United States

Securities and Exchange Commission

Washington, D.C. 20429

 

FORM 10-Q

 

ý    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2005.

 

o    Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from               N/A               to               N/A               .

 

Commission File Number 000-23925

 

MID-STATE BANCSHARES

(Exact name of registrant as specified in its charter)

 

 

Registrant’s Telephone Number:     (805) 473-7700

 

 

Check whether the Company (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ý   No   o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes ý   No   o

 

 

Number of shares of common stock of the Company outstanding as of  May 4, 2005:  22,904,839 shares.

 

 

Mid-State Bancshares

March 31, 2005

Index

 

PART I - FINANCIAL INFORMATION
	Item 1 —	Financial Statements (Unaudited)
		Consolidated Statements of Financial Position
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income
		Consolidated Statements of Changes in Capital Accounts
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3 —	Quantitative and Qualitative Disclosure About Market Risk
	Item 4 —	Controls and Procedures
PART II - OTHER INFORMATION
	Item 1 —	Legal Proceedings
	Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3 —	Defaults Upon Senior Securities
	Item 4 —	Submission of Matters to a Vote of Security Holders
	tem 5 —	Other Information
	Item 6 —	Exhibits
	Signatures
	Certifications
	EX-32 Certification Pursuant to 18 U.S.C. Sec. 1350

 

2

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Mid-State Bancshares

Consolidated Statements of Financial Position

(Unaudited - figures in 000’s)

 

ASSETS		March 31, 2005			Dec. 31, 2004			March 31, 2004
Cash and Due From Banks		$	127,861		$	112,669		$	123,672
Fed Funds Sold		4,000			6,000			—
Securities Available For Sale		624,634			644,817			749,708
Loans Held for Sale		9,927			12,988			10,712
Loans, net of unearned income		1,456,091			1,421,894			1,240,325
Allowance for Loan Losses		(13,630		)	(13,799		)	(16,584		)
Net Loans		1,442,461			1,408,095			1,223,741
Premises and Equipment, Net		24,525			24,946			25,733
Accrued Interest Receivable		13,044			11,918			13,649
Other Real Estate Owned		—			—			3,428
Goodwill		47,840			47,840			47,840
Core Deposit Intangibles, net		7,388			7,732			8,763
Other Assets		20,501			19,082			11,421
Total Assets		$	2,322,181		$	2,296,087		$	2,218,667
LIABILITIES AND EQUITY
Non Interest Bearing Demand		$	526,597		$	517,139		$	480,652
NOW Accounts, Money Market and Savings Deposits		1,076,531			1,083,139			1,031,023
Time Deposits Under $100		229,080			227,972			240,423
Time Deposits $100 or more		173,124			166,295			164,462
Total Deposits		2,005,332			1,994,545			1,916,560
Other Borrowings		23,621			6,582			4,886
Allowance for Losses — Unfunded Commitments		1,624			1,783			1,867
Accrued Interest Payable and Other Liabilities		21,228			18,550			17,072
Total Liabilities		2,051,805			2,021,460			1,940,385
Commitments and Contingencies
Shareholders’ Equity:
Common Stock and Surplus (Shares outstanding of 22,949, 23,099 and 23,586, respectively)		56,805			61,439			75,673
Retained Earnings		211,924			206,328			189,135
Accumulated Other Comprehensive Income net of taxes of $1,098, $4,573 and $8,983, respectively		1,647			6,860			13,474
Total Equity		270,376			274,627			278,282
Total Liabilities and Equity		$	2,322,181		$	2,296,087		$	2,218,667

 

The accompanying notes are an integral part of these consolidated statements.

 

3

 

Mid-State Bancshares

Consolidated Statements of Income

(Unaudited - figures in 000’s except earnings per share data)

 

