- -------------------------------------------------------
Total assets $3,772,834
=======================================================
Liabilities and shareholders' equity
Deposits:
Non-interest bearing demand $780,910 $-- -- %
Savings and interest-bearing
transaction 1,454,619 23,194 2.13
Time less than $100,000 441,308 16,661 5.05
Time $100,000 or more 370,032 14,340 5.18
- ---------------------------------------------------------------------
Total interest-bearing deposits 2,265,959 54,195 3.20
Short-term borrowed funds 255,950 9,568 5.00
Debt financing and notes payable 52,500 2,761 7.03
- ---------------------------------------------------------------------
Total interest-bearing liabilities 2,574,409 66,524 3.45
Other liabilities 31,195
Shareholders' equity 386,320
- -------------------------------------------------------
Total liabilities and shareholders' equity $3,772,834
=======================================================
Net interest spread (1) 4.63 %
Net interest income and interest margin (2) $142,915 5.51 %
=====================================================================================
(1) Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference
between the weighted average yields on earning assets less the
interest expense (annualized) divided by the average balance of
earning assets.
Rate and volume variances.
The following tables set forth a summary of the changes in interest
income and interest expense from changes in average asset and
liability balances (volume) and changes in average interest rates
for the periods indicated. Changes not solely attributable to
volume or rates have been allocated in proportion to the respective
volume and rate components.
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Three months ended
September 30, 1999March 31, 2000
compared with three months
ended September 30, 1998
-------------------------------------March 31, 1999
- -------------------------------------------------------------------------------------
(In thousands) Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
Money market assets and funds sold ($20) ($22) ($42)$4 $0 $4
Investment securities:
Available for sale
Taxable (9) (180) (189)375 (225) 150
Tax-exempt 527 (7) 520582 17 599
Held to maturity
Taxable (162)(103) (83) (245)(186)
Tax-exempt 197 32 229207 52 259
Loans:
Commercial 1,825 (2,377) (552)318 670 988
Real estate construction (182) (100) (282)(253) 85 (168)
Real estate residential (1,012) (246) (1,258)(605) (133) (738)
Consumer 259 (611) (352)1,268 (264) 1,004
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease)
in loans 890 (3,334) (2,444)728 358 1,086
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
interest and fee income 1,423 (3,594) (2,171)1,793 119 1,912
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (360) (1,585) (1,945)(470) (112) (582)
Time less than $100,000 (343) (696) (1,039)$ 100,000 (298) 181 (117)
Time $100,000$ 100,000 or more 404 (660) (256)318 788 1,106
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total decrease(decrease) increase in
interest-bearing deposits (299) (2,941) (3,240)
- ------------------------------------------------------------------------------------
Short-term borrowed funds 930 (237) 693(450) 857 407
Funds purchased 1,325 525 1,850
Debt financing and notes payable (105) 2 (103)(141) 4 (137)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in
interest expense 526 (3,176) (2,650)734 1,386 2,120
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
interest income (1) $897$1,059 ($418) $479
====================================================================================
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.1,267) ($208)
=====================================================================================
Rate and volume variances.
- ------------------------------------------------------------------------------------
Nine-------------------------------------------------------------------------------------
Three months ended
September 30, 1999March 31, 2000
compared with ninethree months
ended September 30, 1998
-------------------------------------December 31, 1999
- -------------------------------------------------------------------------------------
(In thousands) Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
interest and fee income:
Money market assets and funds sold ($18) ($24) ($42)$-- $-- $--
Investment securities:
Available for sale
Taxable 20 (858) (838)(1,181) 978 (203)
Tax-exempt 760 64 8248 95 103
Held to maturity
Taxable (466) (6) (472)(235) 215 (20)
Tax-exempt 431 (1) 4304 (8) (4)
Loans:
Commercial 5,443 (7,829) (2,386)(73) 178 105
Real estate construction (668) (342) (1,010)(158) 24 (134)
Real estate residential (1,520) (882) (2,402)53 (89) (36)
Consumer (307) (1,577) (1,884)178 4 182
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease)
in loans 2,948 (10,630) (7,682)0 117 117
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total (decrease) increase (decrease) in
interest and fee income 3,675 (11,455) (7,780)(1,404) 1,397 (7)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in interest expense:
Deposits:
Savings/interest-bearing (438) (5,149) (5,587)(168) (164) (332)
Time less than $100,000 (981) (2,058) (3,039)$ 100,000 (41) 168 127
Time $100,000$ 100,000 or more 500 (417) 83325 492 817
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total decreaseincrease in
interest-bearing deposits (919) (7,624) (8,543)
- ------------------------------------------------------------------------------------
Short-term borrowed funds 1,193 (775) 418116 496 612
Funds purchased 5 205 210
Debt financing and notes payable (287) (6) (293)(112) 11 (101)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total decreaseincrease in
interest expense (13) (8,405) (8,418)9 712 721
- ------------------------------------------------------------------------------------
Increase (decrease)-------------------------------------------------------------------------------------
(Decrease) increase in net
interest income $3,688 ($3,050) $638
====================================================================================
(1) Amounts calculated on a fully taxable equivalent basis
using the current statutory federal tax rate.1,413) $685 ($728)
=====================================================================================
Provision for Loan Losses
The level of the provision for loan losses during each of the
periods presented reflects the Company's continued efforts to
reduce credit costs by enforcing underwriting and administration
procedures and aggressively pursuing collection efforts with
troubled debtors. The Company provided $1.2 million$945 thousand for loan
losses in the thirdfirst quarter of 1999, unchanged from the same period in
1998. On a year-to-date basis, the $3.6 million 1999 provision was
$4002000, $250 thousand lower than the
first nine monthssame period of 1998.1999 and from the previous quarter. For further
information regarding net credit losses and the reserve for loan
losses, see the "Asset Quality" section of this report.
Non-interest Income
The following table summarizes the components of non-interest
income for the periods indicated.
- ------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
-------------------- --------------------
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Deposit account fees $5.10 $5.01 $14.90 $15.05
Merchant credit card 0.98 0.86 2.65 2.37
Financial services
commissions 0.80 0.43 2.18 1.23
Mortgage banking income 0.16 0.34 0.56 1.18
Trust fees 0.16 0.16 0.50 0.47
Other non-interest income 2.74 2.65 7.94 7.72
- ------------------------------------------------------------------------------------
Total $9.94 $9.45 $28.73 $28.02
====================================================================================
The $490following table summarizes the components of non-interest
income for the periods indicated.
- -------------------------------------------------------------------------
For the three months ended
March 31, December 31,
- -------------------------------------------------------------------------
(In millions) 2000 1999 1999
- -------------------------------------------------------------------------
Service charges on deposit
accounts $5.22 $4.81 $5.42
Merchant credit card 0.94 0.84 0.96
Financial services
commissions 0.41 0.57 0.47
Mortgage banking income 0.21 0.23 0.22
Trust fees 0.16 0.17 0.20
Other non-interest income 3.02 2.53 4.18
- -------------------------------------------------------------------------
Total $9.96 $9.15 $11.45
=========================================================================
The $810 thousand increase in non-interest income during the thirdfirst
quarter of 19992000 compared to the thirdfirst quarter of 1998,1999, was
comprised primarily of the following: $370$410 thousand higher financial services commissions, due to more aggressive marketing
efforts resulting in higher sales volume and increased fees
received from the agent managing certain investments of the
Company's customers; $120 thousand higher merchant credit card
income primarily due to fee restructuring; $90 thousand higherservice charges on
deposit account fees,accounts including higher overdraft and returned item
charges primarily due to higher volume and the effect of a newlyprogram implemented programin the
third quarter of 1999 through which charges escalate following a
tiered system based on number of occurrences; and $100 thousand
higher othermerchant credit card income resulting fromprimarily due to an 8 percent
increase in sales volume and fee repricing. In addition, included
in the $490 thousand increase in Other non-interest income, are $200
thousand realized through new product offerings (debit card), and
higher safe deposit box fee income, increased check-issuing up-charges.fees from issuing
official checks and higher settlement fees from ATM network
servicers, $104 thousand, $65 thousand and $61 thousand,
respectively. Partially offsetting these changes, financial
services commissions were $160 thousand lower than the first
quarter of 1999 due to lower sales volumes, and mortgage banking
income was $180$20 thousand lower thanfrom the same
quartercomparable period in 1998,the
prior year mainly due to lower fees from originations of resalable
loans, partially offset by higher net gains from loans sold in the
secondary market, lower retained mortgage servicing fees and
other fees in connection with the preparation and documentation of
related loans.market.
Comparing the first ninethree months of 19992000 to the same period in 1998,fourth quarter of
1999, non-interest income increased $710 thousand.decreased $1.49 million. The largest
contributorcontributors to this change is financial services commissions, $950are included in the Other non-interest
income category, as follows: a litigation settlement for $1.5
million recognized in the fourth quarter of 1999 was partially offset
by $111 thousand higher than 1998, due to increased sales and higher share of fees
received from the agent managing certain investments of the
Company's clients. In addition, merchant credit card income was
$280 thousand higher than prior year primarily due to fee
restructuring and repricing, other was $220M higher primarily due
to increased fees from new product offerings in part offset by
lower gains on sales of properties acquired in
satisfaction of debt and trusthigher safe deposit box income and fees
were $30 thousand higher thanresulting from sales of official checks recorded in the first
nine
monthsquarter of 1998. Partially offsetting these changes, mortgage
banking income was $6202000. In addition, service charges on deposit accounts
were $200 thousand lower than the first nine months
of 1998,prior quarter primarily from
reduced overdraft and returned items fees due to lower refinancingseasonal
volume retained servicing,following year-end spending patterns and gains on the sales of loans in the secondary market, and deposit
service feeslower account
analysis charges; financial services commissions were $150$60 thousand
lower mainly due to reduced sales volume, and trust fees were $40 thousand
lower than the fourth quarter of returned items1999 primarily due higher annual
fees recognized at year-end. Completing the change from prior
quarter, merchant credit card and mortgage banking income were $20
thousand and $10 thousand, respectively, lower charges on personal transaction
accounts, partially offset by increased account analysis chargesthan the fourth
quarter of 1999.
Non-interest expense
The following table summarizes the components of non-interest
expense for the periods indicated.
- -------------------------------------------------------------------------
For the three months ended
March 31, December 31,
- -------------------------------------------------------------------------
(In millions) 2000 1999 1999
- -------------------------------------------------------------------------
Salaries and incentives $9.57 $10.01 $10.21
Other personnel 2.77 2.91 2.53
Occupancy 3.06 2.94 3.15
Equipment 1.62 1.74 1.70
Data processing services 1.54 1.46 1.52
Courier service 0.83 0.87 0.82
Postage 0.55 0.62 0.63
Merchant credit card 0.41 0.31 0.38
Stationery and supplies 0.40 0.37 0.41
Professional fees 0.36 0.41 0.52
Advertising/public relations 0.29 0.32 0.31
Operational losses 0.29 0.22 0.36
Loan expense 0.26 0.36 0.27
Other real estate owned 0.03 0.03 0.09
Other non-interest expense 2.44 2.40 2.77
- -------------------------------------------------------------------------
Total $24.42 $24.97 $25.67
=========================================================================
Average full time
equivalent staff 1,076 1,119 1,085
Non-interest expense to business customers.
Non-interest expense
The following table summarizes the components of non-interest
expense for the periods indicated.
