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 March 31, 2000 Commission File No. 333-79193
CERRITOS VALLEY BANCORP
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4216236
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12100 Firestone Blvd., Norwalk CA 90650
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (562) 868-3221
- -------------------------------------------------------------------------------
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 / /.
As of March 31, 2000, 999,875 shares of Registrant's no par value common stock
were outstanding.
CERRITOS VALLEY BANCORP
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Earnings for the three months
ended March 31, 2000 and 1999 5
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 2000 and 1999 6
Consolidated Statements of Cash flows for the three months
ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 21
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 2 Changes in Securities and use of Proceeds 23
Item 3 Defaults upon Senior Securities 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 5 Other Information 23
Item 6 Exhibits to Consolidated Financial Statement Schedules and INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES 24
Cerritos Valley Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 (Unaudited) 1999
---------------- ----------------
Cash and due from banks $ 9,571,990 $ 12,779,517
Federal funds sold 5,365,000 2,000,000
---------------- ----------------
Cash and cash equivalents 14,936,990 14,779,517
Investment securities
Available-for-sale 33,252,959 33,515,501
Held-to-maturity - fair value of $3,417,013 and
$3,429,465 in 2000 and 1999, respectively 3,488,772 3,503,926
Loans receivable, net of allowance for loan losses
of $1,275,078 and $1,277,141 in 2000 and
1999, respectively 63,492,512 66,805,672
Bank premises and equipment 1,689,791 1,722,752
Accrued interest receivable 1,190,167 1,072,048
Prepaid expenses and other assets 7,585,255 5,452,383
---------------- ----------------
Total assets $ 125,636,446 $ 126,851,799
================ ================
The accompanying notes are an integral part of these statements.
3
Cerritos Valley Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 (Unaudited) 1999
---------------- ----------------
Liabilities
Deposits
Checking noninterest-bearing $ 33,978,995 $ 35,789,486
Checking interest-bearing and savings 25,053,827 23,497,164
Money market accounts 12,746,097 11,248,567
Time certificates of deposit under $100,000 13,373,397 13,363,696
Time certificates of deposit $100,000 and over 15,125,764 17,765,391
---------------- ----------------
Total deposits 100,278,080 101,664,304
FHLB advances 11,912,256 12,023,912
Treasury, tax and loan 652,140 978,094
Obligations under capital lease 225,094 229,885
Accrued expenses and other liabilities 2,341,666 1,999,344
---------------- ----------------
Total liabilities 115,409,236 116,895,539
Commitments and contingencies - -
Stockholders' equity
Contributed capital
Common stock - authorized, 20,000,000 shares, no
par value; 999,875 shares issued
and outstanding in 2000 and 1999, respectively 6,090,859 6,090,859
Additional paid in capital stock - warrants 1,740,800 1,740,800
Retained earnings 3,256,312 2,927,514
Accumulated other comprehensive income (860,761) (802,913)
---------------- ----------------
Total stockholders' equity 10,227,210 9,956,260
---------------- ----------------
Total liabilities and stockholders' equity $ 125,636,446 $ 126,851,799
================ ================
The accompanying notes are an integral part of these statements.
4
Cerritos Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three months ended
March 31,
2000 1999
-------------- --------------
INTEREST REVENUES
Loans $ 1,575,388 $ 1,600,512
Investment securities 566,083 561,966
Federal funds sold 68,697 95,595
Other deposits 1,111 153
-------------- --------------
TOTAL INTEREST REVENUES 2,211,279 2,258,226
INTEREST EXPENSE
Deposits 556,472 568,774
FHLB borowings 175,360 188,811
Other 5,422 -
-------------- --------------
TOTAL INTEREST EXPENSE 737,254 757,585
-------------- --------------
NET INTEREST INCOME 1,474,025 1,500,641
PROVISION FOR LOAN LOSSES 15,000 85,000
-------------- --------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,459,025 1,415,641
NON INTEREST REVENUES
Service charges on deposit accounts 356,144 300,802
Other service charges and income 103,898 82,566
Gain on sale of loans 401 396
-------------- --------------
TOTAL NON INTEREST REVENUES 460,443 383,764
NON INTEREST EXPENSE
Employee 535,963 503,507
Occupancy 88,764 89,741
Other operating expense 771,301 611,185
-------------- --------------
TOTAL NON INTEREST EXPENSE 1,396,028 1,204,433
-------------- --------------
EARNINGS BEFORE INCOME TAXES 523,440 594,972
INCOME TAX PROVISION 194,642 243,194
-------------- --------------
NET EARNINGS $ 328,798 $ 351,778
============== ==============
Basic earnings per share $ 0.33 $ 0.35
============== ==============
Diluted earnings per share $ 0.29 $ 0.32
============== ==============
Basic weighted average shares outstanding 999,875 991,667
============== ==============
Dilutive weighted average shares outstanding 1,149,875 1,083,970
============== ==============
The accompanying notes are an integral part of these statements.