		Three Month Period
		Ended March 31,
		2005			2004
Interest Income:
Interest and fees on loans		$	23,941		$	19,718
Interest on investment securities -
U.S. Treasury securities		111			416
U.S. Government agencies and corporations		1,573			2,331
Obligations of states and political Subdivisions and other securities		3,730			3,686
Interest on fed funds sold and other		127			86
Total Interest Income		29,482			26,237
Interest Expense:
Interest on NOW, money market and savings		724			592
Interest on time deposits less than $100		1,023			899
Interest on time deposits of $100 or more		781			504
Interest other		185			81
Total Interest Expense		2,713			2,076
Net Interest Income before provision		26,769			24,161
Less: Provision for loan losses		—			—
Net Interest Income after provision		26,769			24,161
Other Operating Income:
Service charges and fees		2,345			2,553
Commissions, fees and other service charges		2,169			3,150
Gains on sale of securities		8			373
Gain on sale of loans held for sale		99			145
Other non-interest income		774			779
Total Other Operating Income		5,395			7,000
Other Operating Expense:
Salaries and employee benefits		10,988			10,717
Occupancy and furniture		2,952			3,112
Other operating expenses		4,395			5,865
Total Other Operating Expense		18,335			19,694
Income Before Taxes		13,829			11,467
Provision for income taxes		4,739			3,802
Net Income		$	9,090		$	7,665
Earnings per share:
— basic		$	0.39		$	0.33
— diluted		$	0.39		$	0.32
Dividends per share		$	0.16		$	0.14
Average shares used in earnings per share calculations:
— basic		23,019			23,570
— diluted		23,557			24,045

 

The accompanying notes are an integral part of these consolidated statements.

 

4

 

Mid-State Bancshares

Consolidated Statements of Comprehensive Income

(Unaudited - figures in 000’s)

 

		Three Month Period
		Ended March 31,
		2005			2004
Net Income		$	9,090		$	7,665
Other Comprehensive Income Before Taxes:
Unrealized (losses) gains on securities available for sale:
Unrealized holding (losses) gains arising during period		(8,680		)	2,353
Reclassification adjustment for net (gains) included in net income		(8		)	(373		)
Other comprehensive (loss) income, before tax		(8,688		)	1,980
Income tax (credit) expense related to items in comprehensive income		(3,475		)	783
Other Comprehensive (Loss) Income, Net of Taxes		(5,213		)	1,197
Total Comprehensive Income		$	3,877		$	8,862

 

The accompanying notes are an integral part of these consolidated statements.

 

5

 

Mid-State Bancshares

Consolidated Statements of Changes in Capital Accounts

(Unaudited - figures in 000’s except share amounts)

 

 

 

										Accumulated
										Other
		Number of		Capital			Undivided			Comprehensive
		Shares		Stock			Profits			Income (Loss)			Total
BALANCE, December 31, 2004		23,099,159		$	61,439		$	206,328		$	6,860		$	274,627
Cash dividend		—		—			(3,672		)	—			(3,672		)
Exercise of stock options		43,162		653			—			—			653
Tax Benefit from exercise of options		—		—			178			—			178
Net income		—		—			9,090			—			9,090
Change in net unrealized gain on available for sale securities, net of taxes of ($3,475)		—		—			—			(5,213		)	(5,213		)
Stock repurchased		(193,770	)	(5,287		)	—			—			(5,287		)
BALANCE, March 31, 2005		22,948,551		$	56,805		$	211,924		$	1,647		$	270,376
BALANCE, December 31, 2003		23,567,478		$	75,506		$	184,771		$	12,277		$	272,554
Cash dividend		—		—			(3,301		)	—			(3,301		)
Exercise of stock options		19,592		190			—			—			190
Tax Benefit from exercise of options		—		—			—			—			—
Net income		—		—			7,665			—			7,665
Change in net unrealized gain on available for sale securities, net of taxes of $783		—		—			—			1,197			1,197
Stock repurchased		(862	)	(23		)	—			—			(23		)
BALANCE, March 31, 2004		23,586,208		$	75,673		$	189,135		$	13,474		$	278,282

 

6

 

Mid-State Bancshares

Consolidated Statements of Cash Flows

(Unaudited - figures in 000’s)

 

		Three Month Period
		Ended March 31,
		2005			2004
OPERATING ACTIVITIES
Net Income		$	9,090		$	7,665
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		—			—
Depreciation and amortization		1,414			1,159
Net amortization of prem./discounts-investments		947			1,046
Gain on sale of loans held for sale		(99		)	(145		)
Net decrease (increase) in loans held for sale		3,160			2,843
Change in deferred loan fees		(23		)	(381		)
Changes in assets and liabilities:
Accrued interest receivable		(1,126		)	(1,475		)
Core deposit intangible		344			344
Other assets, net		2,054			(482		)
Other liabilities		2,519			2,719
Net cash provided by operating activities		18,280			13,293
INVESTING ACTIVITIES
Proceeds from sales and maturities of investments		47,101			27,136
Purchases of investments		(36,552		)	(1,216		)
(Increase) Decrease in loans		(34,343		)	(84,491		)
Receipt from investments in real estate		—			—
Purchases of premises and equipment, net		(993		)	(567		)
Net cash (used in) investing activities		(24,787		)	(59,138		)
FINANCING ACTIVITIES
Increase in deposits		10,787			4,129
Decrease in short-term borrowings		17,039			(2,741		)
Exercise of stock options		832			190
Cash dividends paid		(3,672		)	(3,301		)
Retirement of company stock		(5,287		)	(23		)
Net cash (used in) provided by financing activities		19,699			(1,746		)
(Decrease) increase in cash and cash equivalents		13,192			(47,591		)
Cash and cash equivalents, beginning of period		118,669			171,263
Cash and cash equivalents, end of period		$	131,861		$	123,672
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	2,545		$	2,355
Cash paid during the period for taxes on income		2,457			—

 

The accompanying notes are an integral part of these consolidated statements.

 

7

 

Mid-State Bancshares

Notes to Consolidated Financial Statements

(Information with respect to interim periods is unaudited)

 

NOTE A — BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION

 

The accompanying consolidated financial statements include the accounts of Mid-State Bancshares and its wholly owned subsidiary Mid-State Bank & Trust and the Bank’s subsidiaries, MSB Properties and Mid-Coast Land Company (collectively the “Company,” “Bank” or “Mid-State”).  All significant inter-company transactions have been eliminated in consolidation.  These consolidated financial statements should be read in conjunction with the Form 10-K Annual Report for the year ended December 31, 2004 of Mid-State Bancshares.  A summary of the Company’s significant accounting policies is set forth in the Notes to Consolidated Financial Statements contained therein.

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States on a basis consistent with the accounting policies reflected in the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2004.  They do not, however, include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments including normal recurring accruals considered necessary for a fair presentation have been included.  Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole.

 

 

NOTE B — EARNINGS PER SHARE

 

The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute Earnings Per Share (“EPS”).  Figures are in thousands, except earnings per share data.

 

		Three Month Period Ended									Three Month Period Ended
		March 31, 2005									March 31, 2004
		Net Income				Shares		EPS			Net Income			Shares		EPS
Net Income as reported		$		9,090							$	7,665
Basic Earnings Per Share:
Income available to Common Shareholders		$		9,090		23,019		$	0.39		$	7,665		23,570		$	0.33
Effect of dilutive securities:
Stock Options						538								475
Diluted Earnings Per Share:
Income available to Common Shareholders		$	9,090			23,557		$	0.39		$	7,665		24,045		$	0.32

 

8

 

NOTE C — RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2003, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.”  The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004, with early adoption encouraged.  The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an Investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality.  The adoption of SOP 03-3 is not expected to have a material impact on the Company’s results of operations and financial position.

 

In June 2004, the Emerging Issues Task Force of the Financial Accounting Standards Board (FASB) issued guidance on its Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”  The guidance made recommendations regarding unrealized losses on available-for-sale debt and equity securities accounted for under Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations.”  The guidance for evaluating whether an investment is other-than-temporarily impaired was to be applied in other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004.  The disclosures were to be effective in annual financial statements for fiscal years ending after December 15, 2003, for investments accounted for under Statements 115 and 124.  On September 30, 2004, the FASB Board directed the issuance of FASB Staff Position (FSP) EITF Issue 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1.”  The proposed FSP would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for other-than-temporary impairment under paragraph 16 of issue Issue 03-1.  The FASB asked constituents to comment on whether the application guidance with respect to “minor impairments” should also be applied to securities analyzed for impairment under paragraphs 10-15 of Issue 03-1.  Based on comment letters received, the FASB decided to delay the effective date for the measurement and recognition guidance contained in paragraphs 10 - 20 of Issue 03-1 as it further considers whether application guidance is necessary for all securities analyzed for impairment.  The delay of the effective date for paragraphs 10 - 20 of Issue 03-1 will be superseded concurrent with the final issuance of FSP EITF Issue 03-1-a.  The adoption of EITF Issue No. 03-1 is not expected to have a material impact on the Company’s results of operations and financial position.