- ------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
-------------------- --------------------
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Salaries and incentives $9.88 $9.94 $29.74 $29.88
Other personnel 2.62 2.63 8.23 8.59
Occupancy 3.04 2.92 9.00 8.63
Equipment 1.72 1.90 5.17 5.49
Data processing services 1.49 1.53 4.45 4.42
Professional fees 0.40 0.58 1.14 1.70
Courier service 0.84 0.83 2.50 2.60
Stationery and supplies 0.42 0.44 1.18 1.35
Postage 0.52 0.49 1.64 1.56
Loan expense 0.28 0.42 0.99 1.14
Advertising/public relations 0.31 0.32 0.96 1.00
Merchant credit card 0.40 0.32 1.07 0.86
Operational losses 0.28 0.18 0.83 0.73
Other real estate owned and
property held for sale 0.02 0.05 0.21 0.14
Other non-interest expense 2.54 2.60 7.35 7.76
- ------------------------------------------------------------------------------------
Total $24.76 $25.15 $74.46 $75.85
====================================================================================
Average full time
equivalent staff 1,088 1,116 1,102 1,140
Non-interest expense
to revenues
("Efficiency ratio")(FTE) 42.51% 43.92% 43.22% 44.37%
====================================================================================
revenues
("efficiency ratio")(FTE) 42.61% 44.03% 43.12%
=========================================================================
Non-interest expense of $24.76$24.42 million in thirdfirst quarter of 19992000 was
$390$550 thousand lower than the same quarter in 1998,1999, as the Company
continued to control costs through efficiencies and consolidation
of operations, reflected in the reduction of itscontinued improvements in the
efficiency ratio. Included in this change are $180$580 thousand lower
employee-related expenses, a result of reductions in personnel (43
lower full-time equivalent staff) and decreased incentive
compensation program expenses; $120 thousand lower equipment costs,
primarily due to contract renegotiations and lower depreciation
costs; professional fees were $180 thousand lower, mainly due to lower legal and accounting costs as lower problem credit-related
costs were partially offset by increased expenses in connection
with possible acquisitions; and loan expense was $140related to assets reaching fully
depreciated lives; $100 thousand lower than the third quarter of 1998 primarily due toloan-related expenses,
including lower appraisal fees and other costs incurred on behalf
of customers resulting from weaker demand during the first quarter
of 2000; $70 thousand lower foreclosurepostage expenses; $50 thousand lower
professional fees, including lower legal expenses related to
non-performing loans partially offset by higher expenses related to
the creation of the Company's new subsidiaries, and lower
consulting costs, in connection with
properties acquired in satisfaction of debt.as prior year included environmental work
performed on the land adjacent to the Company's headquarters. In
addition, personnel
relatedcourier costs were $70$40 thousand lower than the comparable
quarter of 1998, mainly due to reduced salaries resulting from reductions
in equivalent staff1999 and lower incentive payouts in connection with
the Company's various incentive programs; data processingadvertising and public relations expenses were
$40$30 thousand lower that the first quarter of 1999, primarily due to
reduced costs from
in-houserelated to the publication of shareholder reports and
outsourced data processing servicers;customer entertainment, in part offset by increased branch and
other real
estate and stationery and supplies related costs were $30 thousand
and $20 thousand, respectively, lower than the third quarter of
1998.promotional advertising.
Partially offsetting these favorable variances, occupancy
costs werechanges, the first quarter of 2000
includes $120 thousand higher than the third quarter of 1998,occupancy costs mainly due to the
combined effect of higher generalrental expenses net of sublease income
and lower building repairs and maintenance;
operational losses weremaintenance costs; $100 thousand
higher merchant credit card related costs primarily due to
increased sundry lossesprocessing fees and write-offs of accounting differences; and
merchant credit card costs werevolume; $80 thousand higher primarilydata
processing costs due to a contract renegotiationsrenewal with the Company's
primary outside servicer which resulted in a base-rate adjustment;
Company's primary outside servicer; and reflecting$70 thousand higher
costs from
servicers that were passed onoperational losses, mainly sundry losses incurred in the branches
related to merchants reflected also in an
increase in related income.fraudulent activities. Completing the change from the
thirdfirst quarter of 1998, postage and courier expenses were1999, other was $40 thousand higher than prior
year, byprimarily as a result of increased assessments from
regulatory agencies, and stationery and supplies costs were $30
thousand higher than the comparable period in 1999 due to increased
usage and $10 thousand, respectively.purchases of inventories.
Comparing the first nine monthsquarter of 19992000 with the same periodfourth quarter of
1998,1999, non-interest expense decreased $1.4$1.25 million. Professional
fees were $560Included in
this change are $400 thousand lower employee-related expenses,
primarily due to legal costshigher accruals related to incentive compensation
recognized during the previous quarter partially offset by first
quarter 2000 higher employee benefits expense and lower deferrals
in connection with problem credits; personnel related costs incurred originating new loans. In
addition, professional fees were $500
thousand lower, primarily due to reduced salaries and benefits
reflecting a reduction of 38 full-time equivalent employees and
decreased accruals in connection with certain compensation
programs; equipment costs were $320$160 thousand lower than the
first
nine months of 1998previous quarter, due to reduced legal expense related to
non-performing loans and human resources issues, and lower
depreciationconsulting costs as the fourth quarter of 1999 included certain
costs related to the transfer of the tax-deferred pension plan to a
new servicer; occupancy expense rentals and
hardware lease and maintenance related costs; stationery and
supplies expenses were $170was $90 thousand lower primarily
due to lower purchasescosts of inventories;assets reaching fully depreciated lives and
loan related expenses were $150lower utilities expenses; equipment expense was $80 thousand lower
than 1998the previous quarter mainly due to lower repairs and
maintenance costs and lower costs of assets reaching fully
depreciated status; and postage expense was $80 thousand lower than
the fourth quarter of 1999. In addition, operational losses were
$70 thousand lower in the first quarter of 2000 as the fourth
quarter of 1999 included additional charge-offs resulting from
increased volume of pending sundry losses requiring resolution; and
other real estate owned expense was $60 thousand lower primarily
due to lower appraisal fees and
repossessionrelated property tax expense. The rest of the
favorable changes from the fourth quarter of 1999 include a
reduction of $330 thousand in other expenses, including an accrual
established in 1999 to cover for possible incidentals related to
properties acquiredY2K compliance issues and its subsequent reversal in satisfactionthe first
quarter of debt. In addition, courier services2000, and advertising/an additional accrual recognized in the last
quarter of 1999 in connection with pending litigations, and lower
advertising and public relations, expenses were $100stationery and supplies and loan
expense, $20 thousand, $10 thousand and $40$10 thousand, respectively,
lower than the first nine months of 1998.
