SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1997
Commission File Number: 0-27784
HUMBOLDT BANCORP
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 93-1175446
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
701 FIFTH STREET
EUREKA, CALIFORNIA
(Address of principal executive offices)
95501
(Zip Code)
(707) 445-3233
(Registrant's telephone number, including area code)
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 twelve 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.
X Yes No
Number of shares of common stock outstanding at September 30, 1997 is:
1,576,542
<PAGE>2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The information required by Rule 310(b) of Regulation S-B is attached hereto as
Exhibit A.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
On November 10, 1995, the shareholders of Humboldt Bank (the "Bank") approved a
Plan of Reorganization by and between the Bank, Humboldt Merger Company and
Humboldt Bancorp (the "Company") whereby the Bank became a wholly owned
subsidiary of the Company. The reorganization became effective January 2,
1996. The sole business operation of the Company is conducted through its
wholly owned subsidiary, Humboldt Bank and its subsidiary "Bancorp Financial
Services". On January 2, 1997, the Bank invested two million dollars in
Bancorp Financial Services, a Sacramento based small ticket leasing company
which originates lease loans from five to one hundred thousand dollars on
equipment, furniture, telephone systems, computer systems, etc. This operation
is conducted on a 50-50 basis with Tehama Bank. The following discussion,
therefore, although presented on a consolidated basis, analyzes primarily the
financial condition and results of operations of the Bank and subsidiary for
the nine month period ended September 30, 1997. Previously, the Bank filed its
periodic reports under the Securities Exchange Act of 1934 with the Federal
Reserve Board.
GARBERVILLE BRANCH PURCHASE
On June 19, 1996, the Board of Directors of the Bank authorized management to
enter into negotiations for the acquisition of the Garberville, California
branch (the "CalFed Branch") previously owned and operated by California
Federal Bank ("CalFed") of California. The Board of Directors voted final
approval of the purchase on January 15, 1997 and the branch was acquired on May
9, 1997 directly from CalFed pursuant to an agreement dated December 6, 1996
between Humboldt Bank and CalFed (the "Agreement"). The branch had total
deposits of approximately twenty-three million ($23,000,000.00) and total loans
of approximately thirty-nine thousand ($39,000.00) at the time of acquisition.
Under the terms of the Agreement, Humboldt Bank agreed to acquire the branch
from CalFed for a deposit premium equal to 4.50% of total deposits on date of
acquisition. In addition, the Bank purchased approximately thirty-six thousand
dollars ($36,000.00) of fixed assets and the cash in the branch, approximately
two hundred seventy-five thousand dollars ($275,000.00).
CHANGES IN FINANCIAL CONDITION
During the nine month period ended September 30, 1997, deposits increased $56.2
million or 29.2% to $248.8 million primarily as the result of the Garberville
Branch purchase of CalFed in May 1997. During the same period, total loans
increased $12.2 million or 8.4% to $157.1 million, primarily as a result of an
increase in consumer loans and commercial, industrial and agricultural loans
and construction and land development loans being partially offset by a
decrease in family and multi-family residential loans. Investment securities
increased $31.3 million or 78.3% to $71.2 million. Excess liquidity during the
period was invested in federal funds.
<PAGE>3
During the nine month period ending September 30, 1997, past due and
non-accrual loans increased to $2.5 million (0.9% of total assets), and
compares with $2.4 million (1.1% of total assets) at December 31, 1996. The
Bank's allowance for loan losses at September 30, 1997 was 1.4% of total loans,
which compared with 1.5% at December 31, 1996.
EARNINGS SUMMARY
Net income for the nine months ended September 30, 1997 was $2,109,000, or
$1.18 per share, compared with net income of $2,199,000 or $1.29 per share in
the same period a year ago. This apparent decline can be attributed to the
fact that in the first nine months of 1996, the realized gain on sale of
securities was $627,000 compared to $102,000 for the same period in 1997.
Securities were sold in the first quarter of 1996 to support an increase in
loans.
NET INTEREST INCOME
Total interest income increased $2,290,000 or 18.8% for the nine months ended
September 30, 1997, as compared to the same period during the prior year. For
the nine months ended September 30, 1997, interest expense increased $870,000
or 21.2% as compared to the same period during the prior year. Net interest
income for the nine months ended September 30, 1997 was $9.5 million, $8.1
million for the nine months ended September 30, 1996. Average loans and leases
as a percentage of average earning assets was 69.8% during the nine months
ended September 30, 1997, compared to 73.2% a year earlier. The average
balance of other earning assets as a percentage of average earning assets was
30.2% during the nine months ended September 30, 1997, compared to 26.8% a year
earlier.
PROVISION FOR LOAN LOSSES
The Company maintains its allowance for loan losses at a level considered
appropriate by management to provide for known and inherent risks in the loan
portfolio. This consideration includes an evaluation of various factors
affecting the collectability of loans, including current and projected economic
conditions, past credit experience and a periodic review of the Company's loan
portfolio. The Company recorded a provision to the allowance for loan losses
for the nine month period ended September 30, 1997 of $465,000 compared to
$539,000 for the same period in 1996. This decrease was mainly due to a
maturing loan portfolio and management's evaluation of the Bank's loan
portfolio. Loans charged off during the nine month period totaled $423,000 in
1997 and $273,000 in 1996. Recoveries in the same period were $45,000 in 1997
and $111,000 in 1996.
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan". The effect of adoption on the Company's financial
statements was not material.
<PAGE>4
NON-INTEREST INCOME
Non-interest income consists of gain/loss on sale of loans, fixed assets and
securities, service charges on deposit accounts, and other service charges,
commissions and fees including Lease Department, Merchant BankCard Department
and Issuing BankCard Department income. In the nine months ended September 30,
1997, income from these sources was $5.5 million, an increase of $1.9 million
from the same period in 1996. The increase was attributable primarily to
increases in Merchