e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
For the Quarter Ended June 30, 2005 |
|
or |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-22007
Amegy Bancorporation, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Texas |
|
76-0519693 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
4400 Post Oak Parkway
Houston, Texas 77027
(Address of principal executive offices, including zip
code)
(713) 235-8800
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act.) Yes þ No o
There were 70,754,373 shares of the Registrants
Common Stock outstanding as of the close of business on
August 4, 2005.
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
1
PART I. FINANCIAL INFORMATION
|
|
ITEM 1. |
Financial Statements |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Amegy Bancorporation, Inc.:
We have reviewed the accompanying condensed consolidated balance
sheet of Amegy Bancorporation, Inc. and Subsidiaries (the
Company) as of June 30, 2005, and the related
condensed consolidated statement of income for the three-month
and six-month periods ended June 30, 2005 and 2004, the
condensed consolidated statement of changes in
shareholders equity for the six-month period ended
June 30, 2005, and the condensed consolidated statement of
cash flows for the six-month periods ended June 30, 2005
and 2004. These interim financial statements are the
responsibility of the Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet as of December 31, 2004, and
the related consolidated statements of income, of changes in
shareholders equity, and of cash flows for the year then
ended, managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2004 and the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2004; and in our report dated March 10,
2005, we expressed unqualified opinions thereon. The
consolidated financial statements and managements
assessment of the effectiveness of internal control over
financial reporting referred to above are not presented herein.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31,
2004, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
August 5, 2005
2
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
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|
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|
|
|
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|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands, | |
|
|
except per share amounts) | |
ASSETS |
Cash and due from banks
|
|
$ |
301,428 |
|
|
$ |
327,558 |
|
Federal funds sold and other cash equivalents
|
|
|
28,774 |
|
|
|
14,417 |
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
330,202 |
|
|
|
341,975 |
|
Securities available for sale (including $350,279 and $319,599
pledged to creditors)
|
|
|
1,921,521 |
|
|
|
1,927,204 |
|
Securities held to maturity (fair value of $51,633 and $58,569)
|
|
|
51,040 |
|
|
|
58,033 |
|
Loans held for sale
|
|
|
116,577 |
|
|
|
107,404 |
|
Loans held for investment, net of allowance for loan losses of
$49,180 and $49,408
|
|
|
4,672,100 |
|
|
|
4,490,170 |
|
Premises and equipment, net
|
|
|
170,312 |
|
|
|
164,443 |
|
Accrued interest receivable
|
|
|
32,188 |
|
|
|
30,200 |
|
Goodwill
|
|
|
150,426 |
|
|
|
149,846 |
|
Core deposit intangibles
|
|
|
22,827 |
|
|
|
27,246 |
|
Other assets
|
|
|
271,507 |
|
|
|
209,082 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
7,738,700 |
|
|
$ |
7,505,603 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Deposits:
|
|
|
|
|
|
|
|
|
|
Demand noninterest-bearing
|
|
$ |
1,945,595 |
|
|
$ |
1,871,228 |
|
|
Demand interest-bearing
|
|
|
104,420 |
|
|
|
135,003 |
|
|
Money market accounts
|
|
|
2,011,714 |
|
|
|
2,091,624 |
|
|
Savings
|
|
|
216,509 |
|
|
|
205,593 |
|
|
Time, $100 and over
|
|
|
1,251,347 |
|
|
|
944,283 |
|
|
Other time
|
|
|
373,291 |
|
|
|
372,312 |
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
5,902,876 |
|
|
|
5,620,043 |
|
Federal funds purchased and securities sold under repurchase
agreements
|
|
|
649,613 |
|
|
|
482,968 |
|
Other borrowings
|
|
|
308,171 |
|
|
|
560,410 |
|
Senior subordinated debenture
|
|
|
75,000 |
|
|
|
75,000 |
|
Junior subordinated deferrable interest debentures
|
|
|
149,486 |
|
|
|
149,486 |
|
Accrued interest payable
|
|
|
4,146 |
|
|
|
2,902 |
|
Other liabilities
|
|
|
36,316 |
|
|
|
34,380 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,125,608 |
|
|
|
6,925,189 |
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value,
1,000,000 shares authorized; 0 issued and outstanding at
June 30, 2005 and December 31, 2004
|
|
|
|
|
|
|
|
|
|
Common stock $1 par value,
300,000,000 shares authorized; 70,649,973 issued and
70,539,090 outstanding at June 30, 2005; 70,198,456 issued
and 70,095,949 outstanding at December 31, 2004
|
|
|
70,650 |
|
|
|
70,198 |
|
|
Additional paid-in capital
|
|
|
98,344 |
|
|
|
92,330 |
|
|
Retained earnings
|
|
|
460,198 |
|
|
|
428,311 |
|
|
Deferred compensation
|
|
|
(7,682 |
) |
|
|
(5,469 |
) |
|
Accumulated other comprehensive loss
|
|
|
(6,613 |
) |
|
|
(3,221 |
) |
|
Treasury stock, at cost 110,883 shares and
102,507 shares, respectively
|
|
|
(1,805 |
) |
|
|
(1,735 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
613,092 |
|
|
|
580,414 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
7,738,700 |
|
|
$ |
7,505,603 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share amounts) | |
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
72,884 |
|
|
$ |
50,488 |
|
|
$ |
140,084 |
|
|
$ |
99,350 |
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
17,639 |
|
|
|
12,351 |
|
|
|
34,835 |
|
|
|
25,166 |
|
|
|
|
Tax-exempt
|
|
|
2,672 |
|
|
|
2,327 |
|
|
|
5,306 |
|
|
|
4,061 |
|
|
|
Federal funds sold and other
|
|
|
338 |
|
|
|
119 |
|
|
|
621 |
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
93,533 |
|
|
|
65,285 |
|
|
|
180,846 |
|
|
|
128,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,488 |
|
|
|
8,408 |
|
|
|
35,983 |
|
|
|
16,478 |
|
|
|
Interest on subordinated debentures
|
|
|
2,839 |
|
|
|
550 |
|
|
|
5,355 |
|
|
|
1,095 |
|
|
|
Interest on other borrowings
|
|
|
7,822 |
|
|
|
2,110 |
|
|
|
14,927 |
|
|
|
4,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
31,149 |
|
|
|
11,068 |
|
|
|
56,265 |
|
|
|
22,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
62,384 |
|
|
|
54,217 |
|
|
|
124,581 |
|
|
|
106,815 |
|
Provision for loan losses
|
|
|
1,500 |
|
|
|
2,923 |
|
|
|
4,600 |
|
|
|
4,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
60,884 |
|
|
|
51,294 |
|
|
|
119,981 |
|
|
|
101,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
10,662 |
|
|
|
11,190 |
|
|
|
22,009 |
|
|
|
22,230 |
|
|
Investment services
|
|
|
4,642 |
|
|
|
2,885 |
|
|
|
8,247 |
|
|
|
5,855 |
|
|
Other fee income
|
|
|
8,020 |
|
|
|
5,070 |
|
|
|
15,356 |
|
|
|
9,873 |
|
|
Bank-owned life insurance income
|
|
|
1,946 |
|
|
|
1,906 |
|
|
|
3,582 |
|
|
|
3,397 |
|
|
Other operating income
|
|
|
5,878 |
|
|
|
1,273 |
|
|
|
10,030 |
|
|
|
2,595 |
|
|
Gain on sale of loans, net
|
|
|
435 |
|
|
|
215 |
|
|
|
1,129 |
|
|
|
451 |
|
|
Gain (loss) on sale of securities, net
|
|
|
(17 |
) |
|
|
(25 |
) |
|
|
(15 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
31,566 |
|
|
|
22,514 |
|
|
|
60,338 |
|
|
|
44,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
34,739 |
|
|
|
28,458 |
|
|
|
69,468 |
|
|
|
56,439 |
|
|
Occupancy expense
|
|
|
10,780 |
|
|
|
8,887 |
|
|
|
21,384 |
|
|
|
17,145 |
|
|
Marketing and advertising
|
|
|
2,113 |
|
|
|
1,044 |
|
|
|
4,041 |
|
|
|
2,093 |
|
|
Professional services
|
|
|
3,716 |
|
|
|
2,780 |
|
|
|
7,035 |
|
|
|
5,100 |
|
|
Core deposit intangible amortization expense
|
|
|
2,171 |
|
|
|
1,008 |
|
|
|
4,419 |
|
|
|
1,911 |
|
|
Other operating expenses
|
|
|
12,768 |
|
|
|
8,052 |
|
|
|
24,112 |
|
|
|
17,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
66,287 |
|
|
|
50,229 |
|
|
|
130,459 |
|
|
|
100,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
26,163 |
|
|
|
23,579 |
|
|
|
49,860 |
|
|
|
46,055 |
|
Provision for income taxes
|
|
|
7,005 |
|
|
|
7,358 |
|
|
|
13,758 |
|
|
|
14,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
19,158 |
|
|
$ |
16,221 |
|
|
$ |
36,102 |
|
|
$ |
31,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
$ |
0.51 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.27 |
|
|
$ |
0.23 |
|
|
$ |
0.50 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Stock |
|
Common Stock | |
|
Additional | |
|
|
|
|
|
Other | |
|
|
|
Total | |
|
|
|
|
| |
|
Paid-In | |
|
Retained | |
|
Deferred | |
|
Comprehensive | |
|
Treasury | |
|
Shareholders | |
|
|
Shares | |
|
Dollars |
|
Shares | |
|
Dollars | |
|
Capital | |
|
Earnings | |
|
Compensation | |
|
Loss | |
|
Stock | |
|
Equity | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share amounts) | |
BALANCE, DECEMBER 31, 2004
|
|
|
|
|
|
$ |
|
|
|
|
70,198,456 |
|
|
$ |
70,198 |
|
|
$ |
92,330 |
|
|
$ |
428,311 |
|
|
$ |
(5,469 |
) |
|
$ |
(3,221 |
) |
|
$ |
(1,735 |
) |
|
$ |
580,414 |
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
261,486 |
|
|
|
262 |
|
|
|
2,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,121 |
|
|
Issuance of restricted common stock, net of shares forfeited
into Treasury
|
|
|
|
|
|
|
|
|
|
|
186,384 |
|
|
|
186 |
|
|
|
3,086 |
|
|
|
|
|
|
|
(3,269 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
Issuance of non-employee director stock
|
|
|
|
|
|
|
|
|
|
|
3,647 |
|
|
|
4 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73 |
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67 |
) |
|
|
(67 |
) |
|
Deferred compensation amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
|
1,056 |
|
|
Cash dividends, $0.06 per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,215 |
) |
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the six months ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,102 |
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,392 |
) |
|
|
|
|
|
|
(3,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JUNE 30, 2005
|
|
|
|
|
|
$ |
|
|
|
|
70,649,973 |
|
|
$ |
70,650 |
|
|
$ |
98,344 |
|
|
$ |
460,198 |
|
|
$ |
(7,682 |
) |
|
$ |
(6,613 |
) |
|
$ |
(1,805 |
) |
|
$ |
613,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
36,102 |
|
|
$ |
31,508 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
4,600 |
|
|
|
4,832 |
|
|
|
Deferred tax benefit
|
|
|
(3,344 |
) |
|
|
(581 |
) |
|
|
Depreciation
|
|
|
8,728 |
|
|
|
7,027 |
|
|
|
Realized (gain) loss on securities available for sale, net
|
|
|
15 |
|
|
|
(1 |
) |
|
|
Gain on sale of premises and equipment, net
|
|
|
(650 |
) |
|
|
(2 |
) |
|
|
Amortization and accretion of securities premiums and
discounts, net
|
|
|
1,580 |
|
|
|
3,189 |
|
|
|
Amortization of mortgage servicing rights
|
|
|
858 |
|
|
|
1,206 |
|
|
|
Amortization of computer software
|
|
|
3,828 |
|
|
|
3,125 |
|
|
|
Amortization of core deposit intangibles
|
|
|
4,419 |
|
|
|
1,911 |
|
|
|
Other amortization
|
|
|
1,056 |
|
|
|
728 |
|
|
|
Income tax benefit from exercise of stock options
|
|
|
614 |
|
|
|
1,880 |
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
(9,173 |
) |
|
|
(1,030 |
) |
|
|
|
Other assets and liabilities, net
|
|
|
(4,865 |
) |
|
|
(3,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
43,768 |
|
|
|
50,421 |
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from maturity and call of securities available for sale
|
|
|
16,990 |
|
|
|
25,810 |
|
|
Proceeds from sale of securities available for sale
|
|
|
248,195 |
|
|
|
559,839 |
|
|
Principal paydowns of mortgage-backed securities available for
sale
|
|
|
116,329 |
|
|
|
166,551 |
|
|
Principal paydowns of mortgage-backed securities held to maturity
|
|
|
6,976 |
|
|
|
|
|
|
Purchase of securities available for sale
|
|
|
(384,459 |
) |
|
|
(834,392 |
) |
|
Purchase of Federal Reserve Bank stock
|
|
|
(6,713 |
) |
|
|
(3,400 |
) |
|
Purchase of Federal Home Loan Bank stock
|
|
|
(13,096 |
) |
|
|
(11,705 |
) |
|
Proceeds from redemption of Federal Home Loan Bank stock
|
|
|
21,654 |
|
|
|
15,102 |
|
|
Net increase in loans held for investment
|
|
|
(186,855 |
) |
|
|
(269,608 |
) |
|
Proceeds from sale of premises and equipment
|
|
|
2,604 |
|
|
|
733 |
|
|
Purchase of premises and equipment
|
|
|
(20,379 |
) |
|
|
(28,722 |
) |
|
Purchase of mortgage servicing rights
|
|
|
(287 |
) |
|
|
|
|
|
Purchase of Bank-owned life insurance policies
|
|
|
(50,000 |
) |
|
|
|
|
|
Purchase of Reunion Bancshares, Inc., net of cash acquired of
$30,596
|
|
|
|
|
|
|
(20,004 |
) |
|
Investment in unconsolidated equity investees
|
|
|
(1,964 |
) |
|
|
(2,298 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(251,005 |
) |
|
|
(402,094 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net increase in noninterest-bearing demand deposits
|
|
|
74,367 |
|
|
|
51,023 |
|
|
Net increase in time deposits
|
|
|
308,043 |
|
|
|
71,015 |
|
|
Net increase (decrease) in other interest-bearing deposits
|
|
|
(99,577 |
) |
|
|
47,827 |
|
|
Net increase (decrease) in short-term borrowings
|
|
|
(83,355 |
) |
|
|
110,955 |
|
|
Proceeds from long-term borrowings
|
|
|
|
|
|
|
2,200 |
|
|
Payments on long-term borrowings
|
|
|
(2,239 |
) |
|
|
(100,219 |
) |
|
Payments of cash dividends
|
|
|
(4,215 |
) |
|
|
(4,124 |
) |
|
Net proceeds from exercise of stock options
|
|
|
2,507 |
|
|
|
4,288 |
|
|
Purchase of treasury stock
|
|
|
(67 |
) |
|
|
(927 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
195,464 |
|
|
|
182,038 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(11,773 |
) |
|
|
(169,635 |
) |
Cash and cash equivalents at beginning of period
|
|
|
341,975 |
|
|
|
485,798 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
330,202 |
|
|
$ |
316,163 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed
consolidated financial statements.
6
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The unaudited condensed consolidated financial statements
include the accounts of Amegy Bancorporation, Inc. (the
Bancorporation) and all other entities in which the
Bancorporation has a controlling financial interest
(collectively referred to as the Company). All
material intercompany accounts and transactions have been
eliminated in consolidation. In the opinion of management, the
unaudited condensed consolidated financial statements reflect
all adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of the
Companys consolidated financial position at June 30,
2005 and December 31, 2004, consolidated net income for the
three and six months ended June 30, 2005 and 2004,
consolidated cash flows for the three and six months ended
June 30, 2005 and 2004, and consolidated changes in
shareholders equity for the six months ended June 30,
2005. Interim period results are not necessarily indicative of
results of operations or cash flows for a full-year period. The
accounting and financial reporting policies the Company follows
conform, in all material respects, to accounting principles
generally accepted in the United States of America and to
general practices within the financial services industry.
The Company determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity under
accounting principles generally accepted in the United States of
America. Voting interest entities are entities in which the
total equity investment at risk is sufficient to enable the
entity to finance itself independently and provides the equity
holders with the obligation to absorb losses, the right to
receive residual returns and the right to make decisions about
the entitys activities. The Company consolidates voting
interest entities in which it has all, or at least a majority
of, the voting interest. As defined in applicable accounting
standards, variable interest entities (VIEs) are
entities that lack one or more of the characteristics of a
voting interest entity. A controlling financial interest is
present when an enterprise has a variable interest, or a
combination of variable interests, that will absorb a majority
of the entitys expected losses, receive a majority of the
entitys expected residual returns, or both. The enterprise
with a controlling financial interest, known as the primary
beneficiary, consolidates the VIE. The Companys wholly
owned subsidiaries, Statutory Trust I, Statutory
Trust II, and Statutory Trust III (the
Trusts), are VIEs for which the Company is not the primary
beneficiary. Accordingly, the accounts of these entities are not
consolidated in the Companys financial statements.
On March 7, 2005, Southwest Bank of Texas National
Association changed its name to Amegy Bank National Association
(the Bank). The Banks subsidiary, Mitchell
Mortgage Company, L.L.C., changed its name to Amegy Mortgage
Company, L.L.C. (Amegy Mortgage) on the same date.
On May 5, 2005, the name of the Bancorporation changed to
Amegy Bancorporation, Inc.
Substantially all of the Companys revenue and income is
derived from the operations of the Bank and Amegy Mortgage. The
Bank provides a full range of commercial and private banking
services to small and middle market businesses and individuals
primarily in the Houston metropolitan area. Amegy Mortgage
originates, sells and services single family residential
mortgages, residential and commercial construction loans and
commercial mortgages.
On January 31, 2004, the Company completed its merger with
Reunion Bancshares, Inc. (Reunion), whereby Reunion
was merged into the Company. On October 1, 2004, the
Company completed its merger with Klein Bancshares, Inc.
(Klein), whereby Klein was merged into the Company.
The results of operations of Reunion and Klein have been
included in the consolidated financial statements since their
respective acquisition dates. See Note 2
Merger Related Activity for further discussion of the
mergers.
The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all
disclosures required by accounting principles generally accepted
in the United States of America. These financial statements and
the notes thereto should be read in conjunction with the
Companys annual report on Form 10-K for the year
ended December 31, 2004.
7
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Certain previously reported amounts have been reclassified to
conform to the 2005 financial statement presentation. These
reclassifications had no effect on net income, total assets, or
shareholders equity.
The Company applies the intrinsic value method in accounting for
its stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25 (APB
No. 25). Because the exercise price of the
Companys stock options equals the market price of the
underlying stock on the date of grant, no compensation expense
is recognized on options granted.
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123), which, if fully adopted by
the Company, would change the method the Company applies in
recognizing the expense of its stock-based compensation plans
for awards subsequent to 1994. Adoption of the expense
recognition provisions of SFAS No. 123 is optional and
the Company decided not to elect these provisions of
SFAS No. 123. However, pro forma disclosures as if the
Company adopted the expense recognition provisions of
SFAS No. 123 are required by SFAS No. 123
and are presented below.
If the fair value based method of accounting under
SFAS No. 123 had been applied, the Companys net
income available for common shareholders and earnings per common
share would have been reduced to the pro forma amounts indicated
below (assuming that the fair value of options granted during
the year are amortized over the vesting period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except per share amounts) | |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
19,158 |
|
|
$ |
16,221 |
|
|
$ |
36,102 |
|
|
$ |
31,508 |
|
|
Pro forma
|
|
$ |
18,393 |
|
|
$ |
15,668 |
|
|
$ |
34,633 |
|
|
$ |
30,349 |
|
Stock-based compensation cost, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
374 |
|
|
$ |
252 |
|
|
$ |
686 |
|
|
$ |
495 |
|
|
Pro forma
|
|
$ |
1,139 |
|
|
$ |
805 |
|
|
$ |
2,155 |
|
|
$ |
1,654 |
|
Basic earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
$ |
0.51 |
|
|
$ |
0.46 |
|
|
Pro forma
|
|
$ |
0.26 |
|
|
$ |
0.23 |
|
|
$ |
0.49 |
|
|
$ |
0.44 |
|
Diluted earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.27 |
|
|
$ |
0.23 |
|
|
$ |
0.50 |
|
|
$ |
0.45 |
|
|
Pro forma
|
|
$ |
0.26 |
|
|
$ |
0.22 |
|
|
$ |
0.48 |
|
|
$ |
0.43 |
|
The effect of applying SFAS No. 123 in the above pro
forma disclosure is not indicative of future amounts. The
Company anticipates making awards in the future under its
stock-based compensation plans.