Included in the $410 thousand reduction in costs in other
non-interest expense are lower state and federal agency
assessments, lower amortizations of purchase premiums due to asset
run-offs, lower telephone expenses, lower employee education
related costs and lower insurance and temporary help related
expenses.previous quarter. Partially offsetting these
expense reductionsfavorable changes from the first nine monthsfourth quarter of 1998, occupancy1999, merchant credit
card costs were $370$30 thousand higher, due to increased volume and a
consequent increase in processing expense; data processing costs
were $20 thousand higher, primarily due to rental costs net of subleased income;
merchant credit carda base-rate adjustment
resulting from a contract renewal with the Company's primary
servicer, and courier services costs were $210 thousand higher due to
increased processing costs resulting from repricing, higher volume,
and increased servicers' assessments due to contract
renegotiations; operational losses were $100$10 thousand higher than
the first nine months of 1998 primarily due to accounting shortages
and other write-offs inherent to the nature of the Company's
business; postage expenses were $80 thousand higher; other real
estate related costs were $70 thousand higher than the first nine
months of 1998 mainly due to lower gains recognized on sales of
properties acquired in satisfaction of debt; and data processing
services were $30 thousand higher than 1998 mainly due to increased
in-house servicer billings related to the Company's Y2K compliance
program.
previous quarter.
Provision for Income Tax
During the thirdfirst quarter of 1999,2000, the Company recorded income tax
expense of $9.3 million, unchanged from the first quarter of 1999
and $500 thousand lower than the $9.8 million recorded in the
fourth quarter of 1999. The current provision represents an
effective tax rate of 32.7 percent, compared to $9.7 million in the third
quarter of 1998. On a year-to-date basis, income tax expense was
$28.6 million for 1999 compared to $28.1 million in 1998. The
provisions recorded for both the third quarter and first nine
months of 1999 represent effective tax rates of 33.733.5 percent, and
33.6 percent, respectively, compared to 34.4 percent and 34.0
percent, respectively, for
the third quarterfirst and first nine monthsfourth quarters of 1998. Effective tax rates1999. The provision for income
taxes for all periods presented areis primarily attributable to the
respective level of net income adjusted for tax-preference
items.earnings and the incidence of allowable
deductions.
Asset Quality
The Company closely monitors the markets in which it conducts its
lending operations and continues its strategy to control exposure
to loans with high credit risk and increase diversification of
earning assets into less risky investments. Asset reviews are
performed using grading standards and criteria similar to those
employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes
all non-performing assets and potential problem loans, and receive
an elevated level of attention to ensure collection.
The following is a summary of classified assets on the dates
indicated:
- -----------------------------------------------------------------------------------------------------------------------------------------------
At
At September 30,March 31, December 31,
-------------------- -------------- -------------------------------------------------------------------------
(In millions) 2000 1999 1998 19981999
- -----------------------------------------------------------------------------------------------------------------------------------------------
Classified loans $45.0 $52.8 $50.8$36.3 $52.0 $41.3
Other classified assets 2.2 5.2 4.32.9 3.9 3.3
- -----------------------------------------------------------------------------------------------------------------------------------------------
Total classified assets $47.2 $58.0 $55.1
======================================================================$39.2 $55.9 $44.6
=========================================================================
Allowance for loan losses as a
percentage of classified loans 115% 97% 101%
143% 99% 125%
=========================================================================
Classified loans at September 30, 1999,March 31, 2000, decreased $7.8$15.7 million or 1530
percent to $45.0$36.3 million from September 30, 1998,March 31, 1999, reflecting the
continued enforcing of the Company's strict credit standards.standards and a
stronger economy. The decrease was principally due to reductions of
classified commercial and commercial real estate loans. Other
classified assets decreased $3.0$1.0 million from September 30, 1998,March 31, 1999, due
to sales and write-downs of properties acquired in satisfaction of
debt ("other real estate owned") partially offset by new
foreclosures on loans with real estate collateral. The $5.8$5.0 million
decrease in classified loans from December 31, 1998,1999, was
principally due to reductions in commercial loans withand commercial real
estate collateral.loans. The $2.1 million$400 thousand reduction in other classified
assets from December 31, 1998,1999, was mainly due to sales and
write-downs of other real estate owned properties.
Non-performing Assets
Non-performing assets include non-accrual loans, loans 90 days past
due as to principal or interest and still accruing, and other real
estate owned. Loans are placed on non-accrual status when reaching
90 days or more delinquent, unless the loan is well secured and in
the process of collection. Interest previously accrued on loans
placed on non-accrual status is charged against interest income. In
addition, loans secured by real estate with temporarily impaired
values and commercial loans to borrowers experiencing financial
difficulties are placed on non-accrual status even though the
borrowers continue to repay the loans as scheduled. Such loans are
classified as "performing non-accrual" and are included in total
non-performing assets. When the ability to fully collect
non-accrual loan principal is in doubt, cash payments received are
applied against the principal balance of the loan until such time
as full collection of the remaining recorded balance is expected.
Any subsequent interest received is recorded as interest income on
a cash basis.
The following is a summary of non-performing assets on the dates
indicated:
- -----------------------------------------------------------------------------------------------------------------------------------------------
At
At September 30,March 31, December 31,
-------------------- -------------- -------------------------------------------------------------------------
(In millions) 2000 1999 1998 19981999
- -----------------------------------------------------------------------------------------------------------------------------------------------
Performing non-accrual loans $3.08 $1.37 $1.80$4.29 $2.28 $3.46
Non-performing,
non-accrual loans 6.63 6.79 6.733.41 6.21 5.50
- -----------------------------------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 9.71 8.16 8.537.70 8.49 8.96
Loans 90 days past due and
still accruing 0.51 0.52 0.520.37 0.30 0.58
- -----------------------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 10.22 8.68 9.058.07 8.79 9.54
- -----------------------------------------------------------------------------------------------------------------------------------------------
Restructured loans -- -- --
Other real estate owned 2.20 5.25 4.322.91 3.86 3.27
- -----------------------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $12.42 $13.93 $13.37
======================================================================$10.98 $12.65 $12.81
=========================================================================
Allowance for loan losses
as a percentage of
non-performing loans 505% 589% 567%
644% 588% 540%
=========================================================================
Performing non-accrual loans increased $1.71$2.01 million to $3.08$4.29
million at September 30, 1999,March 31, 2000, from $1.37$2.28 million at September 30,
1998March 31, 1999,
and $1.28 million$830 thousand from $1.80$3.46 million outstanding at December 31,
1998. Increased1999. Non-performing, non-accrual loans of $3.41 million at March
31, 2000, decreased $2.80 million from March 31, 1999, and $2.09
million from December 31, 1999. The increases in performing
non-accrual loans from prior periods presented resulted primarily
from the addition of one commercial loan with real estate
collateral, while the decrease in non-performing non-accrual loans
from prior year and prior quarter-end reflects payoffs and sales of
commercial and commercial real estate loans
account for the majority of this change. Non-performing,
non-accrual loans of $6.63 million at September 30, 1999, decreased
$160 thousand from September 30, 1998, primarily due to reductions
of commercial loans, partially offset by sales, payoffs and
foreclosures of commercial real estate loans, and increased $100
thousand from December 31, 1998, mainly due additions net of
payoffs and write-offs of loans with real estate collateral and
commercial loans.
The $3.05 million$95 thousand and $2.12 million$360 thousand decreases in other real estate
owned balances from September 30, 1998March 31 and December 31, 1998,1999, respectively,
were due to write-downs and liquidations net of foreclosures of
properties acquired in satisfaction of debt.
The amount of gross interest income that would have been recorded
for non-accrual loans for the three and nine months ended September
30, 1999,March 31, 2000, if
all such loans had been current in accordance with their original
terms, totaled $187was $229 thousand, compared to $152 thousand and $538 thousand,
respectively, compared to $158 thousand and $721$213
thousand, respectively, for the comparable periods in 1998.first and fourth quarters of 1999.
The amount of interest income that was recognized on non-accrual
loans from all cash payments, including those related to interest
owed from prior years, made during the three and nine months ended September 30,March
31, 2000, totaled $372 thousand, compared to $112 thousand for the
comparable period in 1999 totaled $369and $297 thousand and $851 thousand,
respectively, representing thirdfor the fourth quarter
and year-to-dateof 1999. These cash payments represent annualized yields of 15.1619.5
percent for the first quarter of 2000 compared to 6.13 percent and
12.8611.75 percent, respectively.
This compares torespectively, for the first and fourth quarters of
1999. Total cash payments received, on non-accrual loans of
$112 thousand and $390 thousand for the three and nine months ended
September 30, 1998, respectively, representing annualized yields of
5.66 percent and 4.65 percent.
Total cash payments receivedincluding those recorded in
prior years, which were applied against the book balance of
non-accrual loans outstanding at September 30, 1999,March 31, 2000, totaled
approximately $312$290 thousand.
The overall credit quality of the loan portfolio continues to be
strong;strong and improving; however, the total non-performing assets
could fluctuate from period to period. The performance of any
individual loan can be impacted by external factors such as the
interest rate environment or factors particular to the borrower.
The Company expects to maintain the level of non-performing assets;
however, the Company can give no assurance that additional
increases in non-accrual loans will not occur in the future.
Allowance for Loan Losses
The Company's allowance for loan losses is maintained at a level
estimated to be adequate to provide for losses that can be
estimated based upon specific and general conditions relating to
the existing loan portfolio.conditions. These include
credit loss experience, the amount of past due, non-performing and
classified loans, recommendations of regulatory authorities,
prevailing economic conditions and other factors. The allowance is
allocated to segments of the loan portfolio based in part on
quantitative analyses of historical credit loss experience, in
which criticized and classified loan balances are analyzed using a
linear regression model to determine standard allocation
percentages. The results of this analysis are applied to current
criticized and classified loan balances to allocate the reserve to
the respective segments of the loan portfolio. In addition, loans
with similar characteristics not usually criticized using
regulatory guidelines due to their small balances and numerous
accounts, are analyzed based on the historical rate of net losses
and delinquency trends, grouped by the number of days the payments
on these loans are delinquent. A portion of the allowance is also
allocated to impaired loans. Management considers the $51.6$52.0 million
allowance for loan losses, which constituted 2.222.25 percent of total
loans at September 30,
1999,March 31, 2000, to be adequate as a reserve against
inherent losses. However, while the Company's policy is to charge
off in the current period those loans on which the loss is
considered probable, the risk exists of future losses which cannot
be precisely quantified or attributed to particular loans or
classes of loans. Management continues to evaluate the loan
portfolio and assess current economic conditions that will dictate
future required allowance levels.
The following table summarizes the loan loss provision, net credit
losses and allowance for loan losses for the periods indicated:
- ------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
-------------------- --------------------
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
Balance, beginning $51.7 $50.8 $51.3 $50.6
of period
Loan loss provision 1.2 1.2 3.6 4.0
Loans charged off (2.3) (1.6) (6.1) (6.4)
Recoveries of previously
charged-off loans 1.0 0.7 2.8 2.9
- ------------------------------------------------------------------------------------
Net credit losses (1.3) (0.9) (3.3) (3.5)
- ------------------------------------------------------------------------------------
Balance, end of period $51.6 $51.1 $51.6 $51.1
====================================================================================
Net credit losses
(annualized) as a
percentage of average
loans outstanding 0.22% 0.15% 0.19% 0.21%
Allowance for loan losses
as a percentage
of loans outstanding 2.22% 2.23%
====================================================================================
The following table summarizes the loan loss provision, net credit
losses and allowance for loan losses for the periods indicated:
- -------------------------------------------------------------------------
For the three months ended
March 31, December 31,
- -------------------------------------------------------------------------
(In millions) 2000 1999 1999
- -------------------------------------------------------------------------
Balance, beginning
of period $51.6 $51.3 $51.6
Loan loss provision 0.9 1.2 1.2
Loans charged off (1.8) (1.5) (1.9)
Recoveries of previously
charged-off loans 1.3 0.7 0.7
- -------------------------------------------------------------------------
Net credit losses (0.5) (0.8) (1.2)
- -------------------------------------------------------------------------
Balance, end of period $52.0 $51.7 $51.6
=========================================================================
Allowance for loan losses
as a percentage
of loans outstanding 2.25% 2.26% 2.22%
=========================================================================
Asset and Liability Management
The fundamental objective of the Company's management of assets and
liabilities is to maximize economic value while maintaining
adequate liquidity and a conservative level of interest rate risk.