5
Cerritos Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
-------------------------------------------------------------------------------------------
For the three month period ended March 31, 2000
-------------------------------------------------------------------------------------------
Accumulated
Number Additional other
of shares Common Paid in Capital comprehensive Retained
outstanding stock and warrants income Earnings Total
------------- ------------- -------------- -------------- ------------- -------------
Balance - December 31, 1999 999,875 $6,090,859 $1,740,800 ($802,913) $2,927,514 $9,956,260
Comprehensive income
Net changes in unrealized
loss on securities
available for sale,
net of tax benefit of $38,162 - - - (57,848) - (57,848)
Net earnings for three months
ended March 31, 2000 - - - - 328,798 328,798
-------------
Comprehensive income 270,950
------------- ------------- -------------- -------------- ------------- -------------
Balance - March 31, 2000 999,875 $6,090,859 $1,740,800 ($860,761) $3,256,312 $10,227,210
============= ============= ============== ============== ============= =============
-------------------------------------------------------------------------------------------
For the three month period ended March 31, 1999
-------------------------------------------------------------------------------------------
Accumulated
Number Additional other
of shares Common Paid in Capital comprehensive Retained
outstanding stock and warrants income Earnings Total
------------- ------------- -------------- -------------- ------------- -------------
Balance - December 31, 1998 991,667 $6,540,813 $0 $27,591 $5,848,246 $12,416,650
Comprehensive income
Net changes in unrealized loss
on securities available
for sale, net of tax
benefit of $149,180 - - - (223,773) - (223,773)
Net earnings for three months
ended March 31, 1999 - - - - 351,778 351,778
-------------
Comprehensive income 128,005
------------- ------------- -------------- -------------- ------------- -------------
Balance - March 31, 1999 991,667 $6,540,813 $0 ($196,182) $6,200,024 $12,544,655
============= ============= ============== ============== ============= =============
The accompanying notes are an integral part of these statements.
6
Cerritos Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Ended March 31,
-------------------------------------
2000 1999
----------------- ------------------
Cash flows from operatig activities:
Net earnings $ 328,798 $ 351,778
Adjustments to reconcile net earnings to
net cash (used in) provided by operating activities:
Net amortization/accrection of
discount/premium on securities (551) 5,563
Depreciation 52,875 64,941
Deferred income tax (benefit) expense (78,622) 103,329
Other (gains) and losses (401) -
Principal payments from and sale of loans held for sale - 52,145
Increase in interest receivable (118,119) (205,989)
Net increase in other assets (2,108,043) (168,497)
Net increase in other liabilities 342,323 144,453
Provision for loan losses 15,000 85,000
----------------- ------------------
Net cash (used in) provided by operating activities (1,566,740) 432,723
Cash flows from investing activities:
Proceeds from maturities and principal collected
on sale of securities:
Available for sale 220,677 6,238,225
Held to maturity 44,989 1,000,000
Purchases of investment securities:
Available for sale - (4,495,781)
Held to maturity - -
Net (increase) decrease in loans 3,298,561 (2,814,625)
Purchases of premises and equipment (11,389) (17,423)
----------------- ------------------
Net cash provided by (used in) investing activities 3,552,838 (89,604)
The accompanying notes are an integral part of these statements.
7
Cerritos Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Three months ended March 31,
--------------------------------------
2000 1999
------------------ ------------------
Cash flows from financing activities:
Net increase in interest and
noninterest bearing accounts, savings and
money market accounts $ 1,243,702 $ 2,847,398
Net decrease in time certificates of deposits (2,629,926) (1,179,609)
Payments made under capital lease obligations (4,791) (7,195)
Net increase (decrease) in treasury, tax and loan note (325,954) 310,773
Net (decrease) increase in FHLB advances (111,656) 197,386
------------------ ------------------
Net cash (used in) provided by financing activities (1,828,625) 2,168,753
------------------ ------------------
Increase in cash and cash equivalents 157,473 2,511,872
Cash and cash equivalents at beginning of period 14,779,517 15,063,342
------------------ ------------------
Cash and cash equivalents at end of period $ 14,936,990 $ 17,575,214
------------------ ------------------
Supplemental disclosures of cash flow information
Interest paid $ 667,779 $ 758,754
Income taxes paid $ 15,000 $ -
The accompanying notes are an integral part of these statements.
8
Cerritos Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have
been prepared by Cerritos Valley Bancorp (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations for the
periods covered have been made. Certain information and note disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations
The financial position at March 31, 2000, and the results of
operations for the three months ended March 31, 2000 are not necessarily
indicative of the results of operations that may be expected for the year
ending December 31, 2000. These unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles on a basis consistent with the Company's audited consolidated
financial statements, and these interim financial statements should be read
in conjunction with the Company's audited consolidated financial statements
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 1999.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward -Looking Information
The discussions contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are intended to provide
information to facilitate the understanding as assessment of the consolidated
financial statements and footnotes and should be read and considered in
conjunction therewith. These discussions include forward-looking statements
within the meaning of Section 21E of the Exchange Act regarding management's
beliefs, estimates, projections, and assumptions with respect to future
operations. Actual results and operations for any future period may vary
materially from those projected herein and from past results discussed herein.
