-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JBbcH2oWFM4CAyY/+yLkQsaKYLYnP6YTE/hPu1m7BrepSHEcnLp9hjhHGFqUDIJ2 4bJDnRCArIIjgZwuDPr29g== 0000351155-95-000002.txt : 19950616 0000351155-95-000002.hdr.sgml : 19950616 ACCESSION NUMBER: 0000351155-95-000002 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950322 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST ONE BANCORP CENTRAL INDEX KEY: 0000351155 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 820362647 STATE OF INCORPORATION: ID FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-09876 FILM NUMBER: 95522256 BUSINESS ADDRESS: STREET 1: 101 S CAPITOL BLVD STREET 2: P O BOX 8247 CITY: BOISE STATE: ID ZIP: 83733 BUSINESS PHONE: 2083837000 FORMER COMPANY: FORMER CONFORMED NAME: MOORE FINANCIAL GROUP INC DATE OF NAME CHANGE: 19890509 10-K/A 1 12/31/94 FORM 10-K FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 Commission file number: 0-9876 WEST ONE BANCORP (Exact name of Registrant as specified in its charter) Idaho 82-0362647 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 101 S. Capitol Boulevard, P.O. Box 8247, Boise, Idaho 83733 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (208) 383-7000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filing pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant was $1,005,853,825 at February 28, 1995, based on the closing price of such stock in the over-the-counter market as reported by The Nasdaq Stock Market. As of February 28, 1995, 36,827,600 shares of the Registrant's common stock, $1.00 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 1994 (1994 Annual Report), are incorporated by reference in Part I and Part II hereof. Portions of the definitive proxy statement dated March 7, 1995, for the 1995 annual meeting of shareholders of the Registrant (Proxy Statement) are incorporated by reference in Part III hereof. EXHIBIT INDEX IS LOCATED ON PAGE 21 INDEX Page of This Report PART I Item 1 - Business 3 Item 2 - Properties 12 Item 3 - Legal Proceeding 13 Item 4 - Submission of Matters to a Vote of Security Holders 13 - Executive Officers of the Registrant 13 PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6 - Selected Financial Data 15 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8 - Financial Statements and Supplementary Data 15 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 PART III Item 10 - Directors and Executive Officers of the Registrant 16 Item 11 - Executive Compensation 16 Item 12 - Security Ownership of Certain Beneficial Owners and Management 16 Item 13 - Certain Relationships and Related Transactions 16 PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16 SIGNATURES 18 PART I ITEM 1 - BUSINESS West One Bancorp, (the Registrant) is an Idaho corporation formed in 1981 as a bank holding company subject to regulation under the Bank Holding Company Act of 1956, as amended, and is registered with the Board of Governors of the Federal Reserve System (Federal Reserve Board). The Registrant's principal subsidiary is West One Bank, Idaho in Boise, Idaho. Other subsidiaries include West One Bank, Washington in Seattle, Washington; West One Bank, Utah in Salt Lake City, Utah; West One Bank, Oregon in Portland, Oregon; West One Bank, Oregon, S.B. in Hillsboro, Oregon; Idaho First Bank in Boise, Idaho; West One Financial Services, Inc. in Boise, Idaho; West One Trust Company in Salt Lake City, Utah; West One Trust Company, Washington in Bellevue, Washington; and West One Life Insurance Company in Boise, Idaho. The Registrant, through its subsidiaries, provides a wide variety of financial services to corporate and institutional customers, governments, individuals, and other financial institutions. Such services include domestic commercial banking, investment and funds management, personal banking, trust operations, corporate services, mortgage banking and credit life insurance. As of December 31, 1994, the Registrant and its subsidiaries employed approximately 4,778 full-time equivalent employees. WEST ONE BANK, IDAHO West One Bank, Idaho (West One, Idaho) was founded in 1867 in Boise, Idaho, and was the second national bank to be established west of the Rocky Mountains. When branch banking was authorized in 1933, West One, Idaho acquired three affiliated banks, thus beginning the development of its present statewide banking organization in Idaho. West One, Idaho is an Idaho-chartered bank supervised and regulated at the state level by the Director of the Idaho Department of Finance and at the federal level by the Federal Reserve Board. West One, Idaho is insured by the Bank Insurance Fund (BIF) and is therefore also subject to regulations issued by the Federal Deposit Insurance Corporation (FDIC). (See "Supervision and Regulation - - Other Regulations.") On January 21, 1994, West One, Idaho acquired Idaho State Bank with assets of $48 million in exchange for 133,332 shares of the Registrant's common stock. The transaction was accounted for as a pooling of interests. Idaho State Bank's financial position and results of operations were not material to West One's financial position and results of operations and prior year financial statements have not been restated. Idaho is the primary market area of West One, Idaho. West One, Idaho offers a full range of commercial and personal banking and trust services. Its corporate banking department Page 3 provides a broad range of customized credit products and services to middle market and large corporate borrowers. The principal industries in Idaho include agriculture, forest products, services, tourism, mining and manufacturing. The banking business in Idaho is highly competitive. West One, Idaho competes for deposits, loans, and trust accounts with other banks and financial institutions. At December 31, 1994, West One had $4.4 billion in assets and 90 branches. Based on assets of $4.1 billion at September 30, 1994, West One, Idaho is the largest bank in Idaho. In 1994, approximately 20 commercial banks with more than 300 branches were actively engaged in banking in Idaho. WEST ONE BANK, WASHINGTON West One Bank, Washington, (West One, Washington), a full-service commercial bank, has 59 branches principally in the Puget Sound region, Yakima, Spokane and the Tri-Cities, with assets of $2.1 billion, at December 31, 1994. West One, Washington is regulated by the State of Washington, and deposits are insured by the FDIC. West One, Washington acquired $64 million of assets from Valley Commercial Bank in exchange for 404,523 shares of the Registrant's common stock in September 1994 in a transaction accounted for as a pooling of interests. Prior year financial statements have not been restated since Valley Commercial Bank's financial position and results of operations were not material to the Registrant's financial position and results of operations. At September 30, 1994, West One, Washington had assets of $2.1 billion making it the fifth largest commercial bank in Washington. In 1994, approximately 87 banks with more than 1,000 branches were actively engaged in banking in Washington. WEST ONE BANK, UTAH West One Bank, Utah, (West One, Utah), chartered in 1909 and acquired in November 1985, is a state-chartered, full-service commercial bank based in Salt Lake City, Utah. As of December 31, 1994, West One, Utah had 24 branches and $745 million in total assets. West One, Utah is regulated by the Federal Reserve Board, and deposits are insured by the FDIC. At September 30, 1994, West One, Utah had $723 million in total assets making it the sixth largest bank in Utah. In 1994, approximately 44 commercial banks with more than 400 branches were actively engaged in banking in Utah. WEST ONE BANK, OREGON West One Bank, Oregon, (West One, Oregon), acquired in 1983, operates as a state - -chartered, full-service commercial bank with operations concentrated in the western Oregon market area. As of December 31, 1994, West One, Oregon had 26 branches and $862 million in total assets. West One, Oregon is regulated by the State of Oregon, and deposits are insured by the FDIC. West One, Oregon acquired National Security Bank with assets of $132 million in exchange for 1,101,832 shares of the Registrant's common stock in November 1994. The transaction was Page 4 accounted for as a pooling of interests. National Security Bank's financial position and results of operations were not material to West One's financial position and results of operations; therefore, prior year financial statements have not been restated. WEST ONE BANK, OREGON, S.B. West One Bank, Oregon, S.B., acquired in 1991, is a state-chartered, full- service savings bank based in Hillsboro, Oregon. As of December 31, 1994, West One Bank, Oregon, S.B. had 23 branches and $635 million in total assets. West One Bank, Oregon, S.B. is regulated by the State of Oregon, and deposits are insured by the FDIC. In April 1994, West One, Oregon, S.B. purchased ten Far West Federal Savings Bank branches from the Resolution Trust Corporation. The transaction included the receipt of $160 million in cash, $2 million of premises and equipment, $11 million of intangible assets and the assumption of $173 million of deposits and other liabilities. The transaction was accounted for as a purchase. West One, Oregon and West One Bank, Oregon, S.B. combined had total assets of $1.2 billion as of September 30, 1994, making it the fifth largest bank in Oregon. IDAHO FIRST BANK Idaho First Bank was formed by the Registrant in 1989. Idaho First Bank is an Idaho-chartered bank supervised and regulated at the state level by the Director of the Idaho Department of Finance. Idaho First Bank, which is insured by the BIF, offers electronic banking services to the Registrant's cardholders through the affiliates' automated teller machine (ATM) network (AWARD); Cirrus/Mastercard, STAR System, and Exchange NW (Oregon and Washington) ATM; ACCEL and Explore on-line debit point-of-sale networks; VISA and Mastercard credit cards; merchant bankcard and VISA Check Card Services. As of December 31, 1994, Idaho First Bank had $235 million in total assets. As of December 31, 1994, the ATM network totaled 235 branch and retail ATMs, including 91 in Idaho, 74 in Washington, 39 in Oregon, 26 in Utah and 5 in Nevada. WEST ONE FINANCIAL SERVICES, INC. West One Financial Services, Inc. services residential and commercial mortgage portfolios for long-term investors. Total loans serviced, including loans serviced for the Registrant's affiliates, were $3.0 billion as of December 31, 1994. WEST ONE TRUST COMPANY West One Trust Company, acquired by the Registrant in 1982, operates offices in Salt Lake City, Utah and Portland, Oregon. West One Trust Company provides fiduciary, investment management and related services for corporate, institutional and individual clients. Page 5 WEST ONE TRUST COMPANY, WASHINGTON West One Trust Company, Washington, formed by the Registrant in 1991, is a state-chartered trust company based in Bellevue, Washington. West One Trust Company, Washington provides fiduciary, investment management and related services for corporate, institutional and individual clients. WEST ONE LIFE INSURANCE COMPANY West One Life Insurance Company underwrites credit life and credit disability policies for borrowers of West One Bancorp affiliates. WEST ONE BANCORP, THE PARENT COMPANY The Parent Company provides a variety of services to affiliates. Through its data processing centers in Boise, Idaho, Salt Lake City, Utah and Renton, Washington, the Registrant processes demand deposit accounts, savings accounts, installment consumer loans, commercial loans and real estate loans for a majority of its subsidiaries. SUPERVISION AND REGULATION The Registrant's banking subsidiaries are affected by the policies of regulatory authorities, including the monetary policy of the Federal Reserve Board. In order to mitigate recessionary and inflationary pressures, the Federal Reserve Board uses a variety of money supply management techniques, including engaging in open market operations in United States Government securities, changing the discount rate on member bank borrowings, and changing reserve requirements against member bank deposits. The impact of current economic conditions on the policies of the Federal Reserve Board and other regulatory authorities and their effect on the future business and earnings of the Registrant cannot be predicted with assurance. The Registrant is subject to regulation under the Bank Holding Company Act of 1956, as amended. Under that Act, the Registrant is required to obtain the approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank or ownership or control of any voting securities of any bank not already majority owned if, after giving effect to the acquisition, the Registrant would own or control more than five percent of the voting shares of such bank. The Bank Holding Company Act of 1956 generally does not permit the Federal Reserve Board to approve an acquisition by a bank holding company of voting shares or assets of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted unless the acquisition is specifically authorized by the statutes of the states in which the banks are located. Each of the states in the Registrant's marketing area have adopted legislation that permits bank acquisition by out-of-state bank holding companies, with certain restrictions. The Bank Holding Company Act of 1956 also prohibits, with certain exceptions, the Registrant from engaging in or acquiring direct or indirect control of more than five percent Page 6 of the voting shares of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition applies to activities found by the Federal Reserve Board to be so closely related to banking as to be a proper incident thereto. Some of the activities which the Federal Reserve Board has determined by regulation to be closely related to banking are: mortgage banking, certain data processing operations, personal property leasing on a full payout basis and operation of a consumer finance business. The Registrant is not subject to territorial restrictions on the operations of nonbank subsidiaries. The Registrant and its subsidiaries are prohibited from engaging in certain "tie-in" arrangements in connection with extensions of credit or provision of any property or service. Also, the Registrant's banking subsidiaries are subject to restrictions on loans to the Registrant or its subsidiaries, investments in stock or other securities of the Registrant or its subsidiaries, or advances to any borrower collateralized by such stock or other securities. In December 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. In addition to establishing minimum capital requirements, FDICIA directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital and such other standards as the agency deems appropriate. FDICIA also contains a variety of other provisions that may affect the operations of the Registrant including new reporting requirements, revised regulatory standards for real estate lending, truth in savings provisions, and the requirement that a depository institution give 90 days' notice to customers and regulatory authorities before closing any branch. Page 7 STATISTICAL INFORMATION The statistical information is included herein or is incorporated by reference from the following pages of the Registrant's 1994 Annual Report. Page Number Disclosure Annual Report Form 10-K I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential 20-21 II. Investment Portfolio 41 9 III. Loan Portfolio 23 and 28 10-11 IV. Summary of Loan Loss Experience 26-29 and 42 11-12 V. Deposits 20-21 and 25-26 12 VI. Return on Equity and Assets 16-17 VII. Short-Term Borrowings 43 Page 8 II. INVESTMENT PORTFOLIO The book value of securities at December 31 follows:
Book Value (Dollars in thousands) 1994 1993 1992 Available for sale: United States Treasury $ 362,370 $ 292,078 $ 18,373 United States Government agencies 391,667 261,487 31,061 Mortgage-backed securities 227,473 298,695 68,750 Other 158,255 208,390 42,805 Total available for sale 1,139,765 1,060,650 160,989 Held to maturity: United States Treasury - - 287,732 United States Government agencies - - 281,852 State and municipal bonds 581,155 565,165 362,110 Mortgage-backed securities - - 343,236 Other - - 221,550 Total held to maturity 581,155 565,165 1,496,480 Total securities $1,720,920 $1,625,815 $1,657,469
Page 9 III. LOAN PORTFOLIO Total loans, net of unearned income, at December 31 follow:
(Dollars in thousands) 1994 1993 1992 1991 1990 Real estate $2,526,475 $2,150,835 $1,734,076 $1,179,101 $1,083,381 Commercial, financial and agricultural 2,205,459 1,996,865 1,787,451 1,379,891 1,292,733 Consumer 1,172,616 1,038,678 875,203 797,076 797,877 Leases 160,873 168,119 135,183 141,383 118,226 Total $6,065,423 $5,354,497 $4,531,913 $3,497,451 $3,292,217