The primary analytical tool used by the Company to gauge interest
rate risk is a simulation model to project changes in net interest
income ("NII") that result from forecast changes in interest rates.
The analysis calculates the difference between a NII forecast over
a 12-month period using a flat interest rate scenario, and a NII
forecast using a rising or falling rate scenario where the Fed
Funds rate is made to rise or fall evenly by 200 basis points over
the 12-month forecast interval triggering a response in the other
forecasted rates. It is the policy of the Company to require that
such simulated NII changes should be always less than 10 percent or
steps must be taken to reduce interest-rate risk. According to the
same policy, if the simulated changes in NII reach 7.5 percent, a
closer look at the risk will be put in place to determine what
steps could be taken to control risk should it grow worse. The
results of the model indicate that the mix of interest rate
sensitive assets and liabilities at September 30, 1999March 31, 2000 would not result
in a fluctuation of NII that would exceed the parameters
established by Company policy.
At September 30,March 31, 2000 and 1999, and 1998, the Company had no derivative financial
instruments outstanding. As the Company believes that the
derivative financial instrument disclosures contained within the
notes to the financial statements of its 19981999 Form 10-K
substantially conform with the accounting policy requirements of
thethese rule amendments, of Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging
Activities", no further interim disclosure ishas been
provided. The rule amendments that require expanded disclosure of
quantitative and qualitative information about market risk were
effective with the 1997 Form 10-K. At September 30, 1999,March 31, 2000, there were no
substantial changes in the information on market risk that was
disclosed in the Company's 1998 and 1997 Form 10-Ks.10-Ks since 1997.
Liquidity
The Company's principal source of asset liquidity is marketable
investment securities available for sale. At September 30, 1999,March 31, 2000,
investment securities available for sale totaled $1,014.0$976 million,
representing a decrease of $6.2$20.1 million from September 30, 1998.March 31, 1999. In
addition, the Company generates significant liquidity from its
operating activities. The Company's profitability during the first
ninethree months of 19992000 and 19981999 generated substantial cash flows,
which are included in the total provided from operations of $71.4$23.4
million and $62.1$36.7 million, respectively. Additional cash flows may
be provided by financing activities, primarily the acceptance of
deposits and borrowings from banks.
During the first nine monthsquarter of 1999, the Company provided $11.4
million from its financing activities. This includes an increase of
$213.1 million in short-term borrowed funds and $4.1 million
provided primarily from exercises of stock options. Partially
offsetting these cash inflows, deposits decreased $108.4 million
during the first nine months of 1999, and2000, the effect of the Company's stock
repurchase programs and dividends paid to shareholders totaled $77.6were $18.5
million and $18.8$6.6 million, respectively. In addition, duringThese cash outflows, added
to a $109.9 million reduction in short-term borrowed funds and a
$3.5 million reduction in long-term debt partially offset by a
$53.7 million increase in deposits, are included in the same period, the Company reduced by $1.0
million Westamerica Bank's subordinated long-term debt. This
compares with net cash
used by the Company in financing activities during the first ninethree months of 1998,2000,
totaling $55.7$84.5 million.
This totalcompares to the first quarter of 1999, when the cash used in
financing activities totaled $55.8 million. This amount includes
$80.6cash outflows related to the Company's stock repurchase programs
and dividends paid to shareholders of $24.7 million usedand $6.4
million, respectively, in addition to meet repurchase of stock
requirements, $16.2a $92.2 million used to pay dividends shareholders and
a $1.5 million declinereduction in
deposit balances, partially offset by $37.4a $62.0 million provided by increasingincrease in
short-term borrowings and $5.2$5.4 million resultingincrease in equity from the
issuance of new shares of common stock,
primarily for stock option exercises.stock.
The Company uses cash flows from operating and financing activities
primarily to invest in loans and investment securities and loans.securities. Purchases
of investment securities net of maturities increased $71.6decreased $2.8 million
during the first ninethree months of 19992000 compared to a more moderatean increase of
$17.6$24.1 million during the comparable period in 1999. Proceeds from
net repayments of loans totaled $8.6 million and $7.9 million for
the first ninethree months of 1998. In
addition,2000 and reflecting a slower demand for loans, net
disbursements during the first nine months of 1999, were $29.2
million, compared to $40.3 million during the same period in the
previous year.respectively.
The Company anticipates increasing its cash level from operations
through 19992000 due to increased profitability and retained earnings.
For the same period, it is anticipated that demand for loans will
continue to increase, particularly in the commercial and real
estate categories. The growth in deposit balances is expected to
follow the anticipated growth in loan balances.
Line of Credit
During the third quarter of 1999,On July 31, 1998, the Company decided to cancelentered into an agreement with a
well-established financial institution, establishing a line of
credit that was established on July 31, 1998, with a
well-known financial institution. This line of credit, set up to be
used for general corporate purposes including the purchaserepurchase of
stock,stock. The line of credit, which had a one-year term and an
available commitment amount
ranging from $60$60.0 million during the first nine months, reduced by
$7.5 million during each of the following three months to $37.5 million.million,
was canceled in the third quarter of 1999. The Company replaced this
available source of cash inflow with increased cash dividend requirementsdividends from
its affiliates.
Capital Resources
The current and projected capital position of the Company and the
impact of capital plans and long-term strategies is reviewed
regularly by Management.
Since the beginning of 1994 and through September 30, 1999,March 31, 2000, the Board
of Directors of the Company has authorized the repurchase of
5,252,150 shares of the Company's common stock from time to time,
subject to appropriate regulatory and other accounting
requirements. The Company acquired 750,000250,000 shares of its common
stock in the open market during the first ninethree months of 2000,
1,000,000 in 1999, at an
average price of approximately $34 per share. Prior years repurchases
were 996,000 in 1998, 1,040,886 in 1997, and
1,207,800, 721,350 and 93,000 in 1996, 1995 and 1994, respectively.