Overview
Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide a better understanding of the material
changes in trends to the financial condition, results of operations, and
liquidity of the Company. The following presentation is prepared as of the
dates and for the periods indicated. This discussion should be read in
conjunction with the Company's audited financial statements and notes
thereto, included in the Company's Form 10-K for the year ended December 31,
1999.
The Company's business strategy is to offer a broad range of commercial
banking products and services to individuals and business in its primary
service area with an emphasis upon customer service, efficiency, and
personalized services. The Company's business strategy is to increase its
market share of loans and deposits by focusing upon the banking needs of
local businesses, including retail, professional and real estate-related
activities, and individuals living and working in the Southern California
communities of Norwalk, Artesia, Huntington Park and Glendale.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its
loan portfolio, securities and other earning assets, and its cost of funds,
consisting of interest paid on its deposits and borrowings. The Company's
operating results are also impacted by provisions for loan losses, and to
lesser extent service charges on deposit accounts and other noninterest
income. In addition, the Company's operating expenses principally consist of
salaries, wages and employee benefits, occupancy expenses, professional
services, and other general economic and competitive conditions, particularly
changes in interest rates and actions of regulatory authorities.
10
Financial Condition
Cerritos Valley Bancorp (the "Company"), holding company for Cerritos Valley
Bank (the "Bank"), recorded net earnings of $328,798, or $0.33 basic earnings
per share, for the first quarter of 2000, compared with net earnings of
$351,778, or $0.35 basic earnings per share, for the first quarter of 1999.
The Company had diluted earnings per share for the first quarter of 2000 of
$0.29 per share and $0.32 diluted earnings per share for the first quarter of
1999.
Loans
The following table sets for the amount of loans outstanding by category and
the percentage of each category to the total loan portfolio.
March 31, 2000 December 31, 1999
------------------------------ ------------------------------
Amount % of Total Amount % of Total
--------------- ------------ --------------- ------------
Commercial $ 26,354,670 40.64% $ 27,913,786 40.95%
Construction 4,644,306 7.16% 6,487,052 9.52%
Real estate 32,134,841 49.56% 31,241,895 45.83%
Installment 1,709,724 2.64% 2,526,134 3.70%
--------------- ------------ --------------- ------------
Subtotal 64,843,541 100.00% 68,168,867 100.00%
Less:
Deferred loan fees (75,951) (86,054)
Allowance for loan losses (1,275,078) (1,277,141)
--------------- ---------------
Net loans $ 63,492,512 $ 66,805,672
=============== ===============
The Company actively monitors maturities and repricing activities within its
loan portfolio. Constructions loans decreased 28.4% during the period ended
March 31, 2000 to $4,644,306 from $6,487,052 at December 31, 1999, as a
result of scheduled maturities.
In accordance with management's credit administration and regulatory policy,
loans are placed on non-accrual status when the collection of principal or
interest is 90 days or more past due, unless the loan is well secured and in
the process of collection or in the process of renewal.
11
The following table sets forth information about non-performing assets 90
days or more past due and non accruing, 90 days or more past due and
continuing to accrue, and certain ratios.
March 31, 2000 December 31, 1999
--------------------- ---------------------
(dollars in thousands)
Nonperforming loans (1) $ 1,425 $ 514
Other real estate owned - -
--------- -------
Total nonperforming assets $ 1,425 $ 514
========= =======
Accruing loans 90 days or more past due $ 1,400 $ 1,354
========= =======
Nonperforming loans to total loans 2.20% 0.75%
Nonperforming assets
to total loans 2.20% 0.75%
to total assets 1.13% 0.41%
(1) Nonperforming loans and nonperforming assets do not include accruing
loans 90 days or more past due.
The Company maintains the allowance for loan losses at a level considered
adequate by management to provide for potential loan losses. Although the
Company maintains its allowance for loan losses at a level which it considers
to be adequate to provide for potential losses based on presently known
conditions, there can be no assurances that such losses will not exceed the
estimated amounts, thereby adversely affecting future results of operations.
The calculation of the adequacy of the allowance for loan losses, and
therefore the requisite amount of provision for loan losses, is based on
several factors, including underlying loan collateral values, delinquency
trends and historical loan loss experience, all of which can change without
notice based upon economic conditions and other factors.
The following table sets forth information about the allowance for loan
losses.
12
Three months ended Three months ended
March 31, 2000 December 31, 1999
--------------------- --------------------
Balance at beginning of period $ 1,277,141 $ 1,237,680
Provision for loan losses 15,000 240,000
Loan charge-offs (22,028) (225,747)
Recoveries on loans previously charged-off 4,965 25,208
--------------------- --------------------
Net charge-offs (recoveries) (17,063) (200,539)
Balance at end of period $ 1,275,078 $ 1,277,141
===================== ====================
Loans outstanding at end of period $ 64,843,540 $ 68,168,867
Average loans outstanding during period $ 66,640,806 $ 65,745,280
Net charge-offs (recoveries) to average loans
outstanding 0.03% 0.31%
Allowance for loan losses:
to total loans 1.97% 1.87%
to nonperforming loans 89.48% 248.47%
to nonperforming assets 89.48% 248.47%
Management considers a loan to be impaired when, based upon available
information and current events, it believes that it is probable the Company
will be unable to collect all amounts due on a timely basis in accordance
with the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's market price, or the fair value of the
collateral if the loan is collateral dependent. Impairment is recognized by
the establishment of a valuation allowance equal to the excess of the
Company's recorded investment in the loan over its measured value.
The Company had $1,433,121 in impaired loans as of March 31, 2000. The
general allowance for loan losses related to impaired loans at March 31, 2000
was $229,599. The average recorded investment in impaired loans during the
three months ended March 31, 2000 was approximately $1,431,000. Total cash
collected on impaired loans during the three months ended March 31, 2000 was
$21,384 of which $13,338 was credited to the principal balance outstanding on
such loans and $8,046 was recognized as interest income. Interest income that
would have been recognized on impaired loans if they had performed in
accordance with the terms of the loans was approximately $25,000 for the
quarter ended March 31, 2000.
13
Investment Securities
The following table sets forth the amortized cost and fair value of securities
available-for-sale as of March 31, 2000 and December 31, 1999:
March 31, 2000
----------------------------------------------------------------
Amortized Estimated
cost Gains Losses fair value
-------------- ------------ -------------- -----------------
U.S. Treasury securities $ 498,344 $ - $ 1,779 $ 496,565
Obligations of other U.S.
Government agencies
and corporations 26,361,159 - 1,113,681 25,247,478
Mortgage-backed securities 2,007,513 - 19,387 1,988,126
Obligations of state and
political subdivisions 1,808,815 606 31,805 1,777,616
Corporate bonds 4,036,046 - 292,871 3,743,175
============== ============ ============== =================
$ 34,711,877 $ 606 $ 1,459,523 $ 33,252,960
============== ============ ============== =================
December 31, 1999
-----------------------------------------------------------------
Amortized Estimated
cost Gains Losses fair value
--------------- ------------- ------------- ------------------
U.S. Treasury securities $ 497,853 $ - $ 508 $ 497,345
Obligations of other U.S.
Government agencies
and corporations 26,406,357 - 1,034,314 25,372,043
Mortgage-backed securities 2,103,941 - 13,884 2,090,057
Obligations of state and
political subdivisions 1,808,300 494 25,748 1,783,046
Corporate bonds 4,037,237 - 264,227 3,773,010
--------------- ------------- ------------- ------------------
$ 34,853,688 $ 494 $ 1,338,681 $ 33,515,501
=============== ============= ============= ==================
The amortized cost and fair value of securities held-to-maturity as of March 31,
2000 and December 31, 1999 are as follows:
14
March 31, 2000
--------------------------------------------------------------------
Amortized Estimated
cost Gains Losses fair value
--------------- ------------- --------------- -------------------
Obligations of other U.S.
Government agencies
and corporations $2,000,000 $0 $59,830 $ 1,940,170
Mortgage-backed securities 664,921 754 10,890 $ 654,785
Obligations of state and -
political subdivisions 823,851 13,484 15,277 $ 822,058
--------------- ------------- --------------- -------------------
$ 3,488,772 $ 14,238 $ 85,997 $ 3,417,013
=============== ============= =============== ===================
December 31, 1999
----------------------------------------------------------------
Amortized Estimated
cost Gains Losses fair value
--------------- ------------- ------------ ------------------
Obligations of other U.S.
Government agencies
and corporations $ 2,000,000 $ - $ 71,771 $ 1,928,229
Mortgage-backed securities 680,124 2,666 2,629 680,161
Obligations of state and
political subdivisions 823,802 14,133 16,860 821,075
--------------- ------------- ------------ ------------------
$ 3,503,926 $ 16,799 $ 91,260 $ 3,429,465
=============== ============= ============ ==================
During the three months ended March 31, 2000, and the year ended December 31,
1999, there were no sales of available-for-sale securities.
Deposits
Total deposits at March 31, 2000 were $100,278,080, a decrease of $1,386,224,
or 1.4%, from $101,664,304 at December 31, 1999. The Company attracts
deposits primarily from individuals and businesses within the Company's
primary service area in the Southern California communities of Norwalk,
Artesia, Huntington Park and Glendale. The Company has no brokered deposits
and the Company's practice is to not purchase brokered deposits.
