SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1995, Commission File No. 0-15450
SIERRA TAHOE BANCORP
(Exact Name of Registrant as Specified in its Charter)
California 68-0091859
(State or Other Jurisdiction) (I.R.S. Employer Identification No.)
of Incorporation or Reorganization)
10181 Truckee-Tahoe Airport Rd.,
P.O. Box 61000, 96160-9010
Truckee, California
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (916) 582-3000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of July 31, 1995: Common Stock - Authorized 10,000,000 shares
of no par; issued and outstanding - 2,571,829.
10-Q Filing
June 30, 1995
Part I. Financial Information
Item 1. Financial Statements
Following are condensed consolidated financial statements for
Sierra Tahoe Bancorp ("Bancorp", or together with its subsidiaries,
the "Company") for the reportable period ending June 30, 1995.
These condensed consolidated financial statements are unaudited,
however, in the opinion of management, all adjustments have been
made for a fair presentation of the financial condition and
earnings of the Company in conformity with generally accepted
accounting principles. The accompanying notes are an integral part
of these condensed consolidated financial statements.
SIERRA TAHOE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
June 30, 1995 and December 31, 1994
(Amounts in thousands of dollars)
ASSETS 06/30/95 12/31/94
Cash and due from banks $ 16,802 $ 18,049
Federal funds sold 10,800 8,000
Investment securities and
investments in mutual funds
(Note 4) 27,206 32,817
Loans held for sale 23,626 2,067
Loans and leases, net of
allowance for possible loan
and lease losses of $3,522
in 1995 and $3,546 in 1994
(Notes 2 & 5) 173,600 167,326
Other assets 31,516 31,716
TOTAL ASSETS $283,550 $259,975
LIABILITIES
Deposits $241,892 $218,876
Convertible debentures 10,000 10,000
Other liabilities 2,853 2,936
TOTAL LIABILITIES 254,745 231,812
SHAREHOLDERS' EQUITY
Common stock 10,567 11,002
Retained earnings 18,489 17,839
Unrealized loss on
investment securities
available for sale (251) (678)
TOTAL SHAREHOLDERS' EQUITY 28,805 28,163
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $283,550 $259,975
The accompanying notes are an integral part of these Condensed
Consolidated Statements of Condition.
SIERRA TAHOE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three and Six Months Ended June 30, 1995 and 1994
(Amounts in thousands except per share amounts)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
6/30/95 6/30/94 6/30/95 6/30/94
Interest Income:
Interest and fees on loans
and leases $ 5,647 $4,099 $10,730 $ 7,882
Interest on federal
funds sold 98 72 173 172
Interest on investment
securities and deposits 389 432 832 816
Total Interest Income 6,134 4,603 11,735 8,870
Less Interest Expense:
Interest on deposits 1,717 1,160 3,113 2,307
Interest on convertible
debentures 212 218 425 344
Other interest expense 1 13 17 23
Total Interest Expense 1,930 1,391 3,555 2,674
Net Interest Income 4,204 3,212 8,180 6,196
Provision for Possible
Loan and Lease Losses 320 270 590 540
Net Interest Income After
Provision for Possible
Loan and Lease Losses 3,884 2,942 7,590 5,656
Other Operating Income 1,924 2,347 4,081 4,479
Other Operating Expenses 5,105 4,318 10,139 8,360
Income Before Provision for
Income Taxes 703 971 1,532 1,775
Provision for Income Taxes 267 377 568 668
NET INCOME $ 436 $ 594 $ 964 $ 1,107
EARNINGS PER SHARE
Primary $ 0.16 $ 0.22 $ 0.36 $ 0.42
Weighted Average
Shares Outstanding 2,684 2,685 2,686 2,652
Fully diluted 0.15 0.19 0.33 0.37
Weighted Average
Shares Outstanding 3,696 3,715 3,693 3,495
Cash Dividends Paid
Per Share of
Common Stock $ 0 $ 0 $ 0.12 $ 0
The accompanying notes are an integral part of these Condensed
Consolidated Statements of Income.
