FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly 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 0-26552
CALIFORNIA INDEPENDENT BANCORP
------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0349947
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
1005 STAFFORD WAY, YUBA CITY, CALIFORNIA 95991
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(916) 674-4444
(Registrant's telephone number, including area code)
N/A
(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 requirements for the past 90 days.
Yes X No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1996
----- -------------
Common stock, no par value 1,451,278 Shares
This report contains a total of 16 pages
---------
PART I- FINANCIAL INFORMATION
ITEM 1 PAGE
CALIFORNIA INDEPENDENT BANCORP AND
SUBSIDIARIES FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS 4
CONSOLIDATED STATEMENTS OF INCOME FOR SIX MONTHS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL 8-15
CONDITION AND RESULTS OF OPERATIONS
PART II- OTHER INFORMATION
ITEM 3
SIGNATURES 16
2
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30 DECEMBER 31,
1996 1995
---------- ----------
ASSETS
Cash and due from banks $ 16,243 $ 17,963
Federal funds sold 4,700 30,000
---------- ----------
Total Cash and Equivalents 20,943 47,963
Investment securities:
Available-for-sale securities, at fair value 5,693 5,890
Held-to-maturity securities, at amortized cost
(fair value of $17,370 and $22,132 respectively) 17,102 21,538
Loans:
Commercial 92,433 74,355
Consumer 3,188 2,815
Real Estate-mortgage 26,088 28,288
Real Estate-construction 21,380 18,048
Other 21,302 4,738
---------- ----------
Total loans 164,391 128,244
Less allowance for possible loan losses (4,026) (3,911)
---------- ----------
Net Loans 160,365 124,333
Premises and equipment, net 6,855 6,394
Accrued interest receivable and other assets 7,009 8,458
---------- ----------
13,864 14,852
TOTAL ASSETS $ 217,967 $ 214,576
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $ 40,520 $ 43,827
Demand, interest bearing 27,174 27,315
Savings and Money Market 61,851 61,291
Time certificates 65,929 60,863
---------- ----------
Total deposits 195,474 193,296
Accrued interest payable and other liabilities 2,405 2,405
---------- ----------
TOTAL LIABILITIES 197,879 195,701
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized;
1,451,278 and 1,446,888 shares issued and outstanding at
June 30, 1996 and at December 31, 1995, respectively 8,217 8,163
Retained earnings 11,943 10,687
Net unrealized gains (losses) on available-for-sale securities (72) 25
---------- ----------
Total shareholders' equity 20,088 18,875
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 217,967 $ 214,576
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements
3
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------------------------
Interest income:
Interest and fees on loans $ 4,190 $ 4,118
Interest on investment securities 415 577
Interest on federal funds sold 262 78
---------------- ----------------
Total interest income 4,867 4,773
---------------- ----------------
Interest expense:
Demand, interest bearing 248 239
Savings 601 582
Time certificates 889 728
Other 5 5
---------------- ----------------
Total interest expense 1,743 1,554
---------------- ----------------
Net interest income 3,124 3,219
Provision for possible loan losses (40) (255)
---------------- ----------------
Net interest income after provision for possible loan losses 3,084 2,964
---------------- ----------------
Other income:
Service charges 275 220
Net gain (loss on securities transactions) - -
Other 315 202
---------------- ----------------
Total other income 590 422
---------------- ----------------
Other expenses:
Salaries and benefits 1,177 1,113
Occupancy 137 143
Equipment 256 196
Other operating expenses 791 765
---------------- ----------------
Total other expenses 2,361 2,217
Earnings before income taxes 1,313 1,169
Income taxes 526 462
Net Income $ 787 $ 707
---------------- ----------------
---------------- ----------------
Primary earnings per share $ 0.54 $ 0.52
---------------- ----------------
---------------- ----------------
Weighted average shares outstanding 1,451,278 1,361,879
---------------- ----------------
---------------- ----------------
Fully Diluted:
Earnings per share $ 0.47 $ 0.44
---------------- ----------------
Weighted average shares outstanding 1,690,960 1,591,755
---------------- ----------------
Cash dividend paid per share of common stock $ 0.11 $ 0.11
---------------- ----------------
See accompanying notes to consolidated financial statements
4
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------------------------
Interest income:
Interest and fees on loans $ 7,948 $ 7,827
Interest on investment securities 921 1,104
Interest on federal funds sold 821 221