The following table sets forth the amount of deposits by category and the
percentage of each category to all deposits as of March 31, 2000 and December
31, 1999:
15
March 31, 2000 December 31, 1999
------------------------------ ------------------------------
Amount % of Total Amount % of Total
---------------- ------------ ----------------- -----------
Checking noninterest $ 33,978,995 33.88% $ 35,789,486 35.20%
Checking interest-bearing and savings 25,053,827 24.98% 23,497,164 23.11%
Money market accounts 12,746,097 12.71% 11,248,567 11.06%
Time certificates of deposit under $100,000 13,373,397 13.34% 13,363,696 13.14%
Time certificates of deposit $100,000 and over 15,125,764 15.08% 17,765,391 17.47%
---------------- ------------ ----------------- -----------
$ 100,278,080 100.00% $101,664,304 100.00%
================ ============ ================= ===========
Capital
The Federal Reserve Bank (the "FRB"), the Company's primary regulator, has
established minimum leverage ratio guidelines. For institutions which have
received the highest composite regulatory rating and which are not experiencing
or anticipating significant growth are required to maintain a minimum leverage
ratio of 3% Tier 1 capital to total assets. All other institutions are required
to maintain a minimum leverage capital ratio of at least 100 to 200 basis points
above the 3% minimum requirements.
Risk-based capital standards were implemented on December 31, 1992. Since
December 31, 1992, banking organizations have been expected to meet minimum
ratio for qualifying total capital to risk-weighted assets of 8.0%, 4.0% of
which must be Tier 1 capital. A banking organization's risk-based capital
ratios are obtained by dividing its qualifying capital by its total
risk-adjusted assets and risk-weighted off-balance sheet items.
The Federal Deposit Insurance Act of 1991 contains "prompt corrective action"
provisions pursuant to which insured depository institutions are to be
classified into one of five categories based primarily upon capital adequacy,
ranging from "well-capitalized" to "critically undercapitalized" and which
require, subject to certain exceptions, the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "undercapitalized" and to take additional actions if the institution
becomes "significantly undercapitalized" or critically undercapitalized."
The following table presents the capital ratios for the Company and the Bank,
compared with the standards for "well-capitalized" depository institutions
(which standards do not apply to bank holding companies) and the minimum
required capital ratios to be deemed "adequately capitalized" under
applicable federal regulations, as of March 31, 2000.
16
For Capital
Actual Adequacy Purposes
------------------------------- ---------------------------
(dollars in thousands) Amount Ratio Amount Ratio
------------ ----------------- ------------ ------------
Company
Leverage $ 11,088 8.81% $ 5,033 4.00%
Tier 1 risk-based 11,088 13.29% 3,326 4.00%
Total risk-based 12,130 14.54% 6,652 8.00%
Bank
Leverage $ 11,023 8.76% $ 5,032 4.00%
Tier 1 risk-based 11,023 13.26% 3,324 4.00%
Total risk-based 12,065 14.52% 6,649 8.00%
As indicated in the above table, the Company and the Bank have exceeded all
applicable regulatory capital guidelines at March 31, 2000. Cerritos Valley's
management believes that, under the current regulations, Cerritos Valley Bank
will continue to meet its minimum capital requirements in the foreseeable
future.
Management of the Company is not aware of any trends, events, uncertainties
or recommendations by regulatory authorities that will have or that are
reasonably likely to have a material effect on the capital resources,
liquidity or operations of the Company.
Liquidity
The Company's primary source of liquidity is dividends from the Bank.
Dividends from the Bank to the Company are subject to the restrictions set
forth in the California Financial Code. The California Financial Code
provides that a bank may not make a cash distribution to its shareholder in
an amount which exceeds the lesser of (1) the retained earnings or (2) the
net income of the bank for its last three fiscal years, less the amount of
any distributions made by the bank to its shareholders during that period;
however, a bank may, with the approval of the Department of Financial
Institutions, make a distribution to its shareholders in an amount not
exceeding the greatest of:
- - the retained earnings of the bank,
- - the net income of the bank for its last fiscal year, or
- - the net income of the bank for its current fiscal year.
If the Commissioner of the Department of Financial Institutions finds that
the shareholders' equity of a bank is not adequate or that the payment of a
dividend would be unsafe or unsound for the bank, the Commissioner of the
Department of Financial Institutions may order the bank not to a pay dividend
to the shareholders. In addition, Cerritos Valley Bank as a state-chartered
bank is also subject to dividend restrictions set forth by the FDIC.
17
The Bank's primary sources of liquidity are federal funds sold to other
banks, the investment securities portfolio and borrowing capacity from the
Federal Home Loan Bank. For the three months ended March 31, 2000, federal
funds sold averaged $5,007,197 compared to $8,402,433 for the three months
ended March 31, 1999, a decrease of 40.4%. In addition, securities in the
available-for-sale portfolio can be sold in response to liquidity needs or
used as collateral for advances from the Federal Home Loan Bank. Securities
held-to-maturity are available for liquidity needs primarily as collateral.
The fair value of securities available-for-sale and held-to-maturity at March
31, 2000 were $33,252,959 and $3,417,013, respectively.
Results of Operations
The Company reported consolidated net earnings of $328,798 for the first
quarter of 2000, compared with net earnings of $351,778 for the first quarter
of 1999. Basic earnings per share for the first quarter of 2000 were $0.33
per share compared to $0.35 for the same quarter of 1999. Diluted earnings
per share were $0.29 per share for the first quarter 2000 as compared to
$0.32 for the same period in 1999.
Net Interest Income
The Company's earnings depend primarily on net interest income, which is the
difference between the interest and fees earned on loans and investments less
the interest paid on deposits and borrowings. For the quarter ended March 31,
2000, net interest income decreased 1.8% or $26,616 to $1,474,025 from
$1,500,641 for the same period in 1999. The decrease in net income for the
first quarter ended March 31, 2000 as compared to the same period in 1999, is
primarily the result of a 3.5% or $4,093,000 decrease average
interest-earning assets outstanding during the quarter. For the three months
ended March 31, 2000 average interest-earning assets declined to $109,850,000
as compared to $113,943,000 for the same period in 1999. For the three months
ended March 31, 2000, the net interest margin was 5.36%, compared to 5.26%
for the same respective period in 1999. The 3.6% decline in average
interest-earning assets was offset by a .06% increase in interest yield on
average interest-earning assets. Total average interest-earning assets
yielded 8.10% for the first quarter 2000 compared to 8.04% for the first
quarter 1999.
The following tables present the distribution of average assets, liabilities
and shareholders' equity as well as the total dollar amount of interest
income from average interest-earning assets and resultant yields, and the
dollar amounts of interest expense and average interest-bearing liabilities,
expressed both in dollars and rates for the three months ended March 31, 2000
and 1999:
18
Three months ended Three months ended
March 31, 2000 March 31, 1999
---------------------------------------- ----------------------------------------
Average Yield/ Average Yield/
(dollars in thousands) Balance Rate Interest Balance Rate Interest
----------- ------------ ------------ ------------ ------------ ------------
Assets
Interest-earning assets:
Securities $ 38,280 5.96% $ 567 $ 40,818 5.58% $ 560
Loans 66,563 9.52% 1,575 64,628 10.04% 1,601
Federal funds sold 5,007 5.52% 69 8,402 4.61% 96
Interest-earning deposits - 0.00% - 95 2.13% 1
-----------------------------------------------------------------------------------
Total interest-earning assets 109,850 8.10% 2,211 113,943 8.04% 2,258
-----------------------------------------------------------------------------------
Deferred loan fees (88) (94)
Allowance for loan losses (1,281) (1,253)
Noninterest-earning assets
Cash and due from banks 10,440 8,701
Premises and equipment 1,721 1,899
Other assets 5,172 3,948
----------- ------------
Total assets $ 125,814 $ 127,144
=========== ============
Liabilities and Shareholders' Equity
Interest-bearing liabilities
Interest-bearing demand deposits $12,133 1.49% 45 $11,429 1.46% 41
Savings and money market deposits 24,492 2.72% 165 22,317 2.59% 143
Time deposits under $100,000 14,466 4.16% 150 13,808 4.67% 159
Time deposits over $100,000 14,928 5.29% 197 19,096 4.81% 226
Othr borrowings - FHLB 11,963 5.60% 167 12,640 5.72% 178
Capital lease & TT&L & Other 636 8.91% 14 544 7.97% 11
-----------------------------------------------------------------------------------
78,618 3.77% 738 79,834 3.85% 758
-----------------------------------------------------------------------------------
Noninterest-bearing liabilities
Noninterest-bearing demand
deposits 34,908 32,982
Other liabilites 2,262 1,845
Shareholders' equity 10,026 12,484
----------- ------------
Total liabilities and
shareholders' equity $125,814 $127,145
=========== ============
5.36% $1,473 5.26% $1,500
------------ ------------ ------------ ------------
The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as
"volume change." It is also affected by changes in yields earned on
interest-earning assets and interest rates paid on interest-bearing deposits and
other borrowed funds, referred to as a "rate change.
Interest income represents interest earned on loans, investment securities and
federal funds sold. Interest income decreased $46,947 to $2,211,279 for the
three months ended March 31, 2000 from $2,258,226 for the same period in 1999.
Interest earned on loans decreased 1.6% or $25,124 to $1,575,388 for the three
months ended March 31, 2000 from $1,600,512 for the same period ended March 31,
1999. Overall, average interest-
19
earning assets decreased approximately $4,093,000 or 3.6%, for the three
months ended March 31, 2000 as compared to the same period in 1999.
Interest expense represents interest paid on deposits and other borrowings.
Interest expense for the three months ended March 31, 2000 was $737,254
compared to $757,585 for the same period in 1999, a decrease of 2.8%. The
decrease in interest expense for the three months ended March 31, 2000, is
primarily related to a decrease in interest-bearing deposits and borrowings
from the Federal Home Loan Bank. Interest-bearing deposit expense decreased
from $568,774 for the three months ended March 31, 1999 to $556,472 for the
same period in 2000. Federal Home Loan Bank borrowings averaged $11,963,000
for the three months ended March 31, 2000 compared to $12,640,000 for the
same period in 1999, a decrease of 5.4%.