The Company expects to adopt the provisions of Statement of
Financial Accounting Standards No. 123, Share-Based
Payment (SFAS No. 123R), on
January 1, 2006. See Note 1 New
Accounting Pronouncements for additional information.
8
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
New Accounting Pronouncements |
On December 16, 2003, the American Institute of Certified
Public Accountants issued Statement of Position 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a
Transfer (SOP 03-3). SOP 03-3 provides
guidance on the accounting for differences between contractual
and expected cash flows from the purchasers initial
investment in loans or debt securities acquired in a transfer,
if those differences are attributable, at least in part, to
credit quality. Among other things, SOP 03-3:
(1) prohibits the recognition of the excess of contractual
cash flows over expected cash flows as an adjustment of yield,
loss accrual, or valuation allowance at the time of purchase;
(2) requires that subsequent increases in expected cash
flows be recognized prospectively through an adjustment of
yield; and (3) requires the subsequent decreases in
expected cash flows be recognized as an impairment. In addition,
SOP 03-3 prohibits the creation or carrying over of a
valuation allowance in the initial accounting of all loans
within its scope that are acquired in a transfer. SOP 03-3
becomes effective for loans or debt securities acquired in
fiscal years beginning after December 15, 2004. The
requirements of SOP 03-3 did not have a material impact on
the Companys financial condition or results of operations.
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123R.
SFAS No. 123R eliminates the ability to account for
stock-based compensation using APB No. 25 and requires that
such transactions be recognized as compensation cost in the
income statement based on their fair values on the date of the
grant. The provisions of this statement become effective for all
equity awards granted after January 1, 2006, as well as
equity awards that are unvested on that date. Although the
Company has not yet completed an analysis to quantify the exact
impact the new standard will have on its future financial
performance, the Stock-Based Compensation disclosures in
Note 1 Nature of Operations and Summary
of Significant Accounting Policies provide detail as to
the Companys financial performance as if the Company had
applied the fair value based method and recognition provision of
SFAS No. 123 to stock-based compensation in the
current reporting periods.
On June 4, 2004, the Emerging Issues Task Force
(EITF) issued EITF Issue 03-1, The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments. EITF Issue 03-1 provides guidance
for determining when an investment is considered impaired,
whether impairment is other-than-temporary, and measurement of
an impairment loss. Certain disclosure requirements of EITF
Issue 03-01 were adopted in 2003. At its meeting on
July 11, 2005, the FASB decided to nullify the guidance in
paragraphs 10 through 18 of EITF Issue 03-1, which
provided guidance on how to determine whether an investment is
other-than-temporarily impaired. The remaining guidance in EITF
Issue 03-1 regarding measurement, disclosure, and
subsequent accounting for debt securities, as well as the
evaluation of whether a cost method investment is impaired, is
still applicable. The FASB expects to issue a final FASB Staff
Position in August 2005. The Company continues to follow the
requirements of SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and Staff
Accounting Bulletin No. 59, Accounting for
Noncurrent Marketable Equity Securities.
On July 14, 2005, the FASB issued an exposure draft of a
proposed Interpretation, Accounting for Uncertain Tax
Positions an Interpretation of FASB Statement
No. 109. The proposed interpretation would require
companies to recognize the best estimate of an uncertain tax
position only if it is probable of being sustained on audit by
the taxation authorities. Subsequently, the tax benefit would be
derecognized (by either recording a tax liability or decreasing
a tax asset) when the probable threshold is no longer met and it
is more likely than not that the tax position will not be
sustained. The proposed Interpretation would be effective for
years ending after December 15, 2005 and treated as a
change in accounting policy. It would require companies to
assess all uncertain tax positions and only those meeting the
probable threshold at the transition date would continue to be
recognized. The difference between the amount previously
recognized and the amount recognized after applying the proposed
Interpretation would be recorded as the cumulative-effect
9
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
adjustment in the 2005 statement of earnings (restatement
is not permitted). The comment period ends September 12,
2005.
|
|
2. |
Merger Related Activity |
The mergers described below were accounted for as purchase
transactions. The purchase prices have been allocated to the
assets acquired and the liabilities assumed based on their
estimated fair value at the date of the mergers. The excess of
the purchase price over the estimated fair values of the net
assets acquired was recorded as goodwill, none of which is
expected to be deductible for tax purposes. Goodwill is
evaluated annually for possible impairment under the provisions
of SFAS No. 142, Goodwill and Other Intangible
Assets.
On January 31, 2004, the Company completed its merger with
Reunion, whereby Reunions subsidiary, Lone Star Bank
(Lone Star), was merged with and into the Bank. The
addition of the five Lone Star branches expands the
Companys branch network to include the Dallas market and
represents an attractive growth opportunity for the Company. The
merger was a cash transaction with $43.5 million paid at
closing and an additional $6.5 million deposited into an
escrow account. The release of this account is contingent upon
the performance of the loan portfolio and other potential
liabilities over a three-year period. In addition, the Bank paid
$600,000 to Reunions financial advisor in connection with
this transaction. The purchase price was funded through the
proceeds of $51.5 million of junior subordinated deferrable
interest debentures issued in October 2003.
On October 1, 2004, the Company completed its merger with
Klein, whereby Kleins subsidiary, Klein Bank &
Trust, was merged with and into the Bank. The addition of the 27
Klein branches expands the Companys branch network in the
northwest quadrant of the Houston metropolitan area. The merger
was a cash and common stock transaction with $149.2 million
of the $165.0 million purchase price paid in cash and the
remainder paid through the issuance of 747,468 common
shares of the Company. These shares were valued at the average
of the closing price of the Companys common stock for the
fifteen business days ended five business days prior to the
merger date. The cash portion of the purchase price was funded
through the proceeds of $36.1 million of junior
subordinated deferrable interest debentures and
$75.0 million of senior subordinated debentures issued in
September 2004.
10
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of the
merger:
|
|
|
|
|
|
|
|
|
|
|
Reunion | |
|
Klein | |
|
|
January 31, | |
|
October 1, | |
|
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Cash
|
|
$ |
30,596 |
|
|
$ |
78,060 |
|
Securities
|
|
|
30,946 |
|
|
|
329,864 |
|
Loans
|
|
|
163,822 |
|
|
|
163,086 |
|
Loan premium (discount)
|
|
|
(1,038 |
) |
|
|
5,574 |
|
Allowance for loan losses
|
|
|
(2,116 |
) |
|
|
(1,354 |
) |
Goodwill
|
|
|
29,755 |
|
|
|
94,827 |
|
Core deposit intangibles
|
|
|
6,379 |
|
|
|
19,629 |
|
Other assets
|
|
|
3,779 |
|
|
|
23,969 |
|
Deposits
|
|
|
(207,026 |
) |
|
|
(535,644 |
) |
Deposit (premium) discount
|
|
|
(39 |
) |
|
|
684 |
|
Borrowings
|
|
|
(2,000 |
) |
|
|
|
|
Other liabilities
|
|
|
(2,458 |
) |
|
|
(13,695 |
) |
|
|
|
|
|
|
|
Cost
|
|
$ |
50,600 |
|
|
$ |
165,000 |
|
|
|
|
|
|
|
|
Core deposit intangibles (CDI) are amortized using
an economic life method based on deposit attrition projections
derived from nationally-observed patterns within the banking
industry. As a result, CDI amortization will decline over time
with most of the amortization during the initial years. The
Reunion CDI is being amortized over a weighted average period of
thirteen and one-third years with no residual value. The Klein
CDI is being amortized over a weighted average period of twelve
years with no residual value.
The pro forma combined historical results, as if Reunion and
Klein had been included in operations at January 1, 2004,
are estimated to be as follows:
|
|
|
|
|
|
|
|
|
|
|
Pro forma | |
|
Pro forma | |
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, 2004 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands, except per | |
|
|
share amounts) | |
Net interest income after provision for loan losses and
noninterest income
|
|
$ |
83,035 |
|
|
$ |
165,616 |
|
Income before income taxes
|
|
|
25,573 |
|
|
|
50,271 |
|
Net income
|
|
|
17,551 |
|
|
|
34,325 |
|
Earnings per common share, basic
|
|
$ |
0.26 |
|
|
$ |
0.50 |
|
Earnings per common share, diluted
|
|
$ |
0.25 |
|
|
$ |
0.49 |
|
11
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amortized cost and approximate fair value of securities
classified as available for sale and held to maturity are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Gross Unrealized | |
|
|
|
|
|
Gross Unrealized | |
|
|
|
|
Amortized | |
|
| |
|
|
|
Amortized | |
|
| |
|
|
|
|
Cost | |
|
Gain | |
|
Loss | |
|
Fair Value | |
|
Cost | |
|
Gain | |
|
Loss | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$ |
427,185 |
|
|
$ |
542 |
|
|
$ |
(3,539 |
) |
|
$ |
424,188 |
|
|
$ |
388,061 |
|
|
$ |
246 |
|
|
$ |
(2,623 |
) |
|
$ |
385,684 |
|
|
Mortgage-backed securities
|
|
|
1,169,943 |
|
|
|
1,465 |
|
|
|
(14,769 |
) |
|
|
1,156,639 |
|
|
|
1,237,420 |
|
|
|
3,820 |
|
|
|
(11,076 |
) |
|
|
1,230,164 |
|
|
Municipal securities
|
|
|
250,982 |
|
|
|
8,067 |
|
|
|
(447 |
) |
|
|
258,602 |
|
|
|
246,705 |
|
|
|
7,564 |
|
|
|
(1,392 |
) |
|
|
252,877 |
|
|
Federal Reserve Bank stock
|
|
|
15,223 |
|
|
|
|
|
|
|
|
|
|
|
15,223 |
|
|
|
8,511 |
|
|
|
|
|
|
|
|
|
|
|
8,511 |
|
|
Federal Home Loan Bank stock
|
|
|
24,216 |
|
|
|
|
|
|
|
|
|
|
|
24,216 |
|
|
|
32,772 |
|
|
|
|
|
|
|
|
|
|
|
32,772 |
|
|
Other securities
|
|
|
42,641 |
|
|
|
12 |
|
|
|
|
|
|
|
42,653 |
|
|
|
17,196 |
|
|
|
|
|
|
|
|
|
|
|
17,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$ |
1,930,190 |
|
|
$ |
10,086 |
|
|
$ |
(18,755 |
) |
|
$ |
1,921,521 |
|
|
$ |
1,930,665 |
|
|
$ |
11,630 |
|
|
$ |
(15,091 |
) |
|
$ |
1,927,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$ |
51,040 |
|
|
$ |
593 |
|
|
$ |
|
|
|
$ |
51,633 |
|
|
$ |
58,033 |
|
|
$ |
536 |
|
|
$ |
|
|
|
$ |
58,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$ |
51,040 |
|
|
$ |
593 |
|
|
$ |
|
|
|
$ |
51,633 |
|
|
$ |
58,033 |
|
|
$ |
536 |
|
|
$ |
|
|
|
$ |
58,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table displays the gross unrealized losses and
fair value of investments as of June 30, 2005 that were in
a continuous unrealized loss position for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater Than 12 Months | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
Less Than 12 Months | |
|
|
|
Total | |
|
|
| |
|
|
|
| |
|
|
|
|
Unrealized | |
|
|
|
Unrealized | |
|
|
|
Unrealized | |
|
|
Fair Value | |
|
Loss | |
|
Fair Value | |
|
Loss | |
|
Fair Value | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$ |
212,745 |
|
|
$ |
(1,512 |
) |
|
$ |
94,837 |
|
|
$ |
(2,027 |
) |
|
$ |
307,582 |
|
|
$ |
(3,539 |
) |
|
Mortgage-backed securities
|
|
|
565,673 |
|
|
|
(4,418 |
) |
|
|
467,760 |
|
|
|
(10,351 |
) |
|
|
1,033,433 |
|
|
|
(14,769 |
) |
|
Municipal securities
|
|
|
7,075 |
|
|
|
(20 |
) |
|
|
37,315 |
|
|
|
(427 |
) |
|
|
44,390 |
|
|
|
(447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$ |
785,493 |
|
|
$ |
(5,950 |
) |
|
$ |
599,912 |
|
|
$ |
(12,805 |
) |
|
$ |
1,385,405 |
|
|
$ |
(18,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declines in the fair value of individual securities below their
cost that are other than temporary would result in write-downs,
as a realized loss, of the individual securities to their fair
value. Management believes that based upon the credit quality of
the debt securities and the Companys intent and ability to
hold the securities until their recovery, none of the unrealized
loss on securities should be considered other than temporary.
|
|
4. |
Allowance for Loan Losses |
The allowance for loan losses is established through a provision
for such losses charged against operations, which represents
managements estimate of probable losses inherent in the
loan portfolio. The allowance is
12
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
increased by provisions charged against current earnings and
reduced by net charge-offs. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes is adequate to reflect the risks
inherent in the existing loan portfolio and is based on
evaluations of the collectibility and prior loss experience of
loans. In making its evaluation, management considers growth in
the loan portfolio, the diversification by industry of the
Companys commercial loan portfolio, the effect of changes
in the local real estate market on collateral values, the
results of recent regulatory examinations, the effects on the
loan portfolio of current economic indicators and their probable
impact on borrowers, the amount of charge-offs for current and
prior periods, the amount of nonperforming loans and related
collateral, and the evaluation of its loan portfolio by the loan
review function.
The allowance has several components, which include specific
reserves, migration analysis reserves, qualitative adjustments,
a general reserve component, and a separate reserve for
international, cross-border risk (allocated transfer risk
reserve).
The evaluation of the adequacy of loan collateral is often based
upon estimates and appraisals. Because of changing economic
conditions, the valuations determined from such estimates and
appraisals may also change. Accordingly, the Company may
ultimately incur losses which vary from managements
current estimates. Adjustments to the allowance for loan losses
are reported in the period such adjustments become known or are
reasonably estimable.
The following table reflects the distribution of the allowance
for loan losses among the various categories of loans based on
collateral types for the dates indicated. The Company has
allocated portions of its allowance for loan losses to cover the
estimated losses inherent in particular risk categories of
loans. This allocation is made for analytical purposes only and
is not necessarily indicative of the categories in which loan
losses may occur. The total allowance is available to absorb
losses from any category of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
|
|
Loans to | |
|
|
|
Loans to | |
|
|
Amount | |
|
Total Loans | |
|
Amount | |
|
Total Loans | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Balance of allowance for loan losses applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$ |
24,564 |
|
|
|
42.98 |
% |
|
$ |
26,285 |
|
|
|
45.12 |
% |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
7,465 |
|
|
|
19.56 |
|
|
|
7,547 |
|
|
|
17.55 |
|
|
|
1-4 family residential
|
|
|
8,356 |
|
|
|
16.11 |
|
|
|
6,569 |
|
|
|
16.06 |
|
|
|
Commercial
|
|
|
5,435 |
|
|
|
16.63 |
|
|
|
5,778 |
|
|
|
16.65 |
|
|
|
Farmland
|
|
|
195 |
|
|
|
0.23 |
|
|
|
156 |
|
|
|
0.30 |
|
|
|
Other
|
|
|
713 |
|
|
|
1.63 |
|
|
|
868 |
|
|
|
1.39 |
|
|
Consumer
|
|
|
2,452 |
|
|
|
2.86 |
|
|
|
2,205 |
|
|
|
2.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$ |
49,180 |
|
|
|
100.00 |
% |
|
$ |
49,408 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
13
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5. |
Comprehensive Income (Loss) |
Total comprehensive income is reported in the accompanying
condensed consolidated statement of changes in
shareholders equity. Information related to net other
comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value during the period
|
|
$ |
24,160 |
|
|
$ |
(48,403 |
) |
|
$ |
(5,397 |
) |
|
$ |
(35,067 |
) |
|
|
Reclassification adjustment for (gains) losses included in income
|
|
|
52 |
|
|
|
(495 |
) |
|
|
189 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,212 |
|
|
|
(48,898 |
) |
|
|
(5,208 |
) |
|
|
(34,811 |
) |
Deferred tax effect
|
|
|
(8,474 |
) |
|
|
17,113 |
|
|
|
1,816 |
|
|
|
12,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
$ |
15,738 |
|
|
$ |
(31,785 |
) |
|
$ |
(3,392 |
) |
|
$ |
(22,626 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss, net of
tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Net unrealized loss on securities available for sale
|
|
$ |
(5,642 |
) |
|
$ |
(2,250 |
) |
Minimum pension liability
|
|
|
(971 |
) |
|
|
(971 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$ |
(6,613 |
) |
|
$ |
(3,221 |
) |
|
|
|
|
|
|
|
|
|
6. |
Mortgage Servicing Rights |
The Company originates residential and commercial mortgage loans
both for its own portfolio and to sell to investors with
servicing rights retained primarily through its ownership of
Amegy Mortgage. Amegy Mortgage also purchases mortgage servicing
rights.
Mortgage servicing assets are periodically evaluated for
impairment based upon the fair value of the rights as compared
with amortized cost. Impairment is determined by stratifying
rights by predominant characteristics, such as interest rates
and original loan term (primarily 15 and 30 years). Fair
value is determined by using quoted market prices for mortgage
servicing rights with similar characteristics, when available,
or based upon discounted cash flows using market-based
assumptions. In periods of falling market interest rates,
accelerated loan prepayment speeds can adversely impact the fair
value of these mortgage-servicing rights relative to their book
value. In the event that the fair value of these assets were to
increase in the future, the Company can recognize the increased
fair value to the extent of the impairment allowance but cannot
recognize an asset in excess of its amortized book value. Any
provision and subsequent recovery would be recorded as a
component of other fee income in the consolidated statement of
income.
14
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the changes in capitalized
mortgage servicing rights for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months Ended | |
|
|
Ended June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Balance, beginning of period
|
|
$ |
7,357 |
|
|
$ |
7,926 |
|
|
$ |
7,121 |
|
|
$ |
8,299 |
|
|
Originations
|
|
|
292 |
|
|
|
286 |
|
|
|
703 |
|
|
|
500 |
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
Amortization
|
|
|
(396 |
) |
|
|
(619 |
) |
|
|
(858 |
) |
|
|
(1,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$ |
7,253 |
|
|
$ |
7,593 |
|
|
$ |
7,253 |
|
|
$ |
7,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans serviced for others totaled $932.2 million at
June 30, 2005 and $885.3 million at June 30,
2004. Capitalized mortgage servicing rights represent
78 basis points and 86 basis points of the portfolio
serviced at June 30, 2005 and 2004, respectively.
|
|
7. |
Earnings Per Common Share |
Earnings per common share is computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net income
|
|
$ |
19,158 |
|
|
$ |
16,221 |
|
|
$ |
36,102 |
|
|
$ |
31,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divided by average common shares and common share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
70,291 |
|
|
|
68,746 |
|
|
|
70,206 |
|
|
|
68,646 |
|
|
Average common shares issuable under the stock option plan
|
|
|
1,240 |
|
|
|
1,782 |
|
|
|
1,384 |
|
|
|
1,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average common shares and common share equivalents
|
|
|
71,531 |
|
|
|
70,528 |
|
|
|
71,590 |
|
|
|
70,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
$ |
0.51 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$ |
0.27 |
|
|
$ |
0.23 |
|
|
$ |
0.50 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding of 1,492,000 and 47,000 for the three
months ended June 30, 2005 and 2004, respectively, and
939,000 and 181,000 for the six months ended June 30, 2005
and 2004, respectively, have not been included in diluted
earnings per share because to do so would have been antidilutive
for the periods presented. Stock options are antidilutive when
the exercise price is higher than the current market price of
the Companys common stock.
The Company has two operating segments: the Bank and Amegy
Mortgage. Each segment is managed separately because each
business requires different marketing strategies and each offers
different products and services.
15
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company evaluates each segments performance based on
the revenue and expenses from its operations. Intersegment
financing arrangements are accounted for at current market rates
as if they were with third parties.
Summarized financial information by operating segment for the
three and six months ended June 30, 2005 and 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Bank | |
|
Mortgage | |
|
Eliminations | |
|
Consolidated | |
|
Bank | |
|
Mortgage | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest income
|
|
$ |
89,756 |
|
|
$ |
6,895 |
|
|
$ |
(3,118 |
) |
|
$ |
93,533 |
|
|
$ |
63,164 |
|
|
$ |
3,504 |
|
|
$ |
(1,383 |
) |
|
$ |
65,285 |
|
Interest expense
|
|
|
31,149 |
|
|
|
3,118 |
|
|
|
(3,118 |
) |
|
|
31,149 |
|
|
|
11,068 |
|
|
|
1,383 |
|
|
|
(1,383 |
) |
|
|
11,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
58,607 |
|
|
|
3,777 |
|
|
|
|
|
|
|
62,384 |
|
|
|
52,096 |
|
|
|
2,121 |
|
|
|
|
|
|
|
54,217 |
|
Provision for loan losses
|
|
|
1,400 |
|
|
|
100 |
|
|
|
|
|
|
|
1,500 |
|
|
|
1,899 |
|
|
|
1,024 |
|
|
|
|
|
|
|
2,923 |
|
Noninterest income
|
|
|
30,421 |
|
|
|
1,145 |
|
|
|
|
|
|
|
31,566 |
|
|
|
21,417 |
|
|
|
1,097 |
|
|
|
|
|
|
|
22,514 |
|
Noninterest expense
|
|
|
63,108 |
|
|
|
3,179 |
|
|
|
|
|
|
|
66,287 |
|
|
|
48,482 |
|
|
|
1,747 |
|
|
|
|
|
|
|
50,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
24,520 |
|
|
$ |
1,643 |
|
|
$ |
|
|
|
$ |
26,163 |
|
|
$ |
23,132 |
|
|
$ |
447 |
|
|
$ |
|
|
|
$ |
23,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Bank | |
|
Mortgage | |
|
Eliminations | |
|
Consolidated | |
|
Bank | |
|
Mortgage | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest income
|
|
$ |
173,485 |
|
|
$ |
13,137 |
|
|
$ |
(5,776 |
) |
|
$ |
180,846 |
|
|
$ |
124,484 |
|
|
$ |
7,050 |
|
|
$ |
(2,649 |
) |
|
$ |
128,885 |
|
Interest expense
|
|
|
56,265 |
|
|
|
5,776 |
|
|
|
(5,776 |
) |
|
|
56,265 |
|
|
|
22,070 |
|
|
|
2,649 |
|
|
|
(2,649 |
) |
|
|
22,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
117,220 |
|
|
|
7,361 |
|
|
|
|
|
|
|
124,581 |
|
|
|
102,414 |
|
|
|
4,401 |
|
|
|
|
|
|
|
106,815 |
|
Provision for loan
losses
|
|
|
4,305 |
|
|
|
295 |
|
|
|
|
|
|
|
4,600 |
|
|
|
3,743 |
|
|
|
1,089 |
|
|
|
|
|
|
|
4,832 |
|
Noninterest income
|
|
|
57,952 |
|
|
|
2,386 |
|
|
|
|
|
|
|
60,338 |
|
|
|
42,341 |
|
|
|
2,061 |
|
|
|
|
|
|
|
44,402 |
|
Noninterest expense
|
|
|
124,787 |
|
|
|
5,672 |
|
|
|
|
|
|
|
130,459 |
|
|
|
96,739 |
|
|
|
3,591 |
|
|
|
|
|
|
|
100,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
46,080 |
|
|
$ |
3,780 |
|
|
$ |
|
|
|
$ |
49,860 |
|
|
$ |
44,273 |
|
|
$ |
1,782 |
|
|
$ |
|
|
|
$ |
46,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
7,700,359 |
|
|
$ |
467,787 |
|
|
$ |
(429,446 |
) |
|
$ |
7,738,700 |
|
|
$ |
6,311,259 |
|
|
$ |
318,087 |
|
|
$ |
(287,904 |
) |
|
$ |
6,341,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment interest was paid to the bank by the mortgage
company in the amount of $3.1 million and $1.4 million
for the three months ended June 30, 2005 and 2004,
respectively. For the six months ended June 30, 2005 and
2004, intersegment interest was $5.8 million and
$2.6 million, respectively. Advances from the bank to the
mortgage company of $429.4 million and $287.9 million
were eliminated in consolidation at June 30, 2005 and 2004,
respectively.
|
|
9. |
Off-Balance Sheet Credit Commitments |
In the normal course of business, the Company becomes a party to
various financial transactions which, in accordance with
generally accepted accounting principles, are not included in
its consolidated balance sheet. These transactions involve
various risks, including market and credit risk. Because these
transactions generally are not funded, they do not necessarily
represent future liquidity requirements. The Company offers
these financial instruments to enable its customers to meet
their financing objectives and to manage their interest rate
risk. Supplying these instruments provides the Company with an
ongoing source of fee income.
16
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
These financial instruments include loan commitments and letters
of credit. The Company has commitments to make additional equity
investments in enterprises that primarily make investments in
middle market businesses in the form of debt and equity capital.
These financial instruments involve, to varying degrees,
elements of credit risk in excess of the amounts recognized in
the financial statements.
The amount of the Companys financial instruments with
off-balance sheet risk as of June 30, 2005 and
December 31, 2004 is presented below:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
Contract | |
|
Contract | |
|
|
Amount | |
|
Amount | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Unfunded loan commitments including unfunded lines of credit
|
|
$ |
2,867,897 |
|
|
$ |
2,720,246 |
|
Standby letters of credit
|
|
|
418,004 |
|
|
|
352,555 |
|
Commercial letters of credit
|
|
|
18,287 |
|
|
|
19,496 |
|
Unfunded commitments to unconsolidated investees
|
|
|
22,515 |
|
|
|
12,621 |
|
The Companys exposure to credit loss in the event of
nonperformance by the other party to the loan commitments and
letters of credit is limited to the contractual amount of those
instruments. The Company uses the same credit policies in
evaluating loan commitments and letters of credit as it does for
on-balance sheet instruments. Commitments to extend credit are
agreements to lend to a customer as long as there is no
violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because
many of the commitments are expected to expire without being
fully drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Standby letters
of credit are conditional commitments by the Company to
guarantee the performance of a customer to a third party. The
Company evaluates each customers credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on
managements credit evaluation of the counterparty.
Collateral held varies but may include certificates of deposit,
accounts receivable, inventory, property, plant and equipment,
and real property. As of June 30, 2005 and
December 31, 2004, $285,000 and $402,000, respectively, has
been recorded as a liability for the fair value of the
Companys potential obligations under these letters of
credit.
|
|
10. |
Goodwill and Core Deposit Intangibles |
Changes in the carrying amount of the Companys goodwill
and core deposit intangibles for the six months ended
June 30, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Deposit | |
|
|
Goodwill | |
|
Intangibles | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Balance, December 31, 2004
|
|
$ |
149,846 |
|
|
$ |
27,246 |
|
|
Adjustment to acquisition of Klein
|
|
|
580 |
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(4,419 |
) |
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
$ |
150,426 |
|
|
$ |
22,827 |
|
|
|
|
|
|
|
|
17
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows the estimated future amortization
expense for core deposit intangibles:
|
|
|
|
|
|
|
Core Deposit | |
|
|
Intangibles | |
|
|
| |
|
|
(Dollars in thousands) | |
Remaining 2005
|
|
$ |
3,559 |
|
2006
|
|
|
5,432 |
|
2007
|
|
|
4,141 |
|
2008
|
|
|
3,137 |
|
2009
|
|
|
2,212 |
|
Thereafter
|
|
|
4,346 |
|
|
|
11. |
Subordinated Debentures |
|
|
|
Junior Subordinated Deferrable Interest Debentures |
The Company has issued a total of $149.5 million of junior
subordinated deferrable interest debentures to three wholly
owned statutory business trusts, Statutory Trust I,
Statutory Trust II, and Statutory Trust III
(collectively, the Trusts). The Trusts are
considered variable interest entities for which the Company is
not the primary beneficiary. Accordingly, the accounts of the
Trusts are not included in the Companys consolidated
financial statements. See Note 1 Nature
of Operations and Summary of Significant Accounting
Policies for additional information about the
Companys consolidation policy. Details of the
Companys transactions with these Trusts are presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust | |
|
Junior | |
|
|
|
Interest | |
|
|
|
|
|
|
|
|
Preferred | |
|
Subordinated | |
|
|
|
Rate at | |
|
|
|
|
Issuance | |
|
Maturity | |
|
Securities | |
|
Debt Owned | |
|
|
|
June 30, | |
|
Redemption | |
Description |
|
Date | |
|
Date | |
|
Outstanding | |
|
by Trust | |
|
Interest Rate | |
|
2005 | |
|
Date | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(Dollars in thousands) | |
Statutory Trust I
|
|
|
10/7/2003 |
|
|
|
12/17/2033 |
|
|
$ |
50,000 |
|
|
$ |
51,547 |
|
|
|
3-month LIBOR plus 2.85% |
|
|
|
6.27% |
|
|
|
12/17/2008 |
|
Statutory Trust II
|
|
|
9/24/2004 |
|
|
|
10/7/2034 |
|
|
|
35,000 |
|
|
|
36,083 |
|
|
|
3-month LIBOR plus 1.90% |
|
|
|
5.04% |
|
|
|
10/7/2009 |
|
Statutory Trust III
|
|
|
12/13/2004 |
|
|
|
12/15/2034 |
|
|
|
60,000 |
|
|
|
61,856 |
|
|
|
3-month LIBOR plus 1.78% |
|
|
|
5.19% |
|
|
|
12/15/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
145,000 |
|
|
$ |
149,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Debentures are the sole assets of the Trusts and are
subordinate to all of the Companys existing and future
obligations for borrowed or purchased money, obligations under
letters of credit and certain derivative contracts, and any
guarantees by the Company of any of such obligations. The
proceeds, net of issuance costs, from these offerings were used
to fund the cash purchase price for Reunion and Klein and to
augment the Companys capital ratios to support its loan
growth. See Note 2 Merger Related
Activity for further discussion of the mergers.
The Companys obligations under the Debentures, the related
indentures, the trust agreements relating to the trust
securities, and the guarantees constitute full and unconditional
guarantees by the Company of the obligations of the Trusts under
the trust preferred securities.
The Debentures are subject to redemption at the option of the
Company, subject to prior regulatory approval, in whole or in
part on or after the dates indicated in the table above, or in
full within 90 days after the occurrence of certain events
that either would have a negative tax effect on the Trusts or
the Company, would cause the trust preferred securities to no
longer qualify as Tier 1 capital, or would result in the
Trusts being treated as an investment company. Upon repayment of
the Debentures at their stated maturity or following their
earlier redemption, the Trusts will use the proceeds of such
repayment to redeem an equivalent amount of outstanding trust
preferred securities and trust common securities.
18
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Senior Subordinated Debentures |
On September 22, 2004, the Company entered into a
Subordinated Debenture Purchase Agreement. Under the terms of
this agreement, the Company issued an aggregate principal amount
of $75.0 million in floating rate subordinated debt. All
amounts due and owed under the Subordinated Debenture are to be
repaid in full on September 22, 2014. At the Companys
election, the Subordinated Debenture bears interest at LIBOR
plus 125 basis points or US Bank NA prime rate
less 100 basis points. The interest rate on the
Subordinated Debenture was 4.34% at June 30, 2005. This
agreement includes a financial covenant that the Company shall
maintain such capital as may be necessary to cause the Company
to be classified as adequately capitalized and the
Bank shall maintain such capital as may be necessary to cause it
to be classified as well capitalized as of the end
of each calendar quarter. Upon declaration of or a continuing
event of default, the Company will be restricted from declaring
or paying or causing or permitting any subsidiary to pay a cash
dividend or other distribution to parties that are ranked junior
to the holders of the subordinated debt. The Company has agreed
to certain restrictions on its ability to incur additional
indebtedness that is senior to the Subordinated Debenture. If
the subordinated debt ceases to qualify as Tier 2 capital
under the applicable rules and regulations promulgated by the
Board of Governors of the Federal Reserve System, the Company
and the lender may restructure the debt as a senior unsecured
obligation of the Company or the Company may repay the debt. The
Company used the proceeds of the debenture to fund the cash
purchase price for Klein and to augment the Companys
capital ratios to support its loan growth. See
Note 2 Merger Related Activity for
further discussion of the merger.
|
|
12. |
Common Stock Cash Dividend |
On May 4, 2005, the Companys Board of Directors
declared a cash dividend of $0.03 cents per common share paid on
June 15, 2005 to shareholders of record as of June 1,
2005.
On June 17, 2004, the Company declared a stock split
effected by a stock dividend payable at the rate of one share of
the Companys common stock for each share of the
Companys common stock issued and outstanding as of
July 1, 2004, payable on July 15, 2004, to the holders
of record as of the close of business on July 1, 2004. This
stock split has been given retroactive effect in the
accompanying financial statements and related notes. In
addition, earnings and dividends per share data has been
restated for all periods presented.
|
|
14. |
Supplemental Cash Flow Information |
On January 31, 2004, the Company purchased all of the
capital stock of Reunion for $50.0 million. In conjunction
with this acquisition, liabilities were assumed as follows:
|
|
|
|
|
|
|
|
Reunion | |
|
|
January 31, | |
|
|
2004 | |
|
|
| |
|
|
(Dollars in | |
|
|
thousands) | |
Fair value of assets acquired
|
|
$ |
261,523 |
|
Cash paid for the capital stock
|
|
|
(50,000 |
) |
|
|
|
|
|
Liabilities assumed
|
|
$ |
211,523 |
|
|
|
|
|
19
AMEGY BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On July 6, 2005, the Company and Zions Bancorporation
(Zions) issued a joint press release announcing that
the two companies had signed a definitive agreement under which
Zions will acquire the Company. Under the terms of the
definitive agreement, the shareholders of the Company will have
the right, subject to proration, to elect to receive cash or
Zions common stock, in either case having a value equal to $8.50
plus 0.202 Zions shares. Upon completion of the transaction, the
Company is expected to operate under its current name, charter
and management as a separate Zions banking subsidiary. The
merger is subject to regulatory approval and also approval by
the shareholders of the Company and is expected to close during
the fourth quarter of this year. As a part of the merger
transaction, the Company announced its intent to increase its
quarterly dividend to $0.11 per common share beginning with
its next dividend.
20
|
|
ITEM 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS
Certain of the matters discussed in this document and in
documents incorporated by reference herein, including matters
discussed under the caption Managements Discussion
and Analysis of Financial Condition and Results of
Operations, may constitute forward-looking statements for
purposes of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and as such may
involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements
of the Company to be materially different from future results,
performance or achievements expressed or implied by such
forward-looking statements. The words expect,
anticipate, intend, plan,
believe, seek, estimate, and
similar expressions are intended to identify such
forward-looking statements.
The Companys actual results may differ materially from the
results anticipated in these forward-looking statements due to a
variety of factors, including, without limitation (a) the
effects of future economic conditions on the Company and its
customers; (b) the costs and effects of litigation and of
unexpected or adverse outcomes in such litigation;
(c) governmental monetary and fiscal policies, as well as
legislative and regulatory changes; (d) the effect of
changes in accounting policies and practices, as may be adopted
by the regulatory agencies, as well as the Financial Accounting
Standards Board and other accounting standard setters;
(e) the risks of changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan
collateral, securities and interest rate protection agreements,
as well as interest rate risks; (f) the effects of
competition from other commercial banks, thrifts, mortgage
banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market
and other mutual funds and other financial institutions
operating in the Companys market area and elsewhere,
including institutions operating locally, regionally, nationally
and internationally, together with such competitors offering
banking products and services by mail, telephone, computer and
the Internet; (g) technological changes;
(h) acquisitions and integration of acquired businesses;
(i) the failure of assumptions underlying the establishment
of reserves for loan losses and estimations of values of
collateral and various financial assets and liabilities; and
(j) acts of war or terrorism. All written or oral
forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary
statements.
Managements Discussion and Analysis of Financial Condition
and Results of Operations analyzes the major elements of the
Companys condensed consolidated financial statements and
should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto and other detailed
information appearing in the Companys Annual Report on
Form 10-K for the year ended December 31, 2004.
Overview
This overview of managements discussion and analysis
highlights selected information in this document and may not
contain all of the information that is important to you. For a
more complete understanding of trends, events, commitments,
uncertainties, liquidity, capital resources, and critical
accounting estimates, which have an impact on the Companys
financial condition and results of operations, you should
carefully read this entire document.
21
Results of Operations
Selected income statement data and other selected data for
comparable periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
| |
|
| |
|
|
June 30, | |
|
June 30, | |
|
June 30, | |
|
June 30, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Taxable equivalent net interest income
|
|
$ |
63,944 |
|
|
$ |
55,618 |
|
|
$ |
127,687 |
|
|
$ |
109,257 |
|
Taxable equivalent adjustment
|
|
|
(1,560 |
) |
|
|
(1,401 |
) |
|
|
(3,106 |
) |
|
|
(2,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, as reported
|
|
|
62,384 |
|
|
|
54,217 |
|
|
|
124,581 |
|
|
|
106,815 |
|
Provision for loan losses
|
|
|
1,500 |
|
|
|
2,923 |
|
|
|
4,600 |
|
|
|
4,832 |
|
Noninterest income
|
|
|
31,566 |
|
|
|
22,514 |
|
|
|
60,338 |
|
|
|
44,402 |
|
Noninterest expenses
|
|
|
66,287 |
|
|
|
50,229 |
|
|
|
130,459 |
|
|
|
100,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
26,163 |
|
|
|
23,579 |
|
|
|
49,860 |
|
|
|
46,055 |
|
Provision for income taxes
|
|
|
7,005 |
|
|
|
7,358 |
|
|
|
13,758 |
|
|
|
14,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
19,158 |
|
|
$ |
16,221 |
|
|
$ |
36,102 |
|
|
$ |
31,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
$ |
0.51 |
|
|
$ |
0.46 |
|
Diluted earnings per common share
|
|
$ |
0.27 |
|
|
$ |
0.23 |
|
|
$ |
0.50 |
|
|
$ |
0.45 |
|
Return on average assets
|
|
|
1.00 |
% |
|
|
1.06 |
% |
|
|
0.96 |
% |
|
|
1.04 |
% |
Return on average common shareholders equity
|
|
|
12.88 |
% |
|
|
12.66 |
% |
|
|
12.28 |
% |
|
|
12.35 |
% |
Net income was $19.2 million and $16.2 million and
diluted earnings per common share was $0.27 and $0.23 for the
three months ended June 30, 2005 and 2004, respectively.
For the six months ended June 30, 2005, net income was
$36.1 million ($0.50 per diluted common share),
compared with $31.5 million ($0.45 per diluted common
share) for the same period in 2004, an increase of 15%. This
increase in net income was primarily the result of loan growth,
increases in fee income, and the maintenance of strong asset
quality offset by increases in operating expenses resulting from
the Companys mergers with Reunion Bancshares, Inc.
(Reunion) and Klein Bancshares, Inc.
(Klein) during 2004 and normal operating expense
increases to support the Companys growth. Returns on
average assets were 1.00% and 1.06% and returns on average
common shareholders equity were 12.88% and 12.66% for the
three months ended June 30, 2005 and 2004, respectively.
For the six months ended June 30, 2005, return on average
assets and return on average common shareholders equity
was 0.96% and 12.28%, respectively, compared with 1.04% and
12.35% for the six months ended June 30, 2004. Return on
average assets and return on average common shareholders
equity in 2005 were negatively impacted by the decline in the
net interest margin, merger-related expenses, and expenses
related to the name change as discussed below. Return on average
assets is calculated by dividing net income by the daily average
of total assets. Return on average common shareholders
equity is calculated by dividing net income by the daily average
of common shareholders equity.
Total assets at June 30, 2005 and December 31, 2004
were $7.74 billion and $7.51 billion, respectively.
This growth was a result of a favorable local economy and the
Companys overall growth strategy. Loans were
$4.84 billion at June 30, 2005, an increase of
$190.9 million, or 4%, from $4.65 billion at
December 31, 2004. Deposits increased to $5.90 billion
at June 30, 2005 from $5.62 billion at
December 31, 2004.
