U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Period Ended March 31, 1997
Commission File Number: 0-27384
_______________________________________________________________________________
CAPITAL CORP OF THE WEST
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0405791
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1160 WEST OLIVE AVENUE, SUITE A MERCED, CALIFORNIA 95348-1952
(Address of principal executive offices) (Zip Code)
(209) 725-2200
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
The Registrant 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 Bank was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
X Yes No
- --- ----
The number of shares outstanding of the Registrant's common stock, no par value,
as of March 31, 1997 was 2,606,478. No shares of preferred stock, no par
value, were outstanding at March 31, 1997.
CAPITAL CORP OF THE WEST
Table of Contents
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
1
Capital Corp of the West
Consolidated Balance Sheets
(Unaudited)
3/31/97 12/31/96 3/31/96
--------- ---------- ---------
(In Thousands)
ASSETS
Cash & noninterest-bearing deposits in other banks $ 17,967 $ 12,982 $ 18,784
Federal funds sold - 3,735 -
Time deposits at other financial institutions 1,288 3,101 -
Investment securities:
Available-for-sale securities, at fair value 46,046 43,378 44,199
Held-to-maturity securities at amortized cost,
market value of $11,058,000 at March 31, 199 11,456 - -
Mortgage loans held for sale - 880 2,315
Loans, net of allowance for
loan losses of $2,674,000 at March 31, 1997; $2,792,000 at
December 31, 1996 and $1,860,000 at March 31, 1996 185,381 180,455 136,483
Interest receivable 1,985 1,879 1,830
Premises and equipment, net 8,095 6,266 4,333
Other assets 13,666 13,313 6,568
--------- --------- ---------
Total Assets $ 285,884 $ 265,989 $ 214,512
--------- --------- ---------
--------- --------- ---------
LIABILITIES
Deposits:
Noninterest-bearing demand $ 35,179 $ 39,157 $ 34,979
Negotiable orders of withdrawal 35,002 34,303 27,388
Savings 111,903 111,285 101,220
Time, under $100,000 51,082 46,990 23,969
Time, $100,000 and over 14,280 6,610 6,943
--------- --------- ---------
Total Deposits 247,446 238,345 194,499
Federal funds purchased and securities sold
under agreements to repurchase 5,870 - 3,000
Short-term borrowings 1,083 110 -
Long-term borrowings 5,435 1,535 106
Accrued interest, taxes and other liabilities 4,381 5,025 1,664
--------- --------- ---------
Total Liabilities 264,215 245,015 199,269
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 15,000,000 shares authorized;
none outstanding - - -
Common stock, no par value
30,000,000 shares authorized; 2,606,478 issued & outstanding at
March 31, 1997; 2,581,822 issued & outstanding at December 31,
1996 and 2,003,747 issued & outstandind at March 31, 1996 15,592 15,321 9,880
Retained earnings 6,239 5,722 5,413
Investment securities unrealized losses, net (612) (69) (50)
--------- --------- ---------
Total Shareholders' Equity 21,669 20,974 15,243
--------- --------- ---------
Total Liabilities and Shareholders' Equity $ 285,884 $ 265,989 $ 214,512
--------- --------- ---------
--------- --------- ---------
See accompanying notes.
2
Capital Corp of the West
Consolidated Statements of Income
(Unaudited)
Three Months Ended
3/31/97 3/31/96
-------- --------
(In Thousands Except
for Per Share Data)
Interest Income
Interest and fees on loans $4,687 $3,419
Interest on investment securities
Taxable 810 716
Non-taxable 59 59
Interest on federal funds sold 45 56
-------- --------
Total Interest Income 5,601 4,250
Interest Expense
Deposits
Negotiable orders of withdrawal 78 64
Savings 1,122 1,036
Time, under $100,000 693 306
Time, $100,000 and over 106 94
Other 73 12
-------- --------
Total Interest Expense 2,072 1,512
Net Interest Income 3,529 2,738
Provision for loan losses 240 160
-------- --------
Net interest income after provision for loan losses 3,289 2,578
Other Income
Service charges on deposit accounts 337 281
Income from real estate held for sale or development 7 8
Other 390 282
-------- --------
Total Other Income 734 571
Other Expenses
Salaries and related benefits 1,544 1,186
Premises and occupancy 279 157
Equipment 287 232
Professional fees 141 141
Marketing 159 90
Other 830 547
-------- --------
Total Other Expenses 3,240 2,353
Income before income taxes 783 796
Provision for income taxes 270 295
-------- --------
Net Income 513 501
-------- --------
-------- --------
Net Income Per Share $.020 $0.24
-------- --------
-------- --------
See accompanying notes
3
Capital Corp of the West
Statement of Consolidated Cash Flows
(Unaudited)
3 months ended 3 months ended
3/31/97 3/31/96
--------------- --------------
(In thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided $ 513 $ 501
by operating activities:
Provision for loan losses 240 160
Depreciation, amortization and accretion, net 281 367
Provision (benefit) for deferred income taxes (65) -
Gain on sale of premises and equipment - (80)
Net (increase) decrease in interest receivable & other assets (415) 161
Net decrease (increase) in mortgage loans held for sale 880 (1,814)
Net increase in deferred loan fees 57 61
Net increase in accrued interest payable & other liabilities 1,606 3,431
---------- ----------
Net cash provided by operating activities 3,097 2,787
INVESTING ACTIVITIES:
Investment security purchases (17,788) (7,699)
Proceeds from maturities of investment securities 2,899 5,040
Proceeds from sales of investment securities 2,519 3,202
Proceeds from sales of commercial and real estate loans 205 591
Net increase in loans (5,428) (5,185)
Purchases of premises and equipment (2,051) (369)
Construction of real estate held for sale or development (72) (369)
---------- ----------
Net cash (used) by investing activities (19,716) (4,789)
FINANCING ACTIVITIES:
Net decrease in demand, NOW and savings deposits (2,661) (695)
Net increase in certificates of deposit 11,762 2,593
Net increase in other borrowings 8,493 -
Issued shares for benefit plan purchases 176 -
Exercise of stock options 99 11
---------- ----------
Net cash provided by financing acitivities 17,869 1,909
Net increase (decrease) in cash and cash equivalents 1,250 (93)
Cash and cash equivalents at beginning of year 16,717 18,967
---------- ----------
Cash and cash equivalents at end of quarter $ 17,967 $ 18,874
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Investment securities unrealized losses (152) 362
See accompanying notes.
