FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-265520
CALIFORNIA INDEPENDENT BANCORP
-------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0349947
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1227 BRIDGE ST., SUITE C, YUBA CITY, CALIFORNIA 95991
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(916) 674-4444
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1997
----- -------------
Common stock, no par value 1,554,346 Shares
This report contains a total of 23 pages
PART I - FINANCIAL INFORMATION
ITEM 1 PAGE
CALIFORNIA INDEPENDENT BANCORP AND
SUBSIDIARIES FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS 4
CONSOLIDATED STATEMENTS OF INCOME FOR SIX MONTHS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-8
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-21
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 22
ITEM 6
Reports on Form 8-K 22
SIGNATURES 23
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
ASSETS
Cash and due from banks $ 14,264 $ 22,991
Federal funds sold 10,000 41,300
---------- ------------
Total Cash and Equivalents 24,264 64,291
Investment securities:
Available-for-sale securities, at fair value 12,289 11,381
Held-to-maturity securities, at amortized cost
(fair value of $27,636 and $23,511 respectively) 27,481 23,283
Loans:
Commercial 96,674 73,620
Consumer 2,723 2,984
Real Estate-mortgage 30,940 28,564
Real Estate-construction & land development 34,300 29,916
Leases and Other 31,634 16,016
---------- ------------
Total loans 196,271 151,100
Less allowance for possible loan losses (4,202) (4,053)
---------- ------------
Net Loans 192,069 147,047
Premises and equipment, net 7,959 7,420
Accrued interest receivable and other assets 10,056 9,389
---------- ------------
Total other assets 18,015 16,809
---------- ------------
TOTAL ASSETS $ 274,118 $ 262,811
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $ 50,156 $ 55,181
Demand, interest bearing 34,288 33,659
Savings and Money Market 67,864 67,756
Time certificates 98,092 81,360
---------- ------------
Total deposits 250,400 237,956
Accrued interest payable and other liabilities 2,465 2,823
---------- ------------
TOTAL LIABILITIES 252,865 240,779
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized;
1,554,346 and 1,546,032 shares issued and outstanding at
June 30, 1997 and at December 31, 1996, respectively 11,537 8,766
Retained earnings 9,727 13,284
Net unrealized gains (losses) on available-for-sale securities (11) (18)
---------- ------------
Total shareholders' equity 21,253 22,032
---------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 274,118 $ 262,811
---------- ------------
---------- ------------
See accompanying notes to consolidated financial statements
3
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
-----------------------------
Interest income:
Interest and fees on loans $ 4,928 $ 4,190
Interest on investment securities 671 415
Interest on federal funds sold 305 262
------------- -------------
Total interest income 5,904 4,867
------------- -------------
Interest expense:
Demand, interest bearing 358 248
Savings 657 601
Time certificates 1,338 889
Other 6 5
------------- -------------
Total interest expense 2,359 1,743
------------- -------------
Net interest income 3,545 3,124
Provision for possible loan losses (3,296) (40)
------------- -------------
Net interest income after provision for possible loan losses 249 3,084
------------- -------------
Other income:
Service charges 250 275
Net gain (loss) on securities transactions - -
Other 843 315
------------- -------------
Total other income 1,093 590
------------- -------------
Other expenses:
Salaries and benefits 1,888 1,177
Occupancy 180 137
Equipment 328 256
Advertising and promotion 139 110
Stationery and supplies 78 69
Legal and professional fees 60 85
Other operating expenses 711 527
------------- -------------
Total other expenses 3,384 2,361
Earnings before income taxes (2,042) 1,313
Income taxes (849) 526
------------- -------------
Net Income $ (1,193) $ 787
------------- -------------
------------- -------------
Primary earnings per share $ (0.77) $ 0.54
------------- -------------
------------- -------------
Weighted average shares outstanding 1,552,808 1,451,278
------------- -------------
------------- -------------
Fully Diluted:
Earnings per share $ (0.67) $ 0.47
------------- -------------
Weighted average shares outstanding 1,792,006 1,690,960
------------- -------------
Cash dividend paid per share of common stock $ 0.11 $ 0.11
------------- -------------
------------- -------------
See accompanying notes to consolidated financial statements
4
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
----------------------------
Interest income:
Interest and fees on loans $ 9,251 $ 7,948
Interest on investment securities 1,294 921
Interest on federal funds sold 832 821
