1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended JUNE 30, 1996
-----------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to ________________________
Commission File Number: 1-9709
--------------------------------------------------------
ELDORADO BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3642383
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
17752 EAST SEVENTEENTH STREET, TUSTIN, CALIFORNIA 92680
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 798-1100
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 requirement for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDING DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
There were 3,770,794 shares of common stock for the registrant outstanding as
of June 30, 1996
2
Part I. Financial Information
Item I. Financial Statements
Eldorado Bancorp and Its Subsidiary
Eldorado Bank
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
ASSETS June 30, 1996 December 31, 1995
- ------ ------------- -----------------
Cash and due from banks $ 32,593 $ 32,233
Federal funds sold 7,000 9,700
Securities available-for-sale 99,017 86,580
Securities held-to-maturity - approximate market
value of $7,931 in 1996 and $7,212 in 1995 8,081 7,087
Loans and direct lease financing 224,772 229,957
Less allowance for possible credit losses 4,905 6,265
-------- --------
Net loans and direct lease financing 219,867 223,692
Premises and equipment, net 8,333 8,598
Other real estate owned 515 1,965
Accrued interest receivable and other assets 14,568 13,331
-------- --------
$389,974 $383,186
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities
Deposits
Demand, non-interest bearing $105,407 $ 99,770
Savings and money market 149,940 157,882
Time certificates under $100,000 48,737 43,534
Time certificates of $100,000 or more 35,564 32,092
-------- --------
Total deposits 339,648 333,278
Federal funds purchased 1,787 3,772
Other liabilities 4,162 3,763
-------- --------
Total liabilities $345,597 $340,813
Shareholders' equity
Preferred stock, no par value;
authorized 5,000 shares, none issued --- ---
Common stock, no par value;
authorized 12,500,000 shares, issued and
outstanding 3,770,794 shares in 1996 and
3,733,822 shares in 1995 32,090 31,798
Securities valuation allowance, net 58 400
Retained earnings 12,229 10,175
-------- --------
44,377 42,373
-------- --------
Total shareholders' equity and liabilities $389,974 $383,186
======== ========
3
Part I. Financial Information
Item I. Financial Statements (continued)
Eldorado Bancorp and Its Subsidiary
Eldorado Bank
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in Thousands except for earnings per share
and weighted average number of shares outstanding)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Interest Income
Loans $ 5,400 $ 4,331 $ 10,993 $ 8,460
Investment securities 1,532 1,325 2,975 2,580
Federal funds sold 179 232 473 456
Direct lease financing 21 35 45 71
--------- --------- --------- ---------
7,132 5,923 14,486 11,567
Interest Expense
Savings, NOW and money market deposits 753 697 1,528 1,432
Time deposits of $100,000 or more 490 269 944 494
Time deposits under $100,000 632 309 1,255 549
Other 26 91 63 130
--------- --------- --------- ---------
Total interest expense 1,901 1,366 3,790 2,605
--------- --------- --------- ---------
Net interest income 5,231 4,557 10,696 8,962
Provision for loan and lease losses --- 301 152 603
--------- --------- --------- ---------
Net interest income after provision
for loan and lease losses 5,231 4,256 10,544 8,359
Other Income
Service charges on deposit accounts 540 528 1,147 1,031
Loan servicing income 204 208 428 429
Bank card discounts 61 127 90 336
Investment security gains (losses) 2 --- 2 (2)
Other 363 185 680 244
--------- --------- --------- ---------
1,170 1,048 2,347 2,038
Other Expense
Salaries 1,371 1,095 2,735 2,149
Employee benefits 388 451 949 1,021
Net occupancy of bank premises 449 386 855 762
Furniture and equipment expense 266 221 564 444
Other 1,573 1,384 3,209 2,757
--------- --------- --------- ---------
4,047 3,537 8,312 7,133
--------- --------- --------- ---------
Earnings before taxes 2,354 1,767 4,579 3,264
Income Taxes 970 732 1,885 1,347
--------- --------- --------- ---------
Net Earnings $ 1,384 $ 1,035 $ 2,694 $ 1,917
========= ========= ========= =========
Earnings per common share $ 0.36 $ 0.34 $ 0.70 $ 0.63
========= ========= ========= =========
Weighted average number of shares used
in per share calculation 3,872,568 3,033,085 3,866,453 3,032,745
4
Part I. Financial Information
Item I. Financial Statements (continued)
Eldorado Bancorp and Its Subsidiary
Eldorado Bank
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
Cash Flows from operating activities:
Net earnings $ 2,694 $ 1,917
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 511 433
Amortization of goodwill and core deposit premium 325 55