Loans outstanding at December 31, 1994, (other than mortgage and consumer loans, and leases which are ordinarily on a term basis with installment repayment requirements) segregated by maturity ranges follow:
Commercial, Financial and Agricultural Maturity of loans One year or less $1,480,778 Over one year up to five years 614,784 Over five years 109,897 Total $2,205,459 Sensitivity of loans to changes in interest rates - loans due after one year Fixed rate $ 269,395 Floating rate 455,286 Total $ 724,681
Page 10 A loan or lease is placed on nonaccrual status when timely collection of interest becomes doubtful. Interest payments received on nonaccrual loans and leases are applied to principal if collection of principal is doubtful or reflected as interest income on a cash basis. Loans and leases are removed from nonaccrual status when they are current and collectibility of principal and interest is no longer doubtful. Income foregone on nonaccrual and restructured loans, net of tax, was $984,000, $1,086,000 and $1,650,000 for the years ended December 31, 1994, 1993 and 1992, respectively. United States dollar denominated, interest bearing short-term investments located in foreign banks including United States branches of foreign banks, exceeding .75% of total assets follow: (Dollars in thousands)
COUNTRY 1994 1993 1992 Canada $ - $ - $85,000 United Kingdom $ - $ - 57,400 IV. SUMMARY OF LOAN LOSS EXPERIENCE The analysis of the allowance for credit losses follow:
(Dollars in thousands) 1994 1993 1992 1991 1990 Balance at January 1 $74,923 $68,243 $53,048 $47,823 $49,755 Loan charge-offs Real estate 379 1,141 1,292 3,135 2,112 Commercial and agricultural 5,286 4,804 8,111 18,188 8,674 Consumer 13,164 9,802 9,597 10,330 9,340 Leases 170 409 445 663 301 Total charge-offs 18,999 16,156 19,445 32,316 20,427 Loan recoveries Real estate 366 468 421 113 179 Commercial and agricultural 3,559 4,496 4,298 2,950 3,227 Consumer 4,740 3,970 4,641 4,507 3,282 Leases 107 169 264 291 139 Total recoveries 8,772 9,103 9,624 7,861 6,827 Net charge-offs 10,227 7,053 9,821 24,455 13,600 Provision for credit losses 13,278 13,383 14,308 29,680 11,668 Additions from acquisitions 3,783 350 10,708 - - Balance at December 31 $81,757 $74,923 $68,243 $53,048 $47,823
Page 11 The allowance for credit losses by category and the percentage of gross loans by category to total loans for the past five years follow:
(Dollars in thousands) Commercial, Financial and Real Estate Agricultural Consumer Leases Unallocated Total 1994 Amount $29,200 $29,700 $21,300 $1,500 $57 $81,757 Percent 41.66% 36.36% 19.33% 2.65% N/A 100% 1993 Amount $30,100 $27,900 $14,500 $2,400 $23 $74,923 Percent 40.17% 37.29% 19.40% 3.14% N/A 100% 1992 Amount $26,100 $26,900 $13,200 $2,000 $43 $68,243 Percent 38.27% 39.44% 19.31% 2.98% N/A 100% 1991 Amount $17,900 $20,900 $12,100 $2,100 $48 $53,048 Percent 33.71% 39.46% 22.79% 4.04% N/A 100% 1990 Amount $15,700 $18,800 $11,600 $1,700 $23 $47,823 Percent 32.91% 39.26% 24.24% 3.59% N/A 100%
V. DEPOSITS Time certificates of deposits $100,000 and over as of December 31, 1994, segregated by maturity ranges follow:
(Dollars in thousands) Within Three Six to Over Three To Six Twelve Twelve Months Months Months Months Total Time certificates $100,000 and over $412,467 $131,335 $120,813 $156,938 $821,553
ITEM 2 - PROPERTIES The Registrant's main office, owned by West One, Idaho, is located in a 19-story building in downtown Boise, Idaho. The building, completed in 1978, contains approximately 285,000 square feet of which approximately 185,000 square feet are utilized by the Registrant and the remainder is leased or available for lease to others. In addition, the Registrant owns 76 of 88 branch buildings in Idaho, 16 of 23 branch buildings in Utah, 27 of 47 branch buildings in Oregon, 37 of 57 branch buildings in Washington, and 8 of 31 support service buildings. Remaining facilities are leased from others for terms expiring between 1995 and 2017. Page 12 ITEM 3 - LEGAL PROCEEDINGS Various legal proceedings arising in the normal course of business are pending against subsidiaries of the Registrant. In the opinion of management, the resulting liability, if any, from these proceedings will not have a material impact on the Registrant's financial position or results of operations. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Registrant during the quarter ended December 31, 1994. EXECUTIVE OFFICERS OF THE REGISTRANT The names, positions, ages and background of the executive officers of the Registrant, as of January 1, 1995, are set forth below: Name Position Age Daniel R. Nelson Chairman of the Board of Directors 57 and Chief Executive Officer of the Registrant D. Michael Jones President and Director of the Registrant 52 Robert J. Lane Executive Vice President of the Registrant 49 and President and Chief Executive Officer of West One, Idaho Scott M. Hayes Executive Vice President and Chief 47 Financial Officer of the Registrant Terrance J. Dobson Executive Vice President of the Registrant 54 Dwight V. Board Senior Vice President, Secretary and General 50 Counsel of the Registrant Jim A. Peterson Senior Vice President, Controller and Principal 39 Accounting Officer of the Registrant Page 13 Mr. Nelson joined the Registrant in 1984. He was named an Executive Vice President of the Registrant in 1984 and elected President and Chief Operating Officer of the Registrant in 1985. In August, 1986, he was elected Chairman and Chief Executive Officer of West One, Idaho. In January, 1987, Mr. Nelson was elected Chairman of the Board and Chief Executive Officer of the Registrant. Mr. Nelson serves as a Chairman of the Board of West One, Idaho and a Director of the Registrant; West One, Idaho; and West One, Washington; and also as an officer of West One, Idaho. Mr. Jones joined the Registrant in 1987. He was elected President of the Registrant in 1987. Mr. Jones serves as Chairman of the Board of West One, Washington and a Director of the Registrant; West One, Utah; West One, Oregon; and West One, Washington. Mr. Lane joined West One, Idaho in 1983 as Vice President and Senior Credit Officer. In 1985, he was elected President of West One Financial Services, Inc. Later that same year, he was elected President and Chief Operating Officer of West One, Idaho and also became a Director of West One, Idaho. In 1987, he was named President and Chief Executive Officer of West One, Idaho. Mr. Lane was elected Executive Vice President of the Registrant in January 1991. Mr. Hayes joined West One, Idaho in 1981 as Vice President of Money Desk operations. In 1985, he was elected Vice President of the Registrant, and in 1986 he was elected a Senior Vice President of the Registrant. In 1987, he was named Executive Vice President and Chief Financial Officer of the Registrant. Mr. Dobson joined the Registrant in 1990 as Executive Vice President of the Capital Management Group. From 1987 through 1990, Mr. Dobson was with U.S. Bancorp as Senior Vice President of Corporate Development and then Executive Vice President of the Investment Services Group. Mr. Board joined West One, Idaho in 1971 as Legal Counsel. In 1981, he was elected Vice President, Secretary and General Counsel of the Registrant. He was elected Senior Vice President of the Registrant in 1990. Mr. Peterson joined the Registrant in 1982. In January, 1987, he was elected Vice President of the Registrant. In 1990, he was elected Vice President and Controller. He was elected Senior Vice President and Controller in January 1993, and serves as principal accounting officer of the Registrant. The executive officers of the Registrant also serve as officers and/or Directors of several other affiliated companies. Page 14 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Items relating to market price for the Registrant's common equity and related stockholder matters included in the 1994 Annual Report at the pages indicated, are herein incorporated by reference. Page of 1994 Annual Report Shareholders' Equity and Capital Adequacy 16-19 Quarterly Common Stock Statistics 17 Shareholders' Equity 46 Regulatory Requirements and Restrictions 53 ITEM 6 - SELECTED FINANCIAL DATA Selected Financial Data of the Registrant on page 14 of the 1994 Annual Report is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations set forth on pages 15-29 of the 1994 Annual Report is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and Report of Independent Public Accountants listed in the Index to Financial Statements and Schedules on page 20 of this Annual Report on Form 10-K and included in the 1994 Annual Report are incorporated herein by reference. Quarterly Financial Data on page 31 of the 1994 Annual Report is incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in accountants within the last 24 months, nor were there reportable disagreements with the Registrant's independent public accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Page 15 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information on pages 2-5 in the March 7, 1995 Proxy Statement is incorporated herein by reference. Reference is made to "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K for additional information regarding the executive and management officers of the Registrant. There are no family relationships among the directors or the executive and management officers. ITEM 11 - EXECUTIVE COMPENSATION The information on pages 6-12 in the March 7, 1995 Proxy Statement is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information regarding security ownership of certain beneficial owners and management included in the March 7, 1995 Proxy Statement on pages 4-5 is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information in the sixth paragraph on page 5 in the March 7, 1995 Proxy Statement is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements: The consolidated financial statements incorporated by reference in this Annual Report on Form 10-K are listed in the Index to Financial Statements and Schedules on page 20 herein. (2) Financial Statement Schedules: See the Index to Financial Statements and Schedules on page 20 herein. (3) The exhibits filed herewith are listed in the Exhibit Index on pages 21 and 22 herein. (b) There were no current reports on Form 8-K filed by the Registrant during the last quarter of the year ended December 31, 1994. Page 16 (c) Each management contract compensation plan and arrangement required to be filed as an exhibit to this report is listed in item 10, Executive Compensation Plans and Arrangements and Other Management Contracts, in the Exhibit Index on pages 21 and 22 herein. Page 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: 3/21/95 WEST ONE BANCORP Registrant By /s/ Scott M. Hayes Scott M. Hayes Executive Vice President and Chief Financial Officer By /s/ Jim A. Peterson Jim A. Peterson Senior Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated. Signature Title Date */s/ Daniel R. Nelson Chairman and Chief Executive 3/21/95 Officer and Director (Principal Executive Officer) */s/ D. Michael Jones President and Director 3/21/95 /s/ Scott M. Hayes Executive Vice President and 3/21/95 Chief Financial Officer (Principal Financial Officer) /s/ Jim A. Peterson Senior Vice President and Controller 3/21/95 (Principal Accounting Officer) */s/ Harry Bettis Director 3/21/95 */s/ Norma Cugini Director 3/21/95 Page 18 SIGNATURES (continued) */s/ William J. Deasy Director 3/21/95 */s/ John B. Fery Director 3/21/95 */s/ Stuart A. Hall Director 3/21/95 */s/ Jack B. Little Director 3/21/95 */s/ Warren E. McCain Director 3/21/95 */s/ Douglas McCallum Director 3/21/95 */s/ Allen T. Noble Director 3/21/95 */s/ Philip B. Soulen Director 3/21/95 *By /s/ Dwight V. Board Dwight V. Board, Attorney-in-fact Manually signed Power of Attorney authorizing Dwight V. Board to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as Attorney-in- fact for certain directors and officers of the Registrant is included herein as Exhibit 24. Page 19 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES FINANCIAL STATEMENTS The following consolidated financial statements and Report of Independent Public Accountants included in the 1994 Annual Report at the pages indicated, are incorporated herein by reference. Page of 1994 Annual Report West One Bancorp and Subsidiaries - Consolidated Balance Sheets at December 31, 1994 and 1993 32-33 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 34 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992 35 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 36-37 Notes to Consolidated Financial Statements 38-56 Report of Independent Accountants 57 Financial Statement Schedules All schedules have been omitted because the information is either not required, not applicable, not present in amounts sufficient to require submission of the schedule, or is included in the financial statements or notes thereto. Page 20 EXHIBIT INDEX Exhibit Number Description 3.1 Amended Articles of Incorporation of the Registrant. Incorporated by reference to Exhibit 3-A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. 3.2 Bylaw Amendment and Amended Bylaws of the Registrant. Incorporated by reference to Exhibit 3-B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 4 Shareholder Rights Plan. Incorporated by reference to Exhibit 4-B to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 as amended by Form 8-A dated October 15, 1992. Registrant agrees to furnish copies of instruments relating to its long-term notes payable, the total amount of which does not exceed 10% of total Consolidated Assets of the Registrant and its subsidiaries, to the Commission upon request. 10 Executive Compensation Plans and Arrangements and Other Management Contracts: 10.1 Executive Compensation Program. Incorporated by reference to Exhibit 10-A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. 10.2 The Executive Incentive Program of the Registrant, as amended. Incorporated by reference to Exhibit 10-B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. 10.3 Registrant's Executive Deferred Compensation Plan, as amended. Incorporated by reference to Exhibit 10-C to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. 10.4 Form of Employment Agreements between Registrant and certain key employees. Incorporated by reference to Exhibit 10-E to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987. 10.5 Form of Indemnification Agreement dated June 16, 1988, entered into by the Registrant with each of its Directors. Incorporated by reference to Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988. Page 21 Exhibit Number Description 10.6 The 1991 Performance and Equity Incentive Plan of the Registrant. Incorporated by reference to Exhibit 10-F to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. 10.7 Deferred Compensation Plan for Outside Directors of the Registrant. Incorporated by reference to Exhibit 10-G to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. 11 Statement regarding computation of per share earnings. 13 Portions of the Registrant's 1994 Annual Report. 21 List of subsidiaries of the Registrant. 23 Consent of independent public accountants. 24 Power of Attorney of Certain Officers and Directors of Registrant. 27 Financial Data Schedule. Page 22 EX-11 2 EARNINGS PER SHARE COMPUTATION EXHIBIT 11 WEST ONE BANCORP COMPUTATION OF PER SHARE EARNINGS
Dollars in thousands, except per share, for the year ended December 31, 1994 1993 1992 Primary earnings per share: Weighted average number of shares 35,355,863 32,803,044 29,923,980 Common stock equivalents computed under the treasury stock method using average market price. 455,701 488,938 419,416 Total 35,811,564 33,291,982 30,343,396 Fully diluted earnings per share: Weighted average number of shares 35,355,863 32,803,044 29,923,980 Common stock equivalents computed under the treasury stock method using the greater of ending or average market price. 456,047 505,788 514,844 Other potentially dilutive securities 2,684,569 2,687,450 2,687,450 TOTAL 38,496,479 35,996,282 33,126,274 Net income $103,171 $83,187 $63,372 Interest expense (net of tax) incurred for other potentially dilutive securities $ 2,315 $ 2,317 $ 2,353 Earnings per share: Primary $ 2.88 $ 2.50 $ 2.09 Fully diluted 2.74 2.38 1.98
EX-13 3 PORTIONS OF 1994 ANNUAL REPORT TO SHAREHOLDERS Selected Financial Data
Dollars in thousands, except per share data For the year 1994 1993 1992 1991 1990 Interest income - taxable equivalent $583,876 $515,798 $446,913 $459,704 $455,050 Interest expense 221,361 193,435 195,090 249,980 268,014 Net interest income - taxable equivalent 362,515 322,363 251,823 209,724 187,036 Taxable equivalent adjustment 20,890 18,473 13,125 12,152 11,347 Net interest income 341,625 303,890 238,698 197,572 175,689 Provision for credit losses 13,278 13,383 14,308 29,680 11,668 Net interest income after provision for credit losses 328,347 290,507 224,390 167,892 164,021 Other income 114,513 102,014 81,771 70,548 61,931 Securities gains (losses) (1,067) 495 1,690 2,156 24 Total noninterest income 113,446 102,509 83,461 72,704 61,955 Salaries and employee benefits 142,512 128,886 104,024 90,485 82,211 Other expense 152,180 143,552 112,500 92,651 80,825 Total noninterest expense 294,692 272,438 216,524 183,136 163,036 Income before taxes 147,101 120,578 91,327 57,460 62,940 Provision for income taxes 43,930 37,391 27,955 16,261 18,673 Net income $103,171 $83,187 $63,372 $41,199 $44,267 Primary earnings per share $2.88 $2.50 $2.09 $1.47 $1.60 Fully diluted earnings per share 2.74 2.38 1.98 1.44 1.60 Cash dividends declared per share .76 .49 .675 .48 .44 Cash dividends paid per share .72 .595 .51 .47 .44 Assets $8,792,699 $7,671,353 $7,133,637 $5,417,199 $4,946,989 Loans 6,065,423 5,354,497 4,531,913 3,497,451 3,292,217 Allowance for credit losses 81,757 74,923 68,243 53,048 47,823 Deposits 6,810,882 5,937,047 5,636,339 4,044,408 3,860,881 Long-term debt 253,073 116,460 117,649 111,881 72,614 Shareholders' equity 715,769 623,566 489,825 367,048 332,692 Full-time equivalent employees 4,778 4,477 4,293 3,464 3,370 Shares outstanding 36,745,368 34,718,731 32,351,160 28,062,404 27,567,672
In September 1992, West One acquired certain assets and deposits from Security Pacific Corporation in Washington. -14- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of West One Bancorp and subsidiaries (the Corporation) supplements the accompanying consolidated financial statements. Performance Overview The Corporation completed the most profitable year in its 127 year history in 1994. Net income was $103.2 million, a 24% increase over the $83.2 million earned in 1993. Net income was 31% higher in 1993 than the $63.4 million earned in 1992. Highlights of 1994 include the continuation of double-digit loan growth, outstanding asset quality and the sixth consecutive increase in annual shareholders' dividends. Nonperforming assets declined to .29% of total assets and the allowance for credit losses was over 400% of nonperforming loans at December 31, 1994. Capital ratios strengthened in 1994 and easily exceeded regulatory requirements. Earnings per share increased 15% to $2.74 in 1994 following an increase of 20% to $2.38 in 1993. The five-year compound growth rate was 24% for net income and 17% for earnings per share. Return on assets averaged 1.28% in 1994, an improvement from returns of 1.14% and 1.08% in 1993 and 1992, respectively. Return on shareholders' equity averaged 15.63% in 1994, up from 15.61% in 1993 and 14.93% in 1992. Late in 1993, $47 million of common stock was issued through a Dividend Reinvestment and Stock Purchase Plan. The Corporation continues to pursue opportunities for profitable growth and asset diversification, with expansion in the states of Washington and Oregon a high priority. An improved competitive position in Oregon resulted from the acquisition in 1994 of 10 branches of Far West Federal Savings Bank with deposits of $173 million, and National Security Bank Holding Company, a five branch institution on the Oregon coast with assets of $132 million. Market penetration improved in the state of Washington with the acquisition of Valley Commercial Bank in 1994, a two branch institution serving Clarkston, Washington with assets of $64 million. The acquisition of Idaho State Bank with assets of $48 million and seven branches in Idaho communities previously not served by the Corporation was also completed in 1994. Growth rates for 1992 and 1993 reflected the acquisition in September 1992 of $1.2 billion in deposits from Security Pacific Corporation in the state of Washington (the Washington acquisition). Regional Economic Performance A financial institution's performance is directly influenced by economic conditions in its service area. In 1994, strong economic conditions prevailed in the Corporation's service area of Idaho, Washington, Oregon and Utah. Idaho and Utah maintained exceptional levels of economic growth, and Oregon experienced increasingly stronger growth as 1994 progressed. In recent years, Washington's growth was more moderate due to employment cuts in aerospace manufacturing; however, renewed economic strength and momentum were evident during the fourth quarter. Utah and Idaho were two of the top three job producing states in the nation in 1993 and 1994, and total nonfarm employment growth in the four-state region totaled 3.3% in 1994 compared to a 3.1% gain nationally. Individually, gains ranged from 2.1% in Washington to 5.8% in Utah. Residential construction activity remained vigorous in 1994 with demand slowing late in the year as consumers in Idaho and Utah reacted to higher mortgage interest rates. Strengthening economies in Oregon and Washington actually produced rising residential construction permit levels during the fourth quarter despite the higher interest rates. Dynamic economic conditions caused commercial office vacancy rates to decline sharply in Portland and Salt Lake City during 1994 and to remain flat at a very low level in Boise. Vacancy rates in Seattle were unchanged from the prior year. Rising employment led to strong personal income gains in the region with inflation adjusted gains ranging from 3.2% in Washington to over 6% in Utah. The region remains a magnet for people from all over the United States, and all four states experienced substantial net inmigration during 1994. Tighter labor markets in other regions of the United States and the prospect of a return to economic growth in California suggest that the rate of inmigration may slow in 1995. Higher interest rates will likely produce a decline in housing starts from the peaks experienced in 1994, but strong job growth suggests that economic expansion will continue in the region in 1995. Idaho's employment and income growth are expected to slow somewhat from the lofty levels of prior years, but employment growth of 3.5% and personal income growth of approximately 7.5% are projected for 1995, both well above national -15- benchmarks. Expanded export markets combined with continued trade promotion efforts, aggressive new product development by high technology companies and national expansion by local retailers indicate Washington's economy will continue to improve in 1995. Employment in Washington is expected to grow by 2% while personal income should increase approximately 5.5% in 1995. The technology sector in Oregon is expected to continue to expand in 1995, reflecting several large electronics projects announced in 1994. As a result, employment growth of 2.6% and personal income growth of about 6.5% are projected for Oregon in 1995. In Utah, state projections indicate annual employment growth will be about 4.3% and personal income will grow approximately 7.4%. AVERAGE BALANCES AND RATIOS
Dollars in thousands 1994 1993 1992 1991 1990 Selected average balances Assets $8,037,140 $7,312,017 $5,848,131 $5,165,354 $4,731,919 Earning assets 7,318,280 6,612,814 5,294,949 4,686,354 4,266,191 Securities 1,607,017 1,666,520 1,321,390 1,110,381 987,800 Loans 5,646,382 4,903,797 3,767,186 3,349,190 3,110,738 Deposits 6,302,035 5,689,938 4,503,586 3,917,298 3,663,402 Short-term borrowings 831,208 880,495 736,043 745,699 621,272 Long-term debt 149,257 117,990 114,727 86,024 67,736 Shareholders' equity 660,055 532,898 424,429 348,684 312,599 Growth measures (percent change in average balances) Assets 9.9% 25.0% 13.2% 9.2% 6.8% Earning assets 10.7 24.9 13.0 9.8 7.0 Securities (3.6) 26.1 19.0 12.4 7.6 Loans 15.1 30.2 12.5 7.7 15.5 Deposits 10.8 26.3 15.0 6.9 7.3 Short-term borrowings (5.6) 19.6 (1.3) 20.0 2.7 Long-term debt 26.5 2.8 33.4 27.0 .8 Shareholders' equity 23.9 25.6 21.7 11.5 10.4 Ratios (averages) Return on shareholders' equity 15.63% 15.61% 14.93% 11.82% 14.16% Return on assets 1.28 1.14 1.08 .80 .94 Dividend payout ratio 26.26 19.74 33.11 32.38 26.30 Loans to deposits 89.60 86.18 83.65 85.50 84.91 Shareholders' equity to assets 8.21 7.29 7.26 6.75 6.61 Shareholders' equity to loans 11.69 10.87 11.27 10.41 10.05
Shareholders' Equity and Capital Adequacy The Corporation's strong capital position merits the confidence of customers, investors and regulators and provides a solid foundation for asset growth. Capital management ensures capital is available for current needs, anticipated growth and advantageous business opportunities. Current and projected consolidated and subsidiary capital positions are monitored regularly to ensure capital levels exceed regulatory guidelines. -16- At December 31, 1994, shareholders' equity totaled $716 million, up 15% from a year ago. The primary component of additional shareholders' equity in 1994 was $89 million of retained earnings, up 32% from 1993. At December 31, 1994, shareholders' equity included a net unrealized after-tax loss of $13 million to adjust securities available for sale to market value. Shareholders' equity as a percent of assets measures capital strength. At December 31, 1994, the ratio was 8.14% compared to 8.13% at December 31, 1993 and 6.87% at December 31, 1992. In 1994, the Corporation paid dividends for the 60th consecutive year. The dividend policy is designed to strike a balance between providing immediate returns to shareholders through cash dividends and increasing long-term shareholders' value through profitable utilization of earnings as capital. In recognition of record net income and a strong capital position, the Board of Directors increased the quarterly dividend by 22% to $.22 per share in October 1994, representing the sixth consecutive year of dividend increases. On a per share basis, dividends paid in 1994 were $.72, a 21% increase from $.595 in 1993. The comparable dividend was $.51 in 1992. The book value per share of common stock was $19.48 at December 31, 1994, an 8% increase from the $17.96 book value per share at year-end 1993. Market capitalization at December 31, 1994 was $974 million. The Corporation's average annual compound return to shareholders was 22% for the five-year period ended December 31, 1994 assuming reinvestment of dividends, significantly higher than the 8% return for a peer group of 503 commercial banks and the Nasdaq market index return of 6%. The Corporation's stock was held by 6,957 shareholders of record at December 31, 1994 and is traded in the over-the-counter market on The Nasdaq Stock Market under the symbol of WEST. The accompanying market quotations represent the high and low closing sales price per share for the indicated periods as reported by The Nasdaq Stock Market. QUARTERLY COMMON STOCK STATISTICS
Fourth Third Second First 1994 Market quotations High $28 9/16 $31 13/16 $32 $28 1/2 Low 24 11/16 28 26 1/2 25 3/4 Quarter-end 26 1/2 28 28 3/4 27 Per share Cash dividends declared .22 .18 .18 .18 Cash dividends paid .18 .18 .18 .18 Book value, quarter-end 19.48 19.25 18.69 18.29 1993 Market quotations High $31 5/8 $29 1/2 $26 3/8 $27 1/4 Low 23 7/8 24 3/8 22 7/8 24 1/2 Quarter-end 28 1/2 29 1/2 24 3/4 25 3/4 Per share Cash dividends declared .18 .155 .155 - Cash dividends paid .155 .155 .155 .13 Book value, quarter-end 17.96 16.76 16.20 15.71 See Note 15 to the financial statements.
-17- (Graphic material omitted, replaces the two graphs presented on this page).
AVERAGE SHAREHOLDERS' EQUITY Dollars in millions 1994 1993 1992 1991 1990 Average shareholders' equity $715.8 $623.6 $489.4 $367.0 $332.7 COMPARATIVE RISK-BASED CAPITAL RATIOS At December 31, Well Regulatory 1994 Capitalized Minimum Leverage ratio 8.16% 5.00% 3.00% Tier 1 capital 10.30 6.00 4.00 Total capital 12.41 10.00 8.00
-18- Financial institutions are subject to risk-based capital guidelines requiring minimum capital levels based on the perceived risk of assets and off-balance sheet instruments. The Corporation's strong capital position, adequate allowance for credit losses, low intangible asset level and limited off-balance sheet exposure resulted in capital ratios well above regulatory minimums as presented in the accompanying graph. Bank regulators also adopted five capital category definitions applicable to banks for certain regulatory supervision purposes, ranging from well-capitalized to critically undercapitalized. At December 31, 1994, all banking subsidiaries exceeded the regulatory criteria for well-capitalized institutions and qualified for the minimum FDIC insurance assessment. Dividends from subsidiaries to West One Bancorp are used to provide capital to other subsidiaries, to reduce debt and to support shareholder dividends. The Corporation's leverage, Tier I and total capital ratios were 8.16%, 10.30% and 12.41%, respectively, at December 31, 1994 compared with 7.61%, 9.53% and 11.80%, respectively, at December 31, 1993. Double leverage is created when debt is incurred to acquire subsidiaries or to increase a subsidiary's capital and when intangible assets arise from acquisitions. The double leverage ratio is calculated for West One Bancorp as the sum of investment in subsidiaries plus goodwill and core deposit intangibles divided by total shareholders' equity. Regulators have not specified a maximum level of double leverage. At December 31, 1994, the double leverage ratio improved to .94 compared to .98 and 1.11, respectively, at December 31, 1993 and 1992. Net Interest Income Net interest income is the Corporation's principal source of revenue and is comprised of interest income on earning assets minus interest expense on interest bearing liabilities. Net interest margin is net interest income expressed as a percent of average earning assets and represents the difference between the yield on earning assets and the composite interest rate paid on all sources of funds. Net interest income is adjusted to a taxable equivalent basis to present income earned on taxable and tax-exempt assets on a comparable basis. References to net interest income and net interest margin in this discussion represent taxable equivalent amounts. Net interest income is impacted primarily by changes in the volume and mix of earning assets and funding sources, market rates of interest and asset quality. Net interest income was $362.5 million in 1994, an increase of 12% from the prior year. Comparable increases were 28% in 1993 and 20% in 1992. Net interest income increased in 1994 due to an 11% increase in average earning assets and an 8 basis point improvement in net interest margin. Net interest income accounted for 76% of total revenue in 1994 and 1993 and 75% in 1992. Average earning assets increased $705 million or 11% to $7.32 billion in 1994 following increases of 25% and 13% in 1993 and 1992, respectively. The increase in 1994 was attributable to average loan growth of $743 million due primarily to internal loan generation. Acquisitions completed in 1994 contributed $35 million of the average loan growth. Loans represent the highest yielding component of earning assets and accounted for 77% of average earning assets in 1994, up from 74% in 1993 and 71% in 1992. Interest income foregone on nonperforming loans reduced net interest income by $1.0 million, net of tax, in 1994 compared to $1.1 million in 1993 and $1.7 million in 1992. Nonaccrual loans declined to .32% of total loans at December 31, 1994 from .44% at year-end 1993 and .46% at year-end 1992. A shift in the mix of sources of funds improved net interest income and net interest margin in 1994 as a significant increase in noninterest bearing funds allowed the Corporation to reduce its reliance on short-term borrowings. Average noninterest bearing funds increased to 17.5% of total sources of funds in 1994 from 15.5% in 1993, resulting in lower interest expense and a wider net interest margin. Average short-term borrowings were $831 million or 11.4% of total sources of funds in 1994 compared to $880 million or 13.3% in 1993. Net interest margin increased 8 basis points to 4.95% in 1994 from 4.87% in 1993. Net interest margin was 4.76% in 1992. The yield on earning assets and the cost of funds both increased in 1994, reflecting higher money market rates. Improvements in the mix of both earning assets and sources of funds, combined with aggressive efforts to stabilize funding costs and to price loans profitably, resulted in a 17 basis point increase in the yield on earning assets compared to a 9 basis point increase in the cost of sources of funds. The accompanying table presents the rate and volume analysis of earnings assets and interest bearing liabilities for the last three years. -19- Consolidated Average Balance Sheets and Taxable Equivalent Interest Rate and Volume Analysis