So far, all these repurchases have been made periodically in the open
market with the intention to lessen the dilutive impact of issuing
new shares to meet stock performance, option plans, acquisitions
and other requirements.
In addition to these systematic repurchases, a new plan to
repurchase up to 1,750,000 of the Company's shares of common stock
(the "Program") was approved by the Board of Directors on August
26, 1999. The Company's strong capital position and healthy
profitability contributed to the initiation of the Program, which
was being implemented to optimize the Company's use of equity
capital and enhance shareholder value. Pursuant to the Program, the
Company repurchased 405,700797,261 shares of its common stock during 1999
at an average price of approximately $31 per share. This Program
supercedes a prior plan in place, which was approved byshare, and 469,500
during the Boardfirst quarter of Directors on June 30, 1998 and authorized the purchase of
3,000,000 of the Company's common stock. Upon termination of this
plan, a total of 2,987,600 shares had been bought,2000 at an average price of
approximately $31$24 per share.
The Company's capital position represents the level of capital
available to support continued operations and expansion. The
Company's primary capital resource is shareholders' equity, which
was $316.4$293.0 million at September 30, 1999.March 31, 2000. This amount, which is
reflective of the effect of common stock market repurchases and dividends
paid to shareholders partially offset by the generation and
retention of earnings, represents a decrease of $59.7$64.3 million or 1618
percent from September 30, 1998,March 31, 1999, and a decrease of $52.2$7.6 million, or 143
percent, from December 31, 1998.1999. As a consequence of the decrease
in shareholders' equity, the Company's ratio of equity to total
assets decreased to 8.137.65 percent at September 30, 1999,March 31, 2000, from 9.749.33
percent and 9.597.72 percent at September 30March 31 and December 31, 1998,1999,
respectively. The ratio of Tier I capital to risk-adjusted assets
was 10.249.82 percent at September 30, 1999,March 31, 2000, compared to 12.1411.69 percent at
September 30, 1998,March 31, 1999, and 11.879.82 percent at December 31, 1998.1999. Total
capital to risk-adjusted assets was 12.1611.46 percent at September 30, 1999,March 31,
2000, compared to 14.0613.62 percent at September 30,
1998,March 31, 1999, and 13.7911.75
percent at December 31, 1998.
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
- ------------------------------------------------------------------------------------
Minimum
September 30, December 31, Regulatory
-------------------- ------------- Capital
1999 1998 1998 Requirements
- ------------------------------------------------------------------------------------
Tier I Capital 10.24% 12.14% 11.87%1999.
The following summarizes the ratios of capital to risk-adjusted
assets for the periods indicated:
- -------------------------------------------------------------------------
At Minimum
March 31, December 31, Regulatory
-------------------- ------------ Capital
2000 1999 1999 Requirements
- -------------------------------------------------------------------------
Tier I Capital 9.85% 11.69% 9.82% 4.00%
Total Capital 11.48% 13.62% 11.75% 8.00%
Leverage ratio 7.58% 9.16% 7.48% 4.00%
Total Capital 12.16% 14.06% 13.79% 8.00%
Leverage ratio 7.96% 9.57% 9.39% 4.00%
The risk-based capital ratios decreased at September 30, 1999,March 31, 2000, compared
to September 30 and DecemberMarch 31, 1998,1999, primarily due to the decrease in the total level
of shareholders' equity.equity due to the Company's common stock
repurchases and dividends paid to shareholders, partially offset by
increased net income. From December 31, 1999, there was no change
in the Tier I capital ratio as the favorable effect of net income
was offset by the reduction in equity due to common stock
repurchases and dividends paid; the reduction in the Total Capital
ratio includes a reduction in the allowable portion of a
subordinated capital note issued by Westamerica Bank, which is
discounted for regulatory capital purposes as it approaches
maturity. Capital ratios are reviewed by Management on a regular
basis to ensure that capital exceeds the prescribed regulatory
minimums and is adequate to meet the Company's future needs. As
shown in the table above, all ratios are in excess of the
regulatory definition of "well capitalized".
Year 2000 Compliance
The potential impact of the Year 2000 compliance issue on the
financial services industry could be material, as virtually every
aspect of the industry and processing of transactions will be
affected. Due to the size of the task facing the financial services
industry and the interdependent nature of its transactions, the
Company may be adversely affected by this problem, depending on
whether it and the entities with which it does business address
this issue successfully. The impact of Year 2000 issues on the
Company will then depend not only on corrective actions that the
Company takes, but also on the way in which Year 2000 issues are
addressed by governmental agencies, businesses and other third
parties that provide services or data to, or receive services or
data from, the Company, or whose financial condition or operational
capability is important to the Company.
The Company's State of Readiness
The Company engages the services of third-party software vendors
and service providers for substantially all of its electronic data
processing. Thus, the focus of the Company has been to monitor the
progress of its primary software providers toward Year 2000
compliance and prepare to test future-date sensitive data of the
Company in simulated processing.
The Company's Year 2000 compliance program has been divided into
phases, each of them common to all sections of the process: (1)
inventorying date-sensitive information technology and other
business systems; (2) assigning priorities to identified items and
assessing the efforts required for Year 2000 compliance of those
determined to be material to the Company; (3) upgrading or
replacing and testing material items that are determined not to be
Year 2000 compliant; (4) assessing the status of third party risks;
and (5) designing and implementing contingency and business
continuation plans.
As part of the on-going supervision of the banking industry, bank
regulatory agencies are continuously surveying the Company's
progression and results of each one of these phases.
In the first phase, the Company conducted a thorough evaluation of
current information technology systems, software and embedded
technologies, resulting in the identification of 43 mission
critical systems that could be affected by Year 2000 issues.
Non-information technology systems such as climate control systems,
elevators and vault security equipment, were also surveyed. This
stage of the Year 2000 process is complete.
In phase two of the process, results from the inventory were
assessed to determine the Year 2000 impact and what actions were
required to obtain Year 2000 compliance. For the Company's internal
systems, actions needed ranged from application upgrades on data
processing mainframe computer services to management reporting and
satellite software systems. The Company opted for a course of
action that will result in upgrading or replacing all critical
internal systems. This stage of the Year 2000 compliance process is
complete.