 

The FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation” in December 2004.  The revised Statement is SFAS No. 123R (revised 2004), “Share-Based Payment” and it will supercede APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance.  It is to be effective for the Company as of the beginning of the first annual reporting period that begins after June 15, 2005.  The Statement requires that the Company measures the cost of employee services received in exchange for an award of equity instruments (share based payment awards) based on the grant date fair value of the award and the estimated number of awards that are expected to vest.  The cost will be recognized over the period during which an employee is required to provide service in exchange for the award - usually the vesting period.  Compensation cost for awards that vest would not be reversed if the awards expire without being exercised.  The Company currently applies APB Opinion No. 25, in accounting for its Plan.  Accordingly, no compensation expense has been recognized for grants under the Plan.  Pro forma disclosures of net income and earnings per share are however disclosed in Note 15 of the Company’s Annual Report on Form 10K.  The Company expects to adopt the revised Statement for the first quarter of 2006 and expects it will have a material effect on its Consolidated Statements of Income, Comprehensive Income and Changes in Capital Accounts.

 

9

 

NOTE D — CORE DEPOSIT INTANGIBLES, NET

 

The following is a summary of the Company’s core deposit intangibles.  Figures are in thousands (unaudited).

 

		March 31, 2005									March 31, 2004
		Gross			Accumulated			Net Carrying			Gross			Accumulated			Net Carrying
		Amount			Amortization			Amount			Amount			Amortization			Amount
Core Deposit Intangible		$	11,596		$	(4,208	)	$	7,388		$	11,596		$	(2,833	)	$	8,763

 

		Dec. 31, 2004
		Gross			Accumulated			Net Carrying
		Amount			Amortization			Amount
Core Deposit Intangible		$	11,596		$	(3,864	)	$	7,732

 

 

Aggregate Amortization Expense of Core Deposit Intangibles ($ in 000’s):

 

				Three Month Period
				Ended March 31,
				2005			2004
Amortization of Core Deposit Intangible				$	344		$	344

 

The amortization expense for core deposit intangibles is included within other operating expenses on the consolidated statements of income.  The projected  amortization  expense  for  core deposit intangibles,  assuming no further  acquisitions or dispositions or changes in amortization rates, is approximately $1.4 million per year over the next five years.

 

 

NOTE E — STOCK OPTIONS

 

At March 31, 2005, the Company had one stock option plan which is described more fully in Note 15 in the Company’s 2004 Annual Report on Form 10-K.  The Company accounts for stock options using the intrinsic value method under the provisions of Accounting Principles Board (“APB”) Opinion No. 25 and provides proforma net income and proforma earnings per share disclosures for employee stock option grants as if the fair-value-based method, defined in SFAS No. 123, “Accounting for Stock-Based Compensation,” had been applied.  Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net income would have been reduced to the pro forma amounts indicated below for the three months ended March 31.  The assumptions utilized in calculating the stock-based compensation expense determined under the intrinsic value based method were generally the same at March 31, 2005 and 2004 as they were at year-end.

 

10

 

(dollars in 000’s except per share amounts)		2005			2004
Net income, as reported		$	9,090		$	7,665
Deduct: Total stock-based compensation expense determined under the intrinsic value based method for all awards, net of related taxes of 419 and 329		(579		)	(454		)
Proforma net income		$	8,511		$	7,211
Basic income per share, as reported		$	0.39		$	0.33
Proforma basic income per share		$	0.37		$	0.31
Diluted income per share, as reported		$	0.39		$	0.32
Proforma diluted income per share		$	0.36		$	0.30

 

NOTE F — SECURITIES

 

The following table shows those investments with gross unrealized losses and their market value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2005.

 

		Less than 12 months							12 months or more						Total
		Market				Unrealized			Market			Unrealized			Market			Unrealized
(amounts in 000’s)		Value				Losses			Value			Losses			Value			Losses
U.S. Treasury securities		$		15,362		$	(226	)	$	—		$	—		$	15,362		$	(226	)
Securities of U.S. government agencies and corporations		152,845				(1,920		)	—			—			152,845			(1,920		)
Mortgage backed securities		1,921				(62		)	1,152			(45		)	3,073			(107		)
Obligations of states and political subdivisions		136,402				(1,635		)	14,098			(587		)	150,500			(2,222		)
Other investments		5,922				(87		)	—			—			5,922			(87		)
TOTAL		$	312,452			$	(3,930	)	$	15,250		$	(632	)	$	327,702		$	(4,562	)

 

All of the unrealized losses identified in the table above are primarily attributable to changes in general interest rate levels and are not considered to be other than temporary impairment.  The unrealized losses are not the result of any deteriorating financial conditions or near term prospects of the underlying issuers and Management believes that it has the intent and ability to retain these investment securities to allow for the eventual recovery in market value.