SIERRA TAHOE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 1995 and 1994
(Amounts in thousands of dollars)
Six Six
Months Months
Ended Ended
06/30/95 06/30/94
Cash Flow From Operating Activities:
Interest and fees received $ 11,297 $ 8,535
Service charges and commissions
received 861 715
Servicing income received 3,237 3,194
Interest paid (3,527) ( 2,483)
Cash paid to suppliers and employees (9,116) ( 7,624)
Income taxes paid (935) ( 1,118)
Mortgage loans originated for sale (16,290) (19,657)
SBA loans originated for sale (16,892) (19,461)
SBA loans sold 5,051 17,697
Mortgage loans sold 13,827 21,942
Other items 194 414
Net Cash (Used In) Provided By
Operating Activities $(12,293) $ 2,154
Cash Flow From Investing Activities:
Proceeds from sales of mutual funds -
available for sale 225 6,516
Proceeds from maturities of investment
securities - held to maturity 569 330
Proceeds from sales of investment
securities - available for sale 8,484 4,986
Proceeds from sales of investment
securities-held to maturity (Note 4) 999 0
Purchase of investment securities -
held to maturity 0 ( 1,191)
Purchase of investment securities -
available for sale ( 3,955) (14,556)
Loans made net of principal collections (13,930) ( 4,449)
Capital expenditures ( 785) ( 264)
Increase in other assets ( 28) ( 685)
Net Cash Used In Investing
Activities $( 8,421) $ ( 9,313)
Cash Flow From Financing Activities:
Net decrease in demand, interest bearing
and savings accounts (14,312) ( 2,190)
Net increase (decrease) in time
deposits 37,328 ( 3,243)
Dividend paid ( 314) 0
Proceeds from issuance of subordinated
debentures 0 10,000
Proceeds from issuance of common stock 10 0
Repurchase of common stock ( 445) 0
Net Cash Provided by Financing
Activities 22,267 4,567
Net Increase (Decrease) in Cash and Cash
Equivalents 1,553 ( 2,592)
Cash and Cash Equivalents at
Start of Year 26,049 32,133
Cash and Cash Equivalents at June 30 $ 27,602 $ 29,541
The accompanying notes are an integral part of these Condensed
Consolidated Statements of Cash Flows.
SIERRA TAHOE BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Six Months Ended June 30, 1995 and 1994 (Continued)
(Amounts in thousands of dollars)
RECONCILIATION OF NET INCOME TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
Six Six
Months Months
Ended Ended
06/30/95 06/30/94
Net Income: $ 964 $ 1,107
Adjustment to Reconcile
Net Income to Net
Cash Provided:
Depreciation and amortization 519 564
Provision for possible loan and
lease losses 590 540
Provision for income taxes 568 668
Gain on sale of SBA loans under
cash received 91 93
Amortization of excess servicing on
SBA loans 669 1,086
Amortization of purchased mortgage
servicing rights 86 86
Increase in interest payable 28 329
Increase (decrease) in accrued
expenses 78 ( 541)
Amortization of premiums/discounts
on loans ( 225) ( 274)
Decrease in taxes payable ( 935) ( 1,118)
Decrease (increase) in loans
originated for sale (14,304) 521
Decrease in prepaid expenses ( 107) ( 815)
Other items ( 315) ( 92)
Total Adjustments (13,257) 1,047
Net Cash (Used In) Provided By
Operating Activities $(12,293) $ 2,154
_________________________________________________________________
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES
For the six months ended June 30, 1995 and 1994, $373,000 and
$266,000 of loans were transferred to other real estate owned.
In the 1995 period, $572,000 of assets formerly classified as in-
substance foreclosures were reclassified as loans.
In 1995, $20.0 million of unguaranteed SBA loans originated in
earlier years were transferred to held for sale status.
Concurrently, $21.4 million of guaranteed SBA loans were
transferred to the Company's investment portfolio.
The accompanying notes are an integral part of these Condensed
Consolidated Statements of Cash Flows.
Sierra Tahoe Bancorp
Notes to Condensed Consolidated Financial Statements
June 30, 1995 and December 31, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in a condensed format and, therefore, do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. However,
in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair
presentation have been reflected in the financial statements. The
results of operations for the six months ended June 30, 1995, are
not necessarily indicative of the results to be expected for the
full year. Certain reclassifications have been made to prior
period amounts to present them on a basis consistent with
classifications for the six months ended June 30, 1995.
2. LOANS
As of June 30, 1995, and December 31, 1994, the Bank's loan
portfolio consisted of the following (in thousands):
June 30 December31,
1995 1994
Commercial .......................... $127,449 $126,495
Real Estate - Mortgage............... 21,012 18,526
Real Estate - Construction........... 21,367 18,599
Individual and Other................. 7,218 7,367
Lease Receivables.................... 398 202
Total gross loans and leases......... 177,444 171,189
Net deferred loan fees............... 322 317
Allowance for possible loan and
lease losses ....................... 3,522 3,546
Total loans and leases, net of
deferred fees and allowance for
possible loan and lease losses ..... $173,600 $167,326
Guaranteed portion of SBA loans
held for sale....................... 0 636
Unguaranteed portion of SBA loans
held for sale....................... 20,016 0
Mortgage loans held for sale......... 3,610 1,431
Total loans held for sale............ $ 23,626 $ 2,067
The guaranteed portion of completed SBA loans at June 30, 1995 was
$8.4 million. Of total gross loans and leases at June 30, 1995,
$2.8 million were considered to be impaired (see Note 5). The
allowance for possible loan and lease losses included $771 thousand
related to these loans. The average recorded investment in
impaired loans during the six months ended June 30, 1995 was $3.1
million.