4
PART 1--FINANCIAL INFORMATION (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
March 31, 1997, December 31, 1996 and March 31, 1996
(UNAUDITED)
GENERAL-COMPANY
Capital Corp of the West (the "Company" or "Capital Corp") is a bank holding
company incorporated under the laws of the State of California on April 26,
1995. On November 1, 1995, the Company became registered as a bank holding
company, and is the holder of all of the capital stock of County Bank (the
"Bank") and all of the capital stock of Town and Country Finance and Thrift (the
"Thrift"). During 1996 the Company formed Capital West Group, a new subsidiary
that engages in the financial institution advisory business. The Company's
primary asset is the Bank and the Bank is the Company's primary source of
income. The Company's securities consist of 30,000,000 shares of Common Stock,
no par value and 10,000,000 shares of Preferred Stock. As of March 31, 1997
there were 2,606,478 common shares outstanding, held of record by approximately
1,175 shareholders. There were no preferred shares outstanding at March 31,
1997. The Bank has two wholly owned subsidiaries, Merced Area Investment &
Development, Inc. ("MAID")and County Asset Advisors ("CAA"). CAA is currently
inactive. All references herein to the "Company" include the Bank, and the
Bank's subsidiaries, Capital West Group and the Thrift, unless the context
otherwise requires.
GENERAL-BANK
The Bank was organized on August 1, 1977, as County Bank of Merced, a California
state banking corporation. The Bank commenced operations on December 22, 1977.
In November 1992, the Bank changed its legal name to County Bank. The Bank's
securities consist of one class of Common Stock, no par value and is wholly
owned by the Company. The Bank's deposits are insured under the Federal
Deposit Insurance Act, by the Federal Deposit Insurance Corporation ("FDIC") up
to applicable limits stated therein. Like most state-chartered banks of its
size in California, it is not a member of the Federal Reserve System.
GENERAL-THRIFT
The Company acquired the Thrift on June 28, 1996 for a combination of cash and
stock with an aggregate value of approximately $5.8 million. TheThrift is an
industrial loan company with four offices. It specializes in direct loans to
the public and the purchase of financing contracts principally from automobile
dealerships and furniture stores. It was originally incorporated in 1957. Its
deposits (technically known as investment certificate or certificates of deposit
rather than deposits) are insured by the FDIC up to applicable limits.
BANK'S INDUSTRY & MARKET AREA
The Bank engages in general commercial banking business primarily in Merced,
Tuolomne and Stanislaus Counties. The Bank has nine branch offices: two in
Merced with the branch located in north Merced currently designated as the head
office, and offices in Atwater, Turlock, Hilmar, Sonora, Los Banos, and two
offices in Modesto opened in late 1996. The Company 's administrative
headquarters are located in three separate suites in the same office complex.
The administrative facilities also provides accommodations for the activities of
Merced Area Investment and Development ("MAID"), the Bank's wholly owned real
estate development subsidiary and Capital West Group. Although approved to be a
full service branch banking office, the administrative headquarters facility is
presently used solely as the Company's corporate headquarters. Effective July
15, 1995 the Company entered into an agreement to relocate its existing
administrative office and an existing branch in downtown Merced to a new
facility in downtown Merced. Construction began in the summer of 1996 and is
expected to be complete in late summer of 1997. The estimated construction cost
of the new 29,000 square foot facility including a parking structure is
estimated at approximately $4.7 million. In conjunction with the construction
of the facility, the Merced Redevelopment Agency has provided the Company with
an interest-free loan in the amount of $3.0 million. The loan matures on July
8, 1997. It is anticipated that upon completion of the facility, a permanent
mortgage loan will be obtained from an unaffiliated lender. The Thrift engages
in general consumer lending business primarily in Stanislaus, Fresno and Tulare
Counties from its main office in Turlock; and branch offices located in Modesto,
Visalia, and Fresno.
5
OTHER FINANCIAL NOTES
All adjustments, in the opinion of Management, which are necessary for a fair
presentation of the Company's financial position at March 31, 1997, December
31, 1996 and at March 31, 1996, and the results of operations and statements of
cash flows for the three month periods ended March 31, 1997 and 1996, have been
included. These interim statements are not necessarily indicative of the
results for a full year.
The accompanying unaudited financial statements have been prepared on a basis
consistent with the generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X.
Per share information is based on weighted average number of shares of common
stock outstanding during each three-month period after giving retroactive effect
for the three-for-two stock split declared for shareholders of record on April
11, 1997, payable on May 2, 1997. The weighted average number of shares
outstanding were 2,593,283 for the three-month period ended March 31, 1997 and
$2,003,746 for March 31, 1996.
The purchase accounting method was used for the acquisition of the Thrift on
June 28, 1996, and prior period financials were not restated. Therefore, none
of the Thrift's income or expense is reflected in the three months period ended
March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW--For the three months ended March 31, 1997, consolidated net income was
$513,000 compared to $501,000 for the three-month period ended March 31, 1996, a
$12,000 (2%) increase. Earnings per share were $.20 and $.24, respectively
(restated for the affect of the three for two stock split declared in April
1997). The annualized return on average assets was .76% for the first three
months of 1997 as compared with .99% for the same three-month period in 1996.
The Company's annualized return on beginning equity was 9.8% and 13.3%,
respectively.
Total assets at March 31, 1997 were $285,884,000, an increase of $19,895,000 or
7% as compared to December 31, 1996, and $71,372,000 or 33% as compared to March
31, 1996. Net loans were $185,381,000 at March 31, 1997, an increase of
$4,926,000 or 3% and deposits were $247,446,000, an increase of $9,101,000 or 4%
as compared to December 31, 1996. Total shareholders' equity grew to
$21,669,000, a 3% increase from December 31, 1996, and a 42% increase from March
31, 1996.
LIQUIDITY--To maintain adequate liquidity requires that sufficient resources be
available at all times to meet cash flow requirements of the Company. The need
for liquidity in financial institutions arises principally to provide for
deposit withdrawals, the credit needs of its customers and to take advantage of
investment opportunities as they arise. A financial institution may achieve
desired liquidity from both assets and liabilities. The Company considers cash
and deposits held in other banks, federal funds sold, other short term
investments, maturing loans and investments, payments of principal and interest
on loans and investments and potential loan sales as sources of asset liquidity.
Deposit growth, access to credit lines established with correspondent banks and
market sources of funds are considered by the Company as sources of liability
liquidity.
