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 SEPTEMBER 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
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CALIFORNIA INDEPENDENT BANCORP
------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0349947
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1005 STAFFORD WAY, YUBA CITY, CALIFORNIA 95991
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(Address of principal executive offices)
(Zip Code)
(916) 674-4444
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(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 September 30, 1996
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Common stock, no par value 1,536,696 Shares
This report contains a total of 17 PAGES
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1
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 NINE MONTHS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL 8-16
CONDITION AND RESULTS OF OPERATIONS
PART II- OTHER INFORMATION
ITEM 3
SIGNATURES 17
2
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
Cash and due from banks $ 12,415 $ 17,963
Federal funds sold 27,700 30,000
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Total Cash and Equivalents 40,115 47,963
Investment securities:
Available-for-sale securities, at fair value 5,694 5,890
Held-to-maturity securities, at amortized cost
(fair value of $17,727 and $22,132 respectively) 17,468 21,538
Loans:
Commercial 84,067 74,355
Consumer 2,986 2,815
Real Estate-mortgage 25,794 28,288
Real Estate-construction 25,080 18,048
Other 21,610 4,738
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Total loans 159,537 128,244
Less allowance for possible loan losses (3,838) (3,911)
-------- --------
Net Loans 155,699 124,333
Premises and equipment, net 6,741 6,394
Accrued interest receivable and other assets 6,873 8,458
-------- --------
13,614 14,852
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TOTAL ASSETS $232,590 $214,576
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-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $ 41,931 $ 43,827
Demand, interest bearing 29,684 27,315
Savings and Money Market 62,835 61,291
Time certificates 74,930 60,863
-------- --------
Total deposits 209,380 193,296
Accrued interest payable and other liabilities 2,244 2,405
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TOTAL LIABILITIES 211,624 195,701
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized;
1,536,696 and 1,446,888 shares issued and outstanding at
September 30, 1996 and at December 31, 1995, respectively 8,457 8,163
Retained earnings 12,555 10,687
Net unrealized gains (losses) on available-for-sale securities (46) 25
-------- --------
Total shareholders' equity 20,966 18,875
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $232,590 $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
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------------------------------
Interest income:
Interest and fees on loans $ 4,805 $ 4,335
Interest on investment securities 404 578
Interest on federal funds sold 103 26
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Total interest income 5,312 4,939
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Interest expense:
Demand, interest bearing 280 226
Savings 596 571
Time certificates 993 807
Other 15 47
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Total interest expense 1,884 1,651
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Net interest income 3,428 3,288
Provision for possible loan losses (80) (275)
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Net interest income after provision for possible loan losses 3,348 3,013
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Other income:
Service charges 190 216
Net gain (loss on securities transactions) 1 --
Other 485 454
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Total other income 676 670
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Other expenses:
Salaries and benefits 1,336 1,104
Occupancy 137 161
Equipment 250 196
Advertising and promotion 56 75
Stationary and supplies 54 48
Legal and professional fees 83 42
Regulatory assessments 2 (10)
Other operating expenses 665 632
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Total other expenses 2,583 2,248
Earnings before income taxes 1,441 1,435
Income taxes 537 569
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Net Income $ 904 $ 866
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---------- ----------
Primary earnings per share $ 0.62 $ 0.62
---------- ----------
---------- ----------
Weighted average shares outstanding 1,461,760 1,402,319
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---------- ----------
Fully Diluted:
Earnings per share $ 0.54 $ 0.53
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Weighted average shares outstanding 1,683,448 1,630,253
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Cash dividend paid per share of common stock $ 0.11 $ 0.11
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4
See accompanying notes to consolidated financial statements
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30,1995
--------------------------------------
Interest income:
Interest and fees on loans $ 12,753 $ 12,162
Interest on investment securities 1,325 1,682
Interest on federal funds sold 924 248
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Total interest income 15,002 14,092
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Interest expense:
Demand, interest bearing 775 689
Savings 1,799 1,707
Time certificates 2,772 2,147
Other 27 55
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Total interest expense 5,373 4,598
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Net interest income 9,629 9,494
Provision for possible loan losses (180) (775)
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Net interest income after provision for possible loan losses 9,449 8,719
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Other income:
Service charges 673 638
Net gain (loss on securities transactions) 5 (12)
Other 1,226 822
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Total other income 1,904 1,448
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Other expenses:
Salaries and benefits 3,758 3,244
Occupancy 415 434
Equipment 716 576
Advertising and promotion 270 222
Stationary and supplies 191 144
Legal and professional fees 189 101
Regulatory assessments 16 195
Other operating expenses 1,735 1,637
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Total other expenses 7,290 6,553
Earnings before income taxes 4,063 3,614
Income taxes 1,585 1,427
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Net income $ 2,478 $ 2,187
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---------- ----------
Primary earnings per share $ 1.70 $ 1.56
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Weighted average shares outstanding 1,453,404 1,401,937
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Fully Diluted:
Earnings per share $ 1.47 $ 1.35
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Weighted average shares outstanding 1,688,438 1,619,143
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Cash dividend paid per share of common stock $ 0.33 $ 0.33
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See accompanying notes to consolidated financial statements
5
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
(IN THOUSANDS)
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,478 $ 2,187
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization 568 513
Provision for possible loan losses 180 775
Provision for deferred taxes (1,585) (1,023)
(Increase) decrease in assets--
Interest receivable (1,267) (616)
Other assets 4,636 1,050
Increase (decrease) in liabilities--
Interest payable (62) 638
Other liabilities (98) (60)
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Net cash provided by operating activities 4,850 3,464
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (31,743) (9,015)
Purchase of investments (2,949) (11,660)
Proceeds from Maturity of HTM Securities 5,051 5,965
Proceeds from sales of AFS Securities 2,091 14,605
Proceeds from sales of other real estate owned 0 543
Purchases of premises and equipment (915) (791)
-------- -------
Net cash used for investing activities (28,465) (353)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest bearing deposits (1,896) (7,734)
Net increase in interest bearing deposits 17,979 12,334
Cash dividends (478) (457)
Stock options exercised 173 122
Cash paid in lieu of fractional shares (11) (9)
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Net cash provided by financing activities 15,767 4,256
NET INCREASE(DECREASE) (7,848) 7,367
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,963 22,579
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD 40,115 29,946
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-------- -------
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 September 30, 1996 and December 31, 1995 and the results of
its operations for the periods ended September 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 September 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 September 30, 1996 amounted to a total of
approximately $6,488,769.
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 and August 16, 1996).
NOTE 6 - CASH DIVIDENDS
The Bancorp paid an eleven cents per share dividend in February 1996, May
1996 and August 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 nine months ended September 30, 1996 was $2,478,000 or
$1.70 per share compared to $2,187,000 or $1.56 per share during the same
period in 1995, representing an increase in net income of 13.3%.
These increases in net income are due mainly to 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
Brokered Loan Fees.
Outstanding net loans were $155,699,000 September 30, 1996 compared to
$124,333,000 at December 31, 1995 an increase of $31,366,000 or 25.2%.
The Company's investment portfolio at September 30, 1996 was $23,162,000 or
9.9% of total assets, a decline from $27,428,000 or 12.8% at December 31,
1995 as the Company recognized a substantial increase in loans therefore
shifting assets from investments to loans. At September 30, 1996 Federal
Funds Sold were $27,700,000 as compared to $30,000,000 at December 31, 1995,
reflecting a shift of funds to loans as described above. This excess
liquidity is due to management's strategy to internally fund the anticipated
seasonal loan demand between now and August of 1997, combined with a lack of
short term investment opportunities that yield substantially above Fed Funds.
The total deposits of September 30, 1996 were $209,380,000 compared to
$193,296,000 at December 31, 1995, an increase of 8.3% due primarily to the
banks aggressive marketing efforts in the area's it serves. During the first
three quarters non interest bearing demand deposits decreased from
$43,827,000 at December 31, 1995 to $41,931,000 at September 30, 1996. The
Company attributes this decrease of $1,896,000 or 4.3% in demand deposits to
depositors shifting their funds into interest bearing deposits with the
institution.
The total loan to deposit ratio was 76.2% at September 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 September 30, 1996 were $159,537,000, an increase
of $31,293,000 or 24.4% over year end 1995.
In addition to the normal lending cycle, this increase is also due to the
purchase of $16,000,000 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.
8
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 $25,080,000 at September 30, 1996 an increase of $7,032,000 or
39.0% over December 31, 1995. Commercial Loans increased $9,712,000 or 13.1%
between the periods of December 31, 1995 and September 30, 1996.
Loans to farmers are reported in "Commercial Loans" in the consolidated
balance sheet, and these loans traditionally have peak outstandings at
harvest time in August 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 majority of the Bank's construction loans are for single family
residences.
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 in the Sacramento area. 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
the direct involvement of 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
September 30, 1996, December 31, 1995 and September 30, 1995.
SEPTEMBER 30 DECEMBER 31, SEPTEMBER 30
1996 1995 1995
-----------------------------------------
Accruing loans past due
90 days or more
Commerical $ 62 $ 18 $ -
Consumer 1 - -
Real Estate 220 - -
Leases 116 42 56
-----------------------------------
Total $ 399 $ 60 $ 56
-----------------------------------
Nonaccrual loans
Commercial 609 137 757
Consumer - - -
Real Estate 773 156 228
-----------------------------------
Total 1,382 293 985
-----------------------------------
Total Nonperforming Loans $1,781 $353 $1,041
-----------------------------------
-----------------------------------
9
The major increase in accruing but past due loans was a Real Estate secured
loan which has since been brought current. Also lease delinquencies
increased, but there are no substantial losses foreseen at this time.
During the first nine months of 1996, non-accrual loans increased
substantially, compared to December 31, 1995, primarily due to three loans;
one Real Estate loan on a single family residential subdivision which is
currently in a workout status, for which the Bank anticipates full repayment,
and two large agricultural credit relationships. Both of these loans were to
area farmers that suffered losses in 1995 due to adverse weather and economic
conditions. The Bank continues to be in the process of collecting both
loans. Based on collateral value and liquidation period, it is expected that
one of the two loans will be paid in full by January 1997 and the other one
should be significantly reduced by July 1997. Some loss exposure exists on
both loans.
In addition to the above, the Company holds Real Estate properties as "Other
Real Estate Owned" (OREO) recorded at $1,162,000 at September 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. The bank is in the process
of marketing the OREO properties.
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 September 30, 1996 was $3,838,000 a decrease
from $3,911,000 at year-end 1995, and is equal to 2.41% of the Bank's
outstanding loans at September 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 nine months ended September 30, 1996, the Bank charged-off $322,000
and recovered $69,000. The majority of the charge-offs were in connection
with one agricultural loan in which the Bank is in a continuing workout. It
is anticipated that the Bank will recover the majority. In addition the Bank
charged off a couple of small commercial loans. It is anticipated that these
borrowers will repay the bank with outside funding or revised payment
schedules.
10
RESULTS OF OPERATIONS
Three and Nine months ended September 30, 1996
compared with
Three and Nine months ended September 30, 1995
Net income for the three months ended September 30, 1996 was $904,000 as
compared to the September 30, 1995 figure of $866,000 an increase of 4.4%.
Net income for the nine months ended September 30, 1996 was $2,478,000 as
compared to the September 30, 1995 figure of $2,187,000 an increase of 13.3%.
The increase in net income for the three and nine month period ended
September 30, 1996 was largely due to an increase in net interest income
after provisions for loan losses combined with increased other income,
partially offset by increased other expenses.
Net interest income after provisions increased from $3,013,000 for the 3
months ended September 30, 1995 to $3,348,000 for the same period in 1996,
for an increase of $335,000. Other income was virtually unchanged between
the two periods, while total other expenses increased from $2,248,000 for the
three month period ended September 30, 1995 to $2,583,000 for the same period
in 1996 for an increase of $335,000.
The resulting increase in net income for the three month period ended
September 30, 1996 was $38,000 over the same period in September 1995, mostly
as the result of a difference in income taxes of $32,000.
For the nine month period ended September 30, 1996, total net interest income
after provisions was $9,449,000, an increase of $730,000 over the same period
in 1995.
Other income increased by $456,000 over the same period in 1995, mostly as
the result of increased brokered loan fees.
Other expenses for the nine months ended September 30, 1996 were $7,290,000,
an increase of $737,000 over the same period in 1995, mostly due to increases
in salaries and benefits and occupancy and equipment expenses.
For the three month period ending September 30, 1996 recoveries to the
Provision for Loan Losses were $9,400 and charge-offs were $277,000.
Charge-offs exceeded Recoveries by $253,000 and $123,000 for the nine month
periods ended September 30, 1996 and 1995 respectively.
11
The yield on average earning assets for the three and nine month periods
ended September 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 NINE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
Average loans $ 169,271 $ 143,930 $ 147,214 $ 132,993
outstanding
Average yields 11.35% 12.21% 11.55% 12.19%
Amount of interest
& fees earned $ 4,805 $ 4,393 $ 12,753 $ 12,162
Average prime rate 8.25% 8.77% 8.25% 8.25%
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.
Rates and amounts paid on average deposits, including non-interest bearing
deposits for the three and nine month periods ended September 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 NINE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
Average deposits $ 199,898 $ 175,188 $ 194,702 $ 171,779
outstanding
Average rates paid 3.74% 3.66% 3.66% 3.53%
Amount of interest
paid or accrued $ 1,869 $ 1,604 $ 5,346 $ 4,543
The following tables summarize the principal elements of operating expenses
and disclose the increases (decreases) and percent of increases (decreases)
for the three and nine month ended September 30,1996 and 1995 (amounts in
thousands except for percentages):
THREE MONTHS ENDED SEPTEMBER 30 INCREASE (DECREASE) 1996 OVER 1995
1996 1995 AMOUNT PERCENTAGE
Salaries and benefits $ 1,336 $ 1,104 $ 232 21.01%
Occupancy 137 161 (24) (14.91%)
Equipment 250 196 54 27.55%
Advertising and promotion 56 75 (19) (25.33%)
Other operating expenses 804 712 92 12.92%
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Total other expenses $ 2,583 $ 2,248 $ 335 14.90%
-------------------------------------------------------------
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12
NINE MONTHS ENDED SEPTEMBER 30 INCREASE (DECREASE 1996 OVER 1995
1996 1995 AMOUNT PERCENTAGE
Salaries and benefits $ 3,758 $ 3,244 $ 514 15.84%
Occupancy 415 434 (19) (4.38%)
Equipment 716 576 140 24.31%
Advertising and promotion 270 222 48 21.62%
Stationary & supplies 191 144 47 32.64%
Legal and professional fees 189 101 88 87.13%
Directors Fees 242 99 143 144.44%
Other operating expenses 1,509 1,733 (224) (12.93%)
----------------------------------------------------------------
Total other expenses $ 7,290 $ 6,553 $ 737 11.25%
----------------------------------------------------------------
----------------------------------------------------------------
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 153 full time equivalent employees on September 30,
1996, compared to 140 on December 31, 1995 and 136 on September 30, 1995.
The increase in occupancy and equipment expense over 1995 is attributable to
the purchase, relocation 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 $48,000 during the nine month period ending September 30,
1996 over September 30, 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 three quarters of 1996 as compared to the same period in 1995 due
to a significant reduction in FDIC Insurance Assessments. This decrease
contributed to a great extent to a decrease in other operating expenses of
$224,000.
Applicable income taxes for the three month period ended September 30, 1996
and September 30, 1995 were $537,000 and $569,000 respectively. For the nine
month period ended September 30, 1996 and September 30, 1995 income taxes
were $1,585,000 and $1,427,000 respectively, an increase of $158,000 or 11.1%
due to increased income.
The Company's effective tax rate for the three months ended September 30,
1996 and 1995 were 37.27% and 39.65% respectively. For the nine months ended
September 30, 1996 and 1995 the tax rates were 39.01% and 39.49% respectively.
13
LIQUIDITY
During the first two quarters of the year the bank tends to have excess
liquidity. The Bank's seasonal agricultural loan demand tends to challenge
the Bank's liquidity position beginning late in 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).
The Bank has formal and informal borrowing arrangements with the Federal
Reserve Bank and its correspondent bank to meet unforeseen deposit outflows
or seasonal loan funding demands. During 1995, the Bank was able to attract
enough deposits so that these lines were not used. As of September 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
standby 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.
CAPITAL RESOURCES
The Company has sustained its growth in capital through profit retention, net
of cash dividends paid out to shareholders.
On September 30, 1996 total shareholders equity has increased by $2,091,000
primarily via retained earnings, and stood at $20,966,000.
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.
14
As can be seen by the following tables, the Company exceeded all regulatory
capital ratios on September 30, 1996 and on December 31, 1995:
RISK BASED CAPITAL RATIO
AS OF SEPTEMBER 30, 1996
- --------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- --------------------------------------------------------------
Tier 1 Capital $ 21,170 11.42% $ 20,848 11.26%
Tier 1 Capital minimum
requirement 7,412 4.00% 8,339 4.00%
------------------------------------
Excess $ 13,758 7.42% $ 12,509 7.26%
------------------------------------
------------------------------------
Total Capital 23,503 12.68% 23,181 12.52%
Total Capital minimum
requirement 14,824 8.00% 14,811 8.00%
------------------------------------
Excess $ 8,679 4.68% $ 8,370 4.52%
------------------------------------
Risk-adjusted assets $ 185,301 $ 185,135
--------- ---------
--------- ---------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to
quarterly average
total assets $ 21,170 9.44% $ 20,848 9.30%
Minimum leverage
requirement 8,970 4.00% 8,962 4.00%
------------------------------------
Excess $ 12,200 5.44% $ 11,886 5.30%
------------------------------------
------------------------------------
Total Quarterly
average assets $ 224,258 $ 224,053
--------- ---------
--------- ---------
15
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
--------- ---------
--------- ---------
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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 November 5, 1996 /S/ Robert J. Mulder
------------------------- --------------------------------------
Robert J. Mulder
President/CEO
Date November 5, 1996 /S/ Annette Bertolini
------------------------- --------------------------------------
Annette Bertolini
Chief Financial Officer
17