Two principal components of the Companys growth strategy
are expansion through de novo branching and strategic
merger transactions. During 2004, two new branches were opened
in the Houston metropolitan area. The merger with Reunion,
closed on January 31, 2004, added five branch locations in
Dallas and initiated the Companys entry into the important
Dallas-Fort Worth Metroplex market. The Company opened an
operations center in Dallas during the second quarter of 2004 to
enable it to offer its treasury management products to
commercial businesses in that market. The merger with Klein,
closed on October 1, 2004, added 27 branches in the
attractive northwest quadrant of the Houston metropolitan area
to the Companys branch network, bringing the total number
of branches to 78 at June 30, 2005.
22
Taxable-equivalent net interest income increased
$8.3 million, or 15%, to $63.9 million for the quarter
ended June 30, 2005 compared with $55.6 million for
the quarter ended June 30, 2004. This increase was
primarily the result of the Companys internal loan growth
coupled with loans acquired through the mergers with Reunion and
Klein. Average loans outstanding were $4.76 billion and
$3.87 billion during the quarters ended June 30, 2005
and 2004, respectively, an increase of $888.3 million, or
23%. Average investment securities were $2.00 billion and
$1.63 billion during the quarters ended June 30, 2005
and 2004, respectively, an increase of $367.4 million, or
23%. This increase in investment securities also contributed to
the increase in net interest income.
Taxable-equivalent net interest income increased
$18.4 million, or 17%, to $127.7 million for the six
months ended June 30, 2005, compared with
$109.3 million for the six months ended June 30, 2004.
This increase was primarily the result of the Companys
internal loan growth coupled with loans acquired through the
mergers with Reunion and Klein. Average loans outstanding were
$4.72 billion and $3.79 billion during the six months
ended June 30, 2005 and 2004, respectively, an increase of
$937.0 million, or 25%. Average investment securities were
$1.98 billion and $1.59 billion during the six months
ended June 30, 2005 and 2004, respectively, an increase of
$384.6 million, or 24%. This increase in investment
securities also contributed to the increase in net interest
income.
Noninterest income was $31.6 million and $22.5 million
for the three months ended June 30, 2005 and 2004,
respectively, an increase of $9.1 million, or 40%. For the
six months ended June 30, 2005, noninterest income
increased $15.9 million, or 36%, to $60.3 million,
compared with $44.4 million for the same period last year.
Noninterest income continues to be an important component of the
Companys net income and comprises 34% and 33% of total
revenue, defined as net interest income plus noninterest income,
for the three and six months ended June 30, 2005,
respectively. The primary drivers of the increase were increased
income from the trust, investment, and foreign exchange groups,
increased fee income from loan operations and retail services,
and valuation gains from the private equity investment
portfolio. Other operating income was $5.9 million and
$1.3 million for the three months ended June 30, 2005
and 2004, respectively, an increase of $4.6 million. For
the six months ended June 30, 2005 and 2004, other
operating income was $10.0 million and $2.6 million,
respectively, an increase of $7.4 million. The increase in
other operating income was primarily due to valuation gains of
$4.6 million from the private equity investment portfolio
in the second quarter of 2005. In addition, the Company recorded
an $1.0 million gain on the sale of the Companys
interest in the PULSE network and a gain of $1.2 million on
the sale of an unused drive-through facility in downtown Houston
in of 2005.
Noninterest expenses were $66.3 million and
$50.2 million for the three months ended June 30, 2005
and 2004, respectively. Noninterest expenses increased
$30.1 million, or 30%, to $130.5 million for the six
months ended June 30, 2005, compared with
$100.3 million for the same period last year. The primary
causes of the increase in noninterest expenses were the
Companys merger activity, expenses related to the Dallas
operations center which opened in the second quarter of 2004,
expenses related to the name change, increased loan and other
real estate owned expenses, and normal operating expense
increases to support the increase in the levels of the
Companys business. The Company incurred $759,000 and
$1.5 million of merger-related expenses and
$1.7 million and $3.8 million of expenses related to
the change in its name in the three-and six-month periods ended
June 30, 2005, respectively. In addition, the Company
continues to invest in its technology infrastructure and
personnel to accommodate the growth in its various business
activities, including the sale of treasury management products
and services, and to continually upgrade its capabilities to
meet customer and data security requirements.
Credit quality is an area of importance to the Company, and
asset quality indicators remained positive in the second quarter
of 2005. For the three months ended June 30, 2005,
annualized net charge-offs were 0.14% of average loans, compared
with net charge-offs of 0.38% for the corresponding period in
the prior year. For the six months ended June 30, 2005, net
charge-offs were 0.21% of average loans, compared with 0.14% for
the same period in 2004. Nonperforming assets to total loans and
other real estate was 0.44% at June 30, 2005, an
improvement from 0.61% at June 30, 2004. The allowance for
loan losses to nonperforming loans was 347.61% at June 30,
2005, compared with 368.21% at June 30, 2004. See
Financial Condition Loans Held for
Investment for information on the composition of the loan
portfolio.
23
The Companys capital position remains strong and in excess
of the regulatory minimums required to be classified as
well capitalized. Its Tier 1 capital ratio of
9.14% and Total Capital ratio of 11.04% were augmented by the
issuance of $35.0 million in trust preferred securities
issued by SWBT Statutory Trust II in September 2004 and
$60.0 million in trust preferred securities issued by SWBT
Statutory Trust III in December 2004 (neither of which are
consolidated for reporting purposes) and the issuance of
$75.0 million of senior subordinated debentures in
September 2004. The proceeds of these issuances were used to
fund the merger with Klein and to augment the Companys
capital to support the growth in its loan portfolio. See
Financial Condition
Liquidity.
Net interest income represents the amount by which interest
income on interest-earning assets, primarily securities and
loans, exceeds interest expense incurred on interest-bearing
liabilities, including deposits and borrowed funds. Net interest
income, the principal source of the Companys earnings,
provided 66% of the Companys total revenues for the
quarter ended June 30, 2005, compared with 71% for the
corresponding period in the prior year. For the six months ended
June 30, 2005, net interest income provided 67% of the
Companys total revenues, compared with 71% for the
corresponding period in the prior year. Changes in the level of
interest rates, as influenced by the Federal Reserve
Boards monetary policies, as well as changes in the amount
and type of interest-earning assets and interest-bearing
liabilities, combine to affect net interest income.
Taxable-equivalent net interest income was $63.9 million
and $55.6 million for the three months ended June 30,
2005 and 2004, respectively, an increase of $8.3 million,
or 15%. Growth in average interest-earning assets, primarily
loans, was $1.26 billion, or 23%, while taxable-equivalent
yields on interest-earning assets increased 77 basis points
to 5.61%. For the quarter ended June 30, 2005, the growth
in interest-earning assets, primarily loans, generated a
$15.4 million increase in taxable-equivalent interest
income. The increase in the taxable-equivalent yield on
interest-earning assets contributed a $13.1 million
increase in taxable-equivalent interest income. The impact of
the growth in average interest-earning assets and the increased
yield was partially offset by an increase in the cost of average
interest bearing liabilities of 128 basis points to 2.38%
for the quarter ended June 30, 2005, compared with 1.10%
during the corresponding period in 2004. This increase in rate
generated $16.0 million in interest expense in the second
quarter of 2005. The combined effect of the growth in
interest-earning assets, the increase in the taxable-equivalent
yield on interest-earning assets, the flattening of the yield
curve, and the increase in cost of interest-bearing liabilities
was an 26 basis point decline in the taxable-equivalent net
interest margin for the quarter ended June 30, 2005 to
3.77%, compared with 4.03% for the corresponding period in 2004.
For the six months ended June 30, 2005, taxable-equivalent
net interest income was $127.7 million, compared with
$109.3 million for the corresponding period in 2004, an
increase of $18.4 million, or 17%. Growth in average
interest-earning assets, primarily loans, was
$1.31 billion, or 24%, while taxable-equivalent yields on
interest-earning assets increased 64 basis points to 5.50%.
For the six months ended June 30, 2005, the growth in
interest-earning assets, primarily loans, generated a
$32.3 million increase in taxable-equivalent interest
income. The increase in the taxable-equivalent yield on
interest-earning assets contributed a $21.1 million
increase in taxable-equivalent interest income. The impact of
the growth in average interest-earning assets and the increased
yield was partially offset by an increase in the cost of average
interest bearing liabilities of 108 basis points to 2.18%
for the six months ended June 30, 2005, compared with 1.10%
during the corresponding period in 2004. This increase in rate
generated $26.7 million in interest expense in the six
months ended June 30, 2005. The combined effect of the
growth in interest-earning assets, the increase in the
taxable-equivalent yield on interest-earning assets, the
flattening of the yield curve, and the increase in cost of
interest-bearing liabilities was a 22 basis point decline
in the taxable-equivalent net interest margin for the six months
ended June 30, 2005 to 3.82%, compared with 4.04% for the
corresponding period in 2004.
Net interest margin risk is typically related to a narrowing of
the margin between the yield on interest-earning assets and the
cost of interest-bearing liabilities as the level of market
interest rates changes and changes occur both in the business
mix and the rate of growth of the Companys loan and
securities portfolios and the mix and cost of its sources of
liabilities used to fund its earning assets. The Company
mitigates this
24
risk with asset and liability policies designed to maximize net
interest income and the net present value of future cash flows
within authorized risk limits by managing the changes in its
deposit and loan pricing, seeking to manage the repricing
profile of its interest-bearing liabilities and its
interest-earning loan portfolio, and by managing the composition
and maturity profile of its securities portfolio. The growth in
interest-earning assets, primarily loans, continues to outpace
the growth in internally generated deposits, resulting in an
increased reliance on higher cost wholesale funding sources to
support this growth. As the market level of interest rates
changes, wholesale funding sources typically will reprice more
rapidly than core deposits.
The following table presents, for the periods indicated, the
total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the
interest expense on average interest-earning liabilities,
expressed both in dollars and rates. Income and yield on
interest-earning assets include amounts to convert tax-exempt
income to a taxable-equivalent basis, assuming a 35% tax rate.
All average balances are daily average balances. Nonaccruing
loans have been included in the table as loans carrying a zero
yield. Interest on nonaccruing loans is included to the extent
it is received. The yield on the securities portfolio is based
on average historical cost balances and does not give effect to
changes in fair value that are reflected as a component of
consolidated shareholders equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Average | |
|
Interest | |
|
Average | |
|
Average | |
|
Interest | |
|
Average | |
|
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
|
Balance | |
|
Paid(1) | |
|
Rate | |
|
Balance | |
|
Paid(1) | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
4,761,471 |
|
|
$ |
73,114 |
|
|
|
6.16 |
% |
|
$ |
3,873,174 |
|
|
$ |
50,677 |
|
|
|
5.26 |
% |
|
Securities
|
|
|
1,996,238 |
|
|
|
21,641 |
|
|
|
4.35 |
|
|
|
1,628,789 |
|
|
|
15,890 |
|
|
|
3.92 |
|
|
Federal funds sold and other
|
|
|
43,514 |
|
|
|
338 |
|
|
|
3.12 |
|
|
|
42,375 |
|
|
|
119 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
6,801,223 |
|
|
|
95,093 |
|
|
|
5.61 |
% |
|
|
5,544,338 |
|
|
|
66,686 |
|
|
|
4.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(50,833 |
) |
|
|
|
|
|
|
|
|
|
|
(49,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,750,390 |
|
|
|
|
|
|
|
|
|
|
|
5,494,680 |
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
906,569 |
|
|
|
|
|
|
|
|
|
|
|
686,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
7,656,959 |
|
|
|
|
|
|
|
|
|
|
$ |
6,181,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and savings deposits
|
|
$ |
2,317,533 |
|
|
|
9,040 |
|
|
|
1.56 |
% |
|
$ |
2,052,257 |
|
|
|
3,353 |
|
|
|
0.66 |
% |
|
Time deposits
|
|
|
1,564,356 |
|
|
|
11,448 |
|
|
|
2.94 |
|
|
|
1,065,937 |
|
|
|
5,055 |
|
|
|
1.91 |
|
|
Repurchase agreements and other borrowed funds
|
|
|
1,372,552 |
|
|
|
10,661 |
|
|
|
3.12 |
|
|
|
940,165 |
|
|
|
2,660 |
|
|
|
1.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
5,254,441 |
|
|
|
31,149 |
|
|
|
2.38 |
% |
|
|
4,058,359 |
|
|
|
11,068 |
|
|
|
1.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
1,765,836 |
|
|
|
|
|
|
|
|
|
|
|
1,574,075 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
40,155 |
|
|
|
|
|
|
|
|
|
|
|
33,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,060,432 |
|
|
|
|
|
|
|
|
|
|
|
5,666,258 |
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
596,527 |
|
|
|
|
|
|
|
|
|
|
|
515,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
7,656,959 |
|
|
|
|
|
|
|
|
|
|
$ |
6,181,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent net interest income
|
|
|
|
|
|
$ |
63,944 |
|
|
|
|
|
|
|
|
|
|
$ |
55,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.23 |
% |
|
|
|
|
|
|
|
|
|
|
3.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.77 |
% |
|
|
|
|
|
|
|
|
|
|
4.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
(1) |
For analytical purposes, income from tax-exempt assets,
primarily securities issued by state and local governments or
authorities, is adjusted by an increment that equates tax-exempt
income to income from taxable assets assuming a 35% federal
income tax rate. The following is a reconciliation of
taxable-equivalent net interest income to net interest income,
as reported: |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Taxable-equivalent net interest income
|
|
$ |
63,944 |
|
|
$ |
55,618 |
|
Taxable-equivalent adjustment
|
|
|
(1,560 |
) |
|
|
(1,401 |
) |
|
|
|
|
|
|
|
|
Net interest income, as reported
|
|
$ |
62,384 |
|
|
$ |
54,217 |
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Average | |
|
Interest | |
|
Average | |
|
Average | |
|
Interest | |
|
Average | |
|
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
Outstanding | |
|
Earned/ | |
|
Yield/ | |
|
|
Balance | |
|
Paid(1) | |
|
Rate | |
|
Balance | |
|
Paid(1) | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
4,722,238 |
|
|
$ |
140,527 |
|
|
|
6.00 |
% |
|
$ |
3,785,214 |
|
|
$ |
99,678 |
|
|
|
5.30 |
% |
|
Securities
|
|
|
1,976,870 |
|
|
|
42,804 |
|
|
|
4.37 |
|
|
|
1,592,290 |
|
|
|
31,341 |
|
|
|
3.96 |
|
|
Federal funds sold and other
|
|
|
43,827 |
|
|
|
621 |
|
|
|
2.86 |
|
|
|
58,481 |
|
|
|
308 |
|
|
|
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
6,742,935 |
|
|
|
183,952 |
|
|
|
5.50 |
% |
|
|
5,435,985 |
|
|
|
131,327 |
|
|
|
4.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less allowance for loan losses
|
|
|
(50,748 |
) |
|
|
|
|
|
|
|
|
|
|
(47,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,692,187 |
|
|
|
|
|
|
|
|
|
|
|
5,388,271 |
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
914,526 |
|
|
|
|
|
|
|
|
|
|
|
716,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
7,606,713 |
|
|
|
|
|
|
|
|
|
|
$ |
6,104,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and savings deposits
|
|
$ |
2,341,021 |
|
|
|
16,053 |
|
|
|
1.38 |
% |
|
$ |
2,012,728 |
|
|
|
6,561 |
|
|
|
0.66 |
% |
|
Time deposits
|
|
|
1,447,413 |
|
|
|
19,930 |
|
|
|
2.78 |
|
|
|
1,035,563 |
|
|
|
9,917 |
|
|
|
1.93 |
|
|
Repurchase agreements and other borrowed funds
|
|
|
1,425,922 |
|
|
|
20,282 |
|
|
|
2.87 |
|
|
|
974,197 |
|
|
|
5,592 |
|
|
|
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
5,214,356 |
|
|
|
56,265 |
|
|
|
2.18 |
% |
|
|
4,022,488 |
|
|
|
22,070 |
|
|
|
1.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
1,762,810 |
|
|
|
|
|
|
|
|
|
|
|
1,532,569 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
36,635 |
|
|
|
|
|
|
|
|
|
|
|
36,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,013,801 |
|
|
|
|
|
|
|
|
|
|
|
5,591,548 |
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
592,912 |
|
|
|
|
|
|
|
|
|
|
|
513,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
7,606,713 |
|
|
|
|
|
|
|
|
|
|
$ |
6,104,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent net interest income
|
|
|
|
|
|
$ |
127,687 |
|
|
|
|
|
|
|
|
|
|
$ |
109,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.32 |
% |
|
|
|
|
|
|
|
|
|
|
3.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable-equivalent net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.82 |
% |
|
|
|
|
|
|
|
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
For analytical purposes, income from tax-exempt assets,
primarily securities issued by state and local governments or
authorities, is adjusted by an increment that equates tax-exempt
income to income from taxable assets assuming a 35% federal
income tax rate. The following is a reconciliation of
taxable-equivalent net interest income to net interest income,
as reported: |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Taxable-equivalent net interest income
|
|
$ |
127,687 |
|
|
$ |
109,257 |
|
Taxable-equivalent adjustment
|
|
|
(3,106 |
) |
|
|
(2,442 |
) |
|
|
|
|
|
|
|
|
Net interest income, as reported
|
|
$ |
124,581 |
|
|
$ |
106,815 |
|
|
|
|
|
|
|
|
27
The following table presents the dollar amount of changes in
interest income and interest expense for the major components of
interest-earning assets and interest-bearing liabilities and
distinguishes between the increase (decrease) related to
outstanding balances, the volatility of interest rates, and the
change in number of days due to leap year. For purposes of this
table, changes attributable to both rate and volume which cannot
be segregated have been allocated proportionately to the change
due to volume and the change due to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, 2005 vs. 2004 | |
|
June 30, 2005 vs. 2004 | |
|
|
Increase (Decrease) Due to | |
|
Increase (Decrease) Due to | |
|
|
| |
|
| |
|
|
Volume | |
|
Rate | |
|
Total | |
|
Volume | |
|
Rate | |
|
Days | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
11,727 |
|
|
$ |
10,710 |
|
|
$ |
22,437 |
|
|
$ |
24,770 |
|
|
$ |
16,627 |
|
|
$ |
(548 |
) |
|
$ |
40,849 |
|
Securities
|
|
|
3,622 |
|
|
|
2,129 |
|
|
|
5,751 |
|
|
|
7,604 |
|
|
|
4,031 |
|
|
|
(172 |
) |
|
|
11,463 |
|
Federal funds sold and other
|
|
|
3 |
|
|
|
216 |
|
|
|
219 |
|
|
|
(77 |
) |
|
|
392 |
|
|
|
(2 |
) |
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in taxable-equivalent interest income
|
|
|
15,352 |
|
|
|
13,055 |
|
|
|
28,407 |
|
|
|
32,297 |
|
|
|
21,050 |
|
|
|
(722 |
) |
|
|
52,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market and savings deposits
|
|
|
436 |
|
|
|
5,252 |
|
|
|
5,688 |
|
|
|
1,069 |
|
|
|
8,459 |
|
|
|
(36 |
) |
|
|
9,492 |
|
Time deposits
|
|
|
2,375 |
|
|
|
4,018 |
|
|
|
6,393 |
|
|
|
3,944 |
|
|
|
6,123 |
|
|
|
(54 |
) |
|
|
10,013 |
|
Repurchase agreements and borrowed funds
|
|
|
1,228 |
|
|
|
6,773 |
|
|
|
8,001 |
|
|
|
2,589 |
|
|
|
12,132 |
|
|
|
(31 |
) |
|
|
14,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in interest expense
|
|
|
4,039 |
|
|
|
16,043 |
|
|
|
20,082 |
|
|
|
7,602 |
|
|
|
26,714 |
|
|
|
(121 |
) |
|
|
34,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in taxable-equivalent net interest income
|
|
$ |
11,313 |
|
|
$ |
(2,988 |
) |
|
$ |
8,325 |
|
|
$ |
24,695 |
|
|
$ |
(5,664 |
) |
|
$ |
(601 |
) |
|
$ |
18,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses |
The provision for loan losses is determined by management as the
amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level
which, in managements best estimate, is necessary to
absorb probable losses within the existing loan portfolio. The
provision for loan losses was $1.5 million and
$2.9 million for the three months ended June 30, 2005
and 2004, respectively. The provision for loan losses was
$4.6 million for the six months ended June 30, 2005
compared with $4.8 million for the six months ended
June 30, 2004. Management regularly reviews the
Companys loan loss allowance in accordance with its
standard procedures. See Financial
Condition Allowance for Loan Losses.