---------------- -----------------
Total interest income 9,690 9,152
---------------- -----------------
Interest expense:
Demand, interest bearing 495 463
Savings 1,203 1,135
Time certificates 1,779 1,341
Other 12 9
---------------- -----------------
Total interest expense 3,489 2,948
---------------- -----------------
Net interest income 6,201 6,204
Provision for possible loan losses (100) (500)
---------------- -----------------
Net interest income after provision for possible loan losses 6,101 5,704
---------------- -----------------
Other income:
Service charges 483 422
Net gain (loss on securities transactions) 4 (13)
Other 741 370
---------------- -----------------
Total other income 1,228 779
---------------- -----------------
Other expenses:
Salaries and benefits 2,422 2,140
Occupancy 278 272
Equipment 466 380
Advertising and promotion 214 147
Other operating expenses 1,327 1,365
---------------- -----------------
Total other expenses 4,707 4,304
Earnings before income taxes 2,622 2,179
Income taxes 1,048 858
---------------- -----------------
Net Income $ 1,574 $ 1,321
---------------- -----------------
---------------- -----------------
Primary earnings per share $ 1.08 $ 0.97
---------------- -----------------
---------------- -----------------
Weighted average shares outstanding 1,451,278 1,361,841
---------------- -----------------
---------------- -----------------
Fully Diluted:
Earnings per share $ 0.94 $ 0.83
---------------- -----------------
Weighted average shares outstanding 1,673,398 1,590,646
---------------- -----------------
Cash dividend paid per share of common stock $ 0.22 $ 0.22
---------------- -----------------
See accompanying notes to consolidated financial statements
5
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
(IN THOUSANDS)
JUNE 30 JUNE 30
1996 1995
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,574 $ 1,321
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 371 341
Provision for possible loan losses 100 500
Provision for deferred taxes (1,079) (1,014)
(Increase) decrease in assets-
Interest receivable (1,664) (1,416)
Other assets 3,226 524
Increase (decrease) in liabilities-
Interest payable (243) 392
Other liabilities 242 2,563
--------------- ---------------
Net cash provided by operating activities 2,527 3,211
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (35,937) (10,422)
Purchase of investments (2,028) (11,602)
Proceeds from Maturity of HTM Securities 4,495 6,852
Proceeds from Maturities/Calls of AFS Securities 2,166 3,690
Proceeds from sales of other real estate owned 0 (332)
Purchases of premises and equipment (156) (295)
--------------- ---------------
Net cash used for investing activities (31,460) (12,109)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest bearing deposits (3,307) (9,107)
Net increase in interest bearing deposits 5,484 6,045
Cash dividends (318) (450)
Stock options exercised 54 7
Cash paid in lieu of fractional shares 0 0
--------------- ---------------
Net cash provided by financing activities 1,913 (3,505)
NET INCREASE(DECREASE) (27,020) (12,403)
--------------- ---------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,963 22,579
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 20,943 10,176
--------------- ---------------
--------------- ---------------
See accompanying notes to consolidated financial statements
6
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the Company, the unaudited consolidated financial
statements, prepared on the accrual basis of accounting, contain all
adjustments ( consisting of only normal recurring adjustments) which
are necessary to present fairly the financial position of the Company
and subsidiaries at June 30, 1996 and December 31, 1995 and the
results of its operations for the periods ended June 30, 1996 and
1995.
Certain information and footnote disclosures normally presented in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations
for the period ended June 30, 1996 are not necessarily indicative of
the operating results for the full year ending December 31, 1996.
NOTE 2 - CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary Feather River State Bank. All
material intercompany accounts and transactions have been eliminated
in consolidation.
NOTE 3 - LOANS TO DIRECTORS
In the ordinary course of business, the Company makes loans to
directors of the company, which on June 30, 1996 amounted to a total
of approximately $5,987,228.
NOTE 4 - 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.
NOTE 5 - NET INCOME PER SHARE
Net Income per share is computed using the weighted average number of
shares of common stock outstanding ( as adjusted retroactively to
reflect the 5% stock dividend paid on July 14, 1995).
NOTE 6 - CASH DIVIDENDS
The Bancorp paid an eleven cents per share dividend in February 1996
and May 1996.
7
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF CHANGES IN THE FINANCIAL STATEMENTS
Net income for the six months ended June 30, 1996 was $1,574,000 or $1.08 per
share compared to $1,321,000 or $0.97 per share during the same period in 1995,
representing an increase in net income of 19.2%.
These increases in net income are due mainly to a combination of an increase in
net interest margin which resulted from rising interest rates in which the
Company's earning assets have repriced faster than its deposits, and an increase
in net loans outstanding. In addition the Company had a substantial decrease in
the allocation for loan loss reserves and an increase in Other Operating Income.
The increase in Other Operating Income was primarily due to an increase in Real
Estate Brokered Loan Fees.
Outstanding net loans were $160,365,000, on June 30, 1996 compared to
$124,333,000 at December 31, 1995 an increase of $36,032,000 or 29.0%.
The Company's investment portfolio at June 30, 1996 was $22,795,000 or 10.5% of
total assets, a decline from $27,428,000 or 12.78% at December 31, 1995 as the
Company recognized a substantial increase in loans therefore shifting assets
from investments to loans. At June 30, 1996 Federal Funds Sold were $4,700,000
as compared to $30,000,000 at December 31, 1995, reflecting a shift of funds
to loans as described above.
The total deposits of June 30, 1996 were $195,474,000, compared to $193,296,000
at December 31, 1995. During the first half of 1996 demand deposits decreased
from $43,827,000 at December 31, 1995 to $40,520,000 at June 30, 1996. The
Company attributes this decrease of $3,307,000 or 7.5% in demand deposits to
depositors shifting their funds into interest bearing deposits with the
institution.
The total loan to deposit ratio was at 84.1% at June 30, 1996, compared to 66.3%
at December 31, 1995. This increase is the result of normal lending cycles of
agricultural loans, real estate loans and the purchase of leases.
LOANS
Outstanding total loans at June 30, 1996 were $164,391,000, an increase of
$36,147,000 or 28.2% over year end 1995.
This increase primarily represents the purchase of $15,000,000 in leases from
other financial institutions. A majority of the leases are structured in pools
of approximately $1,000,000. Each pool contains approximately 40 to 60
commercial and industrial equipment leases (average individual lease size is
about $20,000). To mitigate risk, the leases are diversified by size, industry,
type of equipment and location. The Financial institutions are volume producers
of equipment leases and structures similar transactions with a number of
California independent banks.
In addition to the purchase of the leases there has been an increase in both
Loans to farmers and Real Estate construction loans. Real Estate construction
loans were $21,380,000 at June 30, 1996 an increase of
8
$3,332,000 or 18.5% over December 31, 1995. Commercial Loans increased
$18,078,000 or 24.3% between the periods of December 31, 1995 and June 30,
1996.
Loans to farmers are reported under "Commercial Loans" in the consolidated
balance sheet, and these loans traditionally have peak outstandings at harvest
time in July of each year, followed by a low point in outstanding balances
around November-December.
Real Estate construction loans generally increase substantially in the spring
and summer months as the weather and the buyers market improves each year.
The company lends primarily to small and medium sized businesses, farmers and
consumers within its market area, which is comprised principally of Sutter,
Yuba, Colusa, Yolo, Butte and Sacramento counties in the northern end of the
Central Valley of California.
During the first quarter of 1996 the Company elected to close the SBA loan
production center. The decision to close this office was a result of the
competition from major SBA lenders who had preferred lender status. This status
allowed the competition to approve loans without going directly to SBA, while
Feather River State Bank as a certified lender had to submit all loans for
approval to SBA. The delay in the approval process resulted in losing many
loans to the competition.
LOAN QUALITY
The Company places loans on nonaccrual status when they are 90 days past due as
to interest and principal, unless the loan is well secured and in the process of
collection.
The following table summarizes the composition of non-performing loans as of
June 30, 1996, December 31, 1995 and June 30, 1995.