Sierra Tahoe Bancorp
Notes to Condensed Consolidated Financial Statements
June 30, 1995 and December 31, 1994
3. COMMITMENTS & CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various
commitments and contingent liabilities, such as commitments to
extend credit and letters of credit, which are not reflected in the
financial statements. Management does not anticipate any material
loss as a result of these transactions.
4. INVESTMENT SECURITIES AND INVESTMENTS IN MUTUAL FUNDS
Sales of investment securities classified as held to maturity
consist of a single security which was sold within 90 days of the
maturity date. The amortized cost at the date of sale was $998,203
and the loss realized was $1,172.
5. IMPAIRED LOANS
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") 114, Accounting by
Creditors for Impairment of a Loan, and 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosure. SFAS No. 114 requires that an impaired loan be
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's
observable market price or the fair value of its collateral. SFAS
No. 118 amends SFAS No. 114 to allow a creditor to use existing
methods for recognizing interest income on impaired loans and
requires certain disclosures.
A loan is impaired when, based upon current information and events,
it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan
agreement. Loans are measured for impairment as part of the
Company's normal loan review process. Impairment losses are
included in the allowance for possible loan and lease losses
through a charge to provision for loan losses. The Company had
previously calculated its allowance for possible loan and lease
losses using methods approximating those prescribed by SFAS No.
114. The adoption of SFAS No. 114 did not have a material impact
on the Company's financial condition or results of operations.
Interest is recognized on impaired loans where cash is received and
the future collection of principal is considered by management to
be probable. The amount so recognized was not material to
operations during the first six months of 1995.
The principal effect on the Company of the adoption of SFAS No. 114
is the elimination of the category of loans classified as in-
substance foreclosures, resulting in the reclassification of such
amounts from other real estate owned to loans. The Company
accordingly reclassified $572,000 of such loans at January 1,
1995.
SIERRA TAHOE BANCORP AND SUBSIDIARIES
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
Effective February 8, 1994 the Bancorp issued $10 million of 8 1/2%
Convertible Debenture Securities due February 1, 2004 ("Debenture
Offering"). A portion of the net proceeds from this offering have
been utilized to pay operating expenses of the holding company and
to provide a $300 thousand equity infusion into Sierra Bank of
Nevada ("SBN"). Of the $7.2 million remainder, $1.0 million is
invested in a loan, and the balance has been used to reduce the
Company's reliance on out-of-area time deposits. It is intended
that the additional capital will be used to expand the Company's
operations in Nevada and Northern California, and to expand the
Company's SBA and other business operations.
Total assets increased by $23.6 million from $260.0 million at
December 31, 1994, to $283.6 million at June 30, 1995. This
increase included increases of $2.8 million in federal funds sold
and $27.8 million in loans, net of the allowance for possible loan
and lease losses. These increases were offset by decreases of $1.2
million in cash and due from banks, $5.6 million in investment
securities and investments in mutual funds, and $0.2 million in
other assets. Mutual funds, federal funds sold and unpledged
investment securities classified as available for sale (which
consist primarily of short-term U.S. Treasury securities with a
remaining maturity of less than two years) are all sources of
short-term liquidity and can be used somewhat interchangeably to
provide liquidity. Of the Company's total investment securities,
$7.0 million were pledged at June 30, 1995.
The increase in loans includes the effect of the Company's decision
to retain the guaranteed portion of its SBA loans. This represents
a new strategy whereby the Company intends to securitize and sell
the unguaranteed portion of SBA loans. SBA loans increased $15.7
million from $95.6 million at December 31, 1994 to $111.3 million
at June 30, 1995. Other loan increases were $4.6 million in
commercial loans, $2.5 million in real estate loans, $2.8 million
in construction loans, and $2.2 million in mortgage loans held for
sale. Gross loans outstanding at SBN increased during 1995 from
$41.1 million at December 31, 1994 to $43.2 million at June 30,
1995. The Company's first securitization of between $20 million
and $40 million, depending upon SBA approval, is expected to be
completed in late 1995 or early 1996.