------------- ------------
Total interest income 11,377 9,690
------------- ------------
Interest expense:
Demand, interest bearing 712 495
Savings 1,318 1,203
Time certificates 2,528 1,779
Other 12 12
------------- ------------
Total interest expense 4,570 3,489
------------- ------------
Net interest income 6,807 6,201
Provision for possible loan losses (3,336) (100)
------------- ------------
Net interest income after provision for possible loan losses 3,471 6,101
------------- ------------
Other income:
Service charges 486 483
Net gain (loss) on securities transactions - 4
Other 1,669 741
------------- ------------
Total other income 2,155 1,228
------------- ------------
Other expenses:
Salaries and benefits 3,597 2,422
Occupancy 324 278
Equipment 610 466
Advertising and promotion 224 214
Stationery and supplies 179 137
Legal and professional fees 137 106
Regulatory assessments 26 15
Other operating expenses 1,244 1,069
------------- ------------
Total other expenses 6,341 4,707
Earnings before income taxes (715) 2,622
Income taxes (339) 1,048
------------- ------------
Net Income $ (376) $ 1,574
------------- ------------
------------- ------------
Primary earnings per share $ (0.24) $ 1.08
------------- ------------
------------- ------------
Weighted average shares outstanding 1,549,439 1,451,278
------------- ------------
------------- ------------
Fully Diluted:
Earnings per share $ (0.21) $ 0.94
------------- ------------
Weighted average shares outstanding 1,792,419 1,673,398
------------- ------------
Cash dividend paid per share of common stock $ 0.22 $ 0.22
------------- ------------
See accompanying notes to consolidated financial statements
5
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
JUNE 30, JUNE 30,
1997 1996
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (376) $ 1,574
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 463 371
Provision for possible loan losses 40 100
Provision for deferred taxes 5 (1,079)
(Increase) decrease in assets-
interest receivable (1,103) (1,664)
Other assets 233 3,226
Increase (decrease) in liabilities-
interest payable 123 (243)
Other liabilities (481) 242
------------- ------------
Net cash provided by operating activities (1,096) 2,527
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (45,062) (35,937)
Purchase of investments (11,204) (2,028)
Proceeds from maturity of htm securities 5,541 4,495
Proceeds from sales/maturity of afs securities 564 2,166
Proceeds from sales of other real estate owned 51 0
Purchases of premises and equipment (1,001) (156)
------------- ------------
Net cash used for investing activities (51,111) (31,460)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits (5,024) (3,307)
Net increase in interest-bearing deposits 17,469 5,484
Cash dividends (341) (318)
Stock options exercised 76 54
Cash paid in lieu of fractional shares 0 0
------------- ------------
Net cash provided by financing activities 12,180 1,913
NET INCREASE (DECREASE) (40,027) (27,020)
------------- ------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,291 47,963
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 24,264 20,943
------------- ------------
------------- ------------
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 its
subsidiaries at June 30, 1997 and December 31, 1996, and the results of its
operations for the periods ended June 30, 1997 and 1996, respectively.
Certain information and footnote disclosures normally presented in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations for
the period ended June 30, 1997 are not necessarily indicative of the
operating results for the full year ending December 31, 1997.
NOTE 2 - CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary Feather River State Bank, and EPI Leasing,
Company Inc., a subsidiary of Feather River State Bank. All material
intercompany accounts and transactions have been eliminated in
consolidation.
.
NOTE 3 - LOANS TO DIRECTORS
In the ordinary course of business, the Company makes loans to directors of
the Company, which on June 30, 1997, amounted to a total of approximately
$7,583,744.
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 August 16, 1996).
7
NOTE 6 - CASH DIVIDENDS
The Company paid an eleven cent per share dividend in February 1997 and May
1997, respectively.
NOTE 7- EARNINGS PER SHARE
Effective December 31, 1997, the Bank is required to adopt Financial
Accounting Standards Board No. 128, Earnings Per Share (EPS). Among other
things, the new standard requires replacement of primary EPS with basic
EPS. Basic EPS is computed by dividing reported earnings available to
common stockholders by weighted average shares outstanding. No dilution
for any potentially dilutive securities is included. Fully diluted EPS,
now called diluted EPS, is still required. The Bank has not quantified the
effect of applying the new standard.