June 30 December June 30
31
1996 1995 1995
-----------------------------------------
Accruing loans past due
90 days or more
Commerical $ 161 $ 18 $ 60
Consumer - - -
Real Estate - - 368
Leases 35 42 0
-----------------------------------------
Total $ 196 $ 60 $ 428
-----------------------------------------
Nonaccrual loans
Commercial 990 137 903
Consumer - - -
Real Estate 79 156 252
-----------------------------------------
Total 1,069 293 1,155
-----------------------------------------
Total Nonperforming
Loans $ 1,265 $ 353 $ 1,583
-----------------------------------------
-----------------------------------------
9
During the first half of 1996, nonaccrual loans increased substantially compared
to December 31, 1995 due to the transfer to two large agricultural credit
relationships to nonaccrual status. Both of these loans were to valley farmers
who suffered significant farming losses due to adverse weather and other
conditions. The Bank has been in the process of negotiating liquidation's on
both accounts. Based upon the value of the remaining collateral, it appears
that one of the loan relationships will be fully paid off by January 1, 1997 and
the other should be significantly reduced by July 1, 1996. Some loss exposure
exists on both accounts. However, management feels that this can be minimized
through prudent collection activity.
In addition to the above, the Company holds Real Estate properties as "Other
Real Estate Owned" (OREO) recorded at $1,121,000 at June 30, 1996. In all cases
the amount recorded on the books is the lesser of the loan balance or the fair
market value obtained from a current appraisal. Therefore any identified losses
have already been recognized.
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan extended
and the creditworthiness of the borrower. To reflect the estimated risks of
loss associated with its loan portfolio, provisions are made to the Bank's
allowance for possible loan losses. As an integral part of this process, the
allowance for possible loan losses is subject to review and possible adjustment
as a result of regulatory examinations conducted by governmental agencies and
through Management's assessment of risk.
The Bank uses the allowance method in providing for possible loan losses. Loan
losses are charged to the allowance for possible loan losses and recoveries are
credited to it.
Management believes that the total allowance for loan losses is adequate and
continues to be maintained at a level above the Bank's peer group. While
Management uses available information to provide for loan losses, future
additions to the allowance may be necessary based on changes in economic
conditions.
The allowance for loan losses at June 30, 1996 was $4,026,000 an increase from
$3,911,000 at year-end 1995, and is equal to 2.45% of the Bank's outstanding
loans at June 30, 1996.
Additions to the allowance for loan losses are made by provisions for possible
loan losses. The provision for possible loan losses is charged to operating
expense and is based upon past loan loss experience and estimates of potential
losses which, in Management's judgment, deserve current recognition. Other
factors considered by Management include growth, composition and overall quality
of the loan portfolio, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Actual losses may
vary from current estimates. The estimates are reviewed periodically, and
adjustments, as necessary, are charged to operations in the period in which they
become known.
For the six months ended June 30, 1996, the Bank charged-off $45,110 and
recovered $59,600. The majority of the charge-offs were in connection with one
agricultural loan in which the Bank accepted a discounted payoff.
10
RESULTS OF OPERATIONS
---------------------
Three and Six months ended June 30, 1996
compared with
Three and Six months ended June 30, 1995
Net income for the three months ended June 30, 1996 was $787,000 as compared to
the June 30, 1995 figure of $707,000 an increase of 11.3%. Net income for the
six months ended June 30, 1996 was $1,574,000 as compared to the June 30,1995
figure of $1,321,000 an increase of 19.2%.
The increase in net income for the three and six month period ended June 30,
1996 was largely due to a decrease in the provisions for loan losses of
$215,000 or 84.3% for the three month period and $400,000 or 80.0% for the six
month period. The substantial decrease is a result of management's strategy to
bring the total loan loss reserves up to a level equal to 3% of total loans
outstanding. This goal was met by year end 1995, therefore the allocation was
decreased beginning with the first quarter of 1996.
For the three month period ending June 30, 1996 recoveries to the Provision for
Loan Losses were $28,467 and charge-offs were $2,000. Recoveries exceeded
Charge-offs by $15,000 and Charge-offs exceeded Recoveries by $79,000 for the
six month periods ended June 30, 1996 and 1995 respectively.
In addition the Company's other income increased by $168,000 during the
three month period ending June 30, 1996 and $449,000 during the first half of
1996 as compared to the same periods of 1995. This increase primarily is the
result of an increase in Real Estate Brokered Loan fees which were $219,790
at June 30, 1996 as compared to $65,470 in June 1995, an increase of
$154,320. In addition the Company recognized a gain of $60,000 and $81,000
on the sale of SBA loans during the three and six month periods ending June
30, 1996. The increases in income were partially offset by an increase of
$189,000 and $541,000 in interest expense for the three and six month periods
of 1996 over 1995. The increase in interest expense is the result in a
shift of funds by customers from non-interest bearing deposits to interest
bearing deposits and rising interest rates in the second quarter of 1996.
The yield on average earning assets for the three and six month period ended
June 30, 1996 compared to the same periods in 1995 are set forth in the
following table (in thousands except for percentages):
Three months Three months Six months Six months ended
ended ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
Average loans
outstanding $ 149,529 $ 130,476 $ 149,529 $ 130,476
Average yields 11.21% 12.62% 10.63% 12.00%
Amount of interest
& fees earned $ 4,190 $ 4,118 $ 7,949 $ 7,827
Average prime
rate 8.25% 9.00% 8.29% 8.92%
A large portion of the Company's loan portfolio is based upon the Bank's
reference rate, adjusted on a daily basis so that rate changes have an
immediate effect on the loan interest yield. The Bank's reference rate closely
tracks the prime rate.
11
Rates and amounts paid on average deposits, including non-interest bearing
deposits for the three and six month periods ended June 30, 1996 compared to the
same periods in 1995 are set forth in the following table (in thousands except
for percentages):
Three months ended Three months ended Six months ended Six months ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
Average deposits
outstanding $ 191,775 $ 169,924 $ 192,107 $ 170,062
Average rates paid 3.64% 3.66% 3.62% 3.46%
Amount of interest
paid or accrued $ 1,743 $ 1,554 $ 3,477 $ 2,939
The following tables summarize the principal elements of operating expenses and
disclose the increases (decreases) and percent of increases (decreases) for the
three and six months ended June 30,1996 and 1995 (amounts in thousands except
for percentages):
Three months ended June 30 Increase (Decrease)
1996 over 1995
1996 1995 Amount Percentage
Salaries and benefits $ 1,177 $ 1,113 $ 64 5.75%
Occupancy 137 143 (6) (4.20%)
Equipment 256 196 60 30.61%
Advertising and promotion 101 81 20 24.69%
Other operating expenses 690 684 6 0.88%
------------------------------- ----------------------
Total other expenses $ 2,361 $ 2,217 $ 144 6.50%
------------------------------- ----------------------
------------------------------- ----------------------
Six months ended June 30 Increase (Decrease)
1996 over 1995
1996 1995 Amount Percentage
Salaries and benefits $ 2,422 $ 2,140 $ 282 13.18%
Occupancy 278 272 6 2.21%
Equipment 466 380 86 22.63%
Advertising and promotion 214 147 67 45.58%
Other operating expenses 1,327 1,365 (38) (2.78%)
------------------------------- ----------------------
Total other expenses $ 4,707 $ 4,304 $ 403 9.36%
---------------------------------------------------------------------
---------------------------------------------------------------------
12
The increases in salaries and benefits resulted from normal salary increases and
increased staffing for the Chico Loan Production Office. In addition additional
staff has been added to the new office location in Marysville, California. This
office has recognized a substantial increase in deposits due to the announcement
of mergers and closures of two major financial institutions.
The Company employed 148 full time equivalent employees on June 30, 1996,
compared to 140 on December 31, 1995 and 133 on June 30, 1995.
The increase in occupancy and equipment expense over 1995 is attributable to the
purchase and remodeling of a new building for our Marysville branch which opened
in the second quarter of 1996. In addition, the Company purchased Automated
Teller Machines, ATM's, for each of their six branches.
The increase of $20,000 during the three month period ending June 30, 1996 and
$67,000 during the six month period ending June 30, 1996 over 1995 in
advertising and promotion is primarily due to the Company's commitment to
continued advertising in the market area's it serves. The Company had a
substantial decrease in Regulatory Assessments in the first half of 1996 as
compared to the same period in 1995 due to a significant reduction in FDIC
Insurance Assessments.
Applicable income taxes for the three month period ending June 30, 1996 and June
30, 1995 were $526,000 and $462,000 respectively. For the six month period
ended June 30, 1996 and June 30, 1995 income taxes were $1,048,000 and $858,000
respectively, an increase of $190,000 or 22.1% due to increased income.
The Company's effective tax rate for the three month period ending June 30,
1996 and 1995 were 40.06% and 39.52% respectively. For the six months ended
June 30, 1996 and 1995 the tax rates were 39.97% and 39.38% respectively.