Deposits increased by $23.0 million from $218.9 million at December
31, 1994 to $241.9 million at June 30, 1995. A decrease of $7.8
million in interest-bearing transaction accounts and $6.1 million
in non-interest bearing demand accounts were offset by a $37.3
million increase in time deposits. The Company attributes the
decrease in transaction accounts primarily to two factors, the
transfer of funds into higher yielding time certificates of deposit
and the movement of funds into nonbank investment vehicles such as
money market mutual funds. The increase in time deposits includes
an increase in out-of-area certificates of deposit of $21.9
million.
The unrealized loss on investment securities available for sale,
net of the related tax effect, decreased $427 thousand from $678
thousand at December 31, 1994 to $251 thousand at June 30, 1995.
Of this ending balance, $106 thousand represents unrealized loss on
mutual funds and $145 thousand relates to other securities. Net
unrealized losses on securities classified as available for sale,
excluding the related tax effect, represent 1.6% of the amortized
cost of the Company's available for sale securities at June 30,
1995.
In June and July 1993, SBN entered into two Memoranda of
Understanding ("MOU") with the Federal Reserve Bank ("FRB") and the
Nevada Department of Commerce, Division of Financial Institutions
(the "NDFI"). The June 1993 Memorandum was terminated by the FRB
and the NDFI on May 12, 1995. The July 1993 Memorandum with its
regulators includes provisions that it must establish satisfactory
corrective actions to remedy and prevent certain compliance
deficiencies and weaknesses by strengthening its policies and
procedures related to its ongoing operations. Termination of the
agreement is dependent on the FRB and NDFI agreeing to terminate
the agreement which is in the sole discretion of the FRB and NDFI.
The Company believes SBN is in substantial compliance with the
terms of the agreement.
On April 17, 1995, Truckee River Bank ("TRB") opened two new
branches, one in Auburn and a second branch in Grass Valley,
California. On July 17, 1995, TRB opened a regional facility in
Sacramento, California. SBN has received approval for a branch in
Carson City, Nevada. Start-up costs incurred for these branches
will be funded from operating surpluses at the respective banks.
SBN is constructing a new headquarters facility in Reno, with
ground breaking planned for the third quarter of 1995. Total costs
incurred through June 30, 1995 for the land and building were $1.0
million.
In July 1995, the Company discontinued its mortgage banking
operations which in recent years have not been a significant
portion of the Company's business and were not currently
profitable. A one time pre-tax charge of approximately $200,000
will be taken in the third quarter.
The Bancorp paid a dividend of twelve cents per share during March
1995. During June 1995, the Company repurchased 50,000 shares of
its common stock on the open market at a total cost of $445
thousand.
RESULTS OF OPERATIONS (Six Months Ended June 30, 1995 and 1994)
Net income for the six months ended June 30, 1995 decreased by
12.9% from $1,107 thousand for the six months ended June 30, 1994
to $964 thousand during the current six month period. Net interest
income increased by $1,984 thousand and the provision for income
taxes was reduced by $100 thousand. The positive effect of these
items on net income was offset by a $50 thousand increase in the
provision for possible loan and lease losses, a reduction of $398
thousand in other operating income and a $1,779 thousand increase
in other operating expenses.
Net Interest Income
The yield on average interest earning assets for the six months
ended June 30, 1995 was 7.50%. This compares to 5.88% for the
first six months of 1994. The increase reflects the increase in
the average prime rate during the comparison periods and an
increase in the percentage of average loans to average interest
earning assets from 77.5% in the first six months of 1994 to 83.1%
in the current six months.
Interest on debentures for the first six months of 1995 was $425
thousand compared to $344 thousand for 1994. Pending the ultimate
use of the debenture proceeds as more fully described in the
section "FINANCIAL CONDITION", these funds are being temporarily
used to reduce the Company's reliance on out-of-area time deposits
which are accruing interest at a lesser rate than the rate paid on
the debentures.
Yields and interest earned, including loan fees for the six months
ended June 30, 1995 and 1994, were as follows (in thousands except
percent amounts):
Six Six
Months Months
Ended Ended
06/30/95 06/30/94
Average loans outstanding (1) $182,800 $164,636
Average yields 11.8% 9.7%
Amount of interest and
origination fees earned $ 10,730 $ 7,882
(1) Amounts outstanding are the average of daily balances for
the periods.
Excluding loan fees of $561 thousand and $495 thousand for the six
months ended June 30, 1995 and 1994, yields on average loans
outstanding were 11.2% and 9.1%, respectively. The prime rate
(upon which a large portion of the Company's loan portfolio is
based), averaged 8.9% for the 1995 period and 6.5% for the 1994
period.
The Company has experienced an increase in its overall cost of
deposits from 2.15% for the six months ended June 30, 1994 to 2.86%
in the current period. This includes the effect of the overall
increase in rates during the comparison period and an increase in
the percentage of time deposits to total deposits.
Rates and amounts paid on average deposits including non-interest
bearing deposits for the six months ended June 30, 1995 and 1994
were as follows (in thousands except percent amount):
Six Six
Months Months
Ended Ended
06/30/95 06/30/94
Average deposits outstanding (1) $219,347 $216,754
Average rates paid 2.9% 2.1%
Amount of interest paid
or accrued $ 3,113 $ 2,307
(1) Amount outstanding is the average of daily balances for the
period.
The effective interest rate paid on NOW accounts,
Money Market accounts and Time Certificates of Deposits during the
first six months of 1995 and 1994 were as follows:
1995 1994
MONEY MONEY
NOW MARKET TIME NOW MARKET TIME
Average Balance
(in thousands) (1) $33,958 $52,608 $71,514 $31,395 $60,507 $64,058
Rate Paid 1.3% 2.8% 5.7% 1.3% 2.3% 3.9%
Provision for Possible Loan and Lease Losses
In evaluating the Company's allowance for possible loan and lease
losses, management considers the credit risk in the various loan
categories in its portfolio. Historically, most of the Company's
loan losses have been in its commercial lending portfolio, which
includes SBA loans and local commercial loans. From inception of
its SBA lending program in 1983 through 1990, the Company sustained
a relatively low level of losses from these loans. Losses, net of
recoveries from the unguaranteed portion of SBA loans retained in
the Company's loan portfolio, increased from $232 thousand in 1991
to $648 thousand in 1992 and decreased to $377 thousand in 1993 and
$373 thousand in 1994 and totaled $333 thousand for the six months
ended June 30, 1995. The increase in 1992, 1993, 1994 and 1995
over 1991 includes the effect of the maturing of the SBA loan
portfolio, the impact of the recession in California on borrowers
and collateral values, and an increase in the size of the SBA loan
portfolio. Most of the Company's other commercial loan losses have
been for loans to businesses within the Tahoe Basin area and,
during 1993, 1994 and 1995, at the Company's Sierra Bank of Nevada
facility. The Company believes that it has taken steps to minimize
its commercial loan losses, including centralization of lending
approval and processing functions. It is important for the Company
to maintain good relations with local business concerns and, to
this end, it supports small local businesses with commercial loans.
To offset the added risk these loans may represent, the Company
typically charges a higher interest rate. It also attempts to
mitigate this risk through the loan review and approval process.
The provision for loan and lease losses was $590 thousand for the
first six months of 1995 versus $540 thousand for the same period
in 1994. The allowance for possible loan and lease losses as a
percentage of loans was 1.75% at June 30, 1995, compared with 2.05%
at December 31, 1994, and 2.30% at June 30, 1994. Net charge-offs
for the six months were $614 thousand compared to $274 thousand for
the first six months of 1994. Although the allowance as a
percentage of loans has decreased, the allowance as a percentage of
nonaccrual loans has increased as compared to December 31, 1994
levels when adjusted for the reclassification of assets formerly
classified as in-substance foreclosures to loans. In addition, the
percentage of portions of loans guaranteed by the U.S. Government
has increased from 6.7% at December 31, 1994 and 8.8% at June 30,
1994 to 10.9% at June 30, 1995. The Company will monitor its
exposure to loan losses each quarter and adjust its level of
provision in the future to reflect changing circumstances. The
Company expects that its existing allowance for possible loan and
lease losses will be adequate to provide for any additional losses.
The following table sets forth the ratio of nonaccrual loans to
total loans, the allowance for possible loan and lease losses to
nonaccrual loans and the ratio of the allowance for possible loan
and lease losses to total loans, as of the dates indicated.
June 30 December 31,
1995 1994 1994 1993 1992
Nonaccrual loans
to total loans 1.4% 2.0% 1.4% 1.8% 2.4%
Allowance for
possible loan
and lease losses
to nonaccrual
loans 123.7% 112.3% 142.9% 120.9% 72.5%
Allowance for
possible loan and
lease losses to
total loans 1.8% 2.3% 2.1% 2.2% 1.8%
Other Operating Income
Other operating income declined from $4.5 million during the first
six months of 1994 to $4.1 million during the current six month
period. This reduction is primarily related to a decrease in net
gain on sale of loans.