28
Noninterest income for the three months ended June 30, 2005
was $31.6 million, an increase of $9.1 million, or
40%, from $22.5 million during the comparable period in
2004. Noninterest income for the six months ended June 30,
2005 was $60.3 million, an increase of $15.9 million,
or 36%, from $44.4 million during the comparable period in
2004. The following table shows the breakout of noninterest
income between the bank and the mortgage company for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
Six Months Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Bank | |
|
Mortgage | |
|
Combined | |
|
Bank | |
|
Mortgage | |
|
Combined | |
|
Bank | |
|
Mortgage | |
|
Combined | |
|
Bank | |
|
Mortgage | |
|
Combined | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Service charges on deposit accounts
|
|
$ |
10,662 |
|
|
$ |
|
|
|
$ |
10,662 |
|
|
$ |
11,190 |
|
|
$ |
|
|
|
$ |
11,190 |
|
|
$ |
22,009 |
|
|
$ |
|
|
|
$ |
22,009 |
|
|
$ |
22,230 |
|
|
$ |
|
|
|
$ |
22,230 |
|
Investment services
|
|
|
4,642 |
|
|
|
|
|
|
|
4,642 |
|
|
|
2,885 |
|
|
|
|
|
|
|
2,885 |
|
|
|
8,247 |
|
|
|
|
|
|
|
8,247 |
|
|
|
5,855 |
|
|
|
|
|
|
|
5,855 |
|
Factoring fee income
|
|
|
1,252 |
|
|
|
|
|
|
|
1,252 |
|
|
|
891 |
|
|
|
|
|
|
|
891 |
|
|
|
2,326 |
|
|
|
|
|
|
|
2,326 |
|
|
|
1,845 |
|
|
|
|
|
|
|
1,845 |
|
Loan fee income
|
|
|
1,719 |
|
|
|
530 |
|
|
|
2,249 |
|
|
|
768 |
|
|
|
381 |
|
|
|
1,149 |
|
|
|
3,137 |
|
|
|
1,279 |
|
|
|
4,416 |
|
|
|
1,421 |
|
|
|
852 |
|
|
|
2,273 |
|
Bank-owned life insurance income
|
|
|
1,946 |
|
|
|
|
|
|
|
1,946 |
|
|
|
1,906 |
|
|
|
|
|
|
|
1,906 |
|
|
|
3,582 |
|
|
|
|
|
|
|
3,582 |
|
|
|
3,397 |
|
|
|
|
|
|
|
3,397 |
|
Letters of credit fee income
|
|
|
1,555 |
|
|
|
|
|
|
|
1,555 |
|
|
|
1,006 |
|
|
|
|
|
|
|
1,006 |
|
|
|
2,794 |
|
|
|
|
|
|
|
2,794 |
|
|
|
1,868 |
|
|
|
|
|
|
|
1,868 |
|
Mortgage servicing fees, net of amortization
|
|
|
12 |
|
|
|
414 |
|
|
|
426 |
|
|
|
|
|
|
|
168 |
|
|
|
168 |
|
|
|
12 |
|
|
|
774 |
|
|
|
786 |
|
|
|
|
|
|
|
358 |
|
|
|
358 |
|
Gain on sale of loans, net
|
|
|
356 |
|
|
|
79 |
|
|
|
435 |
|
|
|
|
|
|
|
215 |
|
|
|
215 |
|
|
|
1,027 |
|
|
|
102 |
|
|
|
1,129 |
|
|
|
65 |
|
|
|
385 |
|
|
|
450 |
|
Gain (loss) on sale of securities, net
|
|
|
(17 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Other income
|
|
|
8,294 |
|
|
|
122 |
|
|
|
8,416 |
|
|
|
2,796 |
|
|
|
333 |
|
|
|
3,129 |
|
|
|
14,833 |
|
|
|
231 |
|
|
|
15,064 |
|
|
|
5,659 |
|
|
|
466 |
|
|
|
6,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$ |
30,421 |
|
|
$ |
1,145 |
|
|
$ |
31,566 |
|
|
$ |
21,417 |
|
|
$ |
1,097 |
|
|
$ |
22,514 |
|
|
$ |
57,952 |
|
|
$ |
2,386 |
|
|
$ |
60,338 |
|
|
$ |
42,341 |
|
|
$ |
2,061 |
|
|
$ |
44,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking Segment. The largest component of noninterest
income is service charges on deposit accounts, which were
$10.7 million for the three months ended June 30,
2005, a decrease of $528,000, or 5%, from $11.2 million for
the corresponding period in 2004. Service charges on deposit
accounts were $22.0 million for the six months ended
June 30, 2005, a decrease of $221,000, or 1%, from
$22.2 million for the corresponding period in 2004. Net
non-sufficient fund charges on deposit accounts were
$6.2 million for the three months ended June 30, 2005,
an increase of $811,000, or 15%, from $5.4 million for the
corresponding period in 2004. For the six months ended
June 30, 2005, such charges were $12.2 million, an
increase of $1.8 million, or 17%, from $10.4 million
for the six months ended June 30, 2004. This increase in
net non-sufficient fund charges was offset by a decrease in
service charges from commercial analysis and fee income of
$1.4 million, or 28%, to $3.4 million for the quarter
ended June 30, 2005, compared with $4.8 million for
the corresponding period in 2004. For the six months ended
June 30, 2005, services charges on commercial analysis and
fee income decreased $2.1 million, or 21%, to
$7.8 million, compared with $9.8 million for the
corresponding period in 2004. This decrease is primarily due to
an increase in the earnings credit rate. The earnings credit
rate is based on the 90 day Treasury bill rate and is the
value given to deposits maintained by customers using treasury
management products. As the earnings credit rate has increased
since 2004, the corresponding value given to deposits has
increased resulting in customers being able to pay for more
services with balances rather than fees.
Investment services income was $4.6 million for the three
months ended June 30, 2005, an increase of
$1.8 million, or 61%, from $2.9 million for the
corresponding period in 2004. For the six months ended
June 30, 2005, investment services income was
$8.2 million, an increase of $2.4 million, or 41%,
from $5.9 million for the six months ended June 30,
2004. This increase is mainly due to increases in foreign
exchange and mutual fund sales and fees.
Loan fee income was $1.7 million for the three months ended
June 30, 2005, an increase of $951,000, or 124%, from
$768,000 for the corresponding period in 2004. For the six
months ended June 30, 2005, loan fee income was
$3.1 million, an increase of $1.7 million, or 121%,
compared with $1.4 million for the six months ended
June 30, 2004. This increase is mainly due to an increase
in fees generated by loan commitments resulting from the
Banks loan growth. During the quarter ended June 30,
2005, the Bank originated $944.0 million in loan
commitments, compared with $835.6 million for the
corresponding period in 2004. For
29
the six months ended June 30, 2005, the Bank originated
$2.02 billion of loan commitments, compared with
$1.59 billion for the corresponding period in 2004.
Other income was $8.3 million for the three months ended
June 30, 2005, an increase of $5.5 million, or 197%,
from the corresponding period in 2004. For the six months ended
June 30, 2005, other income was $14.8 million, an
increase of $9.2 million, or 162%, from $5.7 million
for the six months ended June 30, 2004. This increase is
partially attributable to an increase in valuation gains on the
private equity portfolio. For the three months ended
June 30, 2005, income from this portfolio was
$4.6 million, compared with $108,000 for the corresponding
period in 2004. For the six months ended June 30, 2005,
income from this portfolio was $5.8 million, compared with
$368,000 for the corresponding period in 2004. In addition, the
Bank recognized an $1.0 million gain on the sale of its
interest in the PULSE network and recognized a $1.2 million
gain on the sale of an unused drive-through facility in downtown
Houston in 2005.
Mortgage Segment. Loan fee income was $530,000 for the
three months ended June 30, 2005, an increase of $149,000,
or 39%, from the corresponding period in 2004. For the six
months ended June 30, 2005, loan fee income was
$1.3 million, an increase of $427,000, compared with
$852,000 for the six months ended June 30, 2004. This
increase is attributable to an increase in commercial loan
originations to $44.9 million for the quarter ended
June 30, 2005, compared with $33.8 million for the
corresponding period in 2004. For the six months ended
June 30, 2005, the mortgage segment originated
$136.5 million of commercial loans, compared with $38.1 for
the corresponding period in 2004.
Mortgage servicing fee income, net of amortization, was $414,000
for the three months ended June 30, 2005, an increase of
$246,000, or 146%, from the corresponding period in 2004. For
the six months ended June 30, 2005, mortgage servicing fee
income, net of amortization, was $774,000, an increase of
$416,000, or 116%, from the corresponding period in 2004. This
increase in mortgage servicing fee income is attributable to a
reduction in amortization of capitalized mortgage servicing
costs. Capitalized mortgage servicing costs are expensed against
the related fee income as the underlying loans are paid off. See
Note 5 Mortgage Servicing Rights in
the accompanying notes to the condensed consolidated financial
statements included elsewhere in this report.
The following table presents the detail of noninterest expenses
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
| |
|
| |
|
|
June 30, | |
|
June 30, | |
|
June 30, | |
|
June 30, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Salaries and employee benefits
|
|
$ |
34,739 |
|
|
$ |
28,458 |
|
|
$ |
69,468 |
|
|
$ |
56,439 |
|
Occupancy
|
|
|
10,780 |
|
|
|
8,887 |
|
|
|
21,384 |
|
|
|
17,145 |
|
Marketing and advertising
|
|
|
2,113 |
|
|
|
1,044 |
|
|
|
4,041 |
|
|
|
2,093 |
|
Professional services
|
|
|
3,716 |
|
|
|
2,780 |
|
|
|
7,035 |
|
|
|
5,100 |
|
Core deposit intangible amortization expense
|
|
|
2,171 |
|
|
|
1,008 |
|
|
|
4,419 |
|
|
|
1,911 |
|
Other operating expenses
|
|
|
12,768 |
|
|
|
8,052 |
|
|
|
24,112 |
|
|
|
17,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
$ |
66,287 |
|
|
$ |
50,229 |
|
|
$ |
130,459 |
|
|
$ |
100,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2005, noninterest
expenses were $66.3 million, an increase of
$16.1 million, or 32%, from $50.2 million for the
three months ended June 30, 2004. For the six months ended
June 30, 2004, noninterest expenses were
$130.5 million, an increase of $30.1 million, or 30%,
from the six months ended June 30, 2004. The increase in
noninterest expenses was primarily due to salaries and employee
benefits, occupancy expenses, marketing and advertising, core
deposit intangible amortization expense, professional expenses,
and operating expenses primarily related to the mergers with
Reunion and Klein, the hiring of additional personnel, the name
change, and additional investments required to accommodate the
Companys growth.
30
Salaries and employee benefits for the three months ended
June 30, 2005 were $34.7 million, an increase of
$6.3 million, or 22%, from $28.5 million for the three
months ended June 30, 2004. For the six months ended
June 30, 2005, salaries and employee benefits were
$69.5 million, an increase of $13.0 million, or 23%,
from $56.4 million for the six months ended June 30,
2004. Total full-time equivalent employees were 2,180 and 1,830
at June 30, 2005 and 2004, respectively.
Occupancy expense for the three months ended June 30, 2005
was $10.8 million, an increase of $1.9 million, or
21%, from $8.9 million for the three months ended
June 30, 2004. For the six months ended June 30, 2005,
occupancy expense was $21.4 million, an increase of
$4.2 million, or 25%, from $17.1 million for the six
months ended June 30, 2004. Major categories within
occupancy expense are building lease expense, depreciation
expense, and maintenance contract expense. Building lease
expense increased $405,000, or 32%, to $1.7 million for the
three months ended June 30, 2005. For the six months ended
June 30, 2005, building lease expense was
$3.3 million, an increase of $691,000, or 26%, from
$2.6 million for the six months ended June 30, 2004.
Depreciation expense for the three months ended June 30,
2005 was $4.4 million, an increase of $787,000, or 22%,
from $3.6 million for the three months ended June 30,
2004. For the six months ended June 30, 2005, depreciation
expense was $8.7 million, an increase of $1.7 million,
or 24%, from $7.0 million for the six months ended
June 30, 2004. Maintenance contract expense for the three
months ended June 30, 2005 was $1.7 million, an
increase of $56,000, or 3%, compared with $1.7 million for
the corresponding period in 2004. For the six months ended
June 30, 2005, maintenance contract expense was
$3.4 million, an increase of $321,000, or 10%, from
$3.1 million for the corresponding period in 2004. The
Company has purchased maintenance contracts for major operating
systems throughout the organization. The Company has also
experienced increases in utility costs and property taxes as a
result of the additional branches acquired through the mergers
with Reunion and Klein.
Marketing and advertising expense for the three months ended
June 30, 2005 was $2.1 million, an increase of
$1.1 million, or 102%, from $1.0 million for the three
months ended June 30, 2004. For the six months ended
June 30, 2005, marketing and advertising expense was
$4.0 million, an increase of $1.9 million, or 93%,
from $2.1 million for the corresponding period in 2004.
This increase is attributable to marketing and advertising
associated with the name change.
Core deposit intangible amortization expense for the three
months ended June 30, 2005 was $2.2 million, an
increase of $1.2 million, or 115%, from $1.0 million
for the three months ended June 30, 2004. For the six
months ended June 30, 2005, core deposit intangible
amortization expense was $4.4 million, an increase of
$2.5 million, or 131%, from $1.9 million for the six
months ended June 30, 2004. The core deposit intangible
asset is associated with the Maxim merger that was effective
July 1, 2003, the Reunion merger that was effective
January 31, 2004, and the Klein merger that was effective
October 1, 2004.
Professional services expense for the three months ended
June 30, 2005 was $3.7 million, an increase of
$936,000, or 34%, from $2.8 million for the three months
ended June 30, 2004. For the six months ended June 30,
2005, professional services expense was $7.0 million, an
increase of $1.9 million, or 38%, from $5.1 million
for the six months ended June 30, 2004. Other operating
expenses for the three months ended June 30, 2005 were
$12.8 million, an increase of $4.7 million, or 59%,
from $8.1 million for the three months ended June 30,
2004. For the six months ended June 30, 2005, other
operating expenses were $24.1 million, an increase of
$6.5 million, or 37%, from $17.6 million for the six
months ended June 30, 2004. The increases in professional
services expense and operating expenses are the result of the
mergers with Reunion and Klein and additional investments
required to accommodate the Companys growth.
The taxable-equivalent efficiency ratio is a supplemental
financial measure utilized in managements internal
evaluation of the Company and is not defined under generally
accepted accounting principles. The taxable-equivalent
efficiency ratio is calculated by dividing total noninterest
expenses, excluding intangible amortization expense, by
taxable-equivalent net interest income plus noninterest income,
excluding net security gains (losses). An increase in the
taxable-equivalent efficiency ratio indicates that more
resources are being utilized to generate the same volume of
income, while a decrease would indicate a more efficient
allocation of resources. The Companys taxable-equivalent
efficiency ratios were 67.12% and 62.98% for the three-months
ended June 30, 2005 and 2004, respectively, and 67.03% and
64.05% for the six months ended
31
June 30, 2005 and 2004, respectively. The increase in the
efficiency ratio is primarily a result of the decline in the
taxable-equivalent net interest margin discussed in
Results of Operations Net Interest
Income above and expenses related to merger integration
and the name change as discussed above. This ratio may not be a
comparable measurement among different financial institutions.
Income tax expense includes the regular federal income tax at
the statutory rate, plus the income tax component of the Texas
franchise tax, if applicable. The amount of federal income tax
expense is influenced by the amount of taxable income, the
amount of tax-exempt income, the amount of nondeductible
interest expense, and the amount of other nondeductible
expenses. Taxable income for the income tax component of the
Texas franchise tax is the federal pre-tax income, plus certain
officers salaries, less interest income from federal
securities. For the three months ended June 30, 2005, the
provision for income taxes was $7.0 million, a decrease of
$353,000, or 5%, from the $7.4 million provided for in the
corresponding period in 2004. For the six months ended
June 30, 2005, the provision for income taxes was
$13.8 million, a decrease of $789,000, or 5%, from the
$14.5 million provided for in the corresponding period in
2004. The Companys effective tax rate was 27% for the
three months ended June 30, 2005, compared with 31% for the
corresponding period in 2004. For the six months ended
June 30, 2005, the Companys effective tax rate was
28%, compared with 32% for the corresponding period in 2004. The
reduction in the effective tax rate was the result of increases
in tax-exempt income from Bank-owned life insurance municipal
securities and $450,000 in tax credits received in the second
quarter of 2005.
Financial Condition
|
|
|
Loans Held for Investment |
Loans held for investment were $4.72 billion at
June 30, 2005, an increase of $181.7 million, or 4%,
from $4.54 billion at December 31, 2004.
The following table summarizes the loan portfolio of the Company
by type of loan as of June 30, 2005 and December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Amount | |
|
Percent | |
|
Amount | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
$ |
2,029,166 |
|
|
|
42.98 |
% |
|
$ |
2,048,460 |
|
|
|
45.12 |
% |
|
Construction and land development
|
|
|
923,627 |
|
|
|
19.56 |
|
|
|
796,541 |
|
|
|
17.55 |
|
|
1-4 family residential
|
|
|
760,587 |
|
|
|
16.11 |
|
|
|
729,173 |
|
|
|
16.06 |
|
|
Commercial
|
|
|
785,310 |
|
|
|
16.63 |
|
|
|
755,929 |
|
|
|
16.65 |
|
|
Farmland
|
|
|
10,953 |
|
|
|
0.23 |
|
|
|
13,414 |
|
|
|
0.30 |
|
|
Other
|
|
|
76,773 |
|
|
|
1.63 |
|
|
|
62,889 |
|
|
|
1.39 |
|
Consumer
|
|
|
134,864 |
|
|
|
2.86 |
|
|
|
133,172 |
|
|
|
2.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans held for investment
|
|
$ |
4,721,280 |
|
|
|
100.00 |
% |
|
$ |
4,539,578 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The primary lending focus of the Company is on small- and
medium-sized commercial, construction and land development,
residential mortgage, and consumer loans. The Company offers a
variety of commercial lending products including term loans,
lines of credit, and equipment financing. A broad range of
short- to medium-term commercial loans, both collateralized and
uncollateralized, are made available to businesses for working
capital (including inventory and receivables), business
expansion (including acquisitions of real estate and
improvements), and the purchase of equipment and machinery. The
purpose of a particular loan generally determines its structure.
32
The loan portfolio is concentrated in loans to commercial, real
estate construction, and land development enterprises, with the
balance in residential and consumer loans. While no specific
industry concentration is considered significant, lending
operations are focused primarily on the eight county areas
around Houston, the Dallas-Fort Worth market and other
urban markets in the State of Texas and in the surrounding
region. An economic recession over a prolonged period of time in
the Houston and Dallas-Fort Worth markets could cause
increases in nonperforming assets, thereby causing operating
losses, impairing liquidity and eroding capital. There can be no
assurance that future adverse changes in the local economy would
not have a material adverse effect on the Companys
consolidated financial condition, results of operations or cash
flows.
The Companys commercial loans are generally underwritten
on the basis of the borrowers ability to service such debt
from cash flow. As a general practice, the Company takes as
collateral a lien on any available real estate, equipment,
accounts receivable, inventory, or other assets and personal
guarantees of company owners or project sponsors. Working
capital loans are primarily collateralized by short-term assets,
whereas term loans are primarily collateralized by long-term
assets.
A substantial portion of the Companys real estate loans
consists of loans collateralized by real estate, other assets,
and personal guarantees of company owners or project sponsors.
Additionally, a portion of the Companys lending activity
consists of the origination of single-family residential
mortgage loans collateralized by owner-occupied properties
located in the Companys primary market area. The Company
offers a variety of mortgage loan products which generally are
amortized over 10 to 30 years.
Loans collateralized by single-family residential real estate
are typically originated in amounts of no more than 90% of
appraised value. The Company typically requires mortgage title
insurance in the amount of the loan and hazard insurance in an
amount equal to the replacement value of the dwelling. Although
the contractual loan payment periods for single-family
residential real estate loans are generally for a 10 to
30 year period, such loans often remain outstanding for
significantly shorter periods than their contractual terms. The
Company also offers home improvement loans and home equity loans
collateralized by single-family residential real estate. The
terms of these loans typically range from three to 15 years.
The Company originates residential and commercial mortgage loans
to sell to investors with servicing rights retained. The Company
also provides residential and commercial construction financing
to builders and developers and acts as a broker in the
origination of multi-family and commercial real estate loans.
Residential construction financing to builders generally has
been originated in amounts of no more than 80% of appraised
value. The Company requires a mortgage title binder and
builders risk insurance in the amount of the loan. The
contractual payment terms for residential construction loans are
generally for a six to 18 month period.
Consumer loans originated by the Company include automobile
loans, recreational vehicle loans, boat loans, personal loans
(collateralized and uncollateralized), and deposit account
collateralized loans. The terms of these loans typically range
from 12 to 84 months and vary based upon the nature of
collateral and size of loan.
33
The contractual maturity ranges of the commercial and industrial
and funded real estate construction and land development loan
portfolios and the amount of such loans with fixed interest
rates and floating interest rates in each maturity range as of
June 30, 2005 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
|
| |
|
|
|
|
After One | |
|
|
|
|
One Year | |
|
Through | |
|
After | |
|
|
|
|
or Less | |
|
Five Years | |
|
Five Years | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Commercial and industrial
|
|
$ |
813,097 |
|
|
$ |
952,401 |
|
|
$ |
263,668 |
|
|
$ |
2,029,166 |
|
Real estate construction and land development
|
|
|
471,592 |
|
|
|
430,253 |
|
|
|
21,782 |
|
|
|
923,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,284,689 |
|
|
$ |
1,382,654 |
|
|
$ |
285,450 |
|
|
$ |
2,952,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a fixed interest rate
|
|
$ |
121,606 |
|
|
$ |
334,418 |
|
|
$ |
93,317 |
|
|
$ |
549,341 |
|
Loans with a floating interest rate
|
|
|
1,163,083 |
|
|
|
1,048,236 |
|
|
|
192,133 |
|
|
|
2,403,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,284,689 |
|
|
$ |
1,382,654 |
|
|
$ |
285,450 |
|
|
$ |
2,952,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale of $116.6 million at June 30, 2005
increased from $107.4 million at December 31, 2004.
These loans are primarily single family residential loans and
are carried at the lower of cost or market. The market value of
these loans is impacted by changes in current interest rates. An
increase in interest rates would result in a decrease in the
market value of these loans while a decrease in interest rates
would result in an increase in the market value of these loans.
The business of originating and selling loans is primarily
conducted by the Companys mortgage segment.
|
|
|
Off-Balance Sheet Credit Commitments |
In the normal course of business, the Company becomes a party to
various financial transactions which, in accordance with
generally accepted accounting principles, are not included in
its consolidated balance sheet. These transactions involve
various risks, including market and credit risk. Since these
transactions generally are not funded, they do not necessarily
represent future liquidity requirements. The Company offers
these financial instruments to enable its customers to meet
their financing objectives and to manage their interest rate
risk. Supplying these instruments provides the Company with an
ongoing source of fee income. These financial instruments
include loan commitments and letters of credit. The Company has
commitments to make additional equity investments in enterprises
that primarily make investments in middle market businesses in
the form of debt and equity capital. These financial instruments
involve, to varying degrees, elements of credit risk in excess
of the amounts recognized in the financial statements.
The amount of the Companys financial instruments with
off-balance sheet risk as of June 30, 2005 and
December 31, 2004 is presented below:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
Contract | |
|
Contract | |
|
|
Amount | |
|
Amount | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Unfunded loan commitments including unfunded lines of credit
|
|
$ |
2,867,897 |
|
|
$ |
2,720,246 |
|
Standby letters of credit
|
|
|
418,004 |
|
|
|
352,555 |
|
Commercial letters of credit
|
|
|
18,287 |
|
|
|
19,496 |
|
Unfunded commitments to unconsolidated investees
|
|
|
22,515 |
|
|
|
12,621 |
|
The Companys exposure to credit loss in the event of
nonperformance by the other party to the loan commitments and
letters of credit is limited to the contractual amount of those
instruments. The Company uses the same credit policies in
evaluating loan commitments and letters of credit as it does for
on-balance
34
sheet instruments. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are
expected to expire without being fully drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Standby letters of credit are conditional
commitments by the Company to guarantee the performance of a
customer to a third party. The Company evaluates each
customers credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on managements
credit evaluation of the counterparty. Collateral held varies
but may include certificates of deposit, accounts receivable,
inventory, property, plant and equipment, and real property. As
of June 30, 2005 and December 31, 2004, $285,000 and
$402,000, respectively, has been recorded as a liability for the
fair value of the Companys potential obligations under
these letters of credit.
The Companys loan review procedures include a credit
quality assurance process that includes approval by the Board of
Directors of lending policies and underwriting guidelines, a
loan review department staffed, in part, with federal regulatory
agency experienced personnel, low individual lending limits for
officers, loan committee approval for credit relationships of
$4.0 million and over, and a quality control process for
loan documentation. The Company also maintains a monitoring
process for credit extensions in excess of $100,000. The Company
performs quarterly concentration analyses based on various
factors such as industries, collateral types, business lines,
large credit sizes, international credit exposure and officer
portfolio loads. The Company has established underwriting
guidelines to be followed by its officers. The Company also
monitors its delinquency levels for any negative or adverse
trends. The Company continues to invest in its credit risk
management systems to enhance its risk management capabilities.
The Companys loan portfolio is well diversified by
industry type but is generally concentrated in the eight county
region surrounding Houston that it has defined as its primary
market area. Historically, the Houston metropolitan area has
been affected both positively and negatively by conditions in
the energy industry. The Greater Houston Partnership reports
that approximately 31% of economic activity currently is related
to the upstream energy industry, down from 69% in 1981. Since
the mid-1980s, the economic impact of changes in the
energy industry has been lessened due to the diversification of
the Houston economy driven by growth in such economic entities
as the Texas Medical Center, the Port of Houston, the Johnson
Space Center, and government infrastructure spending to support
the population and job growth in the Houston area. As a result,
the economy of the Companys primary market area has become
increasingly affected by changes in the national and
international economies.
The Company monitors changes in the level of energy prices, real
estate values, borrower collateral, and the level of local,
regional, national, and international economic activity. There
can be no assurance, however, that the Companys loan
portfolio will not become subject to increasing pressures from
deteriorating borrower credit due to changes in general economic
conditions.
|
|
|
Allowance for Credit Losses |
The allowance for credit losses is maintained at a level
considered appropriate by management, based on estimated
probable losses inherent in various on- and off-balance sheet
financial instruments. The Companys allowance for credit
loss methodology is based on guidance provided in SEC Staff
Accounting Bulletin No. 102, Selected Loan Loss
Allowance Methodology and Documentation Issues, and includes
allowance allocations calculated in accordance with
SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118,
and allowance allocations calculated in accordance with
SFAS No. 5, Accounting for Contingencies. The
allowance is established through a provision for credit losses
based on managements evaluation of the risk inherent in
the loan portfolio and in unfunded commitments. The allowance is
increased by provisions charged against current earnings and
reduced by net charge-offs. Loans are charged off when they are
deemed to be uncollectible; recoveries are recorded only when
cash payments are received.
35
At least quarterly, the Companys Allowance for Loan Losses
Committee and the Board Loan Committee review the allowance
for credit losses relative to the risk profile of the
Companys loan portfolio and unfunded commitments. The
allowance is adjusted based on that review if changes are
warranted.
The allowance for loan losses has several components, which
include specific reserves, migration analysis reserves,
qualitative adjustments, a general reserve component, and a
separate reserve for international, cross-border risk (allocated
transfer risk reserve ATRR).
Specific reserves cover those loans that are nonperforming or
impaired. All impaired loans are evaluated per
SFAS No. 114, Accounting by Creditors for
Impairment of a Loan (SFAS No. 114).
For impaired loans greater than or equal to $1.0 million,
an allowance is established when the present value of the
discounted expected cash flows (or collateral value or
observable market price) is lower than the carrying value of
that loan. For impaired loans less than $1.0 million, a
determination is made as to the ultimate collectibility of the
loan and a reserve is established for any expected shortfall.
Migration analysis reserves cover performing loans both
classified and non-classified, excluding those loans
specifically evaluated for impairment reserve applicability. The
migration reserve is established for commercial real estate and
commercial non-real estate loans by analyzing historical loss
experience by internal risk rating. The migration analysis
reserve for consumer loans is established by analyzing
historical loss experience by collateral type.
Qualitative adjustments serve to modify the migration analysis
reserves after considering various internal and external factors
that management believes may have a material impact on the loss
probabilities within the loan portfolio. The qualitative factors
include, but are not limited to, economic factors affecting the
Banks primary market area, changes in the nature and
volume of the loan and lease portfolio, concentrations of credit
within industries and lines of business, the experience level of
the lending management and staff, and the quality of the
Banks credit risk management systems.
The general reserve covers general economic uncertainties, as
well as the imprecision inherent in any loan loss forecasting
methodology. It will vary over time depending on existing
economic, industry, organization, and portfolio conditions.
The qualitative adjustments, ATRR, and general reserve are
allocated to the loan portfolio categories on a risk adjusted,
pro-rata basis utilizing the relative reserve contributions of
each portfolio segment based on the migration analysis.
The Company also maintains a reserve for unfunded lending
commitments to provide for the risk of loss inherent in its
unfunded lending related commitments. In the fourth quarter of
2004, the reserve for unfunded lending commitments was
reclassified from the allowance for loan losses to other
liabilities. Previously reported amounts were reclassified to
conform to the current presentation. The reclassifications had
no effect on net income or shareholders equity.
The allowance for credit losses decreased by $120,000 from
December 31, 2004 as a result of net charge-offs of
$4.8 million, which was greater than the provision for loan
losses of $4.6 million and the provision for unfunded
lending commitments of $108,000. At June 30, 2005, the
allowance for credit losses was 1.06% of period-end loans, a
decrease from 1.11% at December 31, 2004. For the quarter
ended June 30, 2005, annualized net charge-offs to average
loans was 0.14%. For the six months ended June 30, 2005,
annualized net charge-offs to average loans was 0.21%. The
annualized net charge-offs average for all FDIC insured
commercial banks was 0.52% for the quarter ended March 31,
2005.
Management believes that the allowance for credit losses at
June 30, 2005 is adequate to cover probable losses inherent
in the loan and commitment portfolio as of such date. There can
be no assurance, however, that the Company will not sustain
losses in future periods which could be greater than the size of
the allowance as of June 30, 2005.
36
The following table presents, for the periods indicated, an
analysis of the allowance for loan losses and other related data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Allowance for loan losses, beginning balance
|
|
$ |
49,291 |
|
|
$ |
46,583 |
|
|
$ |
49,408 |
|
|
$ |
41,611 |
|
Provision for loan losses
|
|
|
1,500 |
|
|
|
2,923 |
|
|
|
4,600 |
|
|
|
4,832 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
(1,412 |
) |
|
|
(735 |
) |
|
|
(5,282 |
) |
|
|
(1,446 |
) |
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
|
(144 |
) |
|
|
(593 |
) |
|
|
(463 |
) |
|
|
(686 |
) |
|
|
|
Commercial
|
|
|
(342 |
) |
|
|
(2,018 |
) |
|
|
(342 |
) |
|
|
(2,018 |
) |
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(190 |
) |
|
|
(402 |
) |
|
|
(528 |
) |
|
|
(980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(2,088 |
) |
|
|
(3,748 |
) |
|
|
(6,615 |
) |
|
|
(5,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
145 |
|
|
|
18 |
|
|
|
1,222 |
|
|
|
461 |
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
|
43 |
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
114 |
|
|
|
|
|
|
|
119 |
|
|
|
1,700 |
|
|
|
Consumer
|
|
|
175 |
|
|
|
151 |
|
|
|
340 |
|
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
477 |
|
|
|
169 |
|
|
|
1,787 |
|
|
|
2,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(1,611 |
) |
|
|
(3,579 |
) |
|
|
(4,828 |
) |
|
|
(2,632 |
) |
Allowance acquired through mergers and acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, ending balance
|
|
|
49,180 |
|
|
|
45,927 |
|
|
|
49,180 |
|
|
|
45,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for unfunded lending commitments, beginning balance
|
|
|
1,905 |
|
|
|
1,488 |
|
|
|
1,851 |
|
|
|
1,397 |
|
Provision for unfunded lending commitments
|
|
|
54 |
|
|
|
77 |
|
|
|
108 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for unfunded lending commitments, ending balance
|
|
|
1,959 |
|
|
|
1,565 |
|
|
|
1,959 |
|
|
|
1,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$ |
51,139 |
|
|
$ |
47,492 |
|
|
$ |
51,139 |
|
|
$ |
47,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a % of period-end loans
|
|
|
1.02 |
% |
|
|
1.17 |
% |
|
|
1.02 |
% |
|
|
1.17 |
% |
|
as a % of period-end nonperforming loans
|
|
|
347.61 |
% |
|
|
368.21 |
% |
|
|
347.61 |
% |
|
|
368.21 |
% |
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as a % of period-end loans
|
|
|
1.06 |
% |
|
|
1.21 |
% |
|
|
1.06 |
% |
|
|
1.21 |
% |
Net charge-offs as a % of average loans
|
|
|
0.14 |
% |
|
|
0.38 |
% |
|
|
0.21 |
% |
|
|
0.14 |
% |
37
The following table reflects the distribution of the allowance
for loan losses among the various categories of loans based on
collateral types for the dates indicated. The Company has
allocated portions of its allowance for loan losses to cover the
estimated losses inherent in particular risk categories of
loans. This allocation is made for analytical purposes only and
is not necessarily indicative of the categories in which loan
losses may occur. The total allowance is available to absorb
losses from any category of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Percent of | |
|
|
|
Percent of | |
|
|
|
|
Loans to | |
|
|
|
Loans to | |
|
|
Amount | |
|
Total Loans | |
|
Amount | |
|
Total Loans | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Balance of allowance for loan losses applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$ |
24,564 |
|
|
|
42.98 |
% |
|
$ |
26,285 |
|
|
|
45.12 |
% |
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development
|
|
|
7,465 |
|
|
|
19.56 |
|
|
|
7,547 |
|
|
|
17.55 |
|
|
|
|
1-4 family residential
|
|
|
8,356 |
|
|
|
16.11 |
|
|
|
6,569 |
|
|
|
16.06 |
|
|
|
|
Commercial
|
|
|
5,435 |
|
|
|
16.63 |
|
|
|
5,778 |
|
|
|
16.65 |
|
|
|
|
Farmland
|
|
|
195 |
|
|
|
0.23 |
|
|
|
156 |
|
|
|
0.30 |
|
|
|
|
Other
|
|
|
713 |
|
|
|
1.63 |
|
|
|
868 |
|
|
|
1.39 |
|
|
|
Consumer
|
|
|
2,452 |
|
|
|
2.86 |
|
|
|
2,205 |
|
|
|
2.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$ |
49,180 |
|
|
|
100.00 |
% |
|
$ |
49,408 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Assets and Impaired Loans |
Nonperforming assets, which include nonaccrual loans, accruing
loans 90 or more days past due, restructured loans, and other
real estate and foreclosed property, were $21.0 million at
June 30, 2005, compared with $25.1 million at
December 31, 2004. This resulted in a ratio of
nonperforming assets to total loans and other real estate of
0.44% at June 30, 2005, compared with 0.55% at
December 31, 2004. The decrease in nonperforming assets is
primarily due to the partial charge-off of one large commercial
credit and the write down of one foreclosed asset. Nonaccrual
loans, the largest component of nonperforming assets, were
$12.2 million at June 30, 2005 and $14.2 million
December 31, 2004.
The following table presents information regarding nonperforming
assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Nonaccrual loans
|
|
$ |
12,180 |
|
|
$ |
14,174 |
|
Accruing loans 90 or more days past due
|
|
|
1,968 |
|
|
|
2,052 |
|
Restructured loans
|
|
|
|
|
|
|
|
|
Other real estate and foreclosed property
|
|
|
6,807 |
|
|
|
8,887 |
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$ |
20,955 |
|
|
$ |
25,113 |
|
|
|
|
|
|
|
|
Nonperforming assets to total loans and other real estate
|
|
|
0.44 |
% |
|
|
0.55 |
% |
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Loans are designated as
nonaccrual when reasonable doubt exists as to the full
collection of interest and principal. When a loan is placed on
nonaccrual status, all interest previously accrued but not
collected is reversed against current period interest income.
Income on such loans is then recognized only to the extent that
cash is received and where the future collection of interest and
principal is probable. Interest accruals are resumed on such
loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management,
the loans are estimated to be fully collectible as to both
principal and interest. Gross interest income on nonaccrual
loans that would have been recorded had these loans been
performing in
38
accordance with their original terms was $637,000 and $494,000
for the six months ended June 30, 2005 and 2004,
respectively.
The Company regularly updates appraisals on loans collateralized
by real estate, particularly those categorized as nonperforming
loans and potential problem loans. In instances where updated
appraisals reflect reduced collateral values, an evaluation of
the borrowers overall financial condition is made to
determine the need, if any, for possible writedowns or
appropriate additions to the allowance for loan losses.
A loan is considered impaired, based on current information and
events, if management believes that the Company will be unable
to collect all amounts due according to the contractual terms of
the loan agreement. All amounts due according to the contractual
terms means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as
scheduled in the loan agreement. An insignificant delay or
insignificant shortfall in the amount of payment does not
require a loan to be considered impaired. If the measure of the
impaired loan is less than the recorded investment in the loan,
a specific reserve is established for the shortfall as a
component of the Banks allowance for loan loss
methodology. The Company considers all nonaccrual loans to be
impaired.
The following is a summary of loans considered to be impaired:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Impaired loans with no SFAS No. 114 valuation reserve
|
|
$ |
3,590 |
|
|
$ |
4,342 |
|
Impaired loans with a SFAS No. 114 valuation reserve
|
|
|
14,214 |
|
|
|
20,944 |
|
|
|
|
|
|
|
|
|
Total recorded investment in impaired loans
|
|
$ |
17,804 |
|
|
$ |
25,286 |
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans
|
|
$ |
3,959 |
|
|
$ |
5,848 |
|
|
|
|
|
|
|
|
The average recorded investment in impaired loans during the six
months ended June 30, 2005 and the year ended
December 31, 2004 was $21.5 million and
$21.0 million, respectively. No interest income on impaired
loans was recognized during the six months ended June 30,
2005 and 2004.
At the date of purchase, the Company classifies debt and equity
securities into one of three categories: held to maturity,
trading, or available for sale. At each reporting date, the
appropriateness of the classification is reassessed. Investments
in debt securities classified as held to maturity are stated at
cost, increased by accretion of discounts and reduced by
amortization of premiums, both computed by the interest method,
only if management has the positive intent and ability to hold
those securities to maturity. Securities that are bought and
held principally for the purpose of selling them in the near
term are classified as trading and measured at fair value in the
financial statements with unrealized gains and losses included
in earnings. Securities not classified as either held to
maturity or trading are classified as available for sale and
measured at fair value in the financial statements with
unrealized gains and losses reported, net of tax, as a component
of accumulated other comprehensive income (loss) until realized.
Gains and losses on sales of securities are determined using the
specific-identification method.