1994-1993 Average Interest Change in 1994-1993 Change Average Balance Yield or Rate Income/Expense Income/ Attributable to Dollars in thousands 1994 1993 1994 1993 1994 1993 Expense Volume Rate Assets Due from banks - interest bearing $7,356 $23,894 4.01% 3.26% $295 $779 $(484) $(632) $148 Federal funds sold, securities purchased under agreements to resell and other 57,525 18,603 4.70 3.18 2,705 592 2,113 1,720 393 Securities: U.S. Treasury and Government agencies 611,337 578,522 5.53 5.51 33,805 31,869 1,936 1,814 122 State and municipal bonds 587,364 457,377 7.70 8.35 45,248 38,202 7,046 10,195 (3,149) Mortgage-backed securities 257,550 379,799 5.91 5.75 15,233 21,842 (6,609) (7,214) 605 Other 150,766 250,822 6.70 6.50 10,098 16,292 (6,194) (6,687) 493 Total securities 1,607,017 1,666,520 6.50 6.49 104,384 108,205 (3,821) (3,865) 44 Loans: Real estate 2,294,093 1,902,330 8.48 8.57 194,538 163,060 31,478 33,239 (1,761) Commercial and agricultural 1,977,261 1,796,611 7.84 7.22 154,927 129,660 25,267 13,641 11,626 Commercial - tax-exempt 124,864 109,573 9.21 8.77 11,501 9,605 1,896 1,390 506 Consumer 1,093,457 943,815 9.47 9.64 103,571 90,951 12,620 14,198 (1,578) Leases 156,707 151,468 7.63 8.55 11,955 12,946 (991) 436 (1,427) Total loans 5,646,382 4,903,797 8.44 8.28 476,492 406,222 70,270 62,539 7,731 Total earning assets 7,318,280 6,612,814 7.97 7.80 583,876 515,798 68,078 56,062 12,016 Cash and due from banks 482,138 470,961 Premises and equipment 124,766 122,679 Allowance for credit losses (79,015) (72,187) Other nonearning assets 190,971 177,750 Total assets $8,037,140 $7,312,017 Liabilities and shareholders' equity Interest bearing deposits: Interest bearing demand $736,731 $696,996 1.75 2.13 12,883 14,879 (1,996) 811 (2,807) Regular and money market savings 2,063,091 1,856,420 3.01 2.88 62,178 53,437 8,741 6,146 2,595 Time certificates under $100,000 1,606,909 1,577,139 4.65 4.62 74,685 72,921 1,764 1,382 382 Time certificates $100,000 and over 652,124 456,431 4.58 4.13 29,893 18,839 11,054 8,787 2,267 Total interest bearing deposits 5,058,855 4,586,986 3.55 3.49 179,639 160,076 19,563 16,714 2,849 Federal funds purchased and securities sold under agreement to repurchase 576,968 665,106 3.85 2.80 22,185 18,592 3,593 (2,705) 6,298 Other short-term borrowings 254,240 215,389 4.09 3.04 10,390 6,543 3,847 1,320 2,527 Long-term debt 149,257 117,990 6.13 6.97 9,147 8,224 923 1,999 (1,076) Total interest bearing funds 6,039,320 5,585,471 3.67 3.46 221,361 193,435 27,926 16,252 11,674 Noninterest bearing funds 1,278,960 1,027,343 Total sources of funds 7,318,280 6,612,814 3.02 2.93 221,361 193,435 Noninterest bearing deposits 1,243,180 1,102,952 Other liabilities 94,585 90,696 Shareholders' equity 660,055 532,898 Less noninterest bearing funds (1,278,960) (1,027,343) Total liabilities and shareholders' equity $8,037,140 $7,312,017 Net interest margin and income 4.95% 4.87% $362,515 $322,363 $40,152 $39,810 $342
-20-
1993-1992 Average Interest Change in 1993-1992 Change Average Balance Yield or Rate Income/Expense Income/ Attributable to Dollars in thousands 1992 1992 1992 Expense Volume Rate Assets Due from banks-interest bearing $184,914 4.02% $7,431 $(6,652) $(5,467) $(1,185) Federal funds sold, securities under agreements to resell and other 21,459 3.95 847 (255) (104) (151) Securities: U.S. Treasury and Government agencies 537,567 6.86 36,875 (5,006) 2,655 (7,661) State and municipal bonds 248,134 9.33 23,161 15,041 17,705 (2,664) Mortgage-backed securities 321,487 6.83 21,971 (129) 3,648 (3,777) Other 214,202 7.10 15,209 1,083 2,452 (1,369) Total securities 1,321,390 7.36 97,216 10,989 23,334 (12,345) Loans: Real estate 1,365,050 9.49 129,518 33,542 47,024 (13,482) Commercial and agricultural 1,377,120 7.68 105,765 23,895 30,596 (6,701) Commercial - tax-exempt 88,366 9.52 8,413 1,192 1,899 (707) Consumer 800,980 10.55 84,518 6,433 14,192 (7,759) Leases 135,670 9.73 13,205 (259) 1,446 (1,705) Total loans 3,767,186 9.06 341,419 64,803 96,119 (31,316) Total earning assets 5,294,949 8.44 446,913 68,885 104,765 (35,880) Cash and due from banks 366,761 Premises and equipment 99,680 Allowance for credit losses (59,055) Other nonearning assets 145,796 Total assets $5,848,131 Liabilities and shareholders' equity Interest bearing deposits: Interest bearing demand $521,319 2.79 14,532 347 4,220 (3,873) Regular and money market savings 1,353,181 3.58 48,476 4,961 15,710 (10,749) Time certificates under $100,000 1,427,677 5.45 77,874 (4,953) 7,647 (12,600) Time certificates $100,000 and over 388,752 4.95 19,256 (417) 3,067 (3,484) Total interest bearing deposits 3,690,929 4.34 160,138 (62) 34,665 (34,727) Federal funds purchased and securities sold under agreement to repurchase 624,864 3.36 20,995 (2,403) 1,289 (3,692) Other short-term borrowings 111,179 3.52 3,911 2,632 3,229 (597) Long-term debt 114,727 8.76 10,046 (1,822) 279 (2,101) Total interest bearing funds 4,541,699 4.30 195,090 (1,655) 40,122 (41,777) Noninterest bearing funds 753,250 Total sources of funds 5,294,949 3.68 195,090 Noninterest bearing deposits 812,657 Other liabilities 69,346 Shareholders' equity 424,429 Less noninterest bearing funds (753,250) Total liabilities and shareholders' equity $5,848,131 Net interest margin and income 4.76% $251,823 $70,540 $64,643 $5,897
Interest income is adjusted to present tax-exempt revenue from securities and loans on a basis comparable with taxable revenue, utilizing the statutory federal and the applicable state tax rates. The taxable equivalent adjustments were $20,890 in 1994, $18,473 in 1993 and $13,125 in 1992. Nonaccrual loans are included in average balances; however, interest income has not been accrued on such loans. Net changes which are attributable to volume and rate are allocated proportionately. -21- (Graphic material omitted, replaces the two graphs presented on this page).
Dollars in billions 1994 1993 1992 1991 1990 Average loans $5.6 $4.9 $3.8 $3.3 $3.1 Average earning assets 7.3 6.6 5.3 4.7 4.3
-22- Loans Loans represent the Corporation's largest component of earning assets and, accordingly, are its primary source of income. Loans totaled $6.07 billion at December 31, 1994, up from $5.35 billion at year-end 1993 and $4.53 billion at year-end 1992. Loans increased 13% in 1994 compared to increases of 18% and 30% in 1993 and 1992, respectively. Strong economic conditions in the Corporation's market area contributed to real estate loan growth of $376 million or 17%, commercial and agricultural loan growth of $209 million or 10% and consumer loan growth of $134 million or 13%. Residential real estate loans totaling an additional $194 million were originated and sold in the secondary market during 1994. The average loan to deposit ratio was 89.60% in 1994 compared to 86.18% in 1993 and 83.65% in 1992. Nonperforming loans totaled $20 million at year-end 1994 and represented .32% of total loans as compared to .44% in 1993 and .46% in 1992. Real estate loans totaled $2.53 billion at December 31, 1994. The largest component of the real estate loan portfolio is loans to individual homeowners collateralized by one-to-four family residential properties. At $1.26 billion, residential real estate loans were 50% of total real estate loans at December 31, 1994. Residential real estate loans increased $162 million or 15% in 1994 following increases of 23% and 46% in 1993 and 1992, respectively. High rates of inmigration and the consolidation of consumer debt into tax-advantaged home equity credit lines contributed to the increase in 1994. Commercial real estate loans increased $139 million or 17% to $946 million at December 31, 1994 compared to increases of 18% in 1993 and 47% in 1992. The increase in 1994 represented loans to local business customers for expansion of operations and facilities in response to strong consumer demand for goods and services. More than 90% of the properties collateralizing commercial real estate loans were located in the Corporation's local market area. Underwriting standards typically rely on cash flow for repayment ability and not asset value or appreciation. The types of properties supporting commercial real estate loan obligations are well diversified. In accordance with the Corporation's community banking strategy, loans collateralized by warehouse facilities and office buildings are primarily owner occupied and domiciled in our four-state market area. Construction loans increased $74 million or 30% to $319 million at December 31, 1994. Dwelling units authorized in the Corporation's market area increased 16% in 1994 due to an acceleration in single and multi-family residential construction. Nonperforming real estate loans were $7.4 million at December 31, 1994 or 37% of total nonperforming loans and .3% of total real estate loans. Commercial and agricultural loans totaled $2.21 billion at December 31, 1994, a $209 million or 10% increase from the prior year compared to increases of 12% in 1993 and 30% in 1992. Commercial loans increased 11% to $1.78 billion in 1994, reflecting improved regional economic conditions as measured by increases in employment, population, personal income and retail sales. Growth was primarily in the small-to-middle market where efficient and personal service is provided by community-based lending officers. Agricultural loans increased 9% to $429 million at December 31, 1994 as the Corporation maintained its position as one of the leading agricultural lenders in the nation. At December 31, 1994, nonperforming commercial and agricultural loans totaled $10.7 million or .5% of commercial and agricultural loans. Consumer loans increased 13% to $1.17 billion at December 31, 1994 following increases of 19% in 1993 and 10% in 1992. Bankcard loans increased 9% to $232 million in 1994 due to increases in merchants served and credit cards outstanding. The remainder of the current year increase was primarily attributable to acquisitions completed in 1994. Nonperforming consumer loans totaled $1.0 million at December 31, 1994. Securities The securities portfolio is comprised of investment quality, marketable debt securities. Management's goal is to maximize long-term returns while maintaining an acceptable level of risk. At December 31, 1994, the amortized cost of the securities portfolio totaled $1.74 billion, an increase of $131 million or 8% from December 31, 1993. The mix of securities changed over this time period as the portfolio was restructured to take advantage of rising interest rates. Variable rate United States Government agency securities increased $145 million and short-term United States Treasury securities increased $82 million in 1994. Mortgage-backed securities declined $55 million as maturing securities were not replaced and additional securities were sold due to unfavorable terms in a rising rate environment. Debt securities the Corporation has the ability and intent to hold to maturity are reported at cost adjusted for the amortization of premiums and accretion of discounts. The aggregate cost of securities held to maturity at December -23- (Graphic material omitted, replaces the two graphs presented on this page).
Dollars in billions 1994 1993 1992 1991 1990 Average deposits $6.3 $5.7 $4.5 $3.9 $3.7 Dollars in millions, at December 31, 1994 1993 1992 1991 1990 Nonperforming assets $25.8 $28.4 $31.1 $54.0 $39.7
-24- 31, 1994 exceeded aggregate market value by $13 million. Securities available for sale may be sold as part of the asset and liability management process and are reported at market value. Unrealized gains or losses related to the adjustment of these securities to market value are recorded net of tax as a component of shareholders' equity. At December 31, 1994, the cost of securities available for sale exceeded market value by $21 million. Sources of Funds Earning assets are funded primarily by deposits acquired locally within the Corporation's four-state market area. Deposits increased $874 million or 15% to $6.81 billion at December 31, 1994 following increases of 5% in 1993 and 39% in 1992. Approximately $355 million of the 1994 increase was attributable to acquisitions. The increase in 1992 included the effect of the Washington acquisition. Core deposits include all domestic deposits except time certificates $100 thousand and over and are the primary funding source of earning assets. Growth in core deposits of $523 million or 10% to $6 billion accounted for most of the deposit increase in 1994. Core deposits represent stable funds from local customers and funded 76% of earning assets at year-end 1994, a very high level compared to industry averages. Time certificates $100 thousand and over increased $351 million or 75% to $822 million at December 31, 1994. The increase occurred as depositors reduced liquid investments to take advantage ofhigher interest rates. Average total short-term borrowings as a percent of average earning assets declined to 11% in 1994 from 13% in 1993 and 14% in 1992. Other short-term borrowings include United States Treasury borrowings, Federal Home Loan Bank borrowings and commercial paper. United States Treasury borrowings declined at December 31, 1994 compared to a year ago as less funds were available through the United States Treasury Tax and Loan Note Option Program. These borrowings were replaced by Federal funds purchased, an alternative short-term source of funds. Long-term debt was $253 million at December 31, 1994, an increase of $137 million or 117% from December 31, 1993 due to an increase in Federal Home Loan Bank borrowings. The Federal Home Loan Bank provides ready access to a stable, low cost source of long-term advances secured by certain loans and investment securities. At December 31, 1994, four banking subsidiaries were members of the Federal Home Loan Bank and advances totaled $178 million. Asset and Liability Management Assets and liabilities are managed to maximize long-term shareholder returns by optimizing net interest income within the constraints of maintaining high credit quality, conservative interest rate risk policies and prudent levels of leverage and liquidity. The Asset and Liability Committee meets regularly to monitor the composition of the balance sheet, to assess current and projected interest rate trends and to formulate strategies consistent with established objectives for liquidity, interest rate risk and capital adequacy. Liquidity The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business expansion. Cash flows from operations contribute significantly to liquidity. Borrowing represents an important and manageable source of liquidity based on the Corporation's ability to raise new funds and renew maturing liabilities in a variety of markets. Liquidity is also obtained by maintaining assets that are readily convertible to cash at minimal cost through maturities and sales. Contingency plans exist and could be implemented on a timely basis to minimize the risk associated with dramatic changes in market conditions. Deposits generated through the Corporation's extensive retail branch network are an important source of liquidity. Deposits increased at a five-year annual compound growth rate of 14%. Core deposits, comprised of time certificates under $100 thousand and local market transaction and savings accounts, are highly reliable sources of funds. At December 31, 1994, core deposits funded 76% of earnings assets. The Corporation is able to attract brokered deposits from outside its market area but does not rely on the deposits as a source of funds. At December 31, 1994, brokered deposits totaled $68 million and funded only 1% of earning assets. Securities available for sale totaled $1.14 billion at December 31, 1994 and represented a highly accessible source of liquidity. Held to maturity securities will provide liquidity through maturities of $33 million in 1995. Liquidity is also available through a variety of domestic money and capital markets. Short-term borrowings provide a consistent source of funding and are comprised primarily of securities sold under agreements to repurchase, -25- United States Treasury borrowings and Federal funds purchased. Additional amounts of short-term funds are readily available in the form of commercial paper and bank notes. At December 31, 1994, the Corporation had no outstanding balances from either of these fund sources. Back-up sources of liquidity are provided by credit lines available to West One Bancorp. Bank subsidiaries in Idaho, Washington, Oregon and Utah have ready access to liquidity and matched funding from the Federal Home Loan Bank of Seattle. Additional liquidity is available through borrowings from the Federal Reserve Bank of San Francisco. The Corporation's investment grade ratings by Moody's and Standard and Poor's provide flexibility in meeting liquidity requirements through access to national markets. Thomson BankWatch's issuer rating for West One Bancorp is "B" and the short-term ratings of the Corporation and West One Bank, Idaho are "TBW-1," the highest rating available. Asset liquidity also arises from loan repayments. At December 31, 1994, scheduled principal payments due within one year were $2.18 billion or 36% of