The Company reviews its liquidity position on a regular basis based upon its
current position and expected trends of loans and deposits. Management believes
that the Company maintains adequate amounts of liquid assets to meet its
liquidity needs. These assets include cash and deposits in other banks,
certain investment securities and federal funds sold. The Company's liquid
assets totaled $65,301,000 and $63,196,000 on March 31, 1997 and December 31,
1996, respectively, and constituted 22.8% and 23.8%, respectively, of total
assets on those dates. In analyzing liquidity for the Company, consideration is
also taken for the pledging requirements of the Company's investment securities
to secure public deposits and certain borrowings. Total pledged securities as
of March 31, 1997 totaled $14,797,000 as compared to $16,678,000 at December 31,
1996.
Although the Company's primary sources of liquidity include liquid assets and a
stable deposit base, the Company maintains lines of credit with certain
correspondent banks and Federal Reserve Bank aggregating $12,600,000 of which
6
$6,105,000 was outstanding as of March 31, 1997 and $105,000 was outstanding as
of December 31, 1996.
CAPITAL RESOURCES--Capital serves as a source of funds and helps protect
depositors against potential losses. The primary source of capital for the
Company has been internally generated capital through retained earnings. The
Company's shareholders' equity increased by $695,000 (3%) since December 31,
1996. This increase was primary the result of net income of $513,000 for the
three-month period ended March 31, 1997, $99,000 due to the exercise of stock
options, $172,000 due to purchase of stock pursuant to Company benefit plans
which is offset by a decrease of $93,000 in investment securities unrealized
losses, net of taxes. The Company had unrealized losses, net of taxes, in its
securities classified as available-for-sale of $162,000 as of March 31, 1997,
compared to unrealized losses of $69,000 as of December 31, 1996.
Capital levels for the Company continue to remain above established regulatory
capital requirements. The Company is subject to regulatory guidelines governing
capital adequacy. Federal regulations establish guidelines for calculating
"risk-adjusted" capital ratios. These guidelines establish a systematic
approach of assigning risk weights to bank assets and commitments making capital
requirements more sensitive to differences in risk profiles among banking
organizations. Under these regulations, banks are required to maintain a risk-
based capital ratio of 8.0% by December 31, 1992 (with Tier One capital
constituting at least 50% of total qualifying capital). As of March 31, 1997
and December 31, 1996 the Company had risk-based capital ratios of 10.4% and
11.2% respectively (Tier One capital equaled 9.2% and 9.6%, respectively).
Additionally, regulators have adopted a minimum leverage capital ratio standard.
This standard is designed to ensure that all financial institutions,
irrespective of their risk profile, maintain minimum levels of core capital
which by definition excludes the allowance for loan losses. These minimum
standards for top rated institutions may be as low as 3%, however, the FDIC has
stated that most institutions should maintain ratios at least 1 to 2 percentage
points above the 3% minimum. As of March 31, 1997 and December 31, 1996, the
Company's leverage capital ratio equaled 7.4% and 8.2% respectively.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997--Net income for
the three-month period ended March 31, 1997 totaled $513,000, an increase of
$12,000 (2%) over the same three-month period in 1996. The increase in
earnings in 1997 resulted primarily from strong asset growth, an improvement in
the Company's net interest income of $791,000 (29%) and improvements in fee
income of $163,000 (29%) offset by an $80,000 (50%) increase in loan loss
provisions and an increase in noninterest expenses of $163,000 (29%).
When evaluating the performance of banking organizations, two measures of
profitability commonly used are return on average assets and return on beginning
equity. Return on average assets measures a Company's ability to profitably
employ its resources. Annualized return on average assets for the three-month
period ended March 31, 1997 was .76%. This compares with .99% for the same
three-month period in 1996. Return on beginning equity is a measure of a
Company's ability to generate income on the capital invested in the company by
its shareholders. Annualized return on beginning equity was 9.8% for the three-
month period ended March 31, 1997 as compared with 13.3% for the same three-
month period in 1996. The primary reasons for these declines are increases in
expenses related to growth and expansion of the Company and the increased levels
of loan loss provisions.
NET INTEREST INCOME--The Company's primary source of income is the difference
between interest income and fees derived from earning assets and interest paid
on liabilities obtained to fund those assets. The difference between the two is
referred to as net interest income. Net interest income for the three months
ended March 31, 1997 totaled $3,529,000 compared to $2,738,000 for the same
period in 1996, a $791,000 (29%) increase.
Total interest and fees on earning assets increased to $5,601,000 for the first
quarter of 1997 an increase of $1,351,000 (32%) over the same three-month
period in 1996. The level of interest income is affected by changes in volume
(growth) and the rates earned on interest-earning assets. Interest-earning
assets consist primarily of loans, investment securities and federal funds sold.
Of the $1,315,000 increase in interest income, $1,400,000 was the result of
increases in volume of interest-earning assets which is partially offset by
$49,000 as the result of decreased yields on those assets. Average interest-
earning assets for the first three months of 1997 were $240,196,000 as compared
with $183,353,000 for the first three months of 1996, a $56,843,000 (31%)
increase.
Interest expense is a function of the volume of and the rates paid for interest-
bearing liabilities. Interest-bearing liabilities
7
consist primarily of certain deposits and borrowed funds. Total interest
expense increased to $2,072,000 in 1997 or an increase of $560,000 (37%) over
the same period in 1996. Of the $560,000 increase, $593,000 was the result of
increases due to volume of liabilities which is partially offset by $33,000
as a result of decreased yields on those liabilities. Average interest-bearing
liabilities were $211,161,000 for the first three months of 1997 as compared
with $158,762,000 for the same three-month period in 1996, a $52,399,000 (33%)
increase.
The Company's net interest margin, the ratio of net interest income expressed as
a percent of average interest-earning assets was 5.96% for the three-month
period ended March 31, 1997 compared with 5.46% for the same period in 1996.
This provides a measurement of the Company's ability to purchase and employ
funds profitably during the period being measured. The increase in net interest
margin is primarily attributable to growth of loans as a percentage of interest-
earning assets.
ASSET AND LIABILITY MANAGEMENT--Asset and liability management is an integral
part of managing a financial institution's primary source of income, net
interest income. The Company manages the balance between rate-sensitive assets
and rate-sensitive liabilities being repriced in any given period with the
objective of stabilizing net interest income during periods of fluctuating
rates. The Company considers its rate-sensitive assets to be those which
contain a provision to adjust the interest rate periodically or mature within
one year. These assets include certain loans, investment securities and federal
funds sold. Rate-sensitive liabilities are those which allow for periodic
interest rate changes and include maturing time certificates of deposit and
certain savings and interest-bearing transaction account deposits. The
difference between the amount of assets and liabilities that are repricing in
various time frames is called the "gap." Generally, if repricing assets exceed
repricing liabilities in a time period, the Bank would be "asset-sensitive" and
if repricing liabilities exceed repricing assets in a time period the Bank would
be "liability-sensitive." The Company generally seeks to maintain a balanced
position whereby there is no significant "asset or liability sensitivity" to
ensure net interest margin stability in times of volatile interest rates. This
is accomplished through maintaining a significant level of loans, investment
securities and deposits available for repricing within one year.