39
The amortized cost and approximate fair value of securities
classified as available for sale and held to maturity are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Gross Unrealized | |
|
|
|
|
|
Gross Unrealized | |
|
|
|
|
Amortized | |
|
| |
|
|
|
Amortized | |
|
| |
|
|
|
|
Cost | |
|
Gain | |
|
Loss | |
|
Fair Value | |
|
Cost | |
|
Gain | |
|
Loss | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$ |
427,185 |
|
|
$ |
542 |
|
|
$ |
(3,539 |
) |
|
$ |
424,188 |
|
|
$ |
388,061 |
|
|
$ |
246 |
|
|
$ |
(2,623 |
) |
|
$ |
385,684 |
|
|
Mortgage-backed securities
|
|
|
1,169,943 |
|
|
|
1,465 |
|
|
|
(14,769 |
) |
|
|
1,156,639 |
|
|
|
1,237,420 |
|
|
|
3,820 |
|
|
|
(11,076 |
) |
|
|
1,230,164 |
|
|
Municipal securities
|
|
|
250,982 |
|
|
|
8,067 |
|
|
|
(447 |
) |
|
|
258,602 |
|
|
|
246,705 |
|
|
|
7,564 |
|
|
|
(1,392 |
) |
|
|
252,877 |
|
|
Federal Reserve Bank stock
|
|
|
15,223 |
|
|
|
|
|
|
|
|
|
|
|
15,223 |
|
|
|
8,511 |
|
|
|
|
|
|
|
|
|
|
|
8,511 |
|
|
Federal Home Loan Bank stock
|
|
|
24,216 |
|
|
|
|
|
|
|
|
|
|
|
24,216 |
|
|
|
32,772 |
|
|
|
|
|
|
|
|
|
|
|
32,772 |
|
|
Other securities
|
|
|
42,641 |
|
|
|
12 |
|
|
|
|
|
|
|
42,653 |
|
|
|
17,196 |
|
|
|
|
|
|
|
|
|
|
|
17,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$ |
1,930,190 |
|
|
$ |
10,086 |
|
|
$ |
(18,755 |
) |
|
$ |
1,921,521 |
|
|
$ |
1,930,665 |
|
|
$ |
11,630 |
|
|
$ |
(15,091 |
) |
|
$ |
1,927,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$ |
51,040 |
|
|
$ |
593 |
|
|
$ |
|
|
|
$ |
51,633 |
|
|
$ |
58,033 |
|
|
$ |
536 |
|
|
$ |
|
|
|
$ |
58,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$ |
51,040 |
|
|
$ |
593 |
|
|
$ |
|
|
|
$ |
51,633 |
|
|
$ |
58,033 |
|
|
$ |
536 |
|
|
$ |
|
|
|
$ |
58,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table displays the gross unrealized losses and
fair value of investments as of June 30, 2005 that were in
a continuous unrealized loss position for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months | |
|
Greater Than 12 Months | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
|
Unrealized | |
|
|
|
Unrealized | |
|
|
|
Unrealized | |
|
|
Fair Value | |
|
Loss | |
|
Fair Value | |
|
Loss | |
|
Fair Value | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$ |
212,745 |
|
|
$ |
(1,512 |
) |
|
$ |
94,837 |
|
|
$ |
(2,027 |
) |
|
$ |
307,582 |
|
|
$ |
(3,539 |
) |
|
Mortgage-backed securities
|
|
|
565,673 |
|
|
|
(4,418 |
) |
|
|
467,760 |
|
|
|
(10,351 |
) |
|
|
1,033,433 |
|
|
|
(14,769 |
) |
|
Municipal securities
|
|
|
7,075 |
|
|
|
(20 |
) |
|
|
37,315 |
|
|
|
(427 |
) |
|
|
44,390 |
|
|
|
(447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$ |
785,493 |
|
|
$ |
(5,950 |
) |
|
$ |
599,912 |
|
|
$ |
(12,805 |
) |
|
$ |
1,385,405 |
|
|
$ |
(18,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declines in the fair value of individual securities below their
cost that are other than temporary would result in write-downs,
as a realized loss, of the individual securities to their fair
value. Management believes that, based upon the credit quality
of the debt securities and the Companys intent and ability
to hold the securities until their recovery, none of the
unrealized loss on securities should be considered other than
temporary.
Securities were $1.97 billion at June 30, 2005, a
decrease of $12.7 million from $1.99 billion at
December 31, 2004. The taxable-equivalent yield on the
securities portfolio for the six months ended June 30, 2005
was 4.37%, compared with 3.96% for the six months ended
June 30, 2004.
Included in the Companys mortgage-backed securities at
June 30, 2005 were agency issued collateral mortgage
obligations with a book value of $123,000 and a fair value of
$125,000 and non-agency issued collateral mortgage obligations
with a book value of $15.6 million and a fair value of
$15.5 million.
40
At June 30, 2005, $24.6 million of the mortgage-backed
securities held by the Company had estimated maturities of more
than 10 years. At June 30, 2005, approximately
$10.3 million of the Companys mortgage-backed
securities earned interest at floating rates and will reprice
within one year and, accordingly, were less susceptible to
declines in value should interest rates increase.
At June 30, 2005, there were no securities of a single
issuer, other than U.S. government-sponsored agency
securities, which exceeded 10% of shareholders equity.
The following table summarizes the maturity distribution
schedule of investments and their weighted average yields at
June 30, 2005. The yield on the securities portfolio
includes amounts to convert tax-exempt income to a
taxable-equivalent basis, assuming a 35% tax rate.
Mortgage-backed securities are assigned to maturity categories
based on their estimated average lives. Equity securities, which
have no maturity date, are included in the within one year
category. The yield on the securities portfolio is based on
average historical cost balances and does not give effect to
changes in fair value that are reflected as a separate component
of other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
|
| |
|
|
|
|
After One Year but | |
|
After Five Years but | |
|
|
|
|
|
|
Within One Year | |
|
within Five Years | |
|
within Ten Years | |
|
After Ten Years | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Amortized | |
|
|
|
Amortized | |
|
|
|
Amortized | |
|
|
|
Amortized | |
|
|
|
|
|
|
Cost | |
|
Yield(1) | |
|
Cost | |
|
Yield(1) | |
|
Cost | |
|
Yield(1) | |
|
Cost | |
|
Yield(1) | |
|
Total | |
|
Yield(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$ |
1,990 |
|
|
|
2.56 |
% |
|
$ |
399,100 |
|
|
|
3.78 |
% |
|
$ |
26,095 |
|
|
|
4.10 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
427,185 |
|
|
|
3.80 |
% |
Mortgage-backed securities
|
|
|
29,007 |
|
|
|
4.92 |
|
|
|
984,161 |
|
|
|
4.16 |
|
|
|
132,187 |
|
|
|
4.36 |
|
|
|
24,588 |
|
|
|
4.01 |
|
|
|
1,169,943 |
|
|
|
4.20 |
|
Municipal securities
|
|
|
350 |
|
|
|
4.73 |
|
|
|
615 |
|
|
|
4.80 |
|
|
|
34,813 |
|
|
|
4.09 |
|
|
|
215,204 |
|
|
|
4.34 |
|
|
|
250,982 |
|
|
|
4.30 |
|
Federal Reserve Bank stock
|
|
|
15,223 |
|
|
|
6.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,223 |
|
|
|
6.00 |
|
Federal Home Loan Bank stock
|
|
|
24,216 |
|
|
|
2.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,216 |
|
|
|
2.95 |
|
Other securities
|
|
|
42,641 |
|
|
|
2.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,641 |
|
|
|
2.74 |
|
Federal funds sold
|
|
|
21,188 |
|
|
|
3.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,188 |
|
|
|
3.48 |
|
Interest-bearing deposits
|
|
|
7,586 |
|
|
|
3.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,586 |
|
|
|
3.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$ |
142,201 |
|
|
|
3.71 |
% |
|
$ |
1,383,876 |
|
|
|
4.05 |
% |
|
$ |
193,095 |
|
|
|
4.27 |
% |
|
$ |
239,792 |
|
|
|
4.30 |
% |
|
$ |
1,958,964 |
|
|
|
4.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$ |
|
|
|
|
|
% |
|
$ |
51,040 |
|
|
|
5.13 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
51,040 |
|
|
|
5.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$ |
|
|
|
|
|
% |
|
$ |
51,040 |
|
|
|
5.13 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
51,040 |
|
|
|
5.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Taxable-equivalent rates used where applicable. |
41
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Other real estate and foreclosed property
|
|
$ |
6,807 |
|
|
$ |
8,887 |
|
Deferred income taxes
|
|
|
494 |
|
|
|
|
|
Bankers acceptances
|
|
|
1,596 |
|
|
|
429 |
|
Investment in unconsolidated investees
|
|
|
10,511 |
|
|
|
9,671 |
|
Cash value of Bank-owned life insurance
|
|
|
179,798 |
|
|
|
127,189 |
|
Factored receivables
|
|
|
41,281 |
|
|
|
35,126 |
|
Mortgage servicing rights, net
|
|
|
7,252 |
|
|
|
7,121 |
|
Other
|
|
|
23,768 |
|
|
|
20,659 |
|
|
|
|
|
|
|
|
|
|
$ |
271,507 |
|
|
$ |
209,082 |
|
|
|
|
|
|
|
|
Other assets were $271.5 million at June 30, 2005, an
increase of $62.4 million from $209.1 million at
December 31, 2004. This increase is primarily attributable
to an increase of $52.6 million in the cash value of
Bank-owned life insurance to $179.8 million at
June 30, 2005, from $127.2 million at
December 31, 2004, primarily due to the purchase of
$50.0 million of Bank-owned life insurance during the
period ended June 30, 2005.
The Company offers a variety of deposit accounts with a wide
range of interest rates and terms. The Companys deposits
consist of demand, savings, interest-bearing demand, money
market, and time accounts.
The Company relies primarily on its product and service
offerings, high quality customer service, advertising, and
competitive pricing policies to attract and retain these
deposits. Deposits provide the primary source of funding for the
Companys lending and investment activities, and the
interest paid for deposits must be managed carefully to control
the level of interest expense.
The Company had $15.0 million and $121.3 million of
its deposits classified as brokered funds at June 30, 2005
and December 31, 2004, respectively. Prior to
March 31, 2005, the Banks brokered deposits were
attributable to a major treasury management relationship whereby
the Bank provided banking and treasury management services to
mortgage companies throughout the United States. Under this
relationship, a referring source, whose business is to lend
money to mortgage companies, introduced its customers to the
Bank. Deposits garnered as a result of those introductions were
classified as brokered deposits for financial and regulatory
reporting purposes. The sponsor of this relationship ended this
relationship with the Bank as of March 31, 2005.
The Companys ratio of average noninterest-bearing demand
deposits to average total deposits for the periods ended
June 30, 2005 and December 31, 2004 was 32% and 33%,
respectively.
42
The average daily balances and weighted average rates paid on
deposits for the six months ended June 30, 2005 and the
year ended December 31, 2004 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Amount | |
|
Rate | |
|
Amount | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Interest-bearing demand
|
|
$ |
101,921 |
|
|
|
0.66 |
% |
|
$ |
81,286 |
|
|
|
0.38 |
% |
Regular savings
|
|
|
211,895 |
|
|
|
0.45 |
|
|
|
158,030 |
|
|
|
0.30 |
|
Premium yield
|
|
|
1,095,174 |
|
|
|
1.70 |
|
|
|
1,011,355 |
|
|
|
0.92 |
|
Money market savings
|
|
|
932,031 |
|
|
|
1.30 |
|
|
|
876,408 |
|
|
|
0.80 |
|
Time deposits less than $100,000
|
|
|
283,729 |
|
|
|
2.68 |
|
|
|
279,653 |
|
|
|
2.44 |
|
Time deposits $100,000 and over
|
|
|
1,069,591 |
|
|
|
2.80 |
|
|
|
730,845 |
|
|
|
1.86 |
|
IRAs, QRPs and other
|
|
|
94,093 |
|
|
|
2.83 |
|
|
|
95,358 |
|
|
|
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
3,788,434 |
|
|
|
1.92 |
% |
|
|
3,232,935 |
|
|
|
1.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
1,762,810 |
|
|
|
|
|
|
|
1,611,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$ |
5,551,244 |
|
|
|
|
|
|
$ |
4,844,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the maturity of the
Companys time deposits that are $100,000 or greater as of
the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Three months or less
|
|
$ |
929,515 |
|
|
$ |
655,571 |
|
Over three months through six months
|
|
|
90,172 |
|
|
|
95,186 |
|
Over six months through twelve months
|
|
|
138,457 |
|
|
|
76,703 |
|
Thereafter
|
|
|
93,203 |
|
|
|
116,823 |
|
|
|
|
|
|
|
|
|
Total time deposits $100,000 and over
|
|
$ |
1,251,347 |
|
|
$ |
944,283 |
|
|
|
|
|
|
|
|
43
Federal funds purchased, securities sold under repurchase
agreements, and short-term borrowings generally represent
borrowings with maturities ranging from one to 30 days.
Short-term borrowings consist of overnight borrowings with the
Federal Home Loan Bank of Dallas (the FHLB),
and U.S. Treasury demand notes. U.S. Treasury demand
notes represent borrowings from the U.S. Treasury that are
secured by qualifying securities and commercial loans and are
placed at the discretion of the U.S. Treasury. Information
relating to these borrowings at June 30, 2005 and
December 31, 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Dollars in thousands) | |
Federal funds purchased and securities sold under repurchase
agreements:
|
|
|
|
|
|
|
|
|
|
Average
|
|
$ |
597,610 |
|
|
$ |
630,108 |
|
|
Period-end
|
|
|
649,613 |
|
|
|
482,968 |
|
|
Maximum month-end balance during period
|
|
|
649,613 |
|
|
|
751,109 |
|
Interest rate:
|
|
|
|
|
|
|
|
|
|
Weighted average for the period
|
|
|
2.23 |
% |
|
|
1.14 |
% |
|
Weighted average at period-end
|
|
|
2.82 |
% |
|
|
1.68 |
% |
Short-term borrowings:
|
|
|
|
|
|
|
|
|
|
Average
|
|
$ |
593,591 |
|
|
$ |
270,743 |
|
|
Period-end
|
|
|
300,000 |
|
|
|
550,000 |
|
|
Maximum month-end balance during period
|
|
|
700,000 |
|
|
|
675,000 |
|
Interest rate:
|
|
|
|
|
|
|
|
|
|
Weighted average for the period
|
|
|
2.72 |
% |
|
|
1.60 |
% |
|
Weighted average at period-end
|
|
|
3.04 |
% |
|
|
2.20 |
% |
|
|
|
Interest Rate Sensitivity |
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets compared with liabilities.
It is the objective of the Company to generate stable growth in
net interest income and to attempt to control risks associated
with interest rate movements. In general, managements
strategy is to reduce the impact of changes in interest rates on
its net interest income by maintaining a favorable match between
the maturities or repricing dates of its interest-earning assets
and interest-bearing liabilities. The Company adjusts its
interest sensitivity during the year through changes in the mix
of assets and liabilities and may use interest rate products
such as interest rate swap and cap agreements. The
Companys asset and liability management strategy is
formulated and monitored by the Asset Liability Management
Committee (the ALCO), which is composed of senior
officers of the Bank and one independent director, in accordance
with the committees policies approved by the Banks
Board of Directors. The ALCO meets monthly to review, among
other things, the sensitivity of the Banks assets and
liabilities to interest rate changes, the book and market values
of assets and liabilities, unrealized gains and losses, purchase
and sale activity, and maturities of investments and borrowings.
The ALCO also establishes pricing and funding decisions with
respect to the Banks overall asset and liability
composition. The ALCO reviews the Banks liquidity, cash
flow flexibility, maturities of investments, deposits and
borrowings, retail and institutional deposit activity, current
market conditions, and interest rates on both a local and
national level.
To effectively measure and manage interest rate risk, the
Company uses simulation analysis to determine the impact on net
interest income of changes in interest rates under various
interest rate scenarios, balance sheet trends, and strategies.
From these simulations, interest rate risk is quantified and
appropriate strategies are developed and implemented.
44
The following table presents an analysis of the sensitivity
inherent in the Companys net interest income and market
value of portfolio equity. The data used to prepare the table is
as of June 30, 2005, which may not be representative of
average balances at any other time period. This analysis is
reviewed by management on a monthly basis. The results are
impacted by changes in the composition of the balance sheet. The
interest rate scenarios presented in the table include interest
rates at June 30, 2005 and December 31, 2004, as
adjusted by parallel, instantaneous, and sustained rate changes
upward and downward of up to 200 basis points. Each rate
scenario reflects unique prepayment and repricing assumptions.
Because there are limitations inherent in any methodology used
to estimate the exposure to changes in market interest rates,
this analysis is not intended to be a forecast of the actual
effect of a change in market interest rates on the Company. The
market value sensitivity analysis presented includes assumptions
that (i) the composition of the Companys interest
sensitive assets and liabilities existing at period end will
remain constant over the twelve month measurement periods, and
(ii) that changes in market rates are parallel,
instantaneous, and sustained across the yield curve regardless
of duration or repricing characteristics of specific assets or
liabilities. Further, the analysis does not contemplate any
actions that the Company might undertake in response to changes
in market interest rates. Accordingly, this analysis is not
intended to and does not provide a precise forecast of the
effect actual changes in market rates will have on the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Interest Rates | |
|
|
| |
|
|
-200 | |
|
-100 | |
|
0 | |
|
+100 | |
|
+200 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Impact on net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Next 12 months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
(1.96 |
)% |
|
|
0.48 |
% |
|
|
0.00 |
% |
|
|
1.12 |
% |
|
|
2.00 |
% |
|
|
December 31, 2004
|
|
|
(5.69 |
)% |
|
|
(0.93 |
)% |
|
|
0.00 |
% |
|
|
2.03 |
% |
|
|
3.88 |
% |
|
Months 13 to 24:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
(6.46 |
)% |
|
|
(1.55 |
)% |
|
|
0.00 |
% |
|
|
2.54 |
% |
|
|
4.72 |
% |
|
|
December 31, 2004
|
|
|
(11.39 |
)% |
|
|
(3.36 |
)% |
|
|
0.00 |
% |
|
|
3.60 |
% |
|
|
6.82 |
% |
Impact on market value of portfolio equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
(3.96 |
)% |
|
|
(1.12 |
)% |
|
|
0.00 |
% |
|
|
(0.27 |
)% |
|
|
(1.13 |
)% |
|
|
December 31, 2004
|
|
|
(8.21 |
)% |
|
|
(1.78 |
)% |
|
|
0.00 |
% |
|
|
(0.16 |
)% |
|
|
(0.67 |
)% |
Interest rate sensitivity (GAP) is defined as the
difference between interest-earning assets and interest-bearing
liabilities maturing or repricing within a given time period.
A GAP is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A GAP is considered negative when
the amount of interest rate sensitive liabilities exceeds
interest rate sensitive assets. During a period of rising
interest rates, a negative GAP would tend to adversely affect
net interest income, while a positive GAP would tend to result
in an increase in net interest income. During a period of
falling interest rates, a negative GAP would tend to result in
an increase in net interest income, while a positive GAP would
tend to affect net interest income adversely. While GAP is a
useful measurement and contributes toward effective asset and
liability management, it is difficult to predict the effect of
changing interest rates solely on that measure. For this reason,
the Company relies on simulation analysis to manage interest
rate risk. Because different types of assets and liabilities
with the same or similar maturities may react differently to
changes in overall market rates or conditions, changes in
interest rates may affect net interest income positively or
negatively, even if an institution were perfectly matched in
each maturity category.
The Companys one-year cumulative GAP position at
June 30, 2005 was a positive $751.9 million, or 9.67%,
of total assets. This is a one-day position that is continually
changing and is not indicative of the Companys position at
any other time. While the GAP position is a useful tool in
measuring interest rate risk and contributes toward effective
asset and liability management, management believes that a GAP
analysis alone does not accurately measure the magnitude of
changes in net interest income because changes in interest rates
do not impact all categories of assets, liabilities, and
off-balance sheet instruments equally or simultaneously.
45
|
|
|
Liquidity and Capital Resources |
Liquidity management involves maintaining sufficient cash levels
to fund operations and to meet the requirements of borrowers,
depositors, and creditors. The objective of liquidity risk
management is to ensure that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of
the Company, are met at a reasonable cost. The Company maintains
a liquidity risk management policy which identifies the primary
sources of liquidity, establishes procedures for monitoring and
measuring liquidity, and establishes minimum liquidity
requirements in compliance with regulatory guidance. The policy
also includes a contingency funding plan to address liquidity
needs in the event of an institution-specific or a systemic
financial crisis. The liquidity position is continually
monitored by the ALCO. Higher levels of liquidity bear higher
corresponding costs, measured in terms of lower yields on
short-term, more liquid earning assets, and higher interest
expense involved in extending liability maturities. Liquid
assets include cash and cash equivalents, loans and securities
maturing within one year, and money market instruments. In
addition, the Company holds securities maturing after one year,
which can be sold to meet liquidity needs.
