(1) Defined as the Company's net interest income divided by total interest-earning assets.
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods shown. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (i.e., changes in rate multiplied by old volume) and (ii) changes in volume (i.e., changes in volume multiplied by old rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to volume and to rate.
Liquidity and Capital Resources
Liquidity is a measure of the Company's ability to generate sufficient cash to meet present and future financial obligations in a timely manner through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. These obligations include the credit needs of customers, funding deposit withdrawals, and the day-to-day operations of the Company. Liquid assets include cash, interest-bearing deposits with financial institutions and certain investment securities and loans. As a result of the Company's management of the ability to generate liquidity primarily through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and meet its customers' credit needs. At June 30, 2001, the Company had commitments of approximately $108 million to fund loan originations, issued lines of credit, outstanding letters of credit and unadvanced loans.
Management continuously reviews the capital position of the Company and the Bank to ensure compliance with minimum regulatory requirements, as well as exploring ways to increase capital either by retained earnings or other means.
The Company's stockholders' equity was $78.6 million, or 6.6% of total assets of $1.19 billion at June 30, 2001, compared to equity at $71.0 million, or 6.3%, of total assets of $1.13 billion at December 31, 2000.
Banks are required to maintain minimum risk-based capital ratios. These ratios compare capital, as defined by the risk-based regulations, to assets adjusted for their relative risk as defined by the regulations. Guidelines require banks to have a minimum Tier 1 risk-based capital ratio, as defined, of 4.00%, a minimum total risk-based capital ratio of 8.00%, and a minimum 4.00% core capital ratio. To be considered "well capitalized," banks must have a minimum Tier 1 risk-based capital ratio, as defined, of 6.00%, a minimum total risk-based capital ratio of 10.00%, and a minimum 5.00% core capital ratio. On June 30, 2001, the Bank's Tier 1 risk-based capital ratio was 9.11%, total risk-based capital ratio was 10.37% and the core capital ratio was 7.36%. As of June 30, 2001, the Bank was "well capitalized" as defined by the Federal banking agencies' capital-related regulations. The Federal Reserve Bank has established capital regulations for bank holding companies that generally parallel the capital regulations for banks. On June 30, 2001, the Company's Tier 1 risk-based capital ratio was 10.08%, total risk-based capital ratio was 11.34% and the leverage ratio was 8.15%. As of June 30, 2001, the Company was "well capitalized" as defined by the Federal banking agencies' capital-related regulations.
At June 30, 2001, the held-to-maturity investment portfolio included $95,000 of gross unrealized losses. The unrealized losses are not expected to have a material effect on future earnings beyond the usual amortization of acquisition premium or accretion of discount because no sale of the held-to-maturity investment portfolio is foreseen.
The Company's primary sources of funds are certificates of deposit, FHLBank advances, other borrowings, loan repayments, proceeds from sales of loans and available-for-sale securities and funds provided from operations. The Company utilizes particular sources of funds based on the comparative costs and availability at the time. The Company has from time to time chosen not to pay rates on deposits as high as the rates paid by certain of its competitors and, when believed to be appropriate, supplements deposits with less expensive alternative sources of funds.
Statements of Cash Flows. During the six months ended June 30, 2001 and 2000, respectively, the Company experienced positive cash flows from operating activities and financing activities.
Cash flows from operating activities for the periods covered by the Statements of Cash Flows have been primarily related to the origination and sale of loans held-for-sale, changes in accrued and deferred assets, credits and other liabilities, the provision for loan losses, depreciation, and the amortization of deferred loan origination fees and discounts (premiums) on loans and investments, all of which are non-cash or non-operating adjustments to operating cash flows. Net income adjusted for non-cash and non-operating items was the primary source of cash flows from operating activities during the six months ended June 30, 2001 and 2000. Operating activities provided cash flows of $15.5 million during the six months ended June 30, 2001, and $10.7 million during the six months ended June 30, 2000.
During the six months ended June 30, 2001 and 2000, respectively, investing activities used cash of $44.7 million and $71.0 million primarily due to the net increase in loans and investment securities.
Changes in cash flows from financing activities during the periods covered by the Statements of Cash Flows are due to increases in deposits after interest credited, net increases in FHLBank advances, and proceeds from the issuance of trust preferred securities, offset by decreases in short-term borrowings, as well as purchases of treasury stock and dividend payments to stockholders. Financing activities provided $43.2 million in cash during the six months ended June 30, 2001 and $47.5 million in cash during the six months ended June 30, 2000. Financing activities in the future are expected to primarily include changes in deposits, FHLBank advances, and short-term borrowings, purchase of treasury stock, and payment of dividends.
Dividends. During the six months ended June 30, 2001, the Company declared and paid dividends of $.25 per share, or 19% of net income per share, compared to dividends declared and paid during the six months ended June 30, 2000 of $.25 per share, or 25% of net income per share. The Board of Directors meets regularly to consider the level and the timing of dividend payments.
Common Stock Repurchases. The Company has been in various buy-back programs since May 1990. During the six months ended June 30, 2001, the Company repurchased 9,642 shares of its common stock at an average price of $23.03 per share and reissued 22,634 shares of treasury stock at an average price of $15.11 per share to cover stock option exercises. During the six months ended June 30, 2000, the Company repurchased 384,674 shares of its common stock at an average price of $19.31 per share and reissued 28,705 shares of treasury stock at an average price of $12.75 per share to cover stock option exercises.
Management intends to continue its stock buy-back programs from time to time as long as repurchasing the stock contributes to the overall growth of shareholder value after taking into consideration the earnings of the Company and other alternative uses of available capital. The number of shares of stock that will be repurchased and the price that will be paid is the result of many factors, several of which are outside of the control of the Company. The primary factors, however, are the number of shares available in the market from sellers at any given time and the price of the stock within the market as determined by the market.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As discussed in the "Asset and Liability Management and Interest Rate Risk" section of Management's Discussion and Analysis, the Company utilizes interest rate swaps to effectively convert a portion of its fixed rate brokered deposits and fixed rate trust preferred securities to variable rates of interest.
In addition to the disclosures previously made by the Company in the December 31, 2000, Annual Report on Form 10-K, the following table summarizes interest rate sensitivity information for the Company's interest rate derivatives at June 30, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries are involved as plaintiff or defendant in various legal actions arising in the normal course of their business. While the ultimate outcome of the various legal proceedings involving the Registrant and its subsidiaries cannot be predicted with certainty, it is the opinion of management, after consultation with legal counsel, that these legal actions currently are not material to the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Common Stockholders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Exhibit No. Description
11 Statement Re Computation of Earnings Per Share