LIQUIDITY
During the first quarter of the year the bank tends to have sufficient
liquidity. The Bank's seasonal agricultural loan demand tends to challenge the
Bank's liquidity position beginning with the second quarter and continuing into
the third quarter of each year. The Bank's liquid assets consist of cash and
due from banks, federal funds sold and investment securities with maturities of
one year or less (exclusive of pledged securities). Also, SBA and mortgage
loans are readily marketable and may be available for sale for the Bank's
short-term liquidity needs.
In addition, the Bank has formal and informal borrowing arrangements with the
Federal Reserve Bank and its correspondent bank to meet unforeseen deposit
outflows or loan funding demands. During 1995, the Bank was able to attract
enough deposits so that these lines were not used. As of June 30, 1996 and
December 31, 1995 the bank had no balances outstanding on these lines.
The Bank has also entered into an agreement with Lehman Brothers for a short
term loan secured by U.S. Government and Agency Obligations in the Bank's
investment portfolio, in order to fund any liquidity needs not met by other
sources of funding as warranted by loan demand.
13
CAPITAL RESOURCES
The Company has sustained its growth in capital through profit retention, net of
cash dividends paid out to shareholders.
On June 30, 1996 total shareholders equity has increased by $1,213,000 primarily
via retained earnings, and stood at $20,088,000.
On December 31, 1995 total shareholders equity was $18,875,000.
The Company is subject to capital adequacy guidelines issued by Federal
Regulators. These guidelines are intended to reflect the degree of risk
associated with both on- and off-balance sheet items.
Financial institutions are expected to comply with a minimum ratio of qualifying
total capital to risk-weighted assets of 8%, at least half of which must to be
in Tier 1 Capital.
In addition, federal agencies have adopted a minimum leverage ratio of Tier 1
Capital to total assets of 4% which is intended to supplement risk based capital
requirements and to ensure that all financial institutions continue to maintain
a minimum level of core capital.
As can be seen by the following table, the Company exceeded all regulatory
capital ratios on June 30, 1996 and on December 31, 1995:
RISK BASED CAPITAL RATIO
AS OF JUNE 30, 1996
- ------------------------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
Tier 1 Capital $ 20,088 11.14% $ 19,961 11.07%
Tier 1 Capital minimum
requirement 7,214 4.00% 7,211 4.00%
---------------------------------------------
Excess $ 12,874 7.14% $ 12,750 7.07%
---------------------------------------------
---------------------------------------------
Total Capital 23,269 12.90% 23,142 12.84%
Total Capital minimum
requirement 14,429 8.00% 14,422 8.00%
---------------------------------------------
Excess $ 8,840 4.90% $ 8,720 4.84%
---------------------------------------------
Risk-adjusted assets $180,360 $180,281
--------- ---------
--------- ---------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly
average total assets $ 20,081 9.37% $ 19,947 9.32%
Minimum leverage requirement 8,572 4.00% 8,567 4.00%
---------------------------------------------
Excess $ 11,509 5.37% $ 11,380 5.32%
---------------------------------------------
---------------------------------------------
Total Quarterly average assets $214,309 $214,183
--------- ---------
--------- ---------
14
RISK BASED CAPITAL RATIO
AS OF DECEMBER 31, 1995
- ------------------------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
Tier 1 Capital $ 18,875 11.17% $ 18,753 11.10%
Tier 1 Capital minimum
requirement 6,759 4.00% 6,755 4.00%
----------------------------------------------
Excess $ 12,116 7.17% $ 11,998 7.10%
----------------------------------------------
----------------------------------------------
Total Capital 22,087 13.07% 22,085 13.08%
Total Capital minimum
requirement 13,518 8.00% 13,510 8.00%
----------------------------------------------
Excess $ 8,569 5.07% $ 8,575 5.08%
----------------------------------------------
Risk-adjusted assets $168,969 $168,875
---------- ----------
---------- ----------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly
average total assets $ 18,875 9.00% $ 18,753 8.95%
Minimum leverage requirement 8,385 4.00% 8,380 4.00%
----------------------------------------------
Excess $ 10,490 5.00% $ 10,373 4.95%
----------------------------------------------
----------------------------------------------
Total Quarterly average assets $209,624 $209,496
---------- ----------
---------- ----------
15
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 by the
undersigned thereunto duly authorized.
Date August 6, 1996 /S/
---------------------------- ------------------------------
Robert J. Mulder
President/CEO
Date August 6, 1996 /S/
---------------------------- ------------------------------
Annette Bertolini
Chief Financial Officer
16