loans. A majority of residential mortgage loan production is sold, contributing to overall liquidity. In addition, portions of the residential mortgage, consumer and credit card loan portfolios could be securitized and sold to generate liquid assets. Short-term investments averaged $65 million in 1994 and consisted of interest bearing deposits, Federal funds sold and securities purchased under agreements to resell. The investments provide flexibility in balancing the fluctuating volume requirements of customers with the Corporation's daily funding capacity. In 1995, $40 million of long-term debt matures. The debt obligations will be met through internally generated cash and additional external financing. Aggregate long-term debt maturities over the next five years total $201 million. The liquidity requirements of West One Bancorp, primarily for dividends to shareholders, retirement of debt and other corporate purposes, are met principally through fees and regular dividends from subsidiaries. Banking subsidiaries may declare dividends to West One Bancorp in 1995 up to $170 million plus 1995 net income to the date of dividend declaration. Interest Rate Risk Interest rate risk refers to the exposure of earnings and capital arising from changes in interest rates. Management's objectives are to control interest rate risk and to ensure predictable and consistent growth of earnings and capital. Interest rate risk management focuses on fluctuations in net interest income identified through computer simulations to evaluate volatility under varying interest rate, spread and volume assumptions. The risk is quantified and compared against risk tolerance levels designed to maintain stability in net interest income. Sensitivity analysis indicated that the Corporation was slightly liability sensitive and within established tolerance limits at December 31, 1994. The Asset and Liability Maturity Repricing Schedule on the following page depicts variable rate instruments in the time period the balances are eligible for repricing and fixed rate instruments according to repayment schedules. The analysis provides a general measure of interest rate risk but does not address complexities such as prepayment risk, interest rate dynamics, interperiod sensitivities, interest rate floors and ceilings imposed on financial instruments, interest rate swaps and customers' responses to interest rate changes. The Corporation's financial objectives are achieved by focusing on core business operations rather than by speculating on the direction and magnitude of interest rate fluctuations. Exposure to adverse changes in interest rates arising in the normal course of business is managed through the occasional use of off-balance sheet instruments such as interest rate swaps. At December 31, 1994, the total notional value of all interest rate swap contracts outstanding was $535 million. The interest rate swaps hedge interest rate risks associated with certain prime-related assets and supporting deposits and are an integral part of the Corporation's interest rate risk management strategy. Asset Quality The provision for credit losses is the expense incurred to maintain an adequate allowance for anticipated credit losses. Actual credit losses, net of recoveries of previously charged-off loans, are charged directly against the allowance. The allowance for credit losses reflects management's current estimate of the amount required to absorb losses on existing loans and commitments to extend credit. The determination of the appropriate level of the allowance is based on an analysis of various factors including historical loss experience based on volumes and types of loans; volumes and trends in delinquencies and nonaccruals; trends in portfolio volume, maturity and composition; results of internal or independent external credit reviews; industrial and geographical concentrations; and anticipated economic conditions. -26- ASSET AND LIABILITY MATURITY REPRICING SCHEDULE
Within Three Six To One To Five To Over Three To Six Twelve Five Ten Ten Dollars in millions at December 31, 1994 Months Months Months Years Years Years Total Loans $3,342 $321 $478 $1,167 $422 $335 $6,065 Securities: Available for sale 430 75 88 460 38 49 1,140 Held to maturity 4 8 21 228 292 28 581 Short-term investments 106 -- 7 -- -- -- 113 Nonearning assets -- -- -- -- -- 894 894 Total assets 3,882 404 594 1,855 752 1,306 8,793 Deposits: Interest bearing demand 750 -- -- -- -- -- 750 Regular and money market savings 2,087 -- -- -- -- -- 2,087 Time certificates under $100,000 523 260 232 667 72 1 1,755 Time certificates $100,000 and over 503 126 79 102 11 1 822 Short-term borrowings 897 26 3 -- -- -- 926 Long-term debt 187 6 3 5 2 50 253 Noninterest bearing liabilities and shareholders' equity -- -- -- -- -- 2,200 2,200 Total liabilities and shareholders' equity 4,947 418 317 774 85 2,252 8,793 Net interest rate sensitivity gap $(1,065) $(14) $277 $1,081 $667 $(946) $ --
Each affiliate regularly evaluates its allowance for credit losses. Adequacy of the allowance is subject to quarterly review by an executive committee and the audit committee of the Board of Directors. Based on this analysis, management considers the allowance for credit losses to be adequate. The Corporation's asset quality ratios ranked among the best in the industry in 1994 and 1993. Net charge-offs were $10.2 million or .18% of average loans in 1994 compared to $7.1 million or .14% of average loans in 1993. In 1992, net charge-offs totaled $9.8 million or .26% of average loans. Nonperforming assets declined 9% to $26 million at December 31, 1994 from $28 million at year-end 1993. At December 31, 1992, nonperforming assets were $31 million. As a percent of total assets, nonperforming assets were .29% at December 31, 1994 compared to .37% a year ago and .44% at December 31, 1992. Other credit risk assets include loans with serious concern, defined as loans classified as doubtful but accruing interest, and accruing loans past due 90 days or more. At December 31, 1994, other credit risk assets, a precursor of problem loans, declined 74% to $1.3 million compared to $4.9 million a year ago. At December 31, 1992, other credit risk assets totaled $6.6 million. The provision for credit losses was $13.3 million in 1994 compared to $13.4 million in 1993. In 1992, the provision for credit losses was $14.3 million. The allowance for credit losses was $82 million at December 31, 1994, a 9% increase from $75 million a year ago. At December 31, 1992, the allowance for credit losses was $68 million. The allowance for credit losses represented 1.35% of total loans at December 31, 1994 compared to 1.40% and 1.51% at year-ends 1993 and 1992, respectively. The allowance for credit losses covered 412% of nonperforming loans at December 31, 1994. -27- Credit Risk The Corporation's credit policies are designed to minimize losses. The policies require extensive evaluation of new requests for credit and continuing review of existing credits to ensure early identification and monitoring of any evidence of deteriorating loan quality and quantification of possible loss. A loan is placed on nonaccrual status when all or a portion of the interest is deemed uncollectible. Management believes that loan loss is best prevented by accurate initial assessment of new borrower risk, ongoing comprehensive review of the existing loan portfolio and immediate action once a problem becomes apparent. Credit policies are consistent with this philosophy. The Corporation employs a rigorous risk identification and problem loan management process combining the longtime practice of assigning responsibility to front line lenders for timely and accurate risk grading of loans with an effective problem loan early warning system administered through the Credit Examination Department. Once identified, deteriorating loans are placed on the Watch List where they are subject to frequent and in-depth management review. Credit risk management also includes pricing of loans to cover future credit losses, funding costs and servicing costs, and to allow for a profit margin. The Corporation's objective is to maintain a loan portfolio that is diverse in terms of the types of loans and borrowers, industry concentration and geographic distribution in an effort to minimize the adverse impact of individual events. At December 31, 1994, 46% of the Corporation's loans were in Idaho compared to 81% in 1985. Expansion in the states of Washington and Oregon has resulted in a significant improvement in the geographic CREDIT RISK ASSETS
Dollars in thousands 1994 1993 1992 1991 1990 Nonperforming assets at December 31 Nonaccrual loans $19,597 $23,732 $20,966 $41,862 $31,423 Restructured loans 240 357 396 539 404 Other real estate owned 5,962 4,312 9,739 11,570 7,872 Total $25,799 $28,401 $31,101 $53,971 $39,699 Other credit risk assets at December 31 Loans with serious concern $ 57 $ 1,905 $ 4,182 $ 4,775 $ 4,133 Accruing loans past due 90 days or more 1,218 2,991 2,379 2,825 4,139 Allowance and provision for credit losses Allowance for credit losses 81,757 74,923 68,243 53,048 47,823 Net charge-offs 10,227 7,053 9,821 24,455 13,600 Provision for credit losses 13,278 13,383 14,308 29,680 11,668 Ratios Nonperforming assets to loans and other real estate owned .42 % .53 % .68 % 1.54 % 1.20 Nonperforming assets to shareholders' equity and allowance for credit losses 3.23 4.07 5.57 12.85 10.43 Nonperforming assets to total assets .29 .37 .44 1.00 .80 Allowance for credit losses to total loans 1.35 1.40 1.51 1.52 1.45 Allowance for credit losses to nonperforming loans 412.14 311.03 319.46 125.11 150.26 Net charge-offs to average loans .18 .14 .26 .73 .44
-28- diversification of the loan portfolio. The Corporation's market area has experienced some of the strongest economic conditions in the nation in recent years and the outlook continues to be favorable. Economic conditions impact credit risk, however, and customers may be adversely impacted by a downturn in the national economy. Real estate loans accounted for 42% of total loans at December 31, 1994, significantly below industry averages. Commercial loans, the second largest loan category, accounted for 29% of loans and included no significant industry concentrations. Agricultural and related loans represented the largest single industry concentration in the loan portfolio, accounting for 7% of total loans at December 31, 1994. The agricultural portfolio includes loans for diverse crops, beef and dairy cattle, food processing, nursery stock, fisheries and equipment. The average balance per commercial and agricultural loan was $92 thousand at December 31, 1994. Foreign loans totaled $21 million or .35% of total loans at December 31, 1994. At year-end 1994, agreements to extend credit totaled $2.86 billion compared to $2.26 billion and $1.56 billion at year-ends 1993 and 1992, respectively. Noninterest Income Noninterest income includes revenue generated by fees, commissions and service charges to compensate for banking products and services. Noninterest income increased $10.9 million or 11% to $113.4 million in 1994 following increases of 23% in 1993 and 15% in 1992. Excluding securities gains and losses, noninterest income increased 12% in 1994. Bankcard income improved in 1994 as the number of merchants served and credit cards outstanding increased 15% and 20%, respectively. Real estate servicing fees also improved in 1994 as loans serviced increased 34% to $3 billion. The settlement of prior years' tax litigation resulted in $1.9 million of interest income from Federal income tax receivables. The five-year compound growth rate for noninterest income, excluding securities gains and losses, was 17%, exceeding the five-year compound growth rate of 13% for assets. Noninterest Expense Noninterest expense increased 8% to $294.7 million in 1994 compared with increases of 26% and 18% in 1993 and 1992, respectively. Excluding the impact of 1994 acquisitions, noninterest expense increased 6% in 1994. The current year increase included the costs of staffing and operating three new branches in Idaho and Utah, the opening of six branches in supermarkets in Washington and Idaho, and technology. Noninterest expense as a percent of average earning assets improved to 4.03% in 1994 from 4.12% in 1993, comparing very favorably to industry averages. The efficiency ratio improved to 61.78% in 1994 from 64.20% in 1993. Management is committed to improving earnings through the efficient allocation of human and technological resources. These efforts included establishing an automated telephone voice response system providing immediate customer service seven days a week, 24 hours a day, in 1993. The service currently averages 20,000 calls per day and resulted in staff reductions in retail branches. Successful implementation of a loan-by-phone product and a debit/point-of-sale card have also contributed to increased efficiency. Income Taxes Income tax planning plays a significant role in the maximization of long-term, after-tax profitability. Income tax expense and the effective tax rate are impacted by the mix of taxable versus tax-exempt income from investment securities and loans. The effective income tax rate was 29.9% in 1994 compared to 31.0% in 1993 and 30.6% in 1992. Note 14 to the financial statements reconciles the effective income tax rates to the Federal statutory rates. -29- Graphic Material Omitted A map of the Western United States depicting our four-state market area of Idaho, Washington, Oregon and Utah and highlighting our branch locations within these four states. -30- QUARTERLY FINANCIAL DATA (UNAUDITED)
Dollars in thousands, except per share data Fourth Third Second First 1994 Interest income $155,764 $145,279 $135,957 $125,986 Interest expense 66,531 57,993 51,353 45,484 Net interest income 89,233 87,286 84,604 80,502 Provision for credit losses 2,456 3,046 3,787 3,989 Net interest income after provision for credit losses 86,777 84,240 80,817 76,513 Noninterest income 28,649 28,395 30,122 26,280 Noninterest expense 76,875 74,497 72,847 70,473 Income before taxes 38,551 38,138 38,092 32,320 Provision for income taxes 11,279 11,077 12,169 9,405 Net income $27,272 $27,061 $25,923 $22,915 Primary earnings per share $.75 $.76 $.73 $.65 Fully diluted earnings per share .71 .72 .69 .62 Net interest margin 4.88% 4.96% 4.98% 5.00% 1993 Interest income $127,442 $126,640 $123,823 $119,420 Interest expense 46,713 48,169 49,018 49,535 Net interest income 80,729 78,471 74,805 69,885 Provision for credit losses 2,983 3,894 3,414 3,092 Net interest income after provision for credit losses 77,746 74,577 71,391 66,793 Noninterest income 27,484 26,508 25,362 23,155 Noninterest expense 73,401 68,873 66,063 64,101 Income before taxes 31,829 32,212 30,690 25,847 Provision for income taxes 9,396 10,437 9,876 7,682 Net income $22,433 $21,775 $20,814 $18,165 Primary earnings per share $.66 $.65 $.63 $.55 Fully diluted earnings per share .63 .62 .60 .53 Net interest margin 4.96% 4.92% 4.82% 4.79%
-31- CONSOLIDATED BALANCE SHEETS
Dollars in thousands at December 31, 1994 1993 Assets Cash and due from banks $632,577 $450,384 Federal funds sold, securities purchased under agreements to resell and other 112,516 14,654 Securities: Available for sale 1,139,765 1,060,650 Held to maturity - market value of $568,488 and $595,146 581,155 565,165 Total securities 1,720,920 1,625,815 Loans - net of unearned income of $38,086 and $40,244: Real estate 2,526,475 2,150,835 Commercial and agricultural 2,205,459 1,996,865 Consumer 1,172,616 1,038,678 Leases 160,873 168,119 Total loans 6,065,423 5,354,497 Allowance for credit losses (81,757) (74,923) Net loans 5,983,666 5,279,574 Premises and equipment 128,506 122,828 Interest receivable 66,605 50,141 Other assets 147,909 127,957 Total assets $8,792,699 $7,671,353
-32-
Dollars in thousands at December 31, 1994 1993 Liabilities Deposits: Noninterest bearing $1,397,843 $1,260,869 Interest bearing demand 749,755 729,247 Regular and money market savings 2,086,718 1,971,211 Time certificates under $100,000 1,755,013 1,505,177 Time certificates $100,000 and over 821,553 470,543 Total deposits 6,810,882 5,937,047 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 804,161 568,295 Other 122,153 330,609 Long-term debt 253,073 116,460 Other liabilities 86,661 95,376 Total liabilities 8,076,930 7,047,787 Commitments and contingencies (Note 9) Shareholders' equity Common stock - $1.00 par value; 75,000,000 shares authorized; 36,745,368 and 34,718,731 shares outstanding 36,745 34,719 Capital surplus 327,879 304,413 Retained earnings 364,041 275,351 Unrealized gain (loss) on securities, net of tax (12,896) 9,083 Total shareholders' equity 715,769 623,566 Total liabilities and shareholders' equity $8,792,699 $7,671,353 The accompanying notes are an integral part of the financial statements.