8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF CHANGES IN THE FINANCIAL STATEMENTS
During the second quarter, the Company determined that additional contributions
to Loan Loss Reserves were required in order to recognize the increased risk
exposure for a small number of sizable loans in its portfolio. Management's
action resulted in a one -time $3,200,000 contribution to Loan Loss Reserves.
As a result, the second quarter and year-to-date operating results show a loss.
Net income for the quarter was ($1,193,000) for fully-diluted earnings per share
of ($.67), representing a 251.6% decrease over the second quarter of 1996, which
saw net income of $787,000, or $.47 per share on a fully-diluted basis.
Year-to date, the six months ending June 30, 1997, saw net income of ($376,000)
or ($.21) per share on a fully-diluted basis, as compared to the same period in
1996 at which time the Company reported net earnings year-to date of $1,574,000
or $.94 per share on a fully-diluted basis.
Total assets at June 30,1997, were $274,118,000, an increase of 4.3% over
December 31, 1996, total assets of $262,811,000.
Outstanding net loans were $192,069,000 at June 30, 1997, compared to
$147,047,000 at December 31, 1996, an increase of $45,022,000 or 30.6%.
The Company's investment portfolio at June 30, 1997, was $39,770,000, or
14.5% of total assets, an increase from $34,664,000 or 21.1% of total assets
at December 31, 1996, as the Company shifted assets from overnight Federal
Funds to longer term, higher yielding investments. At June 30, 1997, Federal
Funds Sold were $10,000,000 as compared to $41,300,000 at December 31, 1996.
This excess liquidity is due to Management's strategy to fund internally the
anticipated seasonal agricultural and real estate loan demand.
Total deposits at June 30, 1997, were $250,400,000 compared to $237,956,000 at
December 31, 1996, an increase of 5.2%. During the first half of 1997,
noninterest-bearing demand deposits decreased from $55,181,000 at December 31,
1996 to $50,156,000 at June 30, 1997. The Company attributes this decrease of
$5,025,000 or 9.1% in demand deposits to depositors shifting their funds into
interest bearing deposits with the institution. At June 30, 1997,
interest-bearing deposits were $200,244,000, as compared to $182,775,000 at
December 31, 1996, an increase of 9.56%.
9
The total loan-to-deposit ratio was 78% at June 30, 1997, compared to 63.5% at
December 31, 1996. This increase is the result of normal lending cycles of
agricultural loans, real estate loans and the purchase of leases.
LOANS
Total loans outstanding as of June 30, 1997, were $196,271,000 representing an
increase of $45,179,000 or 29.9% over June 30, 1996. The increase is
attributable to three principal events.
Real estate construction loans increased by $12,400,000 or 82.7% from one
year prior. The Company extends construction loans primarily to builders of
single family houses. Loans are made to individual borrowers and to real
estate developers. As a strategy to increase loan volume, the Company has
attempted to diversify its construction loan activity into several new market
areas. The Company originates construction loans from its Real Estate
Department in Yuba City and its loan production offices in Chico, Roseville
and Madera. The Company's efforts have resulted in successfully increasing
market share in the Davis, Chico, Madera and greater Sacramento area markets.
Construction loan growth has occurred primarily in these regions.
The Company's lease portfolio increased from $18,300,000 on June 30, 1996 to
$29,800,000 on June 30, 1997 representing growth of 62.8%. Leases are
reported under the "Commercial Loan's" category in the consolidated balance
sheet. The Bank originates commercial and industrial equipment leases
through its subsidiary EPI Leasing Company (EPI) located in Sacramento. EPI
was acquired by the Bank during the fourth quarter of 1996, and lease
origination volume has increased $7,190,000 during the first half of 1997.
In addition, the Company purchases commercial leases from other financial
institutions. Leases amounting to $11,145,000 have been purchased during the
past twelve months. One of the Company's loan portfolio management
strategies has been to increase the lease portfolio in order to increase net
interest margin and diversify the portfolio.
Agricultural loans have increased $6,800,000 or 11.5% over June 30, 1996.