The third phase includes the upgrading, replacement and/or
retirement of systems, and testing. Software conversions have been
completed at September 30, 1999, and, to the extent economically
feasible, have been run through a test environment before being
implemented. Tests have been completed also to see how well the
individual systems integrate with the Company's overall data
processing environment. Final "future-date" testing of system
upgrades and replacements have been completed.
The fourth phase, assessing third-party risks, includes the process
of identifying and prioritizing critical suppliers and customers at
the direct interface level, as well as other material relationships
with third parties, including various exchanges, clearing houses,
correspondent other banks, telecommunication companies, public
utilities and credit customers. Included in the credit analysis
process, the Company has implemented a project plan for assessing
the Year 2000 readiness of its credit customers, and has completed
its assessment of the response of significant customers. The
evaluations undertaken to assess all third-party risks include
communicating with the third parties about their plans and progress
in addressing Year 2000 issues. Detailed evaluations of the most
critical third parties have been completed and, as of September 30,
1999, no significant problems have been identified.
Contingency Plan
The final phase of the Company's Year 2000 compliance program
relates to contingency plans. The Company maintains contingency
plans in the normal course of business designed to be deployed in
the event of various potential business interruptions. These plans
have been expanded to address Year 2000-specific interruptions such
as power and telecommunication infrastructure failures, and will
continue to be supplemented if and when the results of systems
integration testing identify additional business functions at risk.
Costs
As the Company relies upon third-party software vendors and service
providers for substantially all of its electronic data processing,
the primary cost of the Year 2000 project has been and will
continue to be the reallocation of internal resources and,
therefore, does not represent incremental expense to the Company.
The estimated value of internal resources allocated to the Year
2000 project is approximately $4.1 million. All of this amount has
been expended through September 30, 1999, and no additional
significant costs are anticipated. The priority given to Year 2000
work may result in extending the time for completing some other
technology projects; these delays are not expected to have a
material effect on the Company's business. The Company's total cost
associated with required modifications to become Year 2000
compliant is not expected to be material to its results of
operations, liquidity and capital resources.
Risks
Failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business
activities or operations. The Company believes that, with the
implementation of new or upgraded business systems and completion
of the Year 2000 project as scheduled, the possibility of
significant interruptions of normal operations due to the failure
of those systems has been reduced. However, the Company is also
dependent upon the power and telecommunications infrastructure
within the United States, and processes large volumes of
transactions through various clearing houses and correspondent
banks. The most reasonably likely worst case scenario would be that
the Company may experience disruption in its operations if any of
these third-party suppliers reported a system failure. Although the
Company's Year 2000 Project has reduced the level of uncertainty
about the compliance and readiness of its material third-party
providers, due to the general uncertainty over Year 2000 readiness
of these third-party suppliers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will
have a material impact.
Forward-Looking Statement Disclosure
Readers are cautioned that forward-looking statements contained in
this sectionreport should be read in conjunction with the Company's
disclosures under the heading "Cautionary Statement for the
Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995." In addition, the preceding
statements concerning Year 2000 compliance are hereby designated as
Year 2000 readiness disclosures under the Year 2000 Information and
Readiness Disclosure Act.
Cautionary Statement for the Purposes of the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995."
The Company is including the following cautionary statement to take
advantage of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statement
made by, or on behalf of, the Company. The factors identified in
this cautionary statement are important factors (but not
necessarily all important factors) that could cause actual results
to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of
the assumptions of bases underlying such forward-looking statement,
the Company cautions that, while it believes such assumptions or
bases to be reasonable and makes them in good faith, assumed facts
or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can
be material, depending on the circumstances. Where, in any
forward-looking statement, the Company, expresses an expectation or
belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis,
but there can be no assurance that the statement of expectation or
belief will result, or be achieved or accomplished.
Taking into account the foregoing, the following are identified as
important risk factors that could cause actual results to differ
materially from those expressed in any forward-looking statement
made by, or on behalf of, the Company:
The dates on which the Company believes the Year 2000 project will
be completed are based on Management's best estimates, which were
derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved, or that there will
not be a delay in, or increased costs associated with, the
implementation of the Year 2000 Project. Specific factors that
might cause differences between the estimates and actual results
include, but are not limited to, the availability and cost of
trained personnel, ability to locate and correct all computer
related issues, timely responses to and corrections by third
parties and suppliers, the availability to implement interfaces
between new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Year
2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third parties, the Company cannot ensure its
ability to timely and cost-effectively resolve problems associated
with the Year 2000 issue that may affect its operations and
business, or expose it to third-party liability.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
WESTAMERICA BANCORPORATION
(Registrant)
Date: November 1,1999May 4, 2000 /s/ DENNIS R. HANSEN
----------------------------------------------
Dennis R. Hansen
Senior Vice President
and Controller
SeniorChief Accounting Officer
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the
Subsidiary Banks are at times party to various
legal actions; all such actions are of a routine
nature and arise in the normal course of business
of the Subsidiary Banks.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11:
Computation of Earnings Per Share on Common
and Common Equivalent Shares and on Common
Shares Assuming Full Dilution
(b) Exhibit 27 :27:
Financial Data Schedule
(c) Reports on Form 8-K
On August 31, 1999, the CompanyMarch 17, 2000, Westamerica Bancorporation (the
"Company") filed a reportReport on Form 8-K in connectionannouncing
the signing of a Definitive Merger Agreement with
an open-ended stock repurchase plan
wherebyFirst Counties Bank under which the Company was authorized to repurchase, as
conditions warrant, up to an aggregatewill
acquire all of 2,750,000the outstanding shares of its common stock
through open-marketof First Counties Bank pursuant to a tax-free exchange
of shares.
The filing included the following:
Item 5. Other events
Item 7. Financial Statements and privately negotiated transactions.
Exhibits:
(c) Exhibits:
(i) Press release dated March 15, 2000,
(Exhibit 99);
(ii) Agreement and Plan of Reorganization
and Merger dated March 14, 2000 (Exhibit 2).