The Company was moderately "liability-sensitive" with a negative cumulative one
year gap of $46,662,000 or 16% of total assets as of March 31, 1997. This
compares with the Company being moderately "liability-sensitive" with a negative
cumulative one year gap of $42,992,000 or 16% of total assets as of December
31, 1996. In general, based upon the Company's mix of deposits, loans and
investments, declines in interest rates would be expected to moderately increase
the Company's net interest margin. Increases in interest rates would be
expected to have the opposite effect.
The change in net interest income may not, however, always follow the general
expectations of an "asset-sensitive" or "liability-sensitive" balance sheet
during periods of changing interest rates. This results from interest rates
paid changing by differing increments and at different time intervals for each
type of rate-sensitive asset and liability.
An additional measure of interest rate sensitivity that the Company monitors is
its expected change in earnings. This model's estimate of interest rate
sensitivity takes into account an estimate of the differing time intervals and
interest rate change increments for each type of rate-sensitive asset and
liability. It then measures the projected impact of changes in market interest
rates on the Company's return on equity. Based upon the March 31, 1997 mix of
rate-sensitive assets and liabilities, given an immediate and sustained increase
in the federal funds rate of 1%, this model estimates the Company's cumulative
return on equity over the next year would decrease by approximately 1%. This
compares with a cumulative one year expected decrease in return on equity of
less than 1% as of December 31, 1996. While no assurance can be made, both of
these measures of interest rate risk indicate that the Company appears not to be
subject to significant risk of change in its net interest margin as a result of
changes in interest rates.
ALLOWANCE AND PROVISION FOR LOAN LOSSES--The Company maintains an allowance for
possible loan losses at a level considered by Management to be adequate to cover
the inherent risks of loss associated with its loan portfolio under prevailing
and anticipated economic conditions. In determining the adequacy of the
allowance for possible loan losses, Management takes into consideration the
overall growth trend in the portfolio, examinations by supervisory authorities,
internal and external credit reviews, prior loan loss experience for the
Company, concentrations of credit risk, delinquency trends, general economic
conditions and the interest rate environment. The allowance is based on
estimates and ultimate future losses may vary from current estimates. It is
always possible that future economic or other factors may adversely affect the
Company's borrowers, and thereby cause loan losses to exceed the current
allowance.
The balance in the allowance is affected by the amounts provided from
operations, amounts charged off and recoveries of
8
loans previously charged off. The Company recorded loss provisions in the
first three month period of 1997 of $240,000 as compared to $160,000 in the same
period in 1996. The Company's charge offs, net of recoveries, were $358,000 for
the three month period ended March 31, 1997 as compared with $1,000 for the same
three-month period in 1996. As of March 31, 1997, the allowance for loan losses
was $2,674,000 or 1.4% of total gross loans outstanding. This compares with an
allowance for loan losses of $2,792,000 or 1.5% of total gross loans outstanding
as of December 31, 1996. The increase in chargeoffs was primarily due to the
charge-off taken on the portfolio of lease receivables totalling $275,000.
The increase in loan loss provisions is due to overall growth in the portfolio
as well as increased provisions established for certain problem loans as
discussed in the section below entitled Asset Quality.
ASSET QUALITY--Management recognizes the importance of asset quality as a key
ingredient to the successful financial performance of a Company. The level of
nonperforming loans and real estate acquired through foreclosure are two
indicators of asset quality. Nonperforming loans are those in which the
borrower fails to perform under the original terms of the obligation and are
categorized as loans past due 90 days or more, loans on nonaccrual status and
restructured loans. Loans are generally placed on nonaccrual status and accrued
but unpaid interest is reversed against current year income when interest or
principal payments become 90 days past due unless the outstanding principal and
interest is adequately secured and, in the opinion of Management, is in process
of collection. Additional loans which are not 90 days past due may also be
placed on nonaccrual status if Management believes the borrower will not be able
to comply with the contractual loan repayment terms and the collection of
principal interest is in question.
Management defines impaired loans as those loans, regardless of past due status,
in which principal and interest is not expected to be collected under the
original contractual loan repayment terms. An impaired loan is charged off at
the time management believes the collection of principal and interest process
has been exhausted. At March 31, 1997, impaired loans were measured using the
underlying value of collateral measurement method.
The Company had nonperforming loans at March 31, 1997 of $6,666,000 as compared
with $5,568,000 at December 31, 1996. Included in the March 31, 1997 and
December 31, 1996 totals respectively, were $5,101,000 and $4,968,000 of loans
on nonaccrual status and $1,565,000 and $600,000 of loans 90 days past due that
were not on nonaccrual status. The increase in loans 90 days past due that
were not on nonaccrual status is a result of a delay in the processing of
$1,145,000 in Agriculture loans by March 31, 1997. As of April 30, 1997 the
amount noted above has been reduced to $270,000. Of the total nonperforming
loans as of March 31, 1997, $3,598,000 were loans that are secured by first
deeds of trust on real property. Other forms of collateral such as inventory
and equipment secure the remaining nonperforming loans as of that date.
Included in the nonperforming loans is a $3.4 million real estate loan that has
been restructured but is still shown as a nonperforming loan. The loan is
expected to remain on a nonaccrual status until substantial performance on the
loan occurs. The restructured loan matures in 1998. Specific reserves have
been established for this loan in the amount of $1,725,000.
The Bank purchased a portfolio of lease receivables in 1994. The company which
packages and sells these leases to financial institutions filed a Chapter 11
reorganization in April 1996 and its chief financial officer has been charged by
the Securities and Exchange Commission with participating in securities fraud.
More than 360 banks nationwide had acquired similar lease receivable contracts.
As of February 12, 1997, the Bank signed a settlement agreement in regards to
this portfolio of leases that established the projected recovery rate at 78.5%
or approximately $1,006,000. On March 31, 1997, the Bank charged off $275,000
against its allowance for loan losses and the remaining balance of $1,006,000
remains on nonaccrual.
The Bank closely monitors its loans classified by the regulatory agencies and
such loans totaled $10,239,000 at December 31, 1996, as compared to $ 10,540,000
as of March 31, 1997.
Additionally as of March 31, 1997 and December 31, 1996, the Company had
$1,466,000 in real estate acquired through foreclosure. Such properties are
carried at the lower of their estimated market value, as evidenced by
independent appraisals, or the recorded investment in the related loan. At
foreclosure, if the fair value of the real estate is less than the Company 's
recorded investment in the related loan, a charge is made to the allowance for
possible loan losses. On April 30, 1997, the Company sold one of the two
properties held in other real estate owned, reducing the balance of real estate
acquired through foreclosure to $416,000. The same transaction also reduced
short term borrowings in the amount of $770,000. The remaining property is
expected to be sold during 1997.
Total nonperforming loans represented 27% of the allowance for loan losses and
total equity capital as of March 31, 1997.
9
This compares with nonperforming loans of 23% of the allowance for loan losses
and total equity capital as of December 31, 1996.
The Company's loan portfolio (including the loans for the newly acquired thrift)
consists primarily of commercial loans, agriculture loans, real estate mortgage
loans, real estate construction loans and consumer installment loans. The
composition of the portfolio as of March 31, 1997 was as follows: commercial
loans (21%), agriculture loans (17%), real estate construction loans (8%), real
estate mortgage loans (32%) and consumer loans (23%). The largest segment
within the agriculture portfolio is the Bank's dairy loans. Dairy loans
comprised 13% of the loan portfolio as March 31, 1997. The above referenced
loan portfolio mix has not materially changed from the end of the prior year.
In determining the adequacy of the allowance for possible loan losses,
Management takes into consideration the overall growth trend in the portfolio,
examinations of bank supervisory authorities, internal and external credit
reviews, prior loan loss experience for the Company, concentrations of credit
risk, delinquency trends, general economic conditions and the interest rate
environment. The allowance is based on estimates and ultimate future losses may
vary from current estimates. It is always possible that future economic or
other factors may adversely affect the Company's borrowers, and thereby cause
loan losses to exceed the current allowance.
NONINTEREST INCOME--Total noninterest income increased by $163,000 (28%) for the
three-month period ended March 31, 1997 as compared with the same period in
1996. Service charges on deposit accounts increased by $56,000 (20%), income
from the sale of real estate held for sale or development decreased by $1,000
and other income increased by $108,000 (38%). The primary reasons for the
increase in other income are increases in income from loan servicing income,
retail investment sales, and income from Capital West Group.
NONINTEREST EXPENSE--Noninterest expenses increased by $887,000 (38%) for the
three-month period ended March 31, 1997 as compared with the same period in
1996. Salaries and related benefits increased by $358,000 (30%), occupancy
expenses increased $122,000 (78%), equipment expenses increased $55,000 (24%),
marketing expenses increased by $69,000 (78%) and other expenses increased by
$283,000 (52%). The expense increases are the result of expansion including
expenses associated with the newly purchased thrift, the opening of two full
service branch offices in late 1996 and one full service branch office in the
second quarter of 1996, and the establishment of Capital West Group.
PROVISION FOR INCOME TAXES--The Company's provision for income taxes was
$270,000 for the three-month period ended March 31, 1997 as compared with
$295,000 for the same three-month period in 1996. Effective tax rates were 34%
and 37% respectively. The effective tax rate has been reduced due to the
purchase of limited partnership investments in low income affordable housing
projects prividing the investor with affordable housing income tax credits. The
Company had investments in these partnerships of $2,700,000 as of March 31, 1997
and December 31, 1996.
OTHER FINANCIAL INFORMATION--The Company has entered into an agreement to
relocate its administrative office and its Downtown Branch to the corner of M &
Main Street in downtown Merced, California. Central administrative support and
certain loan departments will be relocated to this site as well. Construction
has commenced and completion of the facility is expected by Fall 1997.
Anticipated costs of this project are currently estimated at $4,750,000. The
facility is a three-story building of approximately 29,000 square feet.
SELECTED STATISTICAL INFORMATION
The following tables on pages 11 through 18 present certain statistical
information concerning the business of the Company. This information should be
read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" at ITEM 2 starting on page 6 of this
document. The Company has not engaged in any foreign activities. Statistical
information below is generally based on average daily amounts.
10
ITEM I. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND DIFFERENTIALS
The following table presents for the periods indicated condensed average balance
sheet information for the Company, together with interest rates earned and paid
on the various sources and uses of its funds. The table is arranged to group
the elements of interest-earning assets and interest-bearing liabilities, these
items being the major sources of income and expense. Nonaccruing loans are
included in the table for computational purposes, but the nonaccrued interest
thereon is excluded.
AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST EARNINGS
Three Months ended Three Months ended
March 31, 1997 March 31, 1996
------------------ ------------------
Interest Average Interest Average
Average Income/ Interest Average Income/ Interest
Balance Expense Rate (4) Balance Expense Rate (4)
--------- --------- -------- --------- ---------- --------
ASSETS
Federal funds sold $ 3,589 $ 45 5.09% $ 4,299 $ 56 5.28%
Taxable investment securities 47,994 810 6.85% 41,458 716 7.00%
Nontaxable investment securities (1) 4,195 59 5.70% 4,412 59 5.41%
Loans, gross (2) 184,418 4,687 10.31% 133,175 3,419 10.41%
--------------------------------------- ---------------------------------------
Total interest earning assets: 240,196 5,601 9.46% 183,353 4,250 9.40%
Allowance for loan losses (2,977) (1,743)
Cash and noninterest-bearing
deposits at other banks 10,806 9,811
Premises and equipment, net 7,334 4,268
Interest receivable and other assets 15,516 7,642
--------- --------
Total Assets $ 270,875 $ 203,331
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS EQUITY
Negotiable order of Withdrawal $ 33,368 78 0.95% $ 27,928 64 0.91%
Savings deposits 112,564 1,122 4.04% 99,965 1,036 4.20%
Time deposits 59,415 799 5.45% 30,009 400 5.41%
Other borrowings 5,814 73 5.09% 860 12 5.65%
--------------------------------------- ----------------------------------------
Total interest-bearing liabilities 211,161 2,072 3.98% 158,762 1,512 3.86%
Noninterest-bearing demand deposits 32,871 28,507
Accrued interest, taxes and
other liabilities 5,432 599
--------- --------
Total Liabilities 249,464 187,868
Total shareholders' equity 21,411 15,463
--------- --------
Total Liabilities and shareholders'
equity $ 270,875 $ 203,331
--------- --------
--------- --------
Net interest income and margin (3) $ 3,529 5.96% $ 2,738 5.46%
______________________________
(1) Interest on municipal securities is not computed on tax-equivalent basis.