The Company provides a wide range of loan products to farmers and
agri-businesses throughout its trade area. Agricultural loans are reported
under the "Commercial Loans" category in the consolidated balance sheet. The
increase is ascribed to increased market penetration in the Sacramento and
San Joaquin Valleys. Although agricultural loan volume increased between
June 30, 1996 and June 30, 1997, agricultural loans as a percentage of the
Bank's total loan portfolio actually shrunk from 41% to 35% between these two
time periods as part of the Company's effort to decrease portfolio risk
concentrations.
The Company lends primarily to small and medium sized businesses, small to large
sized farmers and consumers within its market area, which is comprised
principally of Sutter, Yuba, Colusa and Yolo Counties, and secondarily of
Butte, Glenn, Sacramento, Placer, Madera and Fresno Counties.
During the first quarter of 1997, the Company opened its third loan production
office (LPO) in the city of Madera, California. This LPO is structured and
staffed to accommodate the origination of agricultural loans, real estate loans
and commercial leases (through EPI). The decision to open this LPO was based
upon a market analysis of available lending opportunities in the Central Valley.
Based
10
upon the Company's market research, prior lending experience in the San
Joaquin Valley and recent bank closures and mergers, it was determined that
Madera was a desirable location for an LPO. The LPO actively began
originating loans during the second quarter of 1997 and experience to date
has been positive.
LOAN QUALITY
The Company places loans on nonaccrual status if; (1) principal or interest has
been in default for 90 days or more, unless the loan is both well secured and in
the process of collection; (2) payment in full of principal or interest is not
expected; or (3) the financial condition of the borrower has significantly
deteriorated.
The table set forth below summarizes the composition of non performing loans as
of June 30, 1997, December 31, 1996, and June 30, 1996.
----------------------------------------------------------
$ Amt. % of $ Amt. % of $ Amt. % of
6/30/97 Class 12/31/96 Class 6/30/96 Class
----------------------------------------------------------
ACCRUING LOANS
PAST DUE
90 DAYS OR MORE
Commercial 420 1.4% 1,006 3.9%
Agricultural 0.0% 981 2.0% 161 0.2%
Real Estate 620 1.0%
Leases 461 1.5% 210 1.3% 35 0.2%
Consumer
----------------------------------------------------------
TOTAL 1,501 0.8% 2,197 1.5% 196 0.1%
----------------------------------------------------------
NONACCRUAL LOANS
----------------------------------------------------------
Commercial 1,700 5.8% 154 0.5% 35 0.1%
Agricultural 3,910 5.4% 35 0.0% 955 1.4%
Real Estate 1,913 3.2% 657 1.2% 79 0.2%
Leases
Consumer
----------------------------------------------------------
TOTAL 7,523 3.9% 846 0.6% 1,069 0.7%
----------------------------------------------------------
----------------------------------------------------------
TOTAL NONPERFORMING 9,024 4.7% 3,043 2.1% 1,265 0.8%
----------------------------------------------------------
The trend in nonperforming loans has clearly escalated over the past year as
nonperforming loans increased from 0.8% of the portfolio on June 30, 1996 to
4.7% of the portfolio on June 30, 1997. The Company believes this trend is
attributable to increased risk exposure present in five loan relationships.
During the second quarter of 1997, the Company identified increased credit
risk exposure in four large loan relationships and thirteen leases. This
determination, combined with several previously identified problem loans,
convinced Management to take action toward the resolution of the
nonperforming loans. Management thoroughly analyzed the troubled loan
portfolio. Based upon an analysis of the debtors' repayment ability and
financial position, and the Bank's collateral value, Management determined
that eleven loans and thirteen leases should be charged off (either partially
or entirely). Management elected to entirely charge off twenty assets with
a book value of $1,144,077 and write-down four other assets in the aggregate
amount of $1,980,435. The partially charged off
11
loans have been written down to a conservative estimate of the remaining
collateral value.
For the six months ending June 30, 1997, the Company charged off $3,200,000,
while the total charge-offs for all of 1996 were $327,000. As a result,
Management believes that a low loss exposure rests in the remaining
nonperforming loans. In addition, Management has assembled an experienced group
of loan collectors to aggressively collect the nonperforming and charged off
loans. Some progress has been made during the first half of 1997. Many of the
nonperforming loans are now operating under either Workout Agreements,
Restructure Agreements or Liquidation Agreements. All of these loans are in the
process of collection. Management projects significant progress toward the
reduction of nonperforming assets by year-end 1997.