 

11

 

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

        The following is management’s discussion and analysis of the major factors that influenced our financial performance for the three months ended March 31, 2005.  This analysis should be read in conjunction with our 2004 Annual Report as filed on Form 10-K and with the unaudited financial statements and notes as set forth in this report.  Unless the context requires otherwise, the terms “Company,” “us,” “we,” and “our” refers to Mid-State Bancshares on a consolidated basis.

 

                Certain statements contained in this Quarterly Report of Form 10-Q (“Report”), including, without limitation, statements containing the words “estimate,” “believes,” “anticipates,” “intends,” “may,” “expects,” “could,” and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements relate to, among other things, our current expectations regarding future operating results, net interest margin, strength of the local economy, and allowance for credit losses.  Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, the following: general economic and business conditions in those areas in which we operate, demographic changes, competition, natural disasters, growth in loans and deposits, fluctuations in interest rates, changes in business strategy or development plans, changes in governmental regulation, credit quality, the availability of capital to fund the expansion of our business, economic, political and global changes arising from the war on terrorism, the conflict with Iraq and its aftermath, and other factors referenced in our 2004 Annual Report as filed on form 10-K, including in “Item 1. Business - Factors That May Affect Future Results of Operations.”  When relying on forward-looking statements to make decisions with respect to our Company, investors and others are cautioned to consider these and other risks and uncertainties.  We disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

 

                This discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this report.

 

Critical Accounting Policies and Estimates    This “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as, disclosures included elsewhere in this Form 10-Q, are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements require Management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies.  A summary of the more significant accounting policies of the Company can be found in Footnote One to the financial statements which is included in Item 8 of the Company’s Annual Report on Form 10-K and in the Management’s Discussion and Analysis included in Item 7 of that same report entitled “Critical Accounting Policies and Estimates.”

 

12

 

                Selected Financial Data — Summary.    The following table provides certain selected consolidated financial data as of and for the three months ending March 31, 2005 and 2004 (unaudited in 000’s, except per share data).

 

		Year-to-Date
(In thousands)		Mar. 31, 2005			Mar. 31, 2004
Interest Income (not taxable equivalent)		$	29,482		$	26,237
Interest Expense		2,713			2,076
Net Interest Income		26,769			24,161
Provision for Loan Losses		—			—
Net Interest Income after provision for loan losses		26,769			24,161
Non-interest income		5,395			7,000
Non-interest expense		18,335			19,694
Income before income taxes		13,829			11,467
Provision for income taxes		4,739			3,802
Net Income		$	9,090		$	7,665
Per share:
Net Income - basic		$	0.39		$	0.33
Net Income - diluted		$	0.39		$	0.32
Weighted average shares used in Basic E.P.S. calculation		23,019			23,570
Weighted average shares used in Diluted E.P.S. calculation		23,557			24,045
Cash dividends		$	0.16		$	0.14
Book value at period-end		$	11.78		$	11.80
Tangible book value at period end		$	9.38		$	9.40
Ending Shares		22,949			23,586
Financial Ratios
Return on assets		1.60		%	1.40		%
Return on tangible assets		1.64		%	1.44		%
Return on equity		13.33		%	11.09		%
Return on tangible equity		16.66		%	13.93		%
Net interest margin (not taxable equivalent)		5.22		%	4.88		%
Net interest margin (taxable equivalent yield)		5.65		%	5.30		%
Net loan losses (recoveries) to average loans		0.05		%	(0.04		)%
Efficiency ratio		57.0		%	63.2		%
Period Averages
Total Assets		$	2,306,314		$	2,199,365
Total Tangible Assets		2,250,937			2,142,613
Total Loans (includes loans held for sale)		1,434,150			1,189,945
Total Earning Assets		2,079,604			1,993,070
Total Deposits		1,991,356			1,899,475
Common Equity		276,592			278,047
Common Tangible Equity		221,215			221,295
Balance Sheet - At Period-End
Cash and due from banks		$	127,861		$	123,672
Investments and Fed Funds Sold		628,634			749,708
Loans held for sale		9,927			10,712
Loans, net of deferred fees, before allowance for loan losses		1,456,091			1,240,325
Allowance for Loan Losses		(13,630		)	(16,584		)
Goodwill and other intangibles		55,228			56,603
Other assets		58,070			54,231
Total Assets		$	2,322,181		$	2,218,667