-33- CONSOLIDATED STATEMENT OF INCOME
Dollars in thousands except per share data, for the year ended December 31, 1994 1993 1992 Interest income Loans $471,971 $402,550 $338,290 Short-term investments 3,000 1,371 8,278 Interest and dividends on securities: United States Treasury and Government agencies 33,331 31,172 35,711 State and municipal bonds 30,147 25,056 15,392 Mortgage-backed securities 15,233 21,842 21,971 Other 9,304 15,334 14,146 Total interest income 562,986 497,325 433,788 Interest expense Deposits 179,639 160,076 160,138 Federal funds purchased and securities sold under agreements to repurchase 22,185 18,592 20,995 Other short-term borrowings 10,390 6,543 3,911 Long-term debt 9,147 8,224 10,046 Total interest expense 221,361 193,435 195,090 Net interest income 341,625 303,890 238,698 Provision for credit losses 13,278 13,383 14,308 Net interest income after provision for credit losses 328,347 290,507 224,390 Noninterest income Trust fees and commissions 14,201 13,627 11,819 Service charges on deposit accounts 39,536 36,588 30,882 Other service charges, fees and commissions 48,785 41,079 30,569 Other 11,991 10,720 8,501 Securities gains (losses) (1,067) 495 1,690 Total noninterest income 113,446 102,509 83,461 Noninterest expense Salaries and employee benefits 142,512 128,886 104,024 Other 152,180 143,552 112,500 Total noninterest expense 294,692 272,438 216,524 Income before taxes 147,101 120,578 91,327 Provision for income taxes 43,930 37,391 27,955 Net income $103,171 $83,187 $63,372 Primary earnings per share $2.88 $2.50 $2.09 Fully diluted earnings per share 2.74 2.38 1.98 The accompanying notes are an integral part of the financial statements.
-34- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Securities Common Capital Retained Gain Dollars in thousands except per share data Stock Surplus Earnings (Loss) Total Balance at December 31, 1991 $28,062 $173,823 $165,163 $ - $367,048 Net income - - 63,372 - 63,372 Cash dividends declared - $.675 per share - - (20,983) - (20,983) Issuance of common stock - 3,375,062 shares 3,375 66,234 (1,687) - 67,922 Acquisition - 913,694 shares 914 8,758 1,982 - 11,654 Tax benefit of stock options exercised - 812 - - 812 Balance at December 31, 1992 32,351 249,627 207,847 - 489,825 Net income - - 83,187 - 83,187 Cash dividends declared - $.49 per share - - (16,421) - (16,421) Issuance of common stock - 2,161,317 shares 2,162 52,300 (86) - 54,376 Acquisition - 206,254 shares 206 2,011 824 - 3,041 Tax benefit of stock options exercised - 475 - - 475 Unrealized gain on securities, net of tax - - - 9,083 9,083 Balance at December 31, 1993 34,719 304,413 275,351 9,083 623,566 Net income - - 103,171 - 103,171 Cash dividends declared - $.76 per share - - (27,094) - (27,094) Issuance of common stock - 381,039 shares 381 7,488 - - 7,869 Acquisitions - 1,639,687 shares 1,639 14,543 12,613 (1,048) 27,747 Conversion of subordinated debentures - 5,911 shares 6 103 - - 109 Tax benefit of stock options exercised - 1,332 - - 1,332 Unrealized loss on securities, net of tax - - - (20,931) (20,931) Balance at December 31, 1994 $36,745 $327,879 $364,041 $(12,896) $715,769 The accompanying notes are an integral part of the financial statements
-35- CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands for the year ended December 31, 1994 1993 1992 Cash flows from operating activities Net income $103,171 $83,187 $63,372 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 13,278 13,383 14,308 Depreciation of premises and equipment 16,446 15,619 11,451 Amortization and accretion of premiums and discounts 11,409 14,013 9,479 Amortization of intangible and other assets 11,743 12,741 8,547 Originations of real estate loans held for sale (274,119) (486,205) (304,612) Proceeds from real estate and other loans sold 291,068 421,141 309,249 Net gain on sale of real estate loans (3,258) (1,931) (4,756) Net (gain) loss on sale of securities 1,067 (495) (1,690) Purchase of trading account securities (101,905) (37,550) (95,266) Sale of trading account securities 102,578 38,087 104,315 Changes in assets and liabilities, net of effect of acquisitions: Interest receivable (14,166) (156) 3,779 Other assets (7,428) (10,775) (7,027) Other liabilities 577 7,557 4,290 Net cash provided by operating activities 150,461 68,616 115,439 Cash flows from investing activities Change in short-term investments, maturities less than 90 days (91,324) 177,186 4,776 Purchase of securities available for sale (609,658) (141,903) - Maturity of securities available for sale 309,419 112,007 - Sale of securities available for sale 264,278 82,043 - Purchase of securities held to maturity (64,138) (453,933) (1,102,479) Maturity of securities held to maturity 46,184 448,916 531,152 Sale of investment securities - 704 157,988 Change in net loans and leases (618,648) (746,376) (139,251) Purchase of premises and equipment (15,431) (16,946) (14,162) Sale of premises and equipment 346 1,034 677 Additions to intangible assets (9,556) (6,979) (9,455) Sale of other real estate owned 8,861 9,712 10,960 Cash provided by acquisitions 176,918 2,019 370,159 Net cash used by investing activities (602,749) (532,516) (189,635)
-36-
Dollars in thousands for the year ended December 31, 1994 1993 1992 Cash flows from financing activities Change in deposits 495,063 268,448 249,910 Change in short-term borrowings, maturities less than 90 days 33,103 59,305 12,721 Proceeds from short-term borrowings 41,107 128,283 164,795 Payments on short-term borrowings (48,611) (100,605) (197,406) Additions to long-term debt 145,000 27,500 5,474 Payments on long-term debt (14,385) (28,943) (4,501) Proceeds from issuance of common stock 8,463 54,526 67,922 Cash dividends paid (25,259) (19,392) (15,130) Net cash provided by financing activities 634,481 389,122 283,785 Net increase (decrease) in cash and due from banks 182,193 (74,778) 209,589 Cash and due from banks - January 1 450,384 525,162 315,573 Cash and due from banks - December 31 $632,577 $450,384 $525,162 Supplemental information Interest paid $213,749 $195,094 $198,752 Income taxes paid 50,159 36,000 19,629 Noncash transactions Reclassification of securities available for sale - 939,254 160,989 Securities purchased not settled - 3,761 - Loans held for sale transferred to the loan portfolio 32,799 41,457 14,518 Loan charge-offs 18,999 16,156 19,445 Transfer of loans to other real estate owned 10,318 4,295 9,177 Additions to core deposit intangibles - - 8,188 Capital lease for computer equipment - - 10,857 Termination of capital lease for computer equipment - - 6,460 Tax benefit of stock options exercised 1,332 475 812 Dividends declared not paid 8,084 6,249 9,220 Acquisitions: Securities and short-term investments 94,693 11,792 31,807 Net loans 122,266 21,469 913,432 Premises and equipment 7,045 612 24,631 Intangible assets 11,389 - 13,757 Deposits 378,772 32,260 1,342,021 Other liabilities, net 5,792 591 111 Equity 27,747 3,041 11,654 The accompanying notes are an integral part of the financial statements.
-37- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of West One Bancorp and its subsidiaries (West One) conform with generally accepted accounting principles and general practice in the banking industry. Principles of Consolidation The consolidated financial statements include the accounts of West One with elimination of material intercompany transactions and balances. The Parent Company only financial statements (Note 16) reflect investment in subsidiaries using the equity basis of accounting. Certain reclassifications have been made to prior year financial statements to conform to the 1994 presentation. Assets owned by others and held in a fiduciary or agency capacity by subsidiaries are not included in the consolidated balance sheets. Securities On December 31, 1993, West One adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities available for sale and trading account securities are stated at market value. Gains and losses on sale of securities, recognized on a specific identification basis, and valuation adjustments of trading account securities are included in noninterest income. Net unrealized gains and losses on securities available for sale are included, net of tax, as a component of shareholders' equity. Loans Loans and leases are stated at the principal amount outstanding, net of unearned income. Interest on loans is recognized as income based on the outstanding principal and the stated interest rates as adjusted for net deferred loan fees, premiums and discounts. Loan origination fees and costs are deferred and recognized as income on the interest method over the life of the loans. Lease income, primarily from financing leases, is recognized on the interest method. Recognition of interest income is discontinued and all accrued, unpaid interest is reversed when a loan is placed on nonaccrual status. A loan or lease is placed on nonaccrual status when timely collection of interest becomes doubtful. Interest payments received on nonaccrual loans and leases are applied to principal if collection of principal is doubtful or reflected as interest income on a cash basis. Loans and leases are removed from nonaccrual status when they are current and collectibility of principal and interest is no longer doubtful. Loans held for sale are stated at the lower of cost or market. Allowance for Credit Losses The allowance for credit losses is maintained at a level considered adequate by management to provide for losses inherent in the portfolio of loans, leases and commitments to extend credit. Loans sold with servicing released have technical underwriting exception and repurchase risks. Any loans repurchased are considered in the determination of the adequacy of the allowance for credit losses. The estimate of additions to the allowance for credit losses, and resulting charge to expense, requires judgment in evaluating the borrower's management, financial position, cash flow, collateral values and guarantees, as well as projection of the outcome of future events. The continuing adequacy of the allowance for credit losses is determined based upon the results of a credit classification system, internal and external credit examinations, historic experience, economic conditions, industry concentrations, elements of risk and other loss factors affecting the quality of the loan portfolio. Premises and Equipment Premises, equipment, major improvements and replacements are stated at cost. Depreciation is recognized on the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining term of the lease. Gains or losses from disposal of premises and equipment are reflected in noninterest expense. Maintenance and repairs are expensed and improvements are capitalized. Costs of purchased and internally-developed software are amortized over periods up to five years. -38- Other Real Estate Owned Other real estate owned consists principally of properties acquired through foreclosure and is stated at the lower of cost or market value. Other Assets Other assets include goodwill and core deposit intangibles and are stated at cost, net of amortization provided on straight-line and level interest methods over useful lives ranging up to 25 years. Purchased mortgage servicing rights are stated at cost, net of amortization based on the income method and prepayment assumptions. Earnings per Share Primary and fully diluted earnings per share are computed using the weighted average number of common and common equivalent shares outstanding. Common equivalent shares result from the assumed exercise of outstanding stock options, if dilutive. Fully diluted earnings per share assumes conversion of the convertible debentures, if dilutive. New Pronouncements The Financial Accounting Standards Board has issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," SFAS No. 116, "Accounting for Contributions Received and Contributions Made" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," effective for years beginning after December 15, 1994. None of these statements is expected to have a material effect on West One. NOTE 2. ACQUISITIONS West One acquired the financial institutions listed below in transactions accounted for as poolings of interests. The acquisitions were not material to West One's financial position, results of operations and cash flows and prior year financial statements have not been restated. Dollars in thousands
Year-to-date Year-to-date Total assets Number of revenues at net income at at West One Entity Acquired Acquisition Date acquisition acquisition acquisition shares date date date exchanged National Security Bank November 1994 $9,595 $1,701 $131,662 1,101,832 Valley Commercial Bank September 1994 2,803 255 63,576 404,523 Idaho State Bank January 1994 - - 47,949 133,332 Ben Franklin National Bank May 1993 2,171 (6) 36,531 206,254 Yakima Valley Bank October 1992 8,527 895 119,493 913,694
West One acquired ten Far West Federal Savings Bank branches in Oregon from Resolution Trust Corporation in April 1994. The transaction included the receipt of $159,814 in cash, $2,257 of premises and equipment, $11,249 of intangible assets, and the assumption of $173,320 of deposits and other liabilities. The transaction was accounted for as a purchase of certain assets and assumption of certain liabilities. In September 1992, West One purchased 38 branches and seven specialty offices in the Puget Sound region of Washington from Security Pacific Corporation. The transaction included the receipt of $315 million of cash, the purchase of approximately $837 million of loans, $21 million of premises and equipment, $21 million of intangible and other assets and the assumption of approximately $1.2 billion of deposits. In July 1992, West One purchased three branches of Bank of America, Oregon. The transaction included the receipt of $45 million of cash, the purchase of approximately $1 million of loans, $1 million of premises and equipment, $1 million of intangible and other assets and the assumption of $48 million of deposits and other liabilities. Both of these transactions were accounted for as purchases of certain assets and assumptions of certain liabilities. -39- NOTE 3. SECURITIES
Gross Gross Estimated Amortized unrealized unrealized market Dollars in thousands cost gains losses value 1994 AVAILABLE FOR SALE United States Treasury securities $371,139 $5 $(8,774) $362,370 United States Government agencies 389,355 4,498 (2,186) 391,667 Mortgage-backed securities 240,916 107 (13,550) 227,473 Other 159,429 88 (1,262) 158,255 Total available for sale 1,160,839 4,698 (25,772) 1,139,765 HELD TO MATURITY State and municipal bonds 581,155 4,958 (17,625) 568,488 Total securities $1,741,994 $9,656 $(43,397) $1,708,253 1993 AVAILABLE FOR SALE United States Treasury securities $289,428 $2,706 $(56) $292,078 United States Government agencies 255,686 5,898 (97) 261,487 Mortgage-backed securities 295,421 3,592 (318) 298,695 Other 205,228 3,187 (25) 208,390 Total available for sale 1,045,763 15,383 (496) 1,060,650 HELD TO MATURITY State and municipal bonds 565,165 32,723 (2,742) 595,146 Total securities $1,610,928 $48,106 $(3,238) $1,655,796
Gross gains of $521 and gross losses of $1,588 were realized on 1994 sales. Gross gains of $678 and gross losses of $183 were realized on 1993 sales. Securities having book values of $1,409,755 and $1,342,023 at December 31, 1994 and 1993, respectively, were pledged as collateral for public and trust deposits, United States Treasury borrowings and securities sold under agreements to repurchase. -40- Contractual maturities of securities at December 31, 1994 follow. Average yields are based on expected returns on cost and average lives for mortgage- backed securities.