The remaining nonperforming credits are concentrated in five loan
relationships. Five large loan relationships currently comprise 91% of total
nonaccrual loans. Two of these five loan relationships are agricultural loans
and constitute 59% of total nonaccrual loans. Both of these borrowers have
sustained financial difficulties stemming from a combination of adverse
weather conditions (reducing production) and poor farm management decisions.
Both of these nonaccrual loans were subject to partial loan charge-offs
during the second quarter of 1997. Management now projects that the remaining
collateral value will fully satisfy these credits. One loan is projected to
be paid off by May 1, 1998 and the other substantially reduced by December
31, 1997.
One of the additional large nonaccrual loans, comprising 21% of total
nonaccruals, is to a real estate developer. The Bank financed a foothills area
subdivision that did not proceed as scheduled. The borrower has sustained cash
flow and solvency problems. This credit has been restructured under a new
development plan. The loan is adequately secured based upon recent real estate
appraisals. Management believes that the loan could qualify for transfer out of
nonaccrual status by June 30, 1998.
The other two large nonaccruals, comprising 11% of the total, are commercial
credits. One of these loans was significantly charged down in June 1997. The
liquidation value of the remaining collateral is projected to retire this loan
in full by December 31, 1997. The other loan is currently in the process of
being restructured.
Management's decision to charge down nonperforming loans significantly
reduced the Company's Allowance for Loan Loss Reserves. Instead of rebuilding
the reserve account over a period of time, Management elected to make a
contribution to Loan Loss Reserves of $3,200,000 during the second quarter of
1997. As a result, the Company posted second quarter 1997 losses of $1,193,440
and year-to-date net losses of $375,906. The Company 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. The allowance for
loan losses at June 30, 1997, was $4,202,000, an increase of $149,000 from
December 31, 1996. The allowance equates to 2.2% of the Bank's outstanding
loans at June 30, 1997, and 2.5% of the Bank's average year-to-date loan
portfolio. Management believes that the total allowance for loan losses is
adequate to cover potential losses in the loan portfolio. While Management uses
available information to provide for loan losses, future additions to the
allowance may be necessary based on changes in economic conditions and other
factors.
12
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
loan 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 borrower's ability to repay the loan. Actual
losses may vary from current estimates. The estimates are reviewed constantly,
and adjustments, as necessary, are charged to operations in the period in which
they become known.
In addition to the above, the Company holds real estate properties as "Other
Real Estate Owned" (OREO) recorded at $1,010,000 at June 30, 1997. 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.
13
RESULTS OF OPERATIONS
Three months ended June 30, 1997
compared with
Three months ended June 30, 1996
During the three-month period ending June 30, 1997, the Company showed a net
loss due to additional contributions to Loan Loss Reserves. The net loss for
the period was ($1,193,000) as compared to the June 30, 1996, figure of
$787,000, a decrease of 251.6%.
Net interest income before provisions for loan losses increased from
$3,124,000 for the three months ended June 30, 1996, to $3,545,000 for the
same period in 1997, an increase of $421,000. This additional income is
partially due to an increase of 18.1% in average outstanding loans during the
second quarter of 1997 over the same period in 1996. In addition, the
average prime rate was .25% higher in the second quarter of 1997 over the
same period in 1996.
Other income increased by $503,000 over the same period in 1996, mostly as
the result of increased commission and fees on leases earned by the Bank's
subsidiary, EPI Leasing Company.
Other expenses for the three months ended June 30, 1997, were $3,384,000, an
increase of $1,023,000 over the same period in 1996, mostly due to increases in
salaries and benefits. A major contributor to this increase was the purchase of
EPI Leasing Company and the opening of a new branch in Wheatland, California,
in March 1997. In addition, the Bank opened a new loan production office in
Madera, California, in March 1997.
The yield on average earning assets for the three-month period ended June 30,
1997, compared to the same period in 1996, is set forth in the following table
(in thousands except for percentages):
Three months ended Three months ended
June 30, 1997 June 30, 1996
Average loans $ 176,531 $ 149,529
outstanding
Average yields 11.17% 11.21%
Amount of interest
& fees earned $ 4,928 $ 4,190
Average prime rate 8.50% 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.
14
Rates and amounts paid on average deposits, including noninterest-bearing
deposits for the three-month period ended June 30, 1997, compared to the same
period in 1996, are set forth in the following table (in thousands except for
percentages):
Three months ended Three months ended
June 30, 1997 June 30,1996
Average deposits $ 243,177 $ 191,775
outstanding
Average rates paid 3.88% 3.64%
Amount of interest
paid or accrued $ 2,359 $ 1,743
The following table summarizes the principal elements of operating expenses and
discloses the increases (decreases) and percent of increases (decreases) for the
three-month period ended June 30, 1997 and 1996 (amounts in thousands except for
percentages):
Three months ended June 30, 1997 Increase (Decrease)
1997 over 1996
1997 1996
--------------------------------- --------------------------
Salaries and benefits $ 1,888 $ 1,177 $ 711 60.41%
Occupancy 180 137 43 31.39%
Equipment 328 256 72 28.13%
Advertising and promotion 139 110 29 26.36%
Stationery & supplies 78 69 9 13.04%
Legal and professional fees 60 85 (25) (29.41%)
Other operating expenses 711 527 184 34.91%
--------------------------------- --------------------------
Total other expenses $ 3,384 $ 2,361 $ 1,023 43.33%
--------------------------------- --------------------------
--------------------------------- --------------------------
The increases in salaries and benefits resulted from normal salary increases and
increased staffing for the opening of the new Wheatland Branch and the addition
of the employees at EPI Leasing Company, the Bank's subsidiary. Additional
staff has also been added to the new office location in Marysville, California
and the loan production office in Madera, California.
The Company employed 190 full-time equivalent employees on June 30, 1997,
compared to 179 on December 31, 1996, and 148 on June 30, 1996.
The increase in occupancy and equipment expense over 1996 is attributable to the
purchase, relocation and remodeling of a new building for our Marysville Branch,
which opened in the second quarter of 1996, the opening of the Bank's new
Wheatland Branch, the opening of the Bank's loan production office in Madera and
the addition of the Bank's subsidiary, EPI Leasing Company. In addition, the
Bank purchased Automated Teller Machines (ATM's) for each of its seven branches.
In addition the Bank purchased a bank building in Yuba City to provide much
needed space for its Residential and Agricultural Real Estate Departments and
also installed
15
walk-up and drive-up ATM's at the new Real Estate Loan Center. In addition,
during the second quarter of 1997, the Company remodeled and relocated its
Administrative Office to a complex owned by the Company.
Applicable income taxes for the three-month period ended June 30, 1997, were
($849,000), as compared to the June 30, 1996 amount of $526,000. The tax credit
was due to the loss recognized during the second quarter of 1997.
16
RESULTS OF OPERATIONS
Six months ended June 30, 1997
compared with
Six months ended June 30, 1996
During the six-month period ended June 30, 1997, the Company showed a net loss
due to additional contributions to Loan Loss Reserves. The net loss for the
period was ($376,000) as compared to the June 30, 1996, figure of $1,574,000, a
decrease of 123.9%.
Net interest income before provisions for loan losses increased from $6,201,000
for the six months ended June 30, 1996 to $6,807,000 for the same period in
1997, an increase of $606,000. This additional income is partially due to
an increase of 22.4% in average outstanding loans during the second quarter of
1997 over the same period 1996. In addition, the average prime rate was .21%
higher in the second quarter of 1997 over the same period in 1996.
Other income increased by $927,000 over the same period in 1996, mostly as the
result of increased commission and fees on leases earned by the Bank's
subsidiary, EPI Leasing Company.
Other expenses for the six months ended June 30, 1997, were $6,341,000, an
increase of $1,634,000 over the same period in 1996, mostly due to increases in
salaries and benefits. A major contributor to this increase was the purchase of
EPI Leasing Company and the opening of a new branch in Wheatland, California,
in March 1997. In addition, the Bank opened a new loan production office in
Madera, California in March 1997.
The yield on average earning assets for the six-month period ended June 30,
1997, compared to the same period in 1996, is set forth in the following table
(in thousands except for percentages):
Six months ended Six months ended
June 30, 1997 June 30, 1996
Average loans $ 165,725 $ 136,363
outstanding
Average yields 11.16% 11.66%
Amount of interest
& fees earned $ 9,251 $ 7,949
Average prime rate 8.50% 8.29%
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.