The net gain on sale of SBA loans for the current six month period
declined to $293 thousand from $1,136 thousand for the six months
ended June 30, 1994. This decline resulted from a decrease in
sales from $17.7 million for the six months ended June 30, 1994 to
$5.1 million in 1995. The Company has altered its strategy with
respect to the sale of SBA loans. Rather than continuing to sell
the guaranteed portion of the SBA portfolio, the Company intends to
retain the guaranteed portion and securitize and sell portions of
unguaranteed SBA loans. The Company estimates that the decline in
sales between the two periods would be reduced by up to $7.6
million if it had continued to sell the guaranteed portion of loans
available for sale in 1995, resulting in an estimated decline in
sales of approximately $5 million. This decline includes the
effect of recent changes to the SBA program including a reduction
in the maximum loan that may be made under the SBA 7(a) program to
$500 thousand and, effective May 15, 1995, the temporary
elimination of guarantees for refinanced debt, with limited
exceptions.
Net servicing income on SBA loans (the net of the servicing income
generated on sold SBA loans less the amortization of the gain
recorded on the sale of these same loans and the amortization of
purchased SBA servicing rights) increased by $375 thousand from
$2,004 thousand during the first six months of 1994 to $2,379
thousand for the six months ended June 30, 1995. This increase
reflects a lower amortization resulting from a change in the
estimates of prepayment speeds of SBA loans TRB services for
investors.
Other Operating Expense
The following table compares the various elements of non-interest
expense as an annualized percentage of total assets for the first
six months of 1995 and 1994 (in thousands except percentage
amounts):
Six Months Salaries & Occupancy & Other
Ended Average Related Equipment Operating
June 30 Assets(1) Benefits(2) Expenses Expenses
_________________________________________________________________
1995 $ 261,032 3.9% 1.1% 2.7%
1994 $ 254,170 3.5% 1.0% 1.9%
(1) Based on average daily balances.
(2) Excludes provision for payment of bonuses and contribution
to KSOP plan. Including these items, percentages are 4.1%
and 3.8% for 1995 and 1994, respectively.
The following table summarizes the principal elements of operating
expenses and discloses the increases (decreases) and percent of
increases (decreases) for the six months ended June 30, 1995 and
1994 (amounts in thousands except percentage amounts):
Six Months Ended Increase (Decrease)
June 30, 1995 over 1994
1995 1994 Amount Percentage
Salaries and related
benefits.............. $ 5,263 $ 4,791 $ 472 9.9%
Occupancy and
equipment.............. 1,429 1,234 195 15.8
Insurance.............. 140 148 (8) (5.4)
Postage................ 149 128 21 16.4
Stationery and
supplies.............. 145 141 4 2.8
Telephone.............. 150 127 23 18.1
Advertising............ 352 171 181 105.8
Legal.................. 211 12 199 1,658.3
Consulting............. 191 73 118 161.6
Audit and accounting
fees.................. 96 91 5 5.5
Directors' fees and
expenses.............. 505 174 331 190.2
Debenture offering
cost.................. 48 37 11 29.7
FDIC assessments....... 275 301 (26) (8.6)
Sundry losses.......... 352 51 301 590.2
Other.................. 833 881 (48) 5.4
$ 10,139 $8,360 $ 1,779 21.3%
The increase in salaries and benefits is primarily attributable to
the new branches and the addition of several management level
employees, including a President and Senior Lending Officer at TRB
and a Senior Lending Officer at SBN. Additionally, during 1994 the
Company increased its staffing in its SBA operations and during the
first quarter of 1995 opened a new equipment leasing department at
SBN. A portion of the rise in occupancy and equipment expenses
resulted from the opening of mortgage offices in Bellevue,
Washington and Las Vegas, Nevada late in 1994. Operating results
at the Bellevue, Washington office fell below expectations and
during May 1995 the Company began the process required to close
this office. The new TRB branches also contributed to the increase
in occupancy and equipment.
Advertising in 1995 includes an expanded budget for TRB and costs
related to TRB's new branches. Legal expenses relate to general
litigation matters and a voluntary internal investigation of the
Company's investment in an entity known as Community Assets
Management. Consulting costs in 1995 include costs related to a
corporate identity study, a review of directors' compensation and
assistance in strategic planning . Directors' expenses in 1995
include a $314 thousand pre-tax charge for the Director Emeritus
Program, which provides retirement benefits to certain directors
who choose to participate in the program. Sundry losses in 1995
include a $100 thousand business loss related to other real estate
owned, $126 thousand related to two litigation matters, and $22
thousand related to the closing of the Bellevue mortgage office.