 

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		March 31, 2005			March 31, 2004
Non-interest bearing deposits		$	526,597		$	480,652
Interest bearing deposits		1,478,735			1,435,908
Other borrowings		23,621			4,886
Allowance for losses - unfunded commitments		1,624			1,867
Other liabilities		21,228			17,072
Shareholders’ equity		270,376			278,282
Total Liabilities and Shareholders’ equity		$	2,322,181		$	2,218,667
Asset Quality & Capital - At Period-End
Non-accrual loans		$	5,828		$	12,220
Loans past due 90 days or more		—			—
Other real estate owned		—			3,428
Total non performing assets		$	5,828		$	15,648
Allowance for losses to loans, gross (1)		1.0		%	1.5		%
Non-accrual loans to total loans, gross		0.4		%	1.0		%
Non performing assets to total assets		0.3		%	0.7		%
Allowance for losses to non performing loans (1)		261.7		%	151.0		%
Equity to average assets (leverage ratio)		9.5		%	9.7		%
Tier One capital to risk-adjusted assets		11.9		%	13.6		%
Total capital to risk-adjusted assets		12.8		%	14.8		%

(1) Includes allowance for loan losses and allowance for losses - unfunded commitments

 

        Performance Summary.  The Company posted net income of $9.1 million for the three months ended March 31, 2005 compared to $7.7 million in the like 2004 period.  On a per share basis, diluted earnings per share were $0.39 in the 2005 period compared to $0.32 in the same quarter of 2004.  These earnings represent an annualized return on assets of 1.60% and 1.40%, respectively.  The annualized return on equity was 13.33% for the first quarter of 2005 compared to 11.09% in the first quarter of 2004.  The increase in the Company’s return on assets and return on equity in the comparable periods is primarily attributable to an increase in its net interest margin (the ratio of its net interest income to average earning assets) of 34 basis points across the two periods. The Company’s leverage ratio was 9.5% at March 31, 2005 compared to 9.7% one year earlier reflecting the fact that the combination of the Company’s on-going stock repurchase program and regular cash dividends more than offset the net income earned over the intervening 12 months.

 

        Net Interest Income.  The following table delineates the impacts of changes in the volume of earning assets, changes in the volume of interest bearing liabilities, and changes in interest rates on net interest income for the three month periods ended March 31, 2005 and 2004.

 

Dollars in 000’s		3 Months Ended March 31, 2005										3 Months Ended March 31, 2004										Composition of Change 2005 Compared to 2004
					Interest					Average						Interest				Average
		Average			Income /					Yield /		Average				Income /				Yield /		Change Due To:								Total
		Balance			Expense					Rate		Balance				Expense				Rate		Volume				Rate				Change
EARNING ASSETS:
Loans		$	1,434,150		$		23,941			6.77	%	$	1,189,945			$	19,718			6.66	%	$		4,045		$		178		$		4,223
Investment Securities		624,637			5,414					3.52	%	765,112				6,433				3.38	%	(1,194			)	175				(1,019			)
Fed Funds, Other		20,817			127					2.47	%	38,013				86				0.91	%	(72			)	113				41
TOTAL EARNING ASSETS		2,079,604			29,482					5.75	%	1,993,070				26,237				5.29	%	2,779				466				3,245
INTEREST BEARING  LIABILITIES:
NOW, Savings, and Money Market Accounts		1,078,426			724					0.27	%	1,022,716				592				0.23	%	35				97				132
Time Deposits		398,743			1,804					1.83	%	399,276				1,403				1.41	%	(2			)	403				401
Interest Bearing Deposits		1,477,169			2,528					0.69	%	1,421,992				1,995				0.56	%	33				500				533
Other Borrowings		19,590			185					3.83	%	5,274				81				6.18	%	177				(73			)	104
TOTAL INTEREST BEARING LIABILITIES		1,496,759			2,713					0.74	%	1,427,266				2,076				0.59	%	210				427				637
NET INTEREST INCOME		$	2,079,604		$	26,769				5.22	%	$		1,993,070		$		24,161		4.88	%	$	2,569			$	39			$	2,608

 

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