17
Rates and amounts paid on average deposits, including noninterest bearing
deposits for the six-month period ended June 30, 1997, compared to the same
period in 1996, are set forth in the following table (in thousands except for
percentages):
Six months ended Six months ended
June 30, 1997 June 30,1996
Average deposits $ 240,216 $ 192,107
outstanding
Average rates paid 3.80% 3.62%
Amount of interest
paid or accrued $ 4,570 $ 3,477
The following table summarizes the principal elements of operating expenses and
discloses the increases (decreases) and percent of increases (decreases) for the
six- month periods ended June 30, 1997 and 1996, respectively (amounts in
thousands except for percentages):
Six months ended June 30, 1997 Increase (Decrease)
1997 over 1996
1997 1996
------------------------------ ------------------
Salaries and benefits $ 3,597 $ 2,422 $ 1,175 48.51%
Occupancy 324 278 46 16.55%
Equipment 610 466 144 30.90%
Advertising and promotion 224 214 10 4.67%
Stationery & supplies 179 137 42 30.66%
Legal and professional fees 137 106 31 29.25%
Other operating expenses 1,270 1,084 186 17.16%
------------------------------ ------------------
Total other expenses $ 6,341 $ 4,707 $ 1,634 34.71%
------------------------------ ------------------
------------------------------ ------------------
The increases in salaries and benefits resulted from normal salary increases and
increased staffing for the opening of the new Wheatland Branch and the addition
of the employees at EPI Leasing Company, the Bank's subsidiary. Additional
staff has also been added to the new office location in Marysville, California
and new loan production office in Madera, California.
The Company employed 190 full-time equivalent employees on June 30, 1997,
compared to 179 on December 31, 1996, and 148 on June 30, 1996.
18
The increase in occupancy and equipment expense over 1996 is attributable to the
purchase, relocation and remodeling of a new building for the Bank's Marysville
Branch which opened in the second quarter of 1996, the opening of the Bank's new
Wheatland Branch, and the addition of the Bank's subsidiary, EPI Leasing
Company. In addition, the Company purchased Automated Teller Machines (ATM's)
for each of its seven branches. The Bank also purchased a bank building in Yuba
City to provide much needed space for its Residential and Ag Real Estate
Departments and also installed walk-up and drive-up ATM's at the new Real
Estate Loan Center. In addition during the second quarter of 1997, the Company
remodeled and relocated its Administrative Office to a complex owned by the
Company.
Applicable income taxes for the six-month period ended June 30, 1997, were
($339,000) as compared to the June 30, 1996, amount of $1,048,000. The tax
credit was due to the loss recognized during the second quarter of 1997.
LIQUIDITY
During the first two quarters of each year, the Bank tends to have excess
liquidity. The Bank's seasonal agricultural loan demand tends to challenge
the Bank's liquidity position beginning 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. As of June 30, 1997, and December 31,
1996, respectively, 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.
RATE SENSITIVITY
On a monthly basis, the Bank tracks its RSA's (Rate Sensitive Assets) and RSL's
(Rate Sensitive Liabilities) and calculates the difference between the two (GAP)
as a percentage of total assets for various time horizons.
The Bank's goal is to maintain a cumulative GAP of between 0% and +10% for a
one-year horizon. The June 30, 1997, one-year GAP was (4.7%). Since this
figure is negative, it means that in an increasing interest rate environment the
Bank's RSL's will reprice faster than the Bank's RSA's, therefore, creating a
larger difference between interest expense and interest income, which in turn
results in a smaller net interest margin. The Bank's 90-day interest
sensitivity gap was (1.2%) on June 30, 1997.
19
CAPITAL RESOURCES
Total shareholders' equity On June 30, 1997, decreased by $779,000 primarily
due to the loss recognized, and stood at $21,253,000.
On December 31, 1996, total shareholders' equity was $22,032,000.
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 be in Tier 1 Capital.
In addition, federal agencies have adopted a minimum leverage ratio of Tier 1
Capital to total assets of 4%, which is intended to supplement risk-based
capital requirements and to ensure that all financial institutions continue
to maintain a minimum level of core capital.