Provision for Loan Losses
The provision for loan losses is determined by management based upon the
Company's loan loss experience, the performance of loans in the Company's
portfolio, the quality of loans in the Company's portfolio, the evaluation of
collateral for such loans, the economic conditions affecting collectibility
of loans, the prospects and financial condition of the respective borrowers
or guarantors and other such factors which in management's judgment deserve
recognition in the estimation of probable loan losses. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance or to take
charge-offs (reductions in the allowance) in anticipation of losses.
Management allocated $15,000 as a provision for loan losses during the first
three months of 2000 compared to $85,000 for the same period in 1999. The
decrease in the provision for loan losses in 2000 is in response to
management's assessment of the improvement in the loan portfolio. Loans
charged off, net of recoveries, were $17,063 and $177,092 for the first three
months of 2000 and 1999, respectively. The ratio of allowance for loan losses
to total gross loans was 1.97% at March 31, 2000, and 1.79% at March 31, 1999.
In management's opinion, the balance of the allowance for loan losses at
March 31, 2000, was sufficient to sustain any foreseeable losses in the loan
portfolio at that time.
Noninterest Revenue
For the three months ended March 31, 2000, other operating income totaled
$460,443 compared to $383,764 for the same period in 1999. The increase was
primarily related to an increase in service charges on deposit accounts and
other service charge and income.
20
Noninterest Expense
Other operating expenses for the first three months ended March 31, 2000,
increased to $1,396,028 from $1,204,433 for the same period in 1999. The
increase occurred primarily in other operating expenses, which includes
professional expense categories.
The increase in professional expense category is primarily in legal fees and
other professional fees, which increased $160,116 from $611,185 for the three
months ended March 31, 1999 to $771,301 for the same period in 2000. The
increase in legal is primarily due to litigation arising from credit
resolution resulting in a decrease in non-performing assets.
Income Taxes
For the three months ended March 31, 2000, the provision for income taxes was
$194,642 compared to $243,194 for the same period in 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
Market risk is the risk of loss from adverse changes in market prices and
rates. The Bank's market risk arises primarily from interest rates risk
inherent in its loan and deposit functions and management actively monitors
and manages this interest rate risk exposure. The Bank does not have any
market risk sensitive instruments entered into for trading purposes.
Management uses several different tools to monitor its interest rate risk.
One measure of exposure to interest rate risk is gap analysis. A positive gap
for a given period means that the amount of interest-earning assets maturing
or otherwise repricing within such period is greater than the amount of
interest-bearing liabilities maturing or otherwise repricing within the same
period. The Bank has a negative gap measured within the next 12 month period.
From one year and beyond, the negative gap changes to a positive gap. In
addition, the Bank uses interest rate shock analysis to estimate the effect
of certain hypothetical rate changes on income and capital on a present value
basis. The Bank uses an internal reference rate index to price its loans.
This reference rate is not automatically adjusted when the Wall Street prime
rate is lowered. As a result, the Bank does not pay any broker to obtain
deposits and therefore is able to price its deposit below competitive prices.
Based upon the Bank's shock analysis, net interest income is expected to rise
with increasing rates and fall with declining rates.
The Bank's positive gap after one year is the result of the majority of
investments having terms greater than one year on the asset side. Also,
approximately 48.1%of its loan portfolio reprices and matures over a one year
period. On the liability side, the majority of the Bank's time deposits have
an average term life of less than 1 year while savings accounts, NOW accounts
and money market accounts are recorded for gap analysis in the next day to
three month category because they do not have a contractual maturity date.
The borrowings from the Federal Home Loan Bank have an average term life
greater than three years.
21
Taking into consideration that savings accounts and other interest-bearing
transaction accounts typically do not react immediately to changes in
interest rates, management has taken the following steps to manage its
positive interest rate gap. The Bank uses an internal reference rate for
pricing loans, which changes at a slower rate than prime. For fixed term
loans, The Bank uses Federal Home Loan Bank advances to match the funding of
the loans in order to protect the spread over the life of the loan. Also, the
Bank holds the majority of its investments in the available-for-sale category
in order to be able to react to changes in interest rates.
The following table sets forth the distribution of repricing opportunities of
the Bank's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap, i.e. interest rate sensitive assets less
interest rate sensitive liabilities, the cumulative interest rate sensitivity
gap and the cumulative gap as a percentage of total interest-earning assets
as of March 31, 2000. The table also sets forth the time periods within which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are
not necessarily constant. The table should be used only as a guide as to the
possible effect changes in interest rates might have on the net margins of
the Company.