Provision for possible credit losses 152 603
Provision for possible losses on other real estate owned --- 58
(Gain) loss on sale of SBA loans (131) 10
(Gain) loss on sale of securities available-for-sale (2) 2
Amortization of deferred income, costs, discounts and fees (172) (50)
Loan fees collected 174 175
(Gain) loss on sale of other real estate owned (161) (19)
Gain on sale of premises and equipment (5) ---
Change in assets and liabilities net of effects from
acquisitions of banks:
(Increase) decrease in accrued interest receivable (14) (282)
(Increase) decrease in other assets/current tax
receivable and other real estate owned (1,459) (2,140)
Increase (decrease) in other liabilities 399 676
-------- --------
Total adjustments (383) (479)
-------- --------
Net cash provided by operating activities 2,311 1,438
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale 29,113 52,901
Proceeds from sale of securities available-for-sale 2,166 ---
Proceeds from sale of securities held-to maturity 2,500 ---
Purchase of securities available-for-sale (44,327) (47,776)
Purchase of securities held-to-maturity (3,492) (2,003)
Net (increase) decrease in loans and leases 3,802 (199)
Purchases of premises and equipment (230) (312)
Proceeds from sale of other real estate owned 1,765 527
Proceeds from sale of loans --- 1,732
Net (increase) decrease in commercial loans held for sale --- (463)
Proceeds from sale of premises and equipment 15 1
-------- --------
Net cash used in investing activities $ (8,688) $ 4,408
======== ========
5
Part I. Financial Information
Item I. Financial Statements (continued)
Eldorado Bancorp and Its Subsidiary
Eldorado Bank
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- ----------------
Cash flow from operating activities:
Net increase (decrease) in deposits $ 6,370 $(3,276)
Net increase (decrease) in federal funds purchased (1,985) 5,691
Dividends paid (640) (441)
Proceeds from stock options exercised 292 17
------- -------
Net cash provided by financing activities 4,037 1,991
------- -------
Increase (decrease) in cash and cash equivalents (2,340) 7,837
Cash and cash equivalents at beginning of year 41,933 32,950
------- -------
Cash and cash equivalents at June 30 $39,593 $40,787
======= =======
6
Part I. Financial Information
Item I. Financial Statements (continued)
Eldorado Bancorp and Its Subsidiary
Eldorado Bank
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For six months ended June 30, 1996
and
For years ended December 31, 1995, 1994, and 1993
(Unaudited)
Securities Net Unrealized
Common Stock Gain (Loss) on Total
---------------------- Securities Retained Shareholders'
Shares Amount Available-for-Sale Earnings Equity
- ------------------------------------------ --------- ----------- ------------------ ----------- -------------
Balance, December 31, 1993 2,752,255 $17,427,000 --- $ 9,862,000 $27,289,000
Net unrealized holding gain on securities
available-for-sale as of January 1, 1994 --- --- $ 1,179,000 --- 1,179,000
Cash dividends declared ($0.16 per share) --- --- --- (441,000) (441,000)
Stock options exercised 4,473 35,000 --- --- 35,000
Change in net unrealized gain on
securities available-for-sale --- --- (1,524,000) --- (1,524,000)
Net earnings --- --- --- 2,556,00 2,556,000
- ------------------------------------------ --------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 2,756,728 $17,462,000 $ (345,000) $11,977,000 $29,094,000
Cash dividends declared ($0.36 per share) --- --- --- (960,000) (960,000)
Stock options exercised 7,380 62,000 --- --- 62,000
Common stock issued 630,276 8,928,000 --- --- 8,928,000
10% common stock dividend 339,438 5,346,000 --- (5,346,000) ---
Change in net unrealized gain on
securities available-for-sale --- --- 745,000 --- 745,000
Net earnings --- --- --- 4,504,000 4,504,000
- ------------------------------------------ --------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 3,733,822 $31,798,000 $ 400,000 $10,175,000 $42,373,000
Cash dividends declared ($0.17 per share) --- --- --- (640,000) (640,000)
Stock options exercised 36,972 292,0000 --- --- 292,000
Change in net unrealized gain (loss)
in securities available-for-sale --- --- (342,000) --- (342,000)
Net earnings --- --- --- 2,694,000 2,694,000
- ------------------------------------------ --------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 3,770,794 $32,090,000 $ 58,000 $12,229,000 $44,377,000
========= =========== =========== =========== ===========
7
Part I. Financial Information
Item I. Financial Statements (continued)
Eldorado Bancorp and Its Subsidiary
Eldorado Bank
NOTE OF CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
----------------------
NOTE A - BASIS OF PRESENTATION
The financial statements for interim periods are unaudited. In the opinion of
management, all material adjustments necessary for fair presentation of the
interim financial statements have been included.