Within One to Five After one five to ten ten Serial year years years years maturities Total Available for sale United States: Treasury securities $118,757 $243,613 $ - $ - $ - $362,370 Government agencies 22,762 49,012 50,579 269,314 - 391,667 Mortgage-backed securities - - - - 227,473 227,473 Other 34,716 49,891 18,067 55,581 - 158,255 Total market value 176,235 342,516 68,646 324,895 227,473 1,139,765 Total amortized cost 177,184 352,263 68,706 321,771 240,915 1,160,839 Average yield 5.68% 5.58% 7.53% 6.58% 6.75% 6.23% Held to maturity State and municipal bonds at cost $33,215 $228,176 $291,653 $28,111 - $581,155 Total market value 33,241 225,494 282,561 27,192 - 568,488 Average yield 5.22% 5.53% 5.50% 6.25% - 5.53%
-41- NOTE 4. ALLOWANCE FOR CREDIT LOSSES
Dollars in thousands 1994 1993 1992 Balance at January 1 $74,923 $68,243 $53,048 Loan charge-offs Real estate 379 1,141 1,292 Commercial and agricultural 5,286 4,804 8,111 Consumer 13,164 9,802 9,597 Leases 170 409 445 Total charge-offs 18,999 16,156 19,445 Loan recoveries Real estate 366 468 421 Commercial and agricultural 3,559 4,496 4,298 Consumer 4,740 3,970 4,641 Leases 107 169 264 Total recoveries 8,772 9,103 9,624 Net charge-offs 10,227 7,053 9,821 Provision for credit losses 13,278 13,383 14,308 Additions from acquisitions 3,783 350 10,708 Balance at December 31 $81,757 $74,923 $68,243
NOTE 5. PREMISES AND EQUIPMENT
Dollars in thousands 1994 1993 Land $34,687 $33,030 Buildings 93,911 85,040 Furniture and equipment 95,138 87,053 Leasehold improvements 13,719 12,103 237,455 217,226 Accumulated depreciation and amortization (108,949) (94,398) Net premises and equipment $128,506 $122,828
-42- Leases of bank premises and equipment generally provide for the payment of taxes, maintenance, insurance and certain other related expenses and contain extension provisions, escalation clauses and purchase options. Lease expense included in net occupancy and equipment expense was $10,283 in 1994, $10,434 in 1993 and $7,506 in 1992. Occupancy expense was reduced by rental income of $2,088 in 1994, $2,169 in 1993 and $2,283 in 1992. At December 31, 1994, future minimum lease payments under long-term noncancelable operating leases were $10,377 in 1995, $8,568 in 1996, $7,122 in 1997, $5,458 in 1998, $3,537 in 1999 and $33,565 thereafter. Management expects to renew or replace expiring leases in the normal course of business NOTE 6. MORTGAGE BANKING
Dollars in thousands 1994 1993 1992 REAL ESTATE LOANS ORIGINATED AND SERVICED Sold with servicing released $221,458 $299,690 $304,493 Held for sale 28,523 76,625 50,988 Serviced for others 2,083,452 1,506,612 1,354,599 PURCHASED MORTGAGE SERVICING RIGHTS Balance at January 1 $13,797 $10,884 $6,736 Additions 9,556 6,969 5,545 Amortization (2,894) (4,056) (1,397) Balance at December 31 $20,459 $13,797 $10,884
NOTE 7. SHORT-TERM BORROWINGS
1994 1993 1992 Dollars in thousands Amount Interest rate Amount Interest rate Amount Interest rate Federal funds purchased and securities sold under agreements to repurchase Balance at December 31 $804,161 5.55 % $568,295 2.68 % $668,631 2.75 % Average 576,968 3.85 665,106 2.80 624,864 3.36 Maximum month-end balance 804,161 735,046 688,689 Other short-term borrowings Balance at December 31 122,153 4.66 330,609 2.68 141,392 2.56 Average 254,240 4.09 215,389 3.04 111,179 3.52 Maximum month-end balance 500,547 434,910 244,765
The average balance is computed on a daily average method. The average rate is computed by dividing total interest expense by the average outstanding balance. Other short-term borrowings consist of United States Treasury borrowings and bank notes. Unused lines of credit aggregating $45,000 at December 31, 1994 were maintained with banks in support of commercial paper. The lines bear interest at short-term money market rates, if drawn upon. The lines required commitment fees of $83, $84, and $76 in 1994, 1993 and 1992, respectively. -43- NOTE 8. LONG-TERM DEBT
Dollars in thousands 1994 1993 Parent company Convertible subordinated debentures at 7.75% due 2006, interest payable semi-annually $49,890 $50,000 Convertible subordinated capital notes at 1/4% above the three-month LIBOR due 1997, interest payable quarterly 20,987 20,983 Capital lease obligations at 10%, payable in monthly installments through 1997 3,754 6,821 Subsidiaries Federal Home Loan Bank Notes with interest payable monthly at floating and fixed rates ranging from 3.98% to 7.95% and with principal due 1995 through 2004 178,233 38,029 Other 209 627 Total $253,073 $116,460
Scheduled reductions of debt are $40,150 in 1995, $86,379 in 1996, $72,869 in 1997, $815 in 1998, $817 in 1999 and $52,043 thereafter including reductions of Parent Company debt of $3,387 in 1995, $273 in 1996, $21,081 in 1997 and $49,890 in 2006. The convertible subordinated debentures are convertible into shares of common stock of West One at a conversion price of $18.605 per share, and are callable by West One at a redemption price ranging from 104.650 in 1995 to 100.775 in 2000. The convertible subordinated capital notes may be called and exchanged for common stock, preferred stock or other capital securities at the option of West One. The interest rate on these notes was 6.25% at December 31, 1994 and 5.25% at December 31, 1993. The debt agreements limit indebtedness and sale of subsidiaries' stock. -44- NOTE 9. COMMITMENTS AND CONTINGENCIES West One is a party to certain financial instruments to meet the financing needs of customers and to reduce exposure to interest rate risk. The following is a summary of the contract or notional amount of these financial instruments, all of which were held or issued for purposes other than trading, as of December 31.
Dollars in thousands 1994 1993 Financial instruments with credit risk up to contract amounts (a) Commitments to extend credit $2,858,143 $2,260,507 Standby letters of credit 177,349 188,029 Commercial letters of credit 30,353 25,527 Financial instruments with credit risk less than contract or notional amounts Mortgage-backed security contracts (b): Forward sales 6,500 32,500 Purchased options 2,000 9,000 Notional value of interest rate swaps (b): 534,556 - Foreign exchange contracts (c): Commitments to purchase 3,492 5,422 Commitments to sell 7,608 1,500
(a) Commitments to extend credit have fixed maturity dates and represent West One's obligations to fund commercial and real estate loans, including home equity lines, lines of credit, revolving lines of credit and other types of commitments. Letters of credit are performance assurances of customer obligations or guarantees of financing for trade transactions. West One's exposure to credit loss for commitments to extend credit and letters of credit, in the event of nonperformance by others, is represented by the contractual amount of the instruments. Since many commitments to extend credit are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. West One follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral varies, but may include accounts receivable, inventory, premises and equipment and commercial properties. West One's lending activities are concentrated in Idaho, Washington, Oregon and Utah. (b) The forward sales and purchased options are contracts to buy or sell mortgage-backed securities to hedge interest rate risk on fixed rate mortgage loan or rate commitments. Net positions are valued at the lower of cost or market. Gains or losses are recognized upon settlement of the forward sale contracts based on the difference between the net sales proceeds and the net carrying value of the loans sold. The option premium paid, which represents loss exposure, is amortized over the life of the option. Interest rate swaps are principally used to hedge interest rate risks associated with certain loans and deposits and are accounted for on the accrual method of accounting. The principal swap, which matures in 1999, requires payment of prime less 2.535% and receipt of the three month London Interbank Offering Rate (LIBOR) with caps, which increase 25 basis points per quarter, on the notional amount of $500,000. The credit and market risks associated with forward sale and purchased option contracts and interest rate swaps arise from the possible inability of counterparties to meet the terms of the contracts and from fluctuations in securities' values and interest rates. West One limits credit risk by restricting counterparties to a list of approved institutions. Generally, West One does not require collateral for these types of instruments. (c) The credit and market risks associated with foreign exchange contracts, which may arise from the counterparty's inability to make payment at the settlement date and fluctuations in value of a foreign currency in relation to the U.S. dollar, were nominal at December 31, 1994 and 1993. West One is a defendant in various pending lawsuits, arising in the ordinary course of business, none of which are expected to have a material effect on West One's financial position or results of operations. -45- NOTE 10. SHAREHOLDERS' EQUITY Authorized capital stock of West One consists of 75,000,000 shares of $1.00 par value common stock and 5,000,000 shares of $1.00 par value preferred stock, of which 150,000 preferred shares are reserved for issuance under the Shareholder Rights Plan. At December 31, 1994 and 1993 securities available for sale were stated at market and the resulting net after-tax unrealized loss of $12,896 and gain of $9,083, respectively are presented as a component of shareholders' equity. On October 19, 1989 the Board of Directors adopted a Shareholder Rights Plan. Under the terms of the Plan, the Board declared a dividend distribution of one Right for each share of common stock outstanding on October 31, 1989, or at specified times thereafter. When initially issued each Right entitled the registered holder to purchase from West One a unit consisting of one-hundredth of a share of Series A Junior Participating Preferred Stock at a purchase price of $150 per unit, subject to adjustment. The Rights will become exercisable upon the occurrence of specified events which could result in a change in control of West One or upon the determination by the Board that an Adverse Person (as defined) beneficially owns 10 percent or more of the outstanding common stock. Once the Rights become exercisable, if the Board determines that a person is an Adverse Person or a person becomes the owner of 25 percent or more of the then-outstanding shares of common stock (with certain exceptions), each holder of a Right (other than an Acquiring Person (as defined) or an Adverse Person) will thereafter become entitled to receive, upon payment of the exercise price, common stock (or in certain circumstances other consideration) having a value equal to two times the exercise price or, at the discretion of the Board, to receive common stock (or other consideration) having one-half that value without payment of the exercise price. The Rights are nonvoting, may be redeemed by West One at a price of $.01 per Right at any time until ten business days after an individual or group acquires 20 percent of West One's common stock and expire on October 31, 1999. The issuance of the Rights is intended to encourage any potential acquirer of West One to negotiate the manner and terms of the transaction with the Board and to protect shareholders from unsolicited tender offers which do not treat all shareholders in a fair and equal manner, and from other coercive takeover tactics. Under shareholder approved incentive programs, the Board of Directors may grant to key employees options to purchase common stock and other stock-based awards. All options are to be granted at market value of the stock at date of grant and may be exercisable over periods up to ten years. The following summary sets forth the activity under the option plan:
Option price Available Options range per share for grant outstanding December 31, 1991 $ 6.553 - 17.000 1,887,134 916,994 Granted 16.688 - 25.250 (289,226) 289,226 Exercised 6.553 - 14.188 - (91,806) December 31, 1992 6.629 - 25.250 1,597,908 1,114,414 Granted 23.875 - 28.625 (263,701) 263,701 Exercised 6.629 - 14.188 - (125,520) Canceled 11.438 - 24.500 5,000 (5,000) Expired 11.438 - 12.313 (1,000) - December 31, 1993 6.629 - 28.625 1,338,207 1,247,595 Granted 24.750 - 32.000 (322,744) 322,744 Exercised 6.629 - 25.938 - (177,645) Canceled 11.438 - 26.375 32,750 (32,750) Expired 11.438 - 13.938 (4,750) - December 31, 1994 8.083 - 32.000 1,043,463 1,359,944
Options excercisable under the plans were 662,319, 599,880 and 516,668 at December 31, 1994, 1993 and 1992, respectively. -46-
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS 1994 1993 Dollars in thousands Book Estimated Book Estimated value fair value value fair value Financial assets Cash and short-term investments $745,093 $745,093 $465,038 $465,038 Securities: Available for sale 1,139,765 1,139,765 1,060,650 1,060,650 Held to maturity 581,155 568,488 565,165 595,146 Loans, net of leases and allowance for credit losses 5,822,793 5,798,565 5,111,455 5,149,693 Financial liabilities Demand and savings deposits $4,234,316 $4,234,316 $3,961,327 $3,961,327 Time certificates of deposit 2,576,566 2,351,241 1,975,720 1,994,389 Short-term borrowings 926,314 926,314 898,904 898,904 Long-term debt 253,073 272,909 116,460 146,675
Financial assets and financial liabilities other than securities and certain long-term debt of West One are not traded in active markets. Estimated fair values require subjective judgments and are approximate. The above estimates of fair value are not necessarily representative of amounts that could be realized in actual market transactions, nor of the underlying value of West One. The value of long-term relationships with depositors (core deposit intangibles) is not reflected and such value is significant. Changes in the following methodologies and assumptions could significantly affect the estimates. Financial Assets The estimated fair value of cash and short-term investments approximates the book value. For securities, the fair value is based on quoted market prices at December 31. The fair value of loans is estimated by discounting future cash flows using current rates at which similar categories of loans would be made, net of the present value of estimated net charge-offs. Financial Liabilities The estimated fair value of demand and savings deposits approximates book value. The fair value of time certificates of deposit is estimated by discounting future cash flows using current rates offered on similar certificates. For short-term borrowings, the fair value approximates book value. The estimated fair value of long-term debt is based on quoted market prices or estimates of discounted cash flows using current rates at which similar financing could be obtained. Off-balance Sheet Financial Instruments Commitments to extend credit, letters of credit and interest rate swaps represent the principal categories of off-balance sheet financial instruments. See Note 9 to the financial statements. The fair value of West One's commitments to extend credit, letters of credit, forward sale, purchased option and foreign exchange contracts are not material. The interest rate swaps hedge interest rate risks associated with certain prime-related assets and supporting deposits as a part of West One's interest rate risk management strategy. The present value of the interest rate swaps using discounted cash flows and assuming interest rates at December 31, 1994 remain constant is a liability of $4.3 million. Based on implied forward interest rates at December 31, 1994, an exit cost (fair value) of $34.9 million would be incurred to terminate the contracts. These contracts are part of a continuing asset and liability risk management strategy, and West One currently has no intent to exit the contracts. -47- NOTE 12. EMPLOYEE BENEFITS West One has a noncontributory defined benefit retirement plan covering substantially all employees. Benefits to retired employees are based on years of service and compensation. West One funds at least the minimum annual contributions required by the Employee Retirement Income Security Act of 1974. Since plan assets exceeded accumulated benefit obligation, no additional funding was made in 1994, 1993 or 1992. Pension (income) expense included the following components for the year ended December 31:
Dollars in thousands 1994 1993 1992 Service cost $3,576 $2,319 $1,819 Interest cost 4,544 3,788 3,342 Actual return on plan assets 2,455 (4,618) (4,617) Deferred loss (9,841) (1,912) (1,408) Amortization (654) (725) (725) Pension (income) expense $80 $(1,148) $(1,589) The funded status of the plan and pension asset at December 31 consisted of: 1994 1993 1992 Actuarial present value of accumulated benefit obligation Vested $(43,396) $(44,497) $(27,202) Nonvested (2,663) (2,891) (1,592) Accumulated benefit obligation $(46,059) $(47,388) $(28,794) Plan assets at fair value U.S. Government securities $16,321 $16,563 $19,416 Equity securities 38,449 40,199 32,935 Other 10,133 11,963 12,927 Total 64,903 68,725 65,278 Projected benefit obligation (55,566) (54,489) (38,030) Plan assets in excess of projected benefit obligations 9,337 14,236 27,248 Unrecognized net (gain) loss 11,102 6,892 (6,238) Unrecognized net transition asset (3,842) (4,610) (5,379) Unrecognized prior service cost 101 260 - Pension asset $16,698 $16,778 $15,631
-48- West One also has three unfunded supplemental retirement plans. The Supplemental Executive Retirement Plan provides supplemental benefits to eligible employees when the employee's earnings exceed the dollar amount used for the definition of a highly compensated employee in the Internal Revenue Code (IRC) Section 414 (q) (1) (B) during each of the three preceding years. The Non-Qualified IRC 415 Benefit Limit Make-Up plan provides for additional payments to be made to employees whose defined pension benefit exceeds the limit for maximum benefits from the defined benefit pension plan. The Executive Deferred Compensation Pension Make-Up plan covers pension benefits resulting from salary deferrals which have not been included in the computation of benefits under the regular defined benefit pension plan. Pension expense for the supplemental retirement plans included the following for the year ended December 31:
1994 1993 1992 Supplemental Executive Retirement Plan (SERP) $323 $316 $303 Non-Qualified IRC 415 Benefit Limit Make-Up 14 16 51 Executive Deferred Compensation Pension Make-Up 77 38 26 Total supplemental pension expense $414 $370 $380
Pension expense for the SERP included the following components for the year ended December 31:
1994 1993 1992 Service cost $151 $113 $115 Interest cost 130 154 139 Amortization 42 49 49 Pension expense $323 $316 $303
The status of the SERP and pension liability at December 31 consisted of:
1994 1993 1992 Actuarial present value of accumulated benefit obligations: Vested $(1,051) $(1,747) $(642) Nonvested - (6) - Accumulated benefit obligation $(1,051) $(1,753) $(642) Projected benefit obligation $(1,609) $(2,185) $(1,596) Unrecognized net (gain) loss (603) 320 (29) Unrecognized net transition obligation 536 584 633 Unrecognized prior service cost 141 - - Additional liability - (472) - Pension liability $(1,535) $(1,753) $(992)
-49- Assumptions used for projected benefit obligations, computed using the projected unit credit method, were:
1994 1993 1992 Discount rate 8.75 % 7.50 % 9.50 % Rate of increase in compensation levels 4.00 3.00 6.00 Long-term rate of return on assets 10.00 10.50 10.50
A change in method for determining the market-related value of plan assets decreased pension expense $313 in 1994. The change in salary increase assumption increased pension income by $319 in 1993. Changes in the assumed participant withdrawal rates increased pension income $789 in 1992. West One has an Employee Thrift Investment Plan, under IRC Section 401, covering substantially all employees. Under the plan, West One made contributions of 50% of participating employees' salary deferrals up to 6% of salary in 1994 and 1993, and 5% of salary in 1992 aggregating $2,744 for 1994, $2,384 for 1993 and $1,566 for 1992. West One provides certain health care insurance benefits for retired employees and their dependents (postretirement benefits). Substantially all of West One's retirees are eligible for those benefits if they retired directly from service with at least ten years of credited service. Retiree contributions are required depending on age and number of years of service at the time of retirement. Postretirement benefit expense included the following components for the year ended December 31:
1994 1993 Service cost $243 $165 Interest cost 968 959 Amortization 590 554 Postretirement benefit expense $1,801 $1,678 The reconciliation of the status of the plan at December 31 follows: 1994 1993 Accumulated postretirement benefit obligation: Retirees and dependents $(8,234) $(10,477) Eligible active employees 218 243 Other active plan participants (3,239) (3,122) Accumulated postretirement benefit obligation (11,255) (13,356) Unrecognized net transition obligation 9,965 10,519 Unrecognized net (gain) loss (596) 1,884 Accrued postretirement benefit liability $(1,886) $(953) Postretirement benefit claims for the year $868 $725
-50- In 1994 West One assumed a 13% annual rate of increase in the per capita cost of covered retiree and dependent health care benefits. The medical trend rate was assumed to decrease gradually to 6% in 2006 and remain at that level for future years. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation at December 31, 1994 by $1,107 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit expense for 1994 by $153. The discount rate used in determining the actuarial present value of the projected postretirement benefit obligation was 8.75%. The salary limits which determine the amount of the deductible paid by the employee were assumed to increase in proportion to West One salary levels. NOTE 13. NONINTEREST EXPENSE
Dollars in thousands for the year ended December 31, 1994 1993 1992 Salaries $114,916 $104,737 $85,741 Employee benefits 27,596 24,149 18,283 Outside services 31,977 28,242 21,590 Equipment 21,942 21,725 17,174 Net occupancy 20,604 19,571 15,255 Insurance and miscellaneous taxes 19,224 16,899 13,506 Marketing 10,331 9,792 7,975 Postage and courier 9,756 8,568 6,344 Supplies 7,453 7,364 5,989 Telephone 7,515 6,551 4,739 Other 23,378 24,840 19,928 Total $294,692 $272,438 $216,524
NOTE 14. INCOME TAXES The provision for income taxes consisted of the following for the year ended December 31:
Dollars in thousands 1994 1993 1992 Federal Current $42,257 $29,480 $20,136 Deferred (5,225) 1,006 2,925 State Current 6,773 6,329 4,621 Deferred 125 576 273 Total federal and state $43,930 $37,391 $27,955
-51- Deferred taxes were as follows for the year ended December 31:
1994 1993 1992 Provision for credit losses $ 300 $(2,218) $(926) Depreciation and amortization (3,358) (778) (674) Cash basis accounting (493) (1,288) (289) Leasing (2,947) 2,546 2,745 Alternative minimum tax - - 1,154 Other 889 1,861 102 Use of subsidiary preacquisition tax carryforwards to reduce purchased intangibles 509 1,459 1,086 Total deferred taxes $(5,100) $1,582 $3,198
The provision for income taxes varied from amounts computed at the federal statutory rate as follows for the year ended December 31:
1994 1993 1992 Provision at statutory rate $51,485 35.0 % $42,202 35.0 % $31,051 34.0 % Nontaxable interest income (12,041) (8.2) (10,473) (8.7) (7,045) (7.7) State income taxes, net of federal benefit 4,484 3.1 4,367 3.6 3,230 3.5 Other 2 - 1,295 1.1 719 .8 Provision for income taxes $43,930 29.9 % $37,391 31.0 % $27,955 30.6 %
The components of net deferred taxes are as follows for the year ended December 31:
1994 1993 Deferred tax assets Allowance for credit losses $30,226 $29,491 Cash basis accounting 6,677 6,283 Unrealized securities losses 8,178 - Other 3,098 3,744 Total deferred tax assets 48,179 39,518 Deferred tax liabilities Depreciation and amortization (4,516) (7,712) Leasing (24,881) (27,828) Pension and retirement benefits (5,743) (6,492) Purchase accounting (2,685) (2,170) Unrealized securities gains - (5,990) Other (2,521) (2,040) Total deferred tax liabilities (40,346) (52,232) Net deferred tax asset (liability) $7,833 $(12,714)
-52- A subsidiary has preacquisition net operating loss carryforwards remaining of $1,954 which expire through 2008. The corporation recorded tax benefits of $1,332, $475 and $812 for executive stock option exercises in 1994, 1993 and 1992, respectively. The tax benefits have been allocated to shareholders' equity. In 1994 the deferred benefit for income taxes of $13,319 for unrealized securities losses has been allocated to shareholders' equity. Deferred tax liabilities of $2,133 have not been recognized for a thrift subsidiary's base year tax bad debt reserve of $5,359. If the subsidiary fails to qualify as a savings and loan association or is converted to a commercial bank, the bad debt reserve would become taxable. Management does not expect this difference to reverse in the foreseeable future. NOTE 15. REGULATORY REQUIREMENTS AND RESTRICTIONS Regulatory authorities require banks to maintain cash reserves against deposits. These reserves vary according to the type and maturity of the deposit. Cash reserve balances at December 31, 1994 and 1993 were $152,312 and $144,998, respectively. Federal and state laws place limitations on the extension of credit by banking subsidiaries to the Parent Company and nonbank affiliates. Under these restrictions, banking subsidiaries may not extend credit beyond an aggregate of $100,475 to the Parent Company and nonbank affiliates as of December 31, 1994. Any extensions of such credit are subject to strict collateral requirements. Federal and state laws also restrict the amount of dividends that may be declared by banking subsidiaries without the approval of regulatory authorities. Banking subsidiaries may declare dividends to the Parent Company in 1995 up to $170,440 plus 1995 net income to the date of dividend declaration. Credit extensions to directors, executive officers and their associates, which are within regulatory limitations, are as follows:
Dollars in thousands 1994 1993 Balance at January 1 $74,849 $73,910 Increases 91,621 53,644 Decreases 77,746 52,705 Balance at December 31 $88,724 $74,849
-53- NOTE 16. PARENT COMPANY ONLY FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS
Dollars in thousands At December 31, 1994 1993 Assets Cash and due from banks $122 $430 Loans and advances to subsidiaries: Banks 55,025 47,475 Nonbanks 22,519 15,375 Investment in subsidiaries: Banks 669,497 607,766 Nonbanks 5,344 5,351 Other loans and investments 22,261 19,563 Premises and equipment 15,972 19,455 Other assets 40,695 40,900 Total assets $831,435 $756,315 Liabilities Commercial paper $ - $20,162 Long-term debt 74,631 77,804 Other liabilities 41,035 34,783 Total liabilities 115,666 132,749 Shareholders' equity 715,769 623,566 Total liabilities and shareholders' equity $831,435 $756,315
-54- CONDENSED STATEMENTS OF INCOME
Dollars in thousands for the year ended December 31, 1994 1993 1992 Income Dividends from subsidiaries: Banks $65,513 $40,521 $41,650 Nonbanks 1,934 1,412 1,830 Interest: Loans and advances to subsidiaries 4,080 3,212 2,516 Loans and short-term investments - nonaffiliates 1,298 497 763 Other, principally subsidiaries 87,711 79,564 54,975 Total income 160,536 125,206 101,734 Expense Interest 6,351 8,345 9,845 Salaries and employee benefits 42,320 40,366 30,203 Other 55,492 51,799 45,045 Total expense 104,163 100,510 85,093 Income before taxes and equity in earnings of subsidiaries 56,373 24,696 16,641 Income tax benefit 5,654 7,016 10,327 Equity in undistributed earnings of subsidiaries 41,144 51,475 36,404 Net income $103,171 $83,187 $63,372
-55- STATEMENTS OF CASH FLOWS
Dollars in thousands for the year ended December 31, 1994 1993 1992 Cash flows from operating activities Net income $103,171 $83,187 $63,372 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (41,144) (51,475) (36,404) Depreciation and amortization 11,045 10,296 7,623 Changes in assets and liabilities 1,639 (7,094) (107) Net cash provided by operating activities 74,711 34,914 34,484 Cash flows from investing activities Change in other short-term investments, maturities less than 90 days 157 (15,878) 9,567 Purchase of securities held to maturity (20,000) (3,416) (54,643) Maturity of securities held to maturity - 6,139 51,053 Sale of securities 2,155 - 17,894 Change in loans to subsidiaries (2,144) (23,950) (9,279) Change in loans to nonaffiliates 2,364 320 4,582 Other (2,156) (3,432) (3,429) Capitalization of subsidiaries (14,864) (6,685) (114,211) Net cash used by investing activities (34,488) (46,902) (98,466) Cash flows from financing activities Change in short-term borrowings, maturities less than 90 days (15,878) (1,416) 14,259 Proceeds from short-term borrowings 4,162 13,200 - Payments on short-term borrowings (8,952) (7,000) - Payments on long-term debt (3,067) (27,566) (4,189) Proceeds from issuance of common stock 8,463 54,526 67,922 Cash dividends paid (25,259) (19,392) (15,130) Net cash provided (used) by financing activities (40,531) 12,352 62,862 Net increase (decrease) in cash and due from banks (308) 364 (1,120) Cash and due from banks - January 1 430 66 1,186 Cash and due from banks - December 31 $122 $430 $66 Supplemental information Interest paid $4,395 $8,737 $9,936 Income taxes paid 50,381 36,260 19,325 Noncash transactions Additions to investment in subsidiaries 27,609 3,041 11,512 Capital lease for computer equipment - - 10,857 Termination of capital lease for computer equipment - - 6,460 Tax benefit of stock options exercised 1,332 475 812 Dividends declared not paid 8,084 6,249 9,220
-56- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of West One Bancorp We have audited the consolidated balance sheets of West One Bancorp and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of West One Bancorp and subsidiaries as of December 31, 1994 and 1993 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, during 1993 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." /s/Coopers & Lybrand L.L.P. Boise, Idaho January 19,1995 -57- EX-21 4 SUBSIDIARY LIST EXHIBIT 21 WEST ONE BANCORP LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1994 West One Bancorp, its subsidiaries, and the state of incorporation of each are listed below. The name of each subsidiary is indented under the name of its immediate parent. Each subsidiary does business only under the name shown. State of Name Incorporation West One Bancorp Idaho West One Bank, Idaho Idaho West One Insurance Services, Inc. Idaho West One Bank, Washington Washington West One Bank, Utah Utah Tracy Collins Mortgage Company Utah West One Bank, Oregon Oregon West One Bank, Oregon, S.B. Oregon Ward Cook, Inc. Oregon WF Service Corporation Oregon Idaho First Bank Idaho West One Financial Services, Inc. Idaho West One Trust Company Utah West One Trust Company, Washington Washington West One Life Insurance Company Arizona EX-23 5 PUBLIC ACCOUNTANT CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statements of West One Bancorp and Subsidiaries on Forms S-3 (File Nos. 33-12222, 33-14975, 33-41064, 33-48038 and 33-66314), on Forms S-4 (File Nos. 33-25370, 33-28235, 33-33045, 33-42240, 33-50588, 33-58794 and 33-54467), and on Forms S-8 (File Nos. 2-78321, 2-83744, 33-7655, 33-11581, 33-29080, 33-29082, 33-41520 and 33-45003) of our report dated January 19, 1995, on our audits of the consolidated financial statements of West One Bancorp and Subsidiaries as of December 31, 1994, and 1993, and for each of the three years in the period ended December 31, 1994, which report is incorporated by reference in this Annual Report on Form 10-K from the 1994 Annual Report to Shareholders of West One Bancorp. /s/ Coopers & Lybrand L.L.P. Boise, Idaho March 21, 1995 EX-24 6 POWER OF ATTORNEY POWER OF ATTORNEY (1995 Form 10-K) KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints DANIEL R. NELSON and DWIGHT V. BOARD, and each of them, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all such person's capacities with West One Bancorp, an Idaho corporation ("Company"), to sign Company's annual report on Form 10-K for the fiscal year ended December 31, 1994, and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this power of attorney has been executed by each of the undersigned as of the 19th day of January, 1995. SIGNATURE TITLE /s/Daniel R. Nelson Chairman and Chief Executive Officer and Director (Principal Executive Officer) /s/Scott M. Hayes Executive Vice President Chief Financial Officer (Principal Financial Officer) /s/Jim A. Peterson Senior Vice President and Controller Principal Accounting Officer) /s/Harry Bettis Director /s/Norma D. Cugini Director /s/William J. Deasy Director /s/John B. Fery Director /s/Stuart A. Hall Director /s/D. Michael Jones Director /s/Jack B. Little Director /s/Warren E. McCain Director /s/Douglas W. McCallum Director /s/Allen T. Noble Director /s/Philip B. Soulen Director EX-27 7 FINANCIAL DATA SCHEDULES
9 0000351155 WEST ONE BANCORP 1000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 632,577 0 112,516 0 1,139,765 581,155 568,488 6,065,423 (81,757) 8,792,699 6,810,882 926,314 86,661 253,073 36,745 0 0 679,024 8,792,699 471,971 88,015 3,000 562,986 179,639 221,361 341,625 13,278 (1,067) 294,692 147,101 147,101 0 0 103,171 2.88 2.74 4.95 19,597 1,218 240 57 74,923 18,999 8,772 81,757 81,757 0 57 -----END PRIVACY-ENHANCED MESSAGE-----