The Company relies primarily on customer deposits, its
securities portfolio, the capital markets, the FHLB, the
U.S. Treasury, and operating cash flow to fund
interest-earning assets and other liquidity needs.
Maintaining a relatively stable funding base, which is achieved
by diversifying funding sources, competitively pricing deposit
products, and extending the contractual maturity of liabilities,
reduces the Companys exposure to roll over risk on
deposits and limits reliance on volatile short-term purchased
funds.
Short-term funding needs arise from declines in deposits or
other funding sources, funding of loan commitments and requests
for new loans. The Companys strategy is to fund assets to
the maximum extent possible with core deposits that provide a
sizable source of relatively stable and low-cost funds. Core
deposits include all deposits, except certificates of deposit
and other time deposits of $100,000 and over. Average core
deposits funded approximately 66% of total interest-earning
assets for the six months ended June 30, 2005, and 70% for
the corresponding period in 2004. The decrease in the second
quarter of 2005 is a result of the strong loan growth
experienced during the year outpacing the growth in core
deposits necessitating an increased reliance on non-core deposit
sources of funding.
Management believes the Company has sufficient liquidity to meet
all reasonable borrower, depositor, and creditor needs in the
present economic environment. In addition, the Bank has access
to the FHLB for borrowing purposes. The Company has not received
any recommendations from regulatory authorities that would
materially affect liquidity, capital resources, or operations.
Subject to certain limitations, the Bank may borrow funds from
the FHLB in the form of advances. Credit availability from the
FHLB to the Bank is based on the Banks financial and
operating condition. Borrowings from the FHLB by the Bank were
$305.3 million at June 30, 2005. The Bank has pledged
$266.0 million of its securities portfolio and
$2.58 billion of its loan portfolio as collateral for its
borrowings from the FHLB at June 30, 2005. In addition to
creditworthiness, the Bank must own a minimum amount of FHLB
capital stock. Currently, the minimum is 0.14% of total assets
or $1,000, whichever is greater (not to exceed
$25 million), plus 4.25% of outstanding advance balances.
Unused borrowing capacity at June 30, 2005 was
$1.15 billion. The Bank uses FHLB advances for both
long-term and short-term liquidity needs. Other than normal
banking operations, the Bank has no long-term liquidity needs.
The Bank has not been involved with highly leveraged
transactions that may create unusual long-term liquidity needs.
46
The Company has issued a total of $149.5 million of junior
subordinated deferrable interest debentures to three wholly
owned statutory business trusts, Statutory Trust I,
Statutory Trust II, and Statutory Trust III
(collectively, the Trusts). Details of the
Companys transactions with these trusts are presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust | |
|
Junior | |
|
|
|
Interest | |
|
|
|
|
|
|
|
|
Preferred | |
|
Subordinated | |
|
|
|
Rate at | |
|
|
|
|
|
|
Maturity | |
|
Securities | |
|
Debt Owned | |
|
|
|
June 30, | |
|
Redemption | |
Description |
|
Issuance Date | |
|
Date | |
|
Outstanding | |
|
by Trust | |
|
Interest Rate | |
|
2005 | |
|
Date | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Statutory Trust I
|
|
|
10/7/2003 |
|
|
|
12/17/2033 |
|
|
$ |
50,000 |
|
|
$ |
51,547 |
|
|
|
3-month LIBOR plus 2.85 |
% |
|
|
6.27 |
% |
|
|
12/17/2008 |
|
Statutory Trust II
|
|
|
9/24/2004 |
|
|
|
10/7/2034 |
|
|
|
35,000 |
|
|
|
36,083 |
|
|
|
3-month LIBOR plus 1.90 |
% |
|
|
5.04 |
% |
|
|
10/7/2009 |
|
Statutory Trust III
|
|
|
12/13/2004 |
|
|
|
12/15/2034 |
|
|
|
60,000 |
|
|
|
61,856 |
|
|
|
3-month LIBOR plus 1.78 |
% |
|
|
5.19 |
% |
|
|
12/15/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
145,000 |
|
|
$ |
149,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Debentures are the sole assets of the Trusts and are
subordinate to all of the Companys existing and future
obligations for borrowed or purchased money, obligations under
letters of credit and certain derivative contracts, and any
guarantees by the Company of any of such obligations. The
proceeds, net of issuance costs, from these offerings were used
to fund the cash purchase price for Reunion and Klein and to
augment the Companys capital ratios to support its loan
growth.
The trust preferred securities issued by the Trusts are included
in the Tier 1 capital of the Company for regulatory capital
purposes. The Federal Reserve Board may in the future disallow
inclusion of trust preferred securities as Tier 1 capital
due to the requirements of FIN No. 46. On
February 28, 2005, the Federal Reserve Board issued final
rules that provide that trust preferred securities may continue
to be included in Tier 1 capital subject to quantitative
limitations and to deductions for goodwill less any associated
deferred tax liability. As of June 30, 2005, if the Company
were not permitted to include the $145.0 million in trust
preferred securities in its Tier 1 capital, the Company
would still meet the regulatory minimums required to be
classified as adequately capitalized.
At the holding company level, the Company uses cash to pay
dividends to shareholders and to make debt service payments. The
primary source of funding for the holding company has been
dividends and returns of investment from its bank and non-bank
subsidiaries and the private equity investment portfolio and
from the exercise of stock options by its employees. The
Companys bank subsidiary is subject to regulations and,
among other things, may be limited in its ability to pay
dividends or otherwise transfer funds to the holding company.
Accordingly, consolidated cash flows as presented in the
consolidated statement of cash flows may not represent cash
immediately available to the holding company.
The Company has in place a Dividend Reinvestment and Stock
Purchase Plan with an optional cash purchase with waiver
arrangement to allow the Company to issue up to
2,000,000 shares of its common stock over time to support
its liquidity and capital needs. This plan has not yet been
implemented.
During the third quarter of 2001, the Company announced a
program to repurchase, from time to time, up to 1.0 million
shares of its common stock. As of June 30, 2005, no shares
of the Companys common stock had been repurchased under
this plan.
47
The following table compares the Companys and the
Banks reported leverage and risk-weighted capital ratios
as of June 30, 2005 and December 31, 2004 to the
minimum regulatory standards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum to Be Well | |
|
|
|
|
|
|
|
|
Capitalized Under | |
|
|
|
|
Minimum Capital | |
|
Prompt Corrective | |
|
|
Actual | |
|
Requirement | |
|
Action Provisions | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
|
Amount | |
|
Ratio | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
As of June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
$ |
721,925 |
|
|
|
11.04 |
% |
|
$ |
523,080 |
|
|
|
8.00 |
% |
|
$ |
653,850 |
|
|
|
10.00 |
% |
|
|
The Bank
|
|
|
712,370 |
|
|
|
10.90 |
|
|
|
522,617 |
|
|
|
8.00 |
|
|
|
653,271 |
|
|
|
10.00 |
|
|
Tier 1 Capital (to Risk Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
597,745 |
|
|
|
9.14 |
|
|
|
261,540 |
|
|
|
4.00 |
|
|
|
392,310 |
|
|
|
6.00 |
|
|
|
The Bank
|
|
|
662,560 |
|
|
|
10.14 |
|
|
|
261,308 |
|
|
|
4.00 |
|
|
|
391,962 |
|
|
|
6.00 |
|
|
Tier 1 Capital (to Average Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
597,745 |
|
|
|
7.98 |
|
|
|
299,639 |
|
|
|
4.00 |
(1) |
|
|
374,549 |
|
|
|
5.00 |
|
|
|
The Bank
|
|
|
662,560 |
|
|
|
8.85 |
|
|
|
299,386 |
|
|
|
4.00 |
(1) |
|
|
374,232 |
|
|
|
5.00 |
|
As of December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
683,804 |
|
|
|
11.02 |
|
|
|
496,231 |
|
|
|
8.00 |
|
|
|
620,289 |
|
|
|
10.00 |
|
|
|
The Bank
|
|
|
676,090 |
|
|
|
10.91 |
|
|
|
495,559 |
|
|
|
8.00 |
|
|
|
619,449 |
|
|
|
10.00 |
|
|
Tier 1 Capital (to Risk Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
559,396 |
|
|
|
9.02 |
|
|
|
248,115 |
|
|
|
4.00 |
|
|
|
372,173 |
|
|
|
6.00 |
|
|
|
The Bank
|
|
|
626,074 |
|
|
|
10.11 |
|
|
|
247,780 |
|
|
|
4.00 |
|
|
|
371,670 |
|
|
|
6.00 |
|
|
Tier 1 Capital (to Average Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
559,396 |
|
|
|
7.81 |
|
|
|
286,337 |
|
|
|
4.00 |
(1) |
|
|
357,921 |
|
|
|
5.00 |
|
|
|
The Bank
|
|
|
626,074 |
|
|
|
8.77 |
|
|
|
285,522 |
|
|
|
4.00 |
(1) |
|
|
356,903 |
|
|
|
5.00 |
|
|
|
(1) |
The Tier 1 leverage ratio consists of Tier 1 capital
divided by quarterly average total assets, excluding goodwill
and certain other items. The minimum leverage ratio guideline is
3% for banking organizations that do not anticipate significant
growth and that have well-diversified risk, excellent asset
quality, high liquidity, good earnings, effective management and
monitoring of market risk and, in general, are considered
top-rated, strong banking organizations. |
|
|
|
Critical Accounting Policies |
The Company has established various accounting policies that
govern the application of accounting principles generally
accepted in the United States which are used in the preparation
of the Companys financial statements. The significant
accounting policies of the Company are described in the
footnotes to the consolidated financial statements. Certain
accounting policies involve significant judgments and
assumptions by management that have a material impact on the
carrying value of certain assets and liabilities; management
considers such accounting policies to be critical accounting
policies. The judgments and assumptions used by management are
based on historical experience and other factors, which are
believed to be reasonable under the circumstances. Because of
the nature of the judgments and assumptions made by management,
actual results could differ from these judgments and
assumptions, which could have a material impact on the carrying
values of assets and liabilities and the results of operations
of the Company.
The Company believes the allowance for loan losses is the
critical accounting policy that requires the most significant
judgments and assumptions used in the preparation of its
consolidated financial statements. In estimating the allowance
for loan losses, management utilizes historical experience as
well as other factors
48
including the effect of changes in the local real estate market
on collateral values, the effect on the loan portfolio of
current economic indicators and their probable impact on
borrowers, and increases or decreases in nonperforming and
impaired loans. Changes in these factors may cause
managements estimate of the allowance to increase or
decrease and result in adjustments to the Companys
provision for loan losses. See the Companys Annual Report
on Form 10-K for the year ended December 31, 2004,
Financial Condition Credit
Management for a detailed description of the
Companys estimation process and methodology related to the
allowance for loan losses.
Goodwill is recorded for the excess of the purchase price over
the fair value of identifiable net assets, including core
deposit intangibles, acquired through a merger transaction.
Goodwill is not amortized, but instead is tested for impairment
at least annually using both a discounted cash flow analysis and
a review of the valuation of recent bank acquisitions. The
discounted cash flow analysis utilizes a risk-free interest
rate, estimates of future cash flows and probabilities as to the
occurrence of the future cash flows. The Company utilizes its
budgets and projections of future operations based upon
historical and expected industry trends to estimate future cash
flows and the probability of their occurring as projected. Other
acquired intangible assets determined to have finite lives, such
as core deposit intangibles, are amortized over their estimated
useful lives in a manner that best reflects the economic
benefits of the intangible asset. In addition, impairment
testing is performed periodically on these amortizing intangible
assets.
Mortgage servicing rights assets are established and accounted
for based on discounted cash flow modeling techniques, which
require management to make estimates regarding the amount and
timing of expected future cash flows, including assumptions
about loan repayment rates, credit loss experience, and costs to
service, as well as discount rates that consider the risk
involved. Because the values of these assets are sensitive to
changes in assumptions, the valuation of mortgage servicing
rights is considered a critical accounting estimate. See the
Companys Annual Report on Form 10-K for the year
ended December 31, 2004, Note 1
Nature of Operations and Summary of Significant Accounting
Policies and Note 8 Mortgage
Servicing Rights for further discussion on
the accounting for these assets.
|
|
|
Recent Accounting Pronouncements and Developments |
See Note 1 Nature of Operations and
Summary of Significant Accounting Policies in the
accompanying notes to the condensed consolidated financial
statements included elsewhere in this report for details of
recently issued accounting pronouncements and their expected
impact on the Companys financial statements.
|
|
ITEM 3. |
Quantitative and Qualitative Disclosures About Market
Risk |
There have been no material changes since December 31,
2004. See the Companys Annual Report on Form 10-K for
the year ended December 31, 2004, Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Financial
Condition Interest Rate Sensitivity and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition Liquidity.
|
|
ITEM 4. |
Controls and Procedures |
The Companys chief executive officer and chief financial
officer have evaluated the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) under the Exchange Act) as of June 30,
2005, and concluded that those disclosure controls and
procedures were effective as of that date.
During the quarter ended June 30, 2005, there have been no
changes in the Companys internal control over financial
reporting or in other factors known to the Company that could
materially affect or are reasonably likely to materially affect
these controls subsequent to their evaluation.
49
While the Company believes that its existing disclosure controls
and procedures have been effective to accomplish these
objectives, the Company continues to examine, refine and
formalize its disclosure controls and procedures and to monitor
ongoing developments in this area.
With respect to the unaudited financial information of Amegy
Bancorporation, Inc. for the three-month and six-month periods
ended June 30, 2005 and 2004 included in this
Form 10-Q, PricewaterhouseCoopers LLP reported that it has
applied limited procedures in accordance with professional
standards for a review of such information. However, its
separate report dated August 5, 2005 appearing herein
states that it did not audit and it does not express an opinion
on that unaudited financial information. Accordingly, the degree
of reliance on its report on such information should be
restricted in light of the limited nature of the review
procedures applied. PricewaterhouseCoopers LLP is not subject to
the liability provisions of Section 11 of the Securities
Act of 1933 for its report on the unaudited financial
information because that report is not a report or a
part of the registration statement prepared or
certified by PricewaterhouseCoopers LLP within the meaning of
Sections 7 and 11 of the Act.
50
PART II OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
The Company is involved in various legal proceedings that arise
in the normal course of business. In the opinion of management
of the Company, after consultation with its legal counsel, such
legal proceedings are not expected to have a material adverse
effect on the Companys consolidated financial position,
results of operations, or cash flows.
|
|
Item 2. |
Changes in Securities and Use of Proceeds and Issuer
Purchases of Equity Securities |
None.
|
|
Item 3. |
Defaults upon Senior Securities |
None.
|
|
Item 4. |
Submission of Matters to a Vote of Securities
Holders |
(a) The Companys Annual Meeting of Shareholders (the
Annual Meeting) was held on May 4, 2005.
(b) The following Class III directors were elected for
a three-year term at the Annual Meeting: Carin M. Barth, Paul W.
Hobby, John W. Johnson, Walter E. Johnson, and Wilhelmina E.
Robertson. In addition, Scott J. McLean was elected to serve as
a Class I director, to hold office until 2007. The
following Class I and II directors also continued in office
after the Annual Meeting: John B. Brock III, Kirbyjon H.
Caldwell, Ernest H. Cockrell, J. David Heaney, Barry M. Lewis,
Fred R. Lummis, Paul B. Murphy, Jr., Andres Palandjoglou,
Thomas F. Soriero, Sr. and Stanley D. Stearns, Jr.. No
votes were cast against any of the directors. The votes cast for
and withheld for each director were as follows:
|
|
|
|
|
|
|
|
|
Director |
|
For | |
|
Withheld | |
|
|
| |
|
| |
Carin M. Barth
|
|
|
62,913,451 |
|
|
|
456,410 |
|
Paul W. Hobby
|
|
|
62,848,174 |
|
|
|
521,687 |
|
John W. Johnson
|
|
|
63,014,284 |
|
|
|
355,577 |
|
Walter E. Johnson
|
|
|
62,791,084 |
|
|
|
578,777 |
|
Scott J. McLean
|
|
|
62,861,388 |
|
|
|
508,473 |
|
Wilhelmina E. Robertson
|
|
|
63,090,625 |
|
|
|
279,236 |
|
(c) At the Annual Meeting, the Company also approved
amendments to the Companys Articles of Incorporation to
change the name of the Company to Amegy Bancorporation, Inc. A
total of 62,875,639 votes were cast in favor of such proposal
with 385,436 votes cast against the proposal and 108,786 votes
abstaining from voting on the proposal.
(d) At the Annual Meeting, the Company also approved
amendments to the Companys Articles of Incorporation to
increase the aggregate number of authorized shares of Common
Stock of the Company from 150,000,000 to 300,000,000. A total of
56,908,544 votes were cast in favor of such proposal with
6,405,225 votes cast against the proposal and 56,092 votes
abstaining from voting on the proposal.
(e) At the Annual Meeting, the Company also ratified the
selection of PricewaterhouseCoopers LLP, as the Companys
independent auditors for the year ending December 31, 2005.
A total of 62,798,928 votes were cast in favor of such proposal
with 545,442 votes cast against the proposal and 25,491 votes
abstaining from voting on the proposal.
51
|
|
Item 5. |
Other Information |
None.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
3 |
.1 |
|
Articles of Incorporation of the Company, restated as of
May 1, 2001 (incorporated by reference to Exhibit 4.1
to the Companys Form S-8 Registration Statement
No. 333-60190), as Amended by Certificate of Amendment to
the Articles of Incorporation (incorporated by reference to
Appendix A of the Companys definitive proxy statement on
Form DEF-14A, filed with Commission on April 1, 2005) |
|
3 |
.2 |
|
Bylaws of the Company (Restated as of December 31, 1996)
(incorporated by reference to Exhibit 3.2 to the
Companys Form S-1 Registration Statement
No. 333-16509) |
|
4 |
.1 |
|
Specimen Common Stock certificate (incorporated by reference to
Exhibit 4.1 to the Companys Form S-1
Registration Statement No. 333-16509) |
|
4 |
.2 |
|
Indenture, dated as of September 24, 2004, between the
Company, as Issuer, and Wells Fargo Bank National Association,
as Trustee (incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed
September 28, 2004) |
|
*15 |
.1 |
|
Awareness Letter of PricewaterhouseCoopers LLP |
|
*31 |
.1 |
|
Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
*31 |
.2 |
|
Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
*32 |
.1 |
|
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
*32 |
.2 |
|
Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ PAUL B. MURPHY, JR.
Paul B. Murphy, Jr. |
|
Director and Chief Executive Officer
(Principal Executive Officer) |
|
August 8, 2005 |
|
/s/ RANDALL E. MEYER
Randall E. Meyer |
|
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer) |
|
August 8, 2005 |
|
/s/ SCOTT J. MCLEAN
Scott J. McLean |
|
Director and President |
|
August 8, 2005 |
|
/s/ LAURENCE L.
LEHMAN III
Laurence L. Lehman III |
|
Senior Vice President and Controller
(Principal Accounting Officer) |
|
August 8, 2005 |
53
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
3 |
.1 |
|
Articles of Incorporation of the Company, restated as of
May 1, 2001 (incorporated by reference to Exhibit 4.1
to the Companys Form S-8 Registration Statement
No. 333-60190), as Amended by Certificate of Amendment to
the Articles of Incorporation (incorporated by reference to
Appendix A of the Companys definitive proxy statement on
Form DEF-14A, filed with Commission on April 1, 2005) |
|
3 |
.2 |
|
Bylaws of the Company (Restated as of December 31, 1996)
(incorporated by reference to Exhibit 3.2 to the
Companys Form S-1 Registration Statement
No. 333-16509) |
|
4 |
.1 |
|
Specimen Common Stock certificate (incorporated by reference to
Exhibit 4.1 to the Companys Form S-1
Registration Statement No. 333-16509) |
|
4 |
.2 |
|
Indenture, dated as of September 24, 2004, between the
Company, as Issuer, and Wells Fargo Bank National Association,
as Trustee (incorporated by reference to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed
September 28, 2004) |
|
*15 |
.1 |
|
Awareness Letter of PricewaterhouseCoopers LLP |
|
*31 |
.1 |
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Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
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*31 |
.2 |
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Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
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*32 |
.1 |
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Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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*32 |
.2 |
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Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |