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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
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 0-25135
REDDING BANCORP
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2823865
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1951 CHURN CREEK ROAD
REDDING, CALIFORNIA 96002
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (530) 224-3333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
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 [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date. March 31, 2001: 2,875,451
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REDDING BANCORP & SUBSIDIARIES
INDEX TO FORM 10-Q
- --------------------------------------------------------------------------------
PART I. Financial Information Page:
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000................................................................3
Consolidated Statements of Income
Three months ended March 31, 2001 and 2000..........................................................4
Consolidated Statements of Cash Flows
Three months ended March 31, 2001 and 2000..........................................................5
Notes to Consolidated Financial Statements...........................................................6
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations.............................................8
Item 3. Quantitative and Qualitative Disclosure about Market Risk....................................17
PART II. Other Information
Item 1. Legal proceedings............................................................................19
Item 2. Changes in Securities and use of proceeds....................................................19
Item 3. Defaults Upon Senior Securities..............................................................19
Item 4. Submission of Matters to a Vote of Security Holders..........................................19
Item 5. Other Information............................................................................19
Item 6. Exhibits and Report on Form 8-K..............................................................20
SIGNATURES...................................................................................................20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REDDING BANCORP & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
March 31, 2001 March 31, 2000 December 31, 2000
-------------- -------------- -----------------
(Unaudited) (Unaudited)
ASSETS
Cash and due from banks $ 11,598 $ 11,236 $ 12,603
Federal funds sold 24,270 18,140 13,010
Securities available-for-sale 24,570 19,884 20,997
Securities held to maturity (estimated fair value of $5,910 on 5,861 6,726 5,007
March 31, 2001, $6,656 on March 31, 2000 and $4,972 on
December 31, 2000)
Loans, net of the allowance for loan losses of $2,645 on March 194,328 173,893 191,322
31, 2001, $2,975 on March 31, 2000 and $2,973 on December
31, 2000
Bank premises and equipment, net 5,187 5,433 5,287
Other assets 7,417 5,407 6,881
-------- --------- --------
Total Assets $273,231 $ 241,018 $255,107
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand - noninterest bearing $ 33,072 $ 35,151 $ 37,392
Demand - interest bearing 53,921 43,528 47,394
Savings 13,355 14,665 12,496
Certificates of deposits 127,831 112,256 120,754
-------- --------- --------
Total Deposits 228,179 205,600 218,036
Other borrowings 11,272 4,800 5,268
Other Liabilities 3,902 4,201 3,049
-------- --------- --------
Total Liabilities 243,353 214,601 226,353
Stockholders' Equity:
Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2001 and 2000
Common Stock, no par value, 10,000,000 shares 9,359 5,142 9,371
authorized; 2,875,451 shares issued and outstanding at
March 31, 2001 and 2,884,181 at December 31, 2000
Retained Earnings 20,330 21,513 19,296
Accumulated other comprehensive income (loss), net of tax 189 (238) 87
-------- --------- --------
29,878 26,417 28,754
-------- --------- --------
Total Liabilities and Stockholders' Equity $273,231 $ 241,018 $255,107
======== ========= ========
See notes to consolidated financial statements.
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REDDING BANCORP & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
March 31, 2001 March 31, 2000
-------------- --------------
Interest income:
Interest and fees on loans $4,552 $4,136
Interest on securities 426 406
Interest on federal funds sold 228 145
------ ------
Total interest income 5,206 4,687
------ ------
Interest expense:
Interest on demand deposits 303 192
Interest on savings 95 106
Interest on time deposits 1,872 1,432
Other borrowings 80 79
------ ------
Total interest expense 2,350 1,809
------ ------
Net interest income 2,856 2,878
Provision for loan losses 158 0
------ ------
Net interest income after provision for loan losses 2,698 2,878
------ ------
Non-interest income:
Service charges on deposit accounts 51 53
Credit card service income, net 474 470
Other income 207 212
Net loss sale of securities available-for-sale 0 (59)
------ ------
Total non-interest Income: 732 676
------ ------
Non-interest expense:
Salaries and related benefits 969 900
Net occupancy and equipment expense 225 268
Data processing and professional services 105 134
Other expense 361 350
------ ------
Total non-interest expense 1,660 1,652
------ ------
Income before income taxes 1,770 1,902
Provision for income taxes 639 737
------ ------
Net Income $1,131 $1,165
====== ======
Basic earnings per share $ 0.39 $ 0.40
Weighted average shares - basic 2,876 2,892
Diluted earnings per share $ 0.38 $ 0.38
Weighted average shares - diluted 3,008 3,032
See notes to consolidated financial statements.
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REDDING BANCORP & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
March 31, 2001 March 31, 2000
-------------- --------------
Cash flows from operating activities:
Net Income $ 1,131 $ 1,165
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 158 0
Provision for depreciation 118 121
Compensation expense associated with exercise of stock options 17 17
Loss on sale of securities available-for-sale 0 59
Amortization of investment premiums and accretion of discounts, net 130 26
Gain on sale of loans (14) (56)
Proceeds from sales of loans 742 2,062
Loans originated for sale (728) (2,118)
Effect of changes in:
Other assets (536) 185
Deferred loan fees (38) 13
Other liabilities 853 986
-------- --------
Net cash provided by operating activities 1,833 1,295
-------- --------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities 7,970 1,031
Proceeds from sale of available-for-sale securities 0 4,420
Purchases of available-for-sale securities (12,425) 0
Loan origination, net of principal repayments (3,126) (3,949)
Purchases of premises and equipment (18) (80)
-------- --------
Net cash (used) provided by investing activities (7,599) 1,422
-------- --------
Cash flows from financing activities:
Net increase (decrease) in demand deposits and savings 3,066 (1,791)
Net increase in certificates of deposit 7,077 9,068
Net increase from other borrowings 6,004 0
Common stock repurchase transactions (126) (1,143)
Common stock options exercised 0 195
-------- --------
Net cash provided by financing activities 16,021 6,329
-------- --------
Net increase in cash and cash equivalents 10,255 10,211
Cash and cash equivalents, beginning of period 25,613 19,165
-------- --------
Cash and cash equivalents, end of period $ 35,868 $ 29,376
======== ========
Supplemental disclosures:
Cash paid during the period for:
Income taxes 60 102
Interest 2,417 1,768
See notes to consolidated financial statements.
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REDDING BANCORP & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements should be read in
conjunction with the financial statements and related notes contained in Redding
Bancorp's 2000 Annual Report to Shareholders. The accounting and reporting
policies of the Company conform with accounting principles generally accepted in
the United States of America and general practices within the banking industry.
The statements include the accounts of Redding Bancorp ("the Company"), and its
wholly owned subsidiaries, Redding Bank of Commerce ("RBC") and Redding Service
Corporation. All significant inter-company balances and transactions have been
eliminated. The financial information contained in this report reflects all
adjustments that in the opinion of management are necessary for a fair
presentation of the results of the interim periods. All such adjustments are of
a normal recurring nature. The results of operations and cash flows for the
three months ended March 31, 2001 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001.
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold and repurchase agreements.
Federal funds sold and repurchase agreements are generally for one day periods.
2. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. The following table displays the
computation of earnings per share for the three months ended March 31, 2001 and
2000.
(Dollars in thousands, except per share data)
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Basic EPS Calculation:
Numerator (net income) $1,131 $1,165
Denominator (average common 2,876 2,892
shares outstanding)
Basic earnings per Share $ 0.39 $ 0.40
Diluted EPS Calculation:
Numerator (net income) $1,131 $1,165
Denominator:
Average common shares 2,876 2,892
outstanding
Options 132 140
------ ------
3,008 3,032
Diluted earnings per Share $ 0.38 $ 0.38
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3. COMPREHENSIVE INCOME
The Company's total comprehensive earnings were as follows:
Three Months Ended March 31,
----------------------------
2001 2000
------- ---------
Net Income as reported $1,131 $ 1,165
Other comprehensive income (net of tax):
Change in unrealized holding
gain (loss) on securities available-for-sale 192 (33)
Reclassification adjustment 0 35
------ -------
Total other comprehensive income 192 2
Total comprehensive income $1,323 $ 1,167
====== =======
4. SEGMENT REPORTING
The Company has two reportable segments: commercial banking and credit card
services. The Company conducts a general commercial banking business in the
counties of El Dorado, Placer, Shasta, and Sacramento, California. The principal
commercial banking activities include a full-array of deposit accounts and
related services and commercial lending for businesses and their interests.
Credit card services are limited to those revenues and data processing costs
associated with its agreement with an Independent Sales Organization (ISO),
pursuant to which the Bank provides credit and debit card processing services
for merchants solicited by the ISO or the Bank who accept credit and debit cards
as payments for goods and services.
Effective April 1, 2001, the Company has signed a new agreement for credit card
services with the ISO. The new pricing of the agreement is .02% of transaction
processing compared with the existing contract of .135% of transaction
processing. The new pricing takes effect on May 1, 2001. If the new pricing had
been in effect for the first quarter ended March 31, 2001, credit card service
income, net would have been $320,000 less that the actual amount recorded.
The following table presents financial information about the Company's
reportable segments:
Three Months Ended March 31,
----------------------------
Net income before taxes allocated to: 2001 2000
-------- --------
Commercial Banking $1,296 $1,432
Credit card services 474 470
------ ------
$1,770 $1,902
====== ======
6. DERIVATIVE AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998 and
amended by SFAS No.138, issued in June 2000. The requirements of SFAS No. 133,
as amended, will be effective for the Company in the first quarter of the fiscal
year beginning January 1, 2001. The standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities.
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Under the standard, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative. The Company adopted the
standard effective January 1, 2001. The Company has determined SFAS 133 to have
no impact on the Company's financial position and results of operations because
the Company has no derivative activity.
7. BRANCH ACQUISITION
On March 22, 2001, Redding Bank of Commerce, the primary subsidiary of Redding
Bancorp, located at 1951 Churn Creek Road, Redding California executed a Branch
Purchase and Assumption Agreement with FirstPlus Bank, located at 18302 Irvine
Blvd. Tustin, California. The agreement provides for the purchase of the deposit
liabilities, assumption of the lease, and purchase of certain fixed assets at
net book value of the Citrus Heights office of FirstPlus Bank, located at 6950
Sunrise Blvd. Citrus Heights, California 95610.
The purchase and assumption agreement is subject to the approval of the Federal
Deposit Insurance Corporation and Department of Financial Institutions.
Applications for such approval were filed on Friday, April 6, 2001. The approval
process may take 45 to 60 days to complete. A final closing date will be
established upon completion of the approval process.
The purchase consists of approximately 884 deposit accounts of which 165 are
savings and the balance are time certificates of deposit, totaling $34,557,000
at December 31, 2000. The deposits are relationships in the common market area
of Citrus Heights and Roseville, California where Redding Bank of Commerce has
another full service office. The assumption includes the leased facility located
at 6950 Sunrise Blvd. Citrus Heights, California 95610. The facility is
approximately 4,982 square feet and the monthly rent is $3,240. The lease
expires on March 5, 2009.
The purchase offer includes a deposit premium of 2.37% of the deposit
liabilities on the date of close. The premium was determined by using branch
acquisition modeling techniques and assumed rates of deposit retention and
growth, amortization of the deposit premium over ten years, while providing a
target return on investment to shareholders. Management believes that the
assumptions used to calculate the premium were reasonable. The final pricing of
the premium and accounting of premium will be determined at the final closing.
Redding Bank of Commerce will finance the acquisition from its existing capital.
There are no plans to raise additional equity or to incur debt to complete this
transaction.
Redding Bank of Commerce contemplates that the office will continue to be
operated and the current staff will join the Company. There is no relationship
between Redding Bank of Commerce and FirstPlus Bank or any of its affiliates,
any director or officer of the registrant or any associate of any such director
or officer.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS PRIVATE SECURITIES LITIGATION REFORM ACT SAFE
HARBOR STATEMENT.
This quarterly report on Form 10-Q includes forward-looking information, which
is subject to the "safe harbor" created by the Securities Act of 1933, and
Securities Act of 1934. These forward-looking statements (which involve the
Company's plans, beliefs and goals, refer to estimates or use similar terms)
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
- - Competitive pressure in the banking industry and changes in the
regulatory environment.
- - Changes in the interest rate environment and volatility of rate
sensitive deposits.
- - The health of the economy declines nationally or regionally which could
reduce the demand for loans or reduce the value of real estate
collateral securing most of the Company's loans.
- - Credit quality deteriorates which could cause an increase in the
provision for loan losses.
- - Losses in the Company's merchant credit card processing business.
- - Asset/Liability matching risks and liquidity risks.
- - Changes in the securities markets.
For additional information concerning risks and uncertainties related to the
Company and its operations please refer to the Company's Annual Report on Form
10-K for the year ended December 31, 2000 under the heading "Risk factors that
may affect results". Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
The following sections discuss significant changes and trends in financial
condition, capital resources and liquidity of the Company from December 31, 2000
to March 31, 2001. Also discussed are significant trends and changes in the
Company's results of operations for the three months ended March 31, 2001,
compared to the same period in 2000. The consolidated financial statements and
related notes appearing elsewhere in this report are condensed and unaudited.
GENERAL
Redding Bancorp ("the Company") is a financial services holding company
("FHC") with its principal offices in Redding, California. A financial services
holding company may engage in a commercial banking, insurance and securities
business and offer other financial products to consumers. The Company currently
engages in a general commercial banking business in Redding and Roseville and
the counties of El Dorado, Placer, Shasta, and Sacramento, California.
The Company considers Northern California to be it's major market area.
The Company conducts its business through Redding Bank of Commerce ("The Bank"),
its principal subsidiary, and Roseville Banking Center, a division of the Bank.
The services offered by the Company include those traditionally offered by
commercial banks of similar size and character in California, such as checking,
interest-bearing checking ("NOW") and savings accounts, money market deposit
accounts, commercial, construction, real estate, personal, home improvement,
automobile and other installment and term loans, travelers checks, safe deposit
boxes, collection services, telephone and Internet banking.
The primary focus of the Company is to provide services to the business
and professional community of its major market area including Small Business
Administration ("SBA") loans, commercial building financing, credit card
services, payroll and accounting packages and billing programs. The Company does
not offer trust services or international banking services and does not plan to
do so in the near future.
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The Company derives its income from two principal sources: (i) net
interest income, which is the difference between the interest income it receives
on interest-earning assets and the interest expense it pays on interest-bearing
liabilities, and (ii) fee income, which includes fees earned on deposit
services, income from SBA lending, electronic-based cash management services and
merchant credit card processing services. Management considers the business of
the Company to be divided into two segments: (i) commercial banking and (ii)
credit card services. Credit card services are limited to those revenues, net of
related data processing costs, associated with the Merchant Services Agreement
and the Bank's agreement to provide credit and debit card processing services
for merchants solicited by the Bank who accept credit and debit cards as
payments for goods and services.
RESULTS OF OPERATIONS
The Company reported earnings of $1,131,000, for the quarter ended March
31, 2000. The quarterly earnings represent a 2.92% decrease over the $1,165,000
reported for the same period of 2000. Diluted earnings per share for the first
quarter of 2000 were $0.38, compared to $0.38 for the same period of 2000.
Factors contributing to the decrease in operating results include two
prime rate reductions and higher costs of funding which resulted in a decrease
in net interest rate spread and margin, resulting in a decrease of $22,000 of
net interest income. Provision for loan losses of $158,000 were funded at March
31, 2001 compared with $0 for the same period of 2000. Salary increases are
related to the expansion of the Roseville Banking Center facilities and
staffing. The Roseville office relocated to new facilities at 1548 Eureka Road,
Suite 100, in Roseville, California in mid-December 2000. The office was
converted from a loan production facility to a full-service banking facility in
June 2000.
NET INTEREST INCOME
Net interest income is the primary source of income for the Bank. Net
interest income represents the excess of interest and fees earned on
interest-earning assets (loans, investments and Federal Funds sold) over the
interest paid on deposits and borrowed funds. Net interest margin is net
interest income expressed as a percentage of average earning assets.
For the three months ended March 31, 2001, interest income increased
$519,000 (11.1%) over the same period in 2000. Interest expense on deposit
accounts and borrowings increased $541,000 (29.9%) over the same three-month
period in 2000.
The combined effect of the increase in volume of earning assets and
decrease in yield on earning assets, coupled with increases in cost of funding
sources resulted in an decrease of $22,000 (0.76%) in net interest income for
the three month period ended March 31, 2001 from the same period in 2000. Net
interest margin decreased 60 basis points to 4.75% from 5.35% for the same
period a year ago. The decrease is a result of two prime interest rate drops and
the current higher funding interest rate environment.
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The following table sets forth the Company's daily average balance
sheet, related interest income or expense and yield or rate paid for the periods
indicated. Tax-exempt investment yields have not been adjusted to a
tax-equivalent yield basis.
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES PAID
(UNAUDITED, DOLLARS IN THOUSANDS)
Three Months Ended
-------------------------------------------------------------------------------------
March 31, 2001 March 31, 2000
-------------------------------------- --------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- -------- ------ --------- -------- ------
Earning Assets
Portfolio Loans $ 195,008 $4,552 9.34% $ 175,875 $4,136 9.41%
Tax Exempt Securities 2,257 25 4.43% 3,641 40 4.39%
US Government 24,781 376 6.07% 18,567 254 5.47%
Federal Funds Sold 16,945 228 5.38% 10,471 145 5.54%
Other Securities 1,437 25 6.96% 6,750 112 6.64%
--------- ------ ---- --------- ------ ----
Average Earning Assets $ 240,428 $5,206 8.66% $ 215,304 $4,687 8.71%
------ ------
Cash & Due From Banks $ 10,431 $ 10,940
Bank Premises 5,196 5,459
Allowance for Loan Losses (2,882) (2,973)
Other Assets 5,234 4,927
--------- ---------
Average Total Assets $ 258,407 $ 233,657
========= =========
Interest Bearing Liabilities
Demand Interest Bearing $ 50,087 $ 303 2.42% $ 39,869 $ 192 1.93%
Savings Deposits 12,984 95 2.93% 15,037 106 2.82%
Certificates of Deposit 125,559 1,872 5.96% 107,518 1,432 5.33%
Borrowings 6,079 80 5.26% 4,800 79 6.58%
--------- ------ ---- --------- ------ ----
194,709 $2,350 4.83% 167,224 $1,809 4.33%
------ ------
Non interest Demand 32,877 37,745
Other Liabilities 3,210 2,979
Shareholder Equity 27,611 25,709
--------- ---------
Average Liabilities and
Shareholders Equity $ 258,407 $ 233,657
========= =========
Net Interest Income and
Net Interest Margin $2,856 4.75% $2,878 5.35%
====== ======
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The following tables set forth changes in interest income and expense for each
major category of earning assets and interest-bearing liabilities, and the
amount of change attributable to volume and rate changes for the periods
indicated. Changes attributable to rate/volume have been allocated to volume
changes.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in thousands)
March 31, 2001 over March 31, 2000
Volume Rate Total
------ ----- -----
Increase (Decrease) In
Interest Income
Portfolio loans $ 447 $ (31) $ 416
Tax exempt securities (15) 0 (15)
US Government securities 94 28 122
Federal Funds Sold 87 (4) 83
Other Securities (92) 5 (87)
----- ----- -----
Total Increase $ 521 $ (2) $ 519
----- ----- -----
Increase (Decrease) In
Interest Expense
Interest Bearing Demand $ 62 $ 49 $ 111
Savings Deposits (15) 4 (11)
Certificates of Deposit 269 171 440
Borrowings 17 (16) 1
----- ----- -----
Total Increase $ 333 $ 208 $ 541
----- ----- -----
Net Increase $ 188 $ 210 $ 22
===== ===== =====
NONINTEREST INCOME
The Company's noninterest income consists of processing fees for merchants who
accept credit card payments for goods and services, service charges on deposit
accounts, and other service fees. In April 1993, the Bank entered into an
agreement (the "Merchant Services Agreement") with Cardservice International,
Inc. ("CSI"), an independent sales organization ("ISO") and nonbank merchant
credit card processor, pursuant to which the Bank has agreed to provide credit
and debit card processing services for merchants solicited by CSI who accept
credit and debit cards as payment for goods and services. Pursuant to the
Merchant Services Agreement, the Bank acts as a clearing bank for CSI and
processes credit or debit card transactions into the Visa(R) or MasterCard(R)
system for presentment to the card issuer. As a result of the Merchant Services
Agreement, the Bank has acquired electronic credit and debit card processing
relationships with merchants in various industries on a nationwide basis. The
Merchant Services Agreement with CSI was renewed on March 28, 2001 for a period
of four years, which expires on April 1, 2005, and will automatically renew for
additional four-year periods unless terminated in advance of the renewal period
by CSI upon 90 days written notice or by the Bank upon 30 days prior written
notice. The terms of the renewal represent a reduction in earnings on volume
from .0135% to .002% effective May 1, 2001. If the new pricing had been in
effect for the first quarter ended March 31, 2001, credit card service income,
net would have been $320,000 less that the actual amount recorded.
For the three months ended March 31, 2001 noninterest income increased
$56,000 over the same period in 2000. The increase is related to the loss of
sale of securities available-for-sale during 2000, no sales of securities took
place during the first quarter of 2001.
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Historically the Company's service charges on deposit accounts have
lagged peer levels for similar services. This is consistent with the Company's
philosophy of allowing customers to pay for services with compensating balances
and the emphasis on certificates of deposit as a significant funding source.
The following table sets forth a summary of noninterest income for the periods
indicated.
(Dollars in Thousands) Three Months Ended March 31,
----------------------------
Noninterest Income 2001 2000
------ -------
Service Charges $ 51 $ 53
Credit Card Income, net 474 470
Other Income 207 212
Loss on sale of securities
available-for-sale 0 (59)
---- -----
Total noninterest income $732 $ 676
==== =====
NONINTEREST EXPENSE
Noninterest expenses consist of salaries and related employee benefits,
occupancy and equipment expenses, data processing fees, professional fees,
directors' fees and other operating expenses.
For the three months ended March 31, 2001, noninterest expense increased
$8,000 over the same period in 2000. Salaries and benefits increased $69,000
(7.7%) representing the expansion of the Roseville Banking Center. Professional
services decreased by $51,000 (38.4%) due to audit expenses paid during December
2000.
The following table sets forth a summary of noninterest expense for the
periods indicated.
(Dollars in Thousands) Three Months Ended March 31,
---------------------------
Noninterest Expense 2001 2000
------ ------
Salaries and Benefits $ 969 $ 900
Occupancy & Equipment 225 268
Data Processing Fees 23 18
Professional Fees 82 133
Directors Expenses 47 58
Other Expenses 314 275
------ ------
Total Noninterest expense $1,660 $1,652
====== ======
INCOME TAXES
The Company's provision for income taxes includes both federal and state
income taxes and reflects the application of federal and state statutory rates
to the Company's net income before taxes. The principal difference between
statutory tax rates and the Company's effective tax rate is the benefit derived
from investing in tax-exempt securities. Increases and decreases in the
provision for taxes reflect changes in the Company's net income before tax.
The following table reflects the Company's tax provision and the related
effective tax rate for the periods indicated.
Three Months Ended March 31,
----------------------------
Income Taxes 2001 2000
------ -------
Tax provision $639 $737
Effective tax rate 36.1% 38.8%
The Company's effective tax rate varies with changes in the relative
amounts of its non-taxable income and non-deductible expenses. The decrease in
the Company's tax provision is attributable to increases in non-taxable income.
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ASSET QUALITY
The Company concentrates its lending activities primarily within in El
Dorado, Placer, Sacramento and Shasta Counties, California, and the location of
the Bank's three full service branches.
The Company manages its credit risk through diversification of its loan
portfolio and the application of underwriting policies and procedures and credit
monitoring practices. Although the Company has a diversified loan portfolio, a
significant portion of its borrowers' ability to repay the loans is dependent
upon the professional services and residential real estate development industry
sectors. Generally, the loans are secured by real estate or other assets and are
expected to be repaid from the cash flows of the borrower or proceeds from the
sale of collateral.
The following table sets forth the amounts of loans outstanding by
category as of the dates indicated:
(Dollars in thousands) March 31, 2001 December 31, 2000
-------------- -----------------
Portfolio Loans
Commercial & Financial $ 64,403 $ 61,069
Real Estate-Construction 37,199 37,531
Real Estate-Commercial 93,834 94,111
Installment 605 430
Other Loans 1,135 1,395
Less:
Deferred Loan Fees and Costs (203) (241)
Allowance for Loan Losses (2,645) (2,973)
-------- --------
Total Net Loans $194,328 $191,322
======== ========
The Company's practice is to place an asset on nonaccrual status when
one of the following events occurs: (i) any installment of principal or interest
is 90 days or more past due (unless in management's opinion the loan is well
secured and in the process of collection). (ii) Management determines the
ultimate collection of principal or interest to be unlikely or (iii) the terms
of the loan have been renegotiated due to a serious weakening of the borrower's
financial condition. Nonperforming loans are loans that are on nonaccrual, are
90 days past due and still accruing or have been restructured.
Net portfolio loans increased $3.0 million or 1.6% at March 31, 2001
over $191.3 million at December 31, 2000. The portfolio mix remains stable with
the mix at December 31, 2000, with commercial and financial loans of
approximately 33%, real estate construction of 19% and commercial real estate at
48%.
Impaired loans are loans for which it is probable that the Bank will not
be able to collect all amounts due. The Bank had outstanding balances of $52,892
and $801,246 in impaired loans that had impairment allowances of $16,856 and
$318,382 as of March 31, 2001 and December 31, 2000, respectively. The reduction
in impaired loans during the first quarter 2001 was attributed to payments and
recognizing the charge-off of one credit. Additionally, the Company recognized a
partial charge-off of a second impaired loan after sale of its underlying
collateral.
The following table sets forth a summary of the Company's nonperforming
assets as of the dates indicated:
(Dollars in thousands) March 31, 2000 December 31, 2000
-------------- -----------------
Non performing assets
Nonaccrual loans $53 $801
Other Real Estate Owned 0 0
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ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
The Company makes provisions to the ALLL on a regular basis through
charges to operations that are reflected in the Company's statements of income
as a provision for loan losses. When a loan is deemed uncollectible, it is
charged against the allowance. Any recoveries of previously charged-off loans
are credited back to the allowance. There is no precise method of predicting
specific losses or amounts that ultimately may be charged-off on particular
categories of the loan portfolio.
Similarly, the adequacy of the ALLL and the level of the related
provision for possible loan losses is determined on a judgment basis by
management based on consideration of (i) economic conditions, (ii) borrowers'
financial condition, (iii) loan impairment, (iv) evaluation of industry trends,
(v) industry and other concentrations, (vi) loans which are contractually
current as to payment terms but demonstrate a higher degree of risk as
identified by management, (vii) continuing evaluation of the performing loan
portfolio, (viii) monthly review and evaluation of problem loans identified as
having loss potential, (ix) quarterly review by the Board of Directors, (x) off
balance sheet risks and (xi) assessments by regulators and other third parties.
Management and the Board of Directors evaluate the allowance and determine its
desired level considering objective and subjective measures, such as knowledge
of the borrowers' business, valuation of collateral, the determination of
impaired loans and exposure to potential losses.
The ALLL is a general reserve available against the total loan portfolio
and off balance sheet credit exposure. It is maintained without any
interallocation to the categories of the loan portfolio, and the entire
allowance is available to cover loan losses. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's ALLL. Such agencies may require the Bank to
provide additions to the allowance based on their judgment of information
available to them at the time of their examination. There is uncertainty
concerning future economic trends. Accordingly, it is not possible to predict
the effect future economic trends may have on the level of the provision for
possible loan losses in future periods.
The ALLL should not be interpreted as an indication that charge-offs in
future periods will occur in the stated amounts or proportions.
The adequacy of the ALLL is calculated upon three components. First is
the dollar weighted risk rating of the loan portfolio, including all outstanding
loans and leases, off balance sheet items, and commitments to lend. Every
extension of credit has assigned a risk rating based upon a comprehensive
definition intended to measure the inherent risk of lending money. Each rating
has an assigned a risk factor expressed as a reserve percentage. Central to this
assigned risk (reserve) factor is the five-year historical loss record of the
bank.
Secondly, established specific reserves are available for individual
loans currently on management watch and high-grade loan lists. These are the
estimated potential losses associated with specific borrowers based upon the
collateral and event(s) causing the risk rating.
The third component is unallocated. This reserve is for qualitative
factors that may effect the portfolio as a whole, such as those factors
described above.
Management believes the assigned risk grades and our methods for
managing changes are satisfactory. Management believes the loan portfolio
performance has improved as reflected by the stable and low delinquency ratio.
Watch list and high-grade loans have increased somewhat over the past year,
primarily due to a greater tendency to move more susceptible, although
performing, accounts to attention. This minimal increase does not suggest a
trend.
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The following table summarizes the activity in the ALLL reserves for the
periods indicated.
(Dollars in thousands) Three Months Ended March 31,
------------------------------
Allowance for Loan & Lease Losses 2001 2000
------ ------
Beginning balance for Loan Losses $2,974 $2,972
Provision for Loan Losses 158 0
Charge offs:
Commercial (488) (0)
Other (0) (0)
------ ------
Total Charge offs (488) (0)
Recoveries:
Commercial 1 2
Real Estate 0 1
------ ------
Total Recoveries 1 3
Ending Balance $2,645 $2,975
ALLL to total loans 1.34% 1.68%
Net Charge offs to average loans (0.25%) (0.01%)
INVESTMENT PORTFOLIO
Total available-for-sale securities increased $3,573,000 in the first
three months of 2001 or 17.0%. The increase represents purchases of $11,204,000
offset by maturities of $8,090,000. The majority of short-term purchases are for
the purpose of collateralized repurchase agreements.
LIQUIDITY
With respect to assets, liquidity is provided by cash and money market
investments such as interest-bearing time deposits, federal-funds sold,
securities available-for-sale and principal and interest payments on loans. With
respect to liabilities, the Company's core deposits, shareholders' equity and
the ability of the Bank to borrow funds and to generate deposits, provide asset
funding.
Because estimates of the liquidity need of the Bank may vary from actual
needs, the Bank maintains a substantial amount of liquid assets to absorb short
term increases in loans or reductions in deposits.
The Company's liquid assets (cash and due from banks, federal funds sold
and available-for-sale securities) totaled $60,438,000, or 22.1% of total
assets, at March 31, 2001 compared to $46,610,000 or 18.3% of total assets at
December 31, 2000.
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CAPITAL ADEQUACY
Overall capital adequacy is monitored on a day-to-day basis by the
Company's management and reported to the Company's Board of Directors on a
monthly basis. The Bank's regulators measure capital adequacy by using a
risk-based capital framework and by monitoring compliance with minimum leverage
ratio guidelines. Under the risk-based capital standard, assets reported on the
Company's balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which is assigned a risk weight.
This standard characterizes an institution's capital as being "Tier 1" capital
(defined as principally comprising shareholders' equity) and "Tier 2" capital
(defined as principally comprising the qualifying portion of the ALLL).
The minimum ratio of total risk-based capital to risk-adjusted assets, including
certain off-balance sheet items, is 8%. At least one-half (4%) of the total
risk-based capital (Tier 1) is to be comprised of common equity; the balance may
consist of debt securities and a limited portion of the ALLL.
The following table sets forth the Company's capital ratio as of the
dates indicated.
December 31, 2000
March 31, 2001 ------------------------------------------
---------------------- For Bank to be
Capital Ratio's Bank Company Bank Company well capitalized
----- ------- ----- ------- ----------------
Total Risk-Based Capital 14.20% 15.01% 14.11% 15.01% >10.00%
Tier 1 Capital to Risk-Based Assets 12.98% 13.78% 12.86% 13.75% >6.00%
Tier 1 Capital to Average Assets 10.82% 11.27% 11.02% 11.52% >5.00%
(Leverage ratio)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary component of market risk is interest rate
volatility. Fluctuation in interest rates will ultimately impact both the level
of interest income and interest expense recorded on a large portion of the
Company's assets and liabilities, and the fair market value of interest earning
assets and interest-bearing liabilities, other than those which possess a short
term to maturity. Because the Company's interest-bearing liabilities and
interest-earning assets are with the Bank, the Company's interest rate risk
exposure is in connection with the operations of the Bank. Consequently, all
significant interest rate risk management procedures are performed at the Bank
level.
Based upon the nature of its operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The fundamental objective of
the Company's management of its assets and liabilities is to enhance the
economic value of the Company while maintaining adequate liquidity and an
exposure to interest rate risk deemed acceptable by the Company's management.
The Company manages its exposure to interest rate risk through adherence
to maturity, pricing and asset mix policies and procedures designed to mitigate
the impact of changes in market interest rates. The Bank's profitability is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and securities, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings.
The formal policies and practices adopted by the Bank to monitor and
manage interest rate risk exposure measure risk in two ways: (i) repricing
opportunities for earning assets and interest-bearing liabilities and (ii)
changes in net interest income for declining interest rate shocks of 100 and 200
basis points.
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Because of the Bank's capital position and noninterest-bearing demand
deposit accounts, the Bank is asset sensitive. As a result, management
anticipates that, in a declining interest rate environment, the Company's net
interest income and margin would be expected to decline, and, in an increasing
interest rate environment, the Company's net interest income and margin would be
expected to increase. However, no assurance can be given that under such
circumstances the Company would experience the described relationships to
declining or increasing interest rates.
Because the Bank is asset sensitive, the Company is adversely affected
by declining rates rather than rising rates. This effect is partially offset in
the short-term by the fact that the Company is liability sensitive through the
cumulative GAP period of one year or less. During a period of declining rates,
such liabilities may be repriced to provide a short-term advantage to the
Company; however, this benefit may not be sustainable over the long-term.
To estimate the effect of interest rate shocks on the Company's net
interest income, management uses a model to prepare an analysis of interest rate
risk. Such analysis calculates the change in net interest income given a change
in the federal funds rate of 100 basis points up or down. All changes are
measured in dollars and are compared to projected net interest income. At March
31, 2001, the estimated annualized reduction in net interest income attributable
to a 100 and 200 basis point decline in the federal funds rate was $418,000 and
$837,000, respectively. A similar and opposite result attributable to a 100
basis point increase in the federal funds rate. At December 31, 2000, the
estimated annualized reduction in net interest income attributable to a 100 and
200 basis point decline in the federal funds rate was $413,000 and $826,000,
respectively, with a similar and opposite result attributable to a 100 basis
point increase in the federal funds rate. Management does not believe that the
change from in the first quarter is significant or represents a known trend
toward more interest rate risk sensitivity in the Company's financial position.
The model utilized by management to create the analysis described in the
preceding paragraph uses balance sheet simulation to estimate the impact of
changing rates on the annual net interest income of the Bank. The model
considers a number of factors, including (i) change in customer and management
behavior in response to the assumed rate shock, (ii) the ratio of the amount of
rate change for each interest-bearing asset or liability to assumed changes in
the federal funds rate based on local market conditions for loans and core
deposits and national market conditions for other assets and liabilities and
(iii) timing factors related to the lag between the rate shock and its effect on
other interest-bearing assets and liabilities. Actual results will differ when
actual customer and management behavior and ratios differ from the assumptions
utilized by management in its model. In addition, the model has limited
usefulness for the measurement of the effect on annual net interest income
resulting from rate changes other than 100 basis points. Management believes
that the short duration of its rate-sensitive assets and liabilities contributes
to its ability to reprice a significant amount of its rate-sensitive assets and
liabilities and mitigates the impact of rate changes more than 100 basis points.
The model's primary benefit to management is its assistance in evaluating the
impact that future strategies with respect to the Bank's mix and level of
rate-sensitive assets and liabilities will have on the Company's net interest
income.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal actions arising
in the ordinary course of business. The Company believes that the ultimate
disposition of all currently pending matters will not have a material adverse
effect on the Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A.
ITEM 5. OTHER INFORMATION
On March 22, 2001, Redding Bank of Commerce, the primary subsidiary of
Redding Bancorp, located at 1951 Churn Creek Road, Redding California
executed a Branch Purchase and Assumption Agreement with FirstPlus Bank,
located at 18302 Irvine Blvd. Tustin, California. The agreement provides
for the purchase of the deposit liabilities, assumption of the lease,
and purchase of certain fixed assets at net book value of the Citrus
Heights office of FirstPlus Bank, located at 6950 Sunrise Blvd. Citrus
Heights, California 95610.
The purchase and assumption agreement is subject to the approval of the
Federal Deposit Insurance Corporation and Department of Financial
Institutions. Applications for such approval are scheduled to be filed
by Friday, April 6, 2001. The approval process may take 45 to 60 days to
complete. A final closing date will be established upon completion of
the approval process.
The purchase consists of approximately 884 deposit accounts of which 165
are savings and the balance are time certificates of deposit, totaling
$34,557,000 at December 31, 2000. The deposits are relationships in the
common market area of Citrus Heights and Roseville, California where
Redding Bank of Commerce has another full service office. The assumption
includes the leased facility located at 6950 Sunrise Blvd. Citrus
Heights, California 95610. The facility is approximately 4,982 square
feet and the monthly rent is $3,240. The lease expires on March 5, 2009.
The purchase offer includes a deposit premium of 2.37% of the deposit
liabilities on the date of close. The premium was determined by using
branch acquisition modeling techniques and assumed rates of deposit
retention and growth, amortization of the deposit premium over ten
years, while providing a target return on investment to shareholders.
Management believes that the assumptions used to calculate the premium
were reasonable.
Redding Bank of Commerce will finance the acquisition from its existing
capital. There are no plans to raise additional equity or to incur debt
to complete this transaction.
There is no relationship between Redding Bank of Commerce and FirstPlus
Bank or any of its affiliates, any director or officer of the registrant
or any associate of any such director or officer.
A copy of the Purchase and Assumption agreement was filed on Form 8-K
dated April 6, 2001.
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ITEM 6A. EXHIBITS
Ex-27.1. Financial Data table for the period ended March 31, 2001.
ITEM 6B. REPORTS ON FORM 8-K
Form 8-K dated January 30, 2001 announcing 2000 earnings.
Form 8-K dated March 29, 2001 Sixth addendum to Cardservice International
Agreement.
Form 8-K dated April 6, 2001 Proposed acquisition of deposit liabilities of
FirstPlus Bank.
SIGNATURES
Following 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.
REDDING BANCORP
(Registrant)
Date: April 30, 2001 /s/ Linda J. Miles
Linda J. Miles
Executive Vice President &
Chief Financial Officer
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