Provision for Income Taxes
Provision for income taxes have been made at the prevailing
statutory rates and include the effect of items which are
classified as permanent differences for federal and state income
tax. The provision for income taxes was $568 thousand and $668
thousand for the six months ended June 30, 1995 and 1994,
respectively, representing 37.1% and 37.6% of income before
taxation for the respective periods.
Results of Operations (Three months ended June 30, 1995 and 1994)
Net income decreased by $158 thousand from $594 thousand for the
three months ended June 30, 1994 to $436 thousand for the current
quarter. The decrease included a $992 thousand increase in net
interest income and a $110 thousand reduction in the provision for
income taxes. These items were offset by a $50 thousand increase
in the provision for possible loan and lease losses, a $423
thousand decrease in other operating income and a $787 thousand
increase in other operating expenses.
Net Interest Income
The yield on net interest earning assets increased from 6.06%
during the second quarter of 1994 to 7.52% during the three months
ended June 30, 1995. As in the six month comparison, yield was
positively affected by an increase in the percentage of average
loans to average earning assets from 78.6% during the 1994 quarter
to 84.2% in the 1995 quarter.
Yields and interest earned, including loan fees for the three
months ended June 30, 1995 and 1994 were as follows (in thousands
except percent amounts):
Three Months Three Months
Ended 06/30/95 Ended 06/30/94
Average loans
outstanding (1) $188,845 $167,169
Average yields 12.0% 9.8%
Amount of interest and
origination fees earned $ 5,647 $ 4,099
(1) Amounts outstanding are the average of daily balances for the
periods.
Excluding loan fees of $318 thousand and $270 thousand for the
three months ended June 30, 1995 and 1994, respectively, yields on
average loans outstanding were 11.3% and 9.2%. The prime rate
(upon which a large portion of the Company's loan portfolio is
based) was 9.0% for the 1995 quarter and averaged 6.9% for the 1994
quarter. This increase in prime is the major component of the
increase in loan yields.
Other earning assets averaged $35.4 million in the current quarter
as compared to $45.4 million for the three months ended June 30,
1994.
Rates and amounts paid on average deposits, including non-interest
bearing deposits for the three months ended June 30, 1995 and 1994,
were as follows (in thousands except percent amounts):
Three Months Three Months
Ended 06/30/95 Ended 06/30/94
Average deposits outstanding (1) $223,659 $215,224
Average rate paid 3.1% 2.2%
Amount of interest paid or accrued $ 1,717 $ 1,160
(1) Amount outstanding is the average of daily balances for the
periods.
The effective interest rates paid on NOW accounts, Money Market
accounts and Time Certificates of Deposits during the second
quarter of 1995 and 1994 were as follows: (In thousands except
percent amounts)
1995 1994
MONEY MONEY
NOW MARKET TIME NOW MARKET TIME
Average Balance $34,765 $50,175 $79,735 $32,366 $60,122 $62,880
Rate Paid 1.3% 2.9% 5.9% 1.3% 2.4% 4.0%
Provision for Possible Loan and Lease Losses
The Company believes that an increase in the level of the provision
for possible loan and lease losses is appropriate given the current
level of losses and the Company's review of the exposure to loss in
its loan portfolio.
Other Operating Income
The net gain on sale of SBA loans decreased by $724 thousand from
$776 thousand during the 1994 quarter to $52 thousand during the
three months ended June 30, 1995. This decrease resulted from a
decrease in sales from $13.1 million during the second quarter of
1994 to $1.3 million in the current quarter. As discussed earlier,
the Company has changed its strategy with respect to sales of SBA
loans and has experienced a decline in its SBA loan production.
Net servicing income on SBA loans increased from $982 thousand
during the second quarter of 1994 to $1,180 thousand for the three
months ended June 30, 1995. This increase results from the change
in amortization of excess servicing discussed earlier.
Other Operating Expense
The following table compares the various elements of non-interest
expense as an annualized percentage of total assets for the second
quarter of 1995 and 1994 (in thousands except percentage amounts):
Salaries & Occupancy & Other
Three Months Average Related Equipment Operating
Ended June 30, Assets(1) Benefits(2) Expenses Expenses
1995 $265,454 3.8% 1.1% 2.8%
1994 $254,314 3.6% 1.0% 2.0%
(1) Based on average daily balances.
(2) Excludes provision for payment of bonuses and contribution to
KSOP plan. Including these items, percentages are 3.8% for both
1995 and 1994.