As can be seen by the following tables, the Company exceeded all regulatory
capital ratios on June 30, 1997, and on December 31, 1996:
RISK-BASED CAPITAL RATIO
AS OF JUNE 30, 1997
- ------------------------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
Tier 1 Capital $ 21,034 8.77% $ 20,872 8.91%
Tier 1 Capital
minimum requirement 9,592 4.00% 9,375 4.00%
--------------------------------------------
Excess $ 11,442 4.77% $ 11,497 4.91%
--------------------------------------------
--------------------------------------------
Total Capital 23,980 10.23% 23,817 10.16%
Total Capital
minimum requirement 18,756 8.00% 18,750 8.00%
--------------------------------------------
Excess $ 5,224 2.23% $ 5,067 2.16%
--------------------------------------------
Risk-adjusted assets $234,451 $234,373
--------------------------------------------
--------------------------------------------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly $ 21,034 7.91% $ 20,872 7.77%
average total assets
Minimum leverage requirement 10,641 4.00% 10,743 4.00%
--------------------------------------------
Excess $ 10,393 3.91% $ 10,129 3.77%
--------------------------------------------
--------------------------------------------
Total Quarterly average assets $266,023 $268,584
-------- --------
-------- --------
20
RISK BASED CAPITAL RATIO
AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
Tier 1 Capital $ 21,813 11.31% $ 21,804 11.32%
Tier 1 Capital
minimum requirement 7,713 4.00% 7,708 4.00%
--------------------------------------------
Excess $ 14,100 7.31% $ 14,096 7.32%
--------------------------------------------
--------------------------------------------
Total Capital 22,918 11.89% 24,225 12.57%
Total Capital minimum
minimum requirement 15,426 8.00% 15,415 8.00%
--------------------------------------------
Excess $ 7,492 3.89% $ 8,810 4.57%
--------------------------------------------
Risk-adjusted assets $192,825 $192,693
--------------------------------------------
--------------------------------------------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly $ 21,813 8.82% $ 21,804 8.82%
average total assets
Minimum leverage requirement 9,891 4.00% 9,890 4.00%
--------------------------------------------
Excess $ 11,922 4.82% $ 11,914 4.82%
--------------------------------------------
--------------------------------------------
Total Quarterly average assets $247,274 $247,255
-------- --------
-------- --------
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The future results of the Company's operations, the necessity of further
provisions for its loan loss reserves, quality of its loan portfolio, and
ability to pay future dividend constitute "forward-looking" information as
defined by: (1) the Private Litigation Reform Act of 1995 ("Act"); and (2)
releases made by the Security and Exchange Commission ("SEC"). This
cautionary statement is being made pursuant to the provisions of the Act with
the express intention of obtaining the benefits of the "safe harbor"
provisions of the Act. Investors are cautioned that any forward-looking
statements made by the Company and its Management are not guarantees of
future performance and that actual results may differ materially from those
in the forward-looking statements as a result of, but not limited to, the
following factors: the economic environment, particularly in the region in
which the Company operates; competitive products and pricing; fiscal and
monetary policies of the federal government; changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements; changes in prevailing interest rates; acquisitions and
the integration of acquired businesses; credit risk management and
asset/liability management; the financial and securities markets; and the
availability of and costs associated with sources of liquidity.
21
PART II
OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
California Independent Bancorp's Annual Meeting of Shareholders was held on May
21, 1997, in Yuba City, California. The following resolutions were distributed
to stockholders and adopted:
1. To elect the following ten (10) nominees to serve as directors until the
next Annual Meeting and until their successors are elected and have been
qualified:
For Abstain
--- -------
Harold M. Eastridge 1,064,535 2,091
William H. Gilbert 1,059,158 7,468
Dale L. Green 1,066,198 428
Lawrence G. Harris 1,066,198 428
Robert J. Mulder 1,066,198 428
David A. Offutt 1,066,198 428
William K. Retzer 1,062,495 4,131
Ross D. Scott 1,066,198 428
Louis F. Tarke 1,066,198 428
Michael C. Wheeler 1,065,165 1,461
2. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants.
Vote: For 1,057,256
Against 434
Abstained 8,936
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
On July 17, 1997 the Company filed one Current Report on Form 8-K, which
contained information pursuant to item 5 of Form 8-K.
22
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.
California Independent Bancorp
Date August 5, 1997 /S/ Robert J. Mulder
------------------------ -----------------------------------
Robert J. Mulder
President/CEO
Date August 5, 1997 /S/ Annette Bertolini
------------------------ -----------------------------------
Annette Bertolini
Chief Financial Officer
23