Interim period financial statements are not necessarily indicative of results
to be expected for the entire year.
NOTE B - EARNINGS PER SHARE
Net earnings per common share are based upon the weighted average number of
shares outstanding during each period.
8
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Total assets at June 30, 1996 were $389.9 million compared to $383.2 million at
December 31, 1995. The increase in total assets was primarily due to an
increase in total deposits. The funds received from depositors and loan
repayments, net of loan disbursements, were deployed into securities
available-for-sale.
Federal funds sold, considered as overnight loans to other banks, decreased
to $7.0 million at June 30, 1996 compared to $9.7 million at December 31,
1995.
Securities available-for-sale increased $12.4 million to $99.0 million at June
30, 1996 compared to $86.6 million at December 31, 1995.
The following table summarizes the components of total gross loans outstanding
in each category at the date indicated (in thousands):
December 31,
June 30, --------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
Commercial, Secured and Unsecured $101,039 $ 94,548 $ 66,987 $ 67,723 $ 74,603 $ 83,937
Interim Construction 19,934 18,219 4,789 13,039 21,595 28,770
Real Estate 75,133 88,097 78,607 80,088 90,985 98,373
Installment 26,236 26,553 18,945 17,961 21,374 28,229
Credit Card 1,717 1,791 1,298 1,357 1,456 1,491
Lease Financing 825 876 1,286 2,716 3,515 3,853
Less: Unearned Income (112) (127) (38) (419) (739) (1,208)
-------- -------- -------- -------- -------- --------
Total Gross Loans $224,772 $229,957 $171,874 $182,465 $212,789 $243,445
======== ======== ======== ======== ======== ========
Total gross loans decreased to $224.8 million at June 30, 1996 from $230.0
million at December 31, 1995 due primarily to loan repayments in the real
estate loan segment partially offset by growth in the commercial loan segment.
The Company had experienced declining loan balances from 1991 to 1994 largely
due to more stringent underwriting criteria, fewer borrowers in the
recessionary environment meeting the underwriting criteria, loan payoffs and
reduced demand for new credit. Additionally, during this period the Company
eliminated the construction lending department in order to reduce its exposure
to the declining real estate market. The Company, through the acquisition of
Mariners Bancorp in October 1995, operates a construction lending department.
The Company intends to originate and service interim construction loans.
9
The following tables show the maturities of loans and their sensitivities to
changes in interest rates at June 30,1996.
Due in Due after
One Year One Year to Due after
Or Less Five Years Five Years Total
-------- ----------- ---------- --------
Commercial, Secured and Unsecured $ 79,450 $16,714 $ 4,875 $101,039
Interim Construction 15,945 3,354 635 19,934
Real Estate 57,741 12,147 5,245 75,133
Installment 21,290 4,479 467 26,236
Credit Card 1,702 0 15 1,717
Leases 217 496 0 713
-------- ------- ------- --------
$176,345 $37,190 $11,237 $224,772
======== ======= ======= ========
Maturing
Within After
One Year One Year Total
-------- -------- --------
Loans with Predetermined Interest Rates $ 24,998 $ 38,895 $ 63,893
Loans with Floating or Adjustable Interest Rates 151,347 9,532 160,879
The following table provides information with respect to the components of the
Company's nonperforming loans at the dates indicated (amounts in thousands):
December 31,
June 30, ------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
Nonaccrual Loans $4,295 $5,818 $3,161 $2,092 $2,927 $8,364
Loans More Than 90 Days Past Due 103 380 246 56 361 349
------ ------ ------ ------ ------ ------
Total Nonperforming Loans $4,398 $6,198 $3,407 $2,148 $3,288 $8,713
====== ====== ====== ====== ====== ======
Ordinarily, the accrual of interest ceases when no payment of interest or
principal has been made for 90 days or if the Bank has reason to believe that
continued payment of interest and principal is unlikely. Accrued interest, if
any, is reversed at the time such loans are placed on nonaccrual status. If
these loans had been current throughout their terms, interest and fees on loans
would have increased by approximately $170,000 for the six months ended June
30, 1996 and $172,000, $144,000, $108,000, $103,000, and $166,000, for the
years ended 1995, 1994, 1993, 1992, and 1991 respectively.