The following table summarizes the principal elements of operating
expenses and discloses the increases (decreases) and percent of
increases (decreases) for the three months ended June 30, 1995 and
1994 (amounts in thousands except percentage amounts):
Three Months Ended Increase (Decrease)
June 30 1995 over 1994
1995 1994 Amount Percentage
Salaries and related
benefits.............. $ 2,541 $2,439 $ 102 4.2%
Occupancy and
equipment.............. 719 613 106 17.3
Insurance.............. 65 74 (9) (12.2)
Postage................ 84 56 28 50.0
Stationery and
supplies.............. 81 66 15 22.7
Telephone.............. 78 70 8 11.4
Advertising............ 210 97 113 116.5
Legal.................. 112 12 100 833.3
Consulting............. 91 47 44 93.6
Audit and accounting
fees.................. 40 56 (16) (28.6)
Directors' fees and
expenses.............. 408 85 323 380.0
Debenture offering
cost.................. 24 10 14 140.0
FDIC assessments....... 138 158 (20) (12.7)
Sundry losses.......... 69 47 22 46.8
Other.................. 445 488 (43) (8.8)
$5,105 $4,318 $ 787 18.2%
Of the 17.3% increase in occupancy and equipment, 6.5% relates to
the new TRB branches. Consistent with the six month comparison,
advertising in 1995 reflects an expanded budget for TRB and costs
related to the new branches. The increase in legal primarily
results from a voluntary internal investigation of the Company's
investment in Community Assets Management. Directors' expenses
include the minimum cost of the Director Emeritus Program.
Provision for Income Taxes
The provision for income taxes was $267 thousand and $377 thousand
for the three months ended June 30, 1995 and 1994, respectively,
representing 38.0% and 38.8%, of income before taxation for the
respective periods.
Sierra Tahoe Bancorp
10-Q Filing
June 30, 1995
Part II.
Item 1. Legal Proceedings.
During 1987, the Company took title, through
foreclosure, of a property located in Placer County
which subsequent to TRB's sale of the property was
determined to be contaminated with a form of
hydrocarbons. At the time it owned the property, TRB
became aware of and investigated the status of certain
buried underground tanks that had existed on the
property. TRB hired a consultant to study the tanks and
properly seal them. Several years later, and after
resale of the property, contamination was observed in
the area of at least one of the buried tanks and along
an adjoining riverbank of the Yuba River. TRB, at the
time of resale of the property, was not aware of this
contamination but was aware of the existence of the
tanks and disclosed this to its purchaser.
A formal plan of remediation has not been approved by
the County of Placer or the State Regional Water Quality
Board. As a result of the discovery of the
contamination, two civil lawsuits have been very
recently instituted against TRB by the current owner of
the property, who is also TRB's borrower.
TRB's counsel on this matter believes that TRB's share
of the cost of remediation will not be material to TRB's
or the Company's performance and will be within existing
reserves established by TRB for this matter.
The Company and its subsidiaries have been named in a
suit filed in the U.S. District Court, Central District
of California. The Plaintiffs are banks who lost
portions of investments made through a fund managed by
Community Assets Management ("CAM"), which is no longer
in operation. Plaintiffs allege that the Company and
its subsidiaries exited the fund prior to being exposed
to loss based upon inside information. Also named in
his capacity as director of CAM is Jerrold Henley who
also serves the Company as a Director and Chairman of
the Board. The Company has investigated the allegations
in detail and has found no basis for the action and will
defend the civil action. The Company believes this
issue will not have a material adverse impact on its
financial condition or results of operations.
In addition, the Company is subject to some minor
pending and threatened legal actions which arise out of
the normal course of business and, in the opinion of
Management, the disposition of these claims currently
pending will not have a material adverse effect on the
Company's financial position.
Item 2. Change in Securities. No changes.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Lease Agreement between Truckee River
Bank and Realty Advisors, Inc.
10.2 Lease Agreement between Truckee River
Bank and Western Investment Real Estate
Trust and Pinecreek Shopping Center
Associates.
11. Statement regarding computation of per share earnings.
(b) Reports on Form 8-K.
The Bancorp filed a Form 8-K dated May 25, 1995,
reporting authorization by its Board of Directors to
repurchase up to 50,000 shares of its common stock.
10-Q Filing
June 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf of the undersigned thereunto duly authorized.
Date August 9, 1995 /s/ William T. Fike
William T. Fike
President/Chief Executive Officer
Date August 9, 1995 /s/ David C. Broadley
David C. Broadley
Executive Vice
President/
Chief Financial Officer