(2) Amounts of interest earned includes loan fees of $233,000 and $222,000 for
the periods included.
(3) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
11
The following tables set forth, for the periods indicated, a summary of the
changes in average asset and liability balances and interest earned and interest
paid resulting from changes in average asset and liability balances (volume) and
changes in average interest rates. The changes in interest due to both rate and
volume has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amount of the change in each. Nonaccruing
loans are included in the table for computational purposes, but the nonaccrued
interest thereon is excluded.
NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE
March 31, 1997 vs. March 31, 1996
------------------------------------
Due to Due to Total
Volume Rate Change
------ ---- -------
(Dollar amounts in thousands)
Interest Income:
Taxable Investment securities $ 110 $ (16) $ 94
Tax-exempt investment securities (1) (3) 3 -
Federal funds sold (9) (2) (11)
Loans, gross (2) 1,302 (34) 1,268
------ ------- -------
Total 1,400 (49) 1,351
Interest Expense:
NOW $ 13 $ 1 $ 14
Savings deposits 123 (37) 86
Time deposits 395 4 399
Other borrowings 62 (1) 61
------ ------- -------
Total 593 (33) 560
Net Interest Income $ 807 $ (16) $ 791
------ ------- -------
------ ------- -------
______________________________
(1) Interest on municipal securities is not computed on a tax-equivalent basis.
(2) Amounts of interest earned includes loan fees of $233,000 and $222,000 for
the periods included.
INTEREST RATE SENSITIVITY
The interest rate gaps reported in the table arise when assets are funded with
liabilities having different repricing intervals. Since these gaps are actively
managed and change daily as adjustments are made in interest rate views and
market outlook, positions at the end of any period may not be reflective of the
Company's interest rate sensitivity in subsequent periods. Active management
dictates that longer-term economic views are balanced against prospects for
short-term interest rate changes in all repricing intervals. For purposes of
the analysis below, repricing of fixed-rate instruments is based upon the
contractual maturity of the applicable instruments. Actual payment patterns may
differ from contractual payment patterns.
12
March 31, 1997
By Repricing Interval
--------------------------------------------------------------------------------------
After three After one
months, year,
Within three within one within five After five Noninterest-
months year years years bearing funds Total
------------ ---- ----- ----- ------------- -----
ASSETS
Time deposits at other institutions $ 991 $ 297 $ - $ - $ - $ 1,288
Investment securities 7,671 7,029 6,875 35,927 - 57,502
Loans 115,133 22,185 40,941 9,796 - 188,055
Other interest-bearing assets - 3,172 - - - 3,172
Noninterest-earning assets
and allowances for loan losses - - - - 35,867 35,867
--------- --------- --------- --------- --------- ---------
Total Assets 123,795 32,683 47,816 45,723 35,867 $ 285,884
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings, money market & NOW deposits 146,905 - - - 35,179 182,084
Time deposits 14,591 34,691 15,880 200 - 65,362
Other interest-bearing liabilities 4,523 2,430 5,330 105 - 12,388
Other liabilities and Shareholders'
equity - - - - 26,050 26,050
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity 166,019 37,121 21,210 305 61,229 $ 285,884
----------
----------
Interest rate sensitivity
Gap (42,224) (4,438) 26,606 45,418 $ (25,362)
--------- --------- --------- --------- ---------
---------
Cummulative interest rate
Sensitivity Gap $ (42,224) $ (46,662) $ (20,056) $ 25,362
--------- --------- --------- ---------
--------- --------- --------- ---------
ITEM II. INVESTMENT PORTFOLIO
Securities classified available for sale and held to maturity as of March 31,
1997, and December 31, 1996, 1995 and 1994. The following table sets forth the
fair value of investment securities at the dates indicated:
FAIR VALUE OF INVESTMENT SECURITIES
Fair Value Fair Value
March 31 December 31
------------ -----------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Amount in thousands)
U.S. Treasury, U.S. Government agencies and corporations $ 5,599 $ 17,711 $ 22,521 $ 20,593
Obligations of states and political subdivisions 4,254 4,271 4,297 6,571
Mortgage-backed securities 34,669 20,751 17,932 8,175
Other securities 1,524 645 552 487
-------- --------- --------- --------
Total $ 46,046 $ 43,378 $ 45,302 $ 35,826
-------- --------- --------- --------
-------- --------- --------- --------
SECURITIES HELD TO MATURITY
March 31, 1997
--------------
Book Value Fair Value
---------- ----------
U.S. Treasury, U.S. Government agencies and corporations $ 11,456 $ 11,058
--------- ---------
--------- ---------
The following table sets forth the maturities of investment securities at March
31, 1997 and the weighted average yields of such securities calculated on the
basis of the cost and effective yields based on the scheduled maturity of each
security. Maturities of mortgage-backed securities are stipulated in their
respective contracts, however, actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call prepayment penalties. Yields on municipal securities have
not been calculated on a tax-equivalent basis.
13
SECURITIES AVAILABLE FOR SALE-FAIR VALUE AND MATURITY DISTRIBUTION
Stated Maturity
--------------------------------------------------------------------------
Within One Year One to Five Years Five to Ten Years Over Ten Years
----------------- ----------------- ----------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Total
------ ----- ------ ----- ------ ----- ------ ----- -------
(Dollar amounts in thousands)
U.S. Treasury and other U.S. government
agencies and corporations $ - - $ 4,299 7.01% $ 978 7.55% $ 322 7.75% $ 5,599
State and political subdivisions 1,163 7.51% 2,309 4.54% 822 4.87% - 4,294
Mortgage-backed securities(1) 5,096 6.94% 309 7.74% 300 8.10% 28,964 7.35% 34,669
-------- -------- -------- -------
Equity Securities 1,574
--------
Total $ 6,249 $ 6,917 $ 2,100 $29,286 $ 46,086
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
SECURITIES HELD TO MATURITY
U.S. Treasury and other U.S. government
agencies and corporations - - - - 7,054 6.94% 4,412 7.41% $ 11,456
--------
--------
______________________________
(1) Mortgage-backed securities are shown in this table at the contractual
maturity dates.
The Company does not own securities of a single issuer whose aggregate book
value is in excess of 10% of its total equity.
ITEM III. LOAN PORTFOLIO
The following table shows the composition of the loan portfolio at the dates
indicated.
LOANS OUTSTANDING
March 31 December 31
----------- -----------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollar amounts in thousands)
Commercial, financial, and agricultural $ 70,894 $ 71,786 $ 65,563 $ 55,827
Real estate--construction 14,796 13,923 12,006 11,726
Real estate--mortgage 59,869 57,098 42,128 34,743
Installment 42,496 40,440 14,039 11,304
--------- --------- --------- ---------
Total 188,055 183,247 133,736 113,600
The Company seeks to mitigate the risks inherent in its loan portfolio by
adhering to certain underwriting practices. They include analysis of prior
credit histories, financial statements, tax returns and cash flow projections of
its potential borrowers as well as obtaining independent appraisals on real
property and chattel taken as collateral and audits of accounts receivable or
inventory pledged as security.
The Company also has an internal loan review system as well as periodic external
reviews. The results of these external reviews are assessed by the Company's
audit committee. Collection of delinquent loans is generally the responsibility
of the Company's credit administration staff. However, certain problem loans
may be dealt with by the originating loan officer. The Board of Directors
reviews the status of delinquent and problem loans on a monthly basis. The
Company's underwriting and review practices notwithstanding, in the normal
course of business, the Company expects to incur loan losses in the future.
14
The table that follows shows the maturity distribution of the portfolio of
commercial, financial, and agricultural loans and real estate construction loans
on March 31, 1997, as well as sensitivity to changes in interest rates.
March 31, 1997
------------------------------------------------------
Within One to Over
One Year Five Years Five Years Total
--------- ----------- ----------- ------
(Amounts in thousands)
COMMERCIAL, FINANCIAL AND AGRICULTURAL
Loans with floating rates $ 42,617 $ 14,847 $ 5,305 $ 62,769
Loans with predetermined rates 412 6,687 1,030 8,129
--------- --------- ------- -------
Subtotal 43,029 21,534 6,335 70,898
Real Estate--Constuction
Loans with floating rates 7,650 5,898 - 13,548
Loans with predetermined rates 335 - 913 1,248
--------- --------- ------- -------
Subtotal 7,985 5,898 913 14,796
Real Estate--Mortgage 5,784 40,777 13,307 59,868
Installment 5,251 32,206 5,036 42,493
--------- --------- ------- -------
Total $ 62,049 $ 100,415 $ 25,591 $ 188,055
--------- --------- ------- -------
--------- --------- ------- -------
ITEM IV. NONPERFORMING ASSETS
The following table summarizes the Company's nonaccrual, 90 days or more past
due and restructured loans and other real estate owned.
NONPERFORMING ASSETS
March 31 December 31
--------- --------------------------------------
1997 1996 1995 1994
---- ---- ---- -----
(Amounts in thousands)
Nonaccrual loans $ 5,101 $ 4,968 $ 4,626 $ 653
Accruing loans past due 90 days or more 1,565 600 224 46
Restructured performing loans 1,454 1,456 - -
Other real estate owned 1,466 1,466 47 -
------- ------- ------- ------
$ 9,586 $ 8,490 $ 4,897 $ 699
------- ------- ------- ------
------- ------- ------- ------
The provision for loan losses represents Management's determination of the
amount necessary to be added to the allowance for loan losses to bring it to a
level which is considered adequate in relation to the risk of foreseeable losses
inherent in the loan portfolio. Upon determination of a specific loss in the
portfolio, an adjustment to the loan loss reserve is made.
In making this determination, Management takes into consideration the overall
growth trend in the loan portfolio, examinations of bank supervisory
authorities, internal and external credit reviews, prior loan loss experience
for the Company, concentrations of credit risk, delinquency trends, general and
local economic conditions and the interest rate environment. The normal risks
considered by Management with respect to real estate construction loans include
fluctuations in real estate values, the demand for housing and the availability
of permanent financing in the Company's market area and the home buyers' ability
to obtain permanent financing. The normal risks considered by Management with
respect to real estate mortgage loans include fluctuations in the value of real
estate. The normal risks considered by Management with respect to agricultural
loans include the fluctuating value of the collateral, changes in weather
conditions and the availability of adequate water resources in the Company's
local market area. Additionally, the Company relies upon data obtained through
independent appraisals for significant properties in specific identification of
loss exposure in nonperforming loans.
The allowance for loan losses does not represent a specific judgment that loan
charge-offs of that magnitude will necessarily occur. It is always possible
that future economic or other factors may adversely affect the Company's
borrowers, and thereby
15
cause loan losses to exceed the current allowance.
The following table summarizes a breakdown of the allowance for loan losses by
loan category and the percentage by loan category of total loans for the dates
indicated:
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
March 31 December 31
-------- -----------
1997 1996 1995 1994
---- ---- ---- ----
(Dollar amounts in thousands)
Amount % Amount % Amount % Amount %
------ ------ ------ ------ ------ ------ ------ ------
Commercial, financial and
agricultural $ 802 30% $ 840 39% $ 944 49% $ 898 49%
Real estate - construction 1,364 51% 1,421 8% 708 9% 218 10%
Real estate - mortgage 214 8% 219 31% - 31% 376 31%
Installment 294 11% 312 22% 49 11% 129 10%
--- --- --- --- -- --- --- ---
Total $2,674 100% $ 2,792 100% $1,701 100% $1,621 100%
------ ---- ------- ---- ------ ---- ------ ----
------ ---- ------- ---- ------ ---- ------ ----
RECONCILIATION OF RESERVE FOR POSSIBLE LOAN LOSSES
March 31, December 31,
--------- ----------------------------
1997 1996 1995 1994
---- ---- ---- ----
Balance at Beginning of Period $ 2,792 $ 1,701 $ 1,621 $ 1,747
Due to Acquistion of Thrift - 148 - -
Provision for Possible Loan Losses 240 1,513 228 -
CHARGE-OFFS:
Commercial, Financial, and Agricultural 341 518 160 206
Real Estate--Construction - - - -
Real Estate--Mortgage - - - -
Installment Loans to Individuals 77 140 63 42
-------- -------- -------- --------
Total Loans Charged Off 418 658 223 248
RECOVERIES:
Commercial, Financial and Agricultural 56 27 66 99
Real Estate--Construction and Land Development - - - 8
Real Estate--Mortgage - - -
Installment Loans to Individuals 4 61 9 15
--------- --------- --------- ----------
Total Recoveries 60 88 75 122
Net Loans Charged Off 358 570 148 126
--------- --------- --------- -----------
Balance at End of Period $ 2,674 $ 2,792 $ 1,701 $ 1,621
--------- --------- --------- ----------
--------- --------- --------- ----------
LOANS:
Average Loans Outstanding During Period, Gross $ 184,418 $ 157,098 $ 120,620 $ 110,690
Total Loans at End of Period, Gross $ 188,055 $ 183,247 $ 133,736 $ 113,600
OTHER INTEREST-BEARING ASSETS
The following table relates to other interest bearing assets not disclosed above
for the dates indicated. This item consists of a salary continuation plan for
the Company's executive management and deferred retirement benefits for
participating board members. The plan is informally linked with universal life
insurance policies totaling $3,839,000 for the salary continuation plan.
March 31 December 31
-------- -----------------------------------
1997 1996 1995 1994
---- ---- ----- ----
(Dollar amounts in thousands)
Cash surrender value of life insurance $3,172 $3,134 $1,290 $ 288
------ ------ ------ ------
16
ITEM V. DEPOSITS
The following table sets forth the average balance and the average rate paid
for the major categories of deposits for the dates indicated:
March 31 December 31
-------- ---------------------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Amounts in thousands except yield)
Amount Yield Amount Yield Amount Yield Amount Yield
------- ----- ------ ----- ------- ----- ------ -----
Noninterest-bearing demand deposits $ 32,871 - $ 30,549 - $ 26,478 - $ 25,326 -
Interest-bearing demand deposits 33,368 0.94% 29,376 0.91% 26,192 0.91% 25,126 0.94%
Savings deposits 112,564 3.99% 104,938 4.15% 91,509 4.60% 66,517 3.45%
Time deposits under $100,000 50,809 5.27% 34,408 5.26% 19,073 4.84% 27,259 3.82%
Time deposits $100,000 and more 8,607 5.47% 6,586 5.43% 6,358 5.17% 7,160 3.78%
--------- --------- --------- ---------
Total deposits $ 238,219 $ 205,857 $ 169,610 $ 151,388
--------- --------- --------- ---------
--------- --------- --------- ---------
MATURITIES OF TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
Maturities of time certificates of deposits of $100,000 or more outstanding at
March 31, 1997 and December 31, 1996 are summarized as follows:
March 31,1997 December 31, 1996
------------ -----------------
(In thousands)
Remaining Maturity:
Three months or less $ 1,915 $ 2,230
Three through twelve months 10,171 2,325
Over twelve months 5,378 2,055
------- --------
Total $ 17,464 $ 6,610
------- --------
------- --------
SHORT-TERM BORROWINGS
Short-term borrowings outstanding as of the period indicated and their related
weighted average interest rates were:
March 31 December 31
1997 1996
-------------- -----------------
Dollars in thousands Amount Rate Amount Rate
- -------------------- ----------------------------------------
Federal funds purchased $ 1,000 6.97% -
Securities sold under
repurchase agreements 4,870 5.63% -
Other 1,083 9.64% 110 8.75%
------- ------
$ 6,953 $ 110
------- ------
------- ------
Federal funds purchased generally mature daily. Securities sold under
repurchase agreements generally mature within 1 to 135 days or are due upon
demand. On April 30, 1997, the Company reduced other short-term liabilities
with an interest rate of 10% by $770,000.
LONG-TERM BORROWINGS
Long-term borrowings outstanding as of the period indicated and their related
weighted average interest rates were:
March 31 December 31
1997 1996
-------------- -----------------
Dollars in thousands Amount Rate Amount Rate
- -------------------- ----------------------------------------
Federal Home Loan Bank $ 5,105 5.48% $ 106 7.58%
Other 330 8.75% 1,429 9.42%
------- ------
$ 5,435 $1,535
------- ------
------- ------
17
ITEM VI. RETURN ON EQUITY AND ASSETS
The following table sets forth certain financial ratios for the periods
indicated (averages are computed using actual daily figures):
Three months ended Year ended
March 31 December 31
------------------ --------------------------
1997 1996 1995 1994
---- ---- ---- ----
Return on average assets .76% 0.88% 0.18% 1.05%
Return on average equity 9.72% 11.05% 2.16% 12.81%
Dividend payout ratio - .05% - -
Average equity to average assets 7.90% 7.96% 8.33% 8.17%
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of management, there is no additional information relating to
these periods being reported which warrants inclusion in the report.
ITEM 2. CHANGES IN SECURITIES
In the opinion of management, there is no additional information relating to
these periods being reported which warrants inclusion in the report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In the opinion of management, there is no additional information relating to
these periods being reported which warrants inclusion in the report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the opinion of management, there is no additional information relating to
these periods being reported which warrants inclusion in the report.
ITEM 5. OTHER INFORMATION
In the opinion of management, there is no additional information relating to
these periods being reported which warrants inclusion in the report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following is a list of all exhibits required by Item 601 of Regulation S-K
to be filed as part of this Form 10-Q:
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- ------------
2.0 Agreement Plan of Acquisition dated March 22, 1996 by and between *
Capital Corp and Town and Country Finance and Thrift (filed as
Exhibit to Company's Form S-4 filed with the SEC on or about May 31, 1996)
3.1 Articles of Incorporation (filed as Exhibit 3.1 of the Company's *
September 30, 1996 Form 10Q filed with the SEC on or about November 14, 1996).
3.2 Bylaws (filed as Exhibit 3.2 of the Company's September 30, 1996 Form 10Q *
filed with the SEC on or about November 14, 1996).
18
10 Employment Agreement between Thomas T. Hawker and Capital Corp. (filed as *
Exhibit 10 of the Company's 1996 Form 10K filed with the SEC on or about
March 31, 1997)
10.1 Administration Construction Agreement (filed as Exhibit 10.4 of the Company's *
1995 Form 10K filed with the SEC on or about March 31, 1996).
10.2 Stock Option Plan (filed as Exhibit 10.6 of the Company's 1995 Form 10K filed *
with the SEC on or about March 31, 1996).
10.3 401(k) Plan (filed as Exhibit 10.7 of the Company's 1995 Form 10K filed with the *
SEC on or about March 31, 1996).
10.4 Employee Stock Ownership Plan (filed as Exhibit 10.8 of the Company's 1995 *
Form 10K filed with the SEC on or about March 31, 1996).
11 Statement Regarding the Computation of Earnings Per Share is incorporated herein
by reference from Note 1 of the Company's Consolidated Financial Statements.
* Denotes documents which have been incorporated by reference.
FINANCIAL STATEMENT SCHEDULES
All other supporting schedules are omitted because they are not applicable, not
required, or the information required to be set forth therein is included in
the financial statements or notes thereto incorporated herein by reference.
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.
Capital Corp of the West
/s/ Thomas T. Hawker
-----------------------------------
Thomas T. Hawker
President & Chief Executive Officer
/s/ Janey Boyce
-----------------------------------
Janey Boyce
Senior Vice President & Chief Financial Officer
Dated: May 12, 1997
19