Next Day Through One Year Over
to Three Twelve Through Five
(dollars in thousands) Months Months Five Years Years Total
------------ ------------- ------------ ------------ -------------
ASSETS:
Federal funds sold $ 5,365 $ - $ - $ - $ 5,365
Taxable investment securities 1,711 2,035 23,110 7,535 34,391
Nontaxable investment securities - 100 981 1,270 2,351
Loans (1) 30,496 1,469 11,212 20,166 63,343
------------ ------------- ------------ ------------ -------------
Total interest-earning assets 37,572 3,604 35,303 28,971 105,450
------------ ------------- ------------ ------------ -------------
LIABILITIES:
Savings deposits (2) 35,764 - - - 35,764
Time deposits 14,342 15,481 713 - 30,536
Other borrowed funds 652 1,000 4,678 6,459 12,789
------------ ------------- ------------ ------------ -------------
Total interest-bearing deposits 50,758 16,481 5,391 6,459 79,089
------------ ------------- ------------ ------------ -------------
Net (interest-bearing liabilities)
interest-earning assets $ (13,186) $ (12,877) $ 29,912 $ 22,512 $ 26,361
============ ============= ============ ============ =============
Cumulative net (interest-bearing liabilities)
interest-earning assets (GAP) $ (13,186) $ (26,063) $ 17,035 $ 52,424 $ 48,873
============ ============= ============ ============ =============
Cumulative GAP as a percent of total
interest-earning assets -35.10% -723.17% 48.25% 180.95% 46.35%
------------ ------------- ------------ ------------ -------------
(1) Gross loans net of nonaccrual.
(2) Savings deposits include interest-bearing transaction accounts.
22
PART 11. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not subject to any legal proceedings. From time to time, the
Bank is a party to claims and legal proceedings arising in the ordinary
course of business. The Company's management is not aware of any material
pending litigation proceedings to which either it or the Bank is a party or
has recently been a party, which will have a material adverse effect on the
financial condition or results of operations of the Company or the Bank,
taken as a whole.
Item 2. Changes in Securities and use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
23
Item 6. Exhibits to Consolidated Financial Statement Schedules and INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(a)
1. Financial Statements.
See Part I Item I of this document for Financial Statements and
Supplementary Data.
2. None, except Financial Data Schedule as Exhibit 27 of this document.
3. Exhibits
3.1 Articles of Incorporation as amended of Registrant is contained as
Exhibit 3.1 within the Company's S-4 filing dated May 24, 1999, file number
333-79193, and is hereby incorporated by reference herein.
3.2 By Laws as amended of Registrant is contained as Exhibit 3.2 within the
Company's S-4 filing dated May 24, 1999, file number 333-79193, and is
hereby incorporated by reference herein.
4.1 Specimen stock certificate of Registrant is contained as Exhibit 4.1
within the Company's S-4 filing dated May 24, 1999, file number 333-79193,
and is hereby incorporated by reference herein.
10.2 Stock Purchase Amendment Agreement for James N. Koury is contained as
exhibit 10.2 within the Company's S-4 filing dated May 24, 1999, file
number 333-79193, and is hereby incorporated by reference herein.
10.3 Cerritos Valley Bank Deferred Compensation Agreement for James N.
Koury is contained as Exhibit 10.3 within the Company's S-4 filing dated
May 24, 1999, file number 333-79193, and is hereby incorporated by
reference herein.
10.4 Amendment to Cerritos Valley Bank Deferred Compensation Agreement for
James N. Koury is contained as Exhibit 10.4 within the Company's S-4 filing
dated May 24, 1999, file number 333-79193, and is hereby incorporated by
reference herein.
10.5 Cerritos Valley Bancorp 1993 Stock Option Plan is contained as
Exhibit 10.5 within the Company's S-4 filing dated May 24, 1999, file
number 333-79193, and is hereby incorporated by reference herein.
10.6 Cerritos Valley Bancorp 1993 Stock Option Plan and form of incentive
stock option and nonqualified stock option agreement is contained as
Exhibit 10.6 within the Company's S-4 filing dated May 24, 1999, file
number 333-79193, and is hereby incorporated by reference herein.
24
10.7 Form of indemnification agreement is contained as Exhibit 10.7 within
the Company's S-4 filing dated May 24, 1999, file number 333-79193, and is
hereby incorporated by reference herein.
10.8 Directors Agreement form for directors of Registrant is contained as
Exhibit 10.8 within the Company's S-4 filing dated May 24, 1999, file
number 333-79193, and is hereby incorporated by reference herein.
11. Statement re: computation of per share earnings is included in Part I
Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Registration Statement
21. Sole Subsidiary of the Registrant is Cerritos Valley Bank, a California
state-chartered banking corporation.
(b)
Reports on Form 8K. None filed during the reporting period, 1st quarter 2000..
(c)
Financial Data Schedule as Exhibit 27 of this document.
(d)
Financial Data Schedule as Exhibit 27 of this document
25
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.
CERRITOS VALLEY BANCORP
/s/ James N. Koury
-----------------------------
James N. Koury, Chief Executive Officer and President
Dated May 19, 2000
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
26
/s/ Paula-Rose Wihongi
-----------------------------
Paula-Rose Wihongi, Principal Financial Officer
and Principal Accounting Officer
Dated May 19, 2000
---------------------------
27