10
The following is a summary of impaired loans and the related allowance for
possible credit losses:
June 30, 1996 December 31, 1995
------------------------- --------------------------
Allowance Allowance
Recorded for Possible Recorded for Possible
Investment Credit Losses Investment Credit Losses
---------- ------------- ---------- -------------
(In thousands)
Impaired loans requiring an allowance
for possible credit losses $4,138 $954 $5,077 $1,985
Impaired loans not requiring an
allowance for possible credit losses --- --- 741 ---
------ ---- ------ ------
$4,138 $954 $5,818 $1,985
====== ==== ====== ======
Troubled Debt Restructurings
- ----------------------------
December 31,
June 30, ---------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
(In thousands)
Troubled debt restructuring $3,206 $1,531 $7,069 $1,431 $ --- $ ---
Troubled debt restructurings consist primarily of loans for which the interest
rate was reduced or the payment provisions were modified because of the
inability of the borrower to service the obligation under the original terms of
the agreements. Income is accrued at the lower effective rate provided the
borrower is current under the revised terms and conditions of the agreements.
Under the original terms of the restructured loans, interest earned would have
totaled approximately $156 thousand for the six months ended June 30, 1996 and
$235 thousand for the year ended December 31, 1995. Under the restructured
terms, recorded interest income amounted to $113 thousand for the six months
ended June 30, 1996 and $187 thousand for the year ended December 31, 1995.
11
The following table summarizes, for the periods indicated, changes in the
allowance for possible credit losses arising from loans charged off, recoveries
on loans previously charged off, and additions to the allowance which have been
charged to operating expenses and certain ratios relating to the allowance for
possible credit losses (amounts in thousands):
For the Six For the Year Ended December 31,
Months Ended ----------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
Allowance for possible credit losses:
Balance at beginning of period $ 6,265 $5,564 $4,740 $3,530 $3,757 $2,656
Actual charge-offs:
Commercial 25 342 570 502 574 406
Interim construction --- --- --- 590 741 ---
Credit cards 29 36 36 35 66 48
Consumer 118 165 151 98 494 307
Real estate 1,472 763 720 1,277 142 ---
Direct lease financing 2 5 97 32 60 21
--------- ------ ------ ------ ------ ------
Total charge-offs 1,646 1,311 1,574 2,534 2,077 782
Less recoveries:
Commercial 37 156 118 27 54 61
Interim construction --- --- --- 11 --- ---
Credit cards 9 9 13 21 5 8
Consumer 48 49 30 106 50 60
Real estate 40 225 --- --- --- ---
Direct lease financing --- --- 8 3 6 ---
--------- ------ ------ ------ ------ ------
Total recoveries 134 439 169 168 115 129
--------- ------ ------ ------ ------ ------
Net loans charged off 1,512 872 1,405 2,366 1,962 653
Provision for credit losses 152 756 2,006 3,576 1,735 1,159
Changes incident to acquisitions --- 817 223 --- --- ---
--------- ------ ------ ------ ------ ------
Balance at end of period $ 4,905 $6,265 $5,564 $4,740 $3,530 $3,757
========= ====== ====== ====== ====== ======
Ratios:
Net loans charged off to average loans 0.67% 0.47% 0.79% 1.22% 0.84% 0.30%
Allowance for credit losses to
total gross loans 2.18% 2.72% 3.24% 2.60% 1.66% 1.54%
Net loans charged off to allowance
for credit losses 30.81% 13.92% 25.25% 49.92% 55.58% 17.38%
Net loans charged off to provision
for credit losses 994.74% 115.34% 70.04% 66.16% 113.08% 56.34%
Allowance for credit losses to non-
performing loans 111.53% 101.08% 163.31% 220.07% 107.36% 43.12%
The allowance for possible credit losses is established by a provision for
possible credit losses charged against current period income. Loans and leases
are charged against the allowance for possible credit losses when management
believes that the collectibility of principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb losses inherent in
existing loans, leases and commitments to extend credit, based on the
evaluations of the collectibility and prior loss experience of loans, leases
and commitments to extend credit. The evaluations take into consideration such
factors as changes in the nature and volume of the portfolio, overall portfolio
quality; loan concentrations; specific problem loans, leases and commitments;
and current and anticipated economic conditions that may affect the borrowers'
ability to pay.
12
Management believes that the allowance for possible credit losses is adequate.
While management uses available information to recognize losses on loans and
leases, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, both Federal and state regulators, as an
integral part of their examination process, periodically review the Bank's
allowance for possible credit losses and may recommend additions based upon
their evaluation of the portfolio at the time of their examination.
The risk of nonpayment of loans is an inherent feature of the banking business.
That risk varies with the type and purpose of the loan, the collateral which is
utilized to secure payment, and ultimately, the credit worthiness of the
borrower. In order to minimize this credit risk, the Bank has established
lending limits for each of its officers having lending authority, in each case
based upon the officer's experience level and prior performance. Whenever a
proposed loan by itself, or when aggregated with outstanding extensions of
credit to the same borrower, exceeds the officer's lending limits, the loan
must be approved by the Bank's Chairman, President or Executive Vice
President/Chief Credit Officer or by the Bank's loan committee, depending upon
the dollar amount involved. The loan committee is comprised of two directors
and four members of the Bank's senior management. In addition, each loan
officer has primary responsibilities to conduct credit documentation reviews of
all loans made by that officer.
Furthermore, the Bank also maintains a program of periodic review of all
existing loans and employs a specialist who reviews loans over a certain dollar
amount and grades these loans based upon the dollar amount and credit
worthiness using a grading system. Loans are graded from "one" to "eight"
depending on credit quality, with "grade one" representing a prime loan with a
definite and reliable repayment program based upon liquid collateral with
adequate margin or supported by a strong up-to-date financial statement.
Problem or substandard loans identified in the review process are scheduled for
remedial action, and where appropriate, allowances are established for such
loans. Periodically, an outside loan review consultant further reviews loans
for credit quality. Additionally, the Bank is examined regularly by the FDIC
and California State Banking Department at which time a further review of loans
is conducted.
Problem or substandard loans identified in the review process are largely due
to a decline in local real estate values during the past several years.
Management believes that it has adequately provided an allowance to cover
estimated losses in the credit portfolio. Significant further deterioration in
California real estate values could materially impact future operating results,
liquidity or capital resources.
The Company has allocated the allowance for credit losses according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the categories of loans set forth in the following
table:
June 30, 1996 1995 1994 1993 1992 1991
--------------- --------------- --------------- --------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Commercial, Secured
and Unsecured $2,205 45.0% $2,117 33.8% $2,281 39.0% $2,164 37.1% $1,715 35.1% $1,296 34.5%
Interim Construction 435 8.9 280 4.5 310 2.8 325 7.1 440 10.1 443 11.8
Real Estate 1,640 33.4 3,274 52.3 2,597 45.7 1,780 43.9 1,091 42.8 1,518 40.4
Installment 572 11.7 500 8.0 271 11.0 334 9.8 245 10.0 428 11.4
Credit Card 37 0.7 64 1.0 52 0.8 101 0.8 11 0.7 23 0.6
Lease Financing 16 0.3 30 0.4 53 0.7 36 1.3 28 1.3 49 1.3
------ ------ ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $4,905 100.00% $6,265 100.0% $5,564 100.0% $4,740 100.0% $3,530 100.0% $3,757 100.0%
====== ====== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
The Company sometimes acquires real estate properties in satisfaction of loans
receivable through foreclosure or other means. These real estate properties
acquired are accounted for pursuant to Statement of Position 92-3, Accounting
for Foreclosed Assets, which presumes that foreclosed assets are held for sale
and not for the production of income. Accordingly, the real estate properties
are carried at fair value less estimated costs to sell. Fair value is
determined based upon appraisals near the date of foreclosure. These
appraisals are updated periodically and subsequent write-downs of the carrying
value may be recognized in the event of declining fair values.
On June 30, 1995 other real estate owned totaled $515 thousand compared to $2.0
million at December 31, 1995.
Total deposits increased $6.4 million at June 30, 1996 to $339.6 million
compared to $333.3 million at December 31, 1995. Noninterest bearing demand
deposits, time certificates of deposits under $100,000 and time certificates of
$100,000 and greater increased $5.6 million, $5.2 million and $3.5 million,
respectively during the first half of 1996. Savings and money market deposits,
however, declined $7.9 million during this same period.
13
Federal funds purchased decreased $2.0 million to $1.8 million at June 30, 1996
compared to December 31, 1995. The Company purchases federal funds from one of
its financial institution customers as an accommodation.
Total shareholders' equity increased $2.0 million during the six months ended
June 30, 1996. Net earnings for the period contributed $2.7 million to
retained earnings while cash dividends of approximately $600 thousand decreased
retained earnings. During this period common stock increased approximately
$300 as a result of exercise of stock options and the value of securities
available-for-sale declined approximately $300.
Liquidity and Interest Sensitivity
- ----------------------------------
In order to meet periodic increases in loan demand, potential deposit
withdrawals and maturities of short-term, large time certificates of deposit,
the Company maintains short-term fund sources. These include cash on hand and
on deposit with correspondent banks; "federal funds sold", which are
essentially demand loans to other banks; and securities available-for-sale.
Such cash and near-cash items, and securities available-for-sale totaled
$138.6 million at June 30, 1996, which represented 35.5 percent of total
assets.
Other possible liquidity sources to meet cash requirements include federal
funds purchased lines, the sale of loans, and anticipated increases in
deposits. Substantially all of the Company's installment loans and leases are
made on terms that require regular monthly repayments, which provides a regular
flow of cash funds.
The Company manages its interest rate sensitivity by matching the repricing
opportunities on its earning assets to those on its funding liabilities.
Management uses various asset/liability strategies to manage the repricing
characteristics of its assets and liabilities to ensure that exposure to
interest rate fluctuations is limited within Company guidelines of acceptable
levels of risk-taking. Hedging strategies, including the terms and pricing of
loans and deposits, and managing the deployment of its securities are used to
reduce mismatches in interest rate repricing opportunities of portfolio assets
and their funding sources. The Company does not utilize derivative financial
instruments as part of its hedging strategy.
One way to measure the impact that future change in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents
the net position of assets and liabilities subject to repricing in specified
time periods. The Company's cumulative gap at June 30, 1996 for a three month
and one year period was 92 percent and 116 percent, respectively.
Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot
be used to evaluate the Company's interest rate sensitivity position. To
supplement traditional gap analysis, the Company performs simulation modeling
to estimate the potential effects of changing interest rates. The process
allows the Company to explore the complex relationships within the gap over
time and various interest rate environments. The simulation analysis indicates
certain scenarios in which the Company may experience a decline in its net
interest income despite its strategy of matching repricing opportunities of its
earning assets and funding liabilities.
Results of Operations - Quarter Ended June 30, 1996
- ---------------------------------------------------
Net income for the three months ended June 30, 1996 was $1.4 million, or $0.36
per share, compared to $1.0 million, or $0.34 per share, for the same period
in 1995. This increase was primarily due to greater volume of earning assets,
lower provisions for possible credit losses, higher other income, partially
offset by higher noninterest expenses.
Net interest income totaled $5.2 million for the three months ended June 30,
1996 compared to $4.6 million for the same period in 1995, an increase of $600
thousand. This increase was primarily due to higher yield and greater volume
of earning assets, partially offset by higher rate and greater volume on
interest bearing deposits.
The Company provided no amounts for loan and lease losses during the three
months ended June 30, 1996 compared to $301 in the same period in 1995. This
reduction was made based upon the Company's evaluation of the adequacy of its
allowance for possible credit losses. The allowance for possible credit losses
is established based upon an analysis providing specific allowances for loans
that management has identified to have potential loss and general allowances
for unidentified losses inherent in the portfolio. The general allowance is
determined by segmenting the portfolio by risk rating and loan type with
allowances established based upon historical losses in each portfolio segment.
Additionally, consideration is given to loan type concentrations in the
portfolio and the current and anticipated economic environment.
Other income for the quarter ended June 30, 1996 was $1.2 million compared to
$1.0 million for the same period in 1995.
14
Other expenses for the three months ended June 30, 1996 were $4.0 million
compared to $3.5 million for the same period in 1995.
Results of Operations - Six Months Ended June 30, 1996
- ------------------------------------------------------
Net earnings for the six months ended June 30, 1996 were $2.7 million, or $0.70
per share, compared to $1.9 million, or $0.63 per share, for the first half in
1994.
Net interest income increased $1.7 million to $10.7 million for the six months
ended June 30, 1996 compared to $9.0 million for the same period in 1995.
Interest income increased $2.9 million in the 1996 period while interest
expense on deposits and other borrowings increased $1.3 million. The 1996
interest income was higher due to higher volumes of earning assets primarily a
result of the Mariners Bancorp acquisition that was consummated in October
1995. A greater volume of noninterest bearing deposits funded the earning
assets in the first half of 1996.
The provision for loan and lease losses for the first six months of 1996 was
$152 thousand compared to $603 thousand for the six months ended June 30, 1995.
The decrease was based upon management's assessment of the adequacy of the
allowance for possible credit losses as discussed above in the quarterly
discussion.
Other income increased to $2.3 million for the six months ended June 30, 1996
compared to $2.0 million for the same period in 1995.
Other expense was $1.2 million higher in the first half of 1996 totaling $8.3
million compared to $7.1 million for the same period in 1995. Salary expense
was $500 thousand greater for the 1996 period compared to 1995 and employee
benefits expense was $100 thousand greater. The Company's staffing levels were
higher in the 1996 period than 1995 due to the net additional branches acquired
in the Mariner Bancorp acquisition and the organization of several new
departments.
Newly Issued Accounting Pronouncements
- --------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS 121 requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or circumstances indicate the
carrying amount of an asset may not be recoverable. However, SFAS 121 does not
apply to financial instruments, core deposit intangibles, mortgage and other
servicing rights or deferred tax assets. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. The Company has adopted SFAS 121
effective January 1, 1996 and it has had no material impact on the financial
statements.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122 (SFAS 122), "Accounting for Mortgage Servicing Rights", an amendment to
Statement of Financial Accounting Standards No. 65. SFAS 122 requires an
institution that purchases or originates mortgage loans and sells or
securitizes those loans with servicing rights retained to allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
In addition, institutions are required to assess impairment of the capitalized
mortgage servicing portfolio based on the fair value of those rights on a
stratum-by-stratum basis with any impairment recognized through a valuation
allowance for each impaired stratum. Capitalized mortgage servicing rights are
to be stratified based upon one or more of the predominate risk characteristics
of the underlying loans such as loan type, size, note rate, date of
origination, term and/or geographic location. SFAS 122 is effective for fiscal
years beginning after December 15, 1995. The adoption of SFAS 122 on January
1, 1996 has had no material impact on the Company's operation.
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125 (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Under the
financial-components approach, after a transfer of financial assets, an entity
recognizes all financial and servicing assets it controls and liabilities it
has incurred and derecognizes financial assets it no longer controls and
liabilities that have been extinguished. The financial-components approach
focuses on the assets and liabilities that exist after the transfer. Many of
these assets and liabilities are components of financial assets that existed
prior to the transfer. If a transfer does not meet the criteria for a sale,
the transfer is accounted for as a secured borrowing with pledge of collateral.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and should be
applied prospectively. Management has not yet evaluated the effect, if any,
SFAS 125 will have on the Company's financial conditions or operations.
15
Part II. Other Information
Items 1-3.
No reportable events.
Item 4.
On April 17, 1996 the Annual Meeting of Shareholders was held for the purpose
of:
a) Electing eleven directors. The names of so elected and the number
of votes set opposite their respective names were:
Director For Withheld Director For Withheld
-------- --------- -------- -------- --------- --------
Michael B. Burns 2,352,840 8,112 Warren Finley 1,770,939 590,013
J.B. Crowell 2,352,840 8,112 Warren Fix 2,349,168 11,784
Raymond E. Dellerba 2,352,840 8,112 Richard Korsgaard 2,352,840 8,112
Julia DiGiovanni 2,349,168 11,784 Donald F. Sodaro 2,352,840 8,112
Lynne Pierson Doti 2,352,840 8,112 George H. Wells 2,005,277 355,675
Rolf J. Engen 2,349,168 11,784
The names of directors having a remaining term after the election are
the same as noted above.
Item 5. Other Information
On May 16, 1996 the Board of Directors declared a cash dividend of 9 cents per
share payable July 1, 1996 to Shareholders of record June 3, 1996.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
(27) Financial Data Schedule.
Reports on Form 8-K
(1) None.
16
SIGNATURE
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Eldorado Bancorp
-----------------------------
(Registrant)
August 02, 1996 /s/ Raymond E. Dellerba
- --------------- -----------------------------
Date Raymond E. Dellerba
Executive Vice President
August 02, 1996 /s/ David R. Brown
- --------------- -----------------------------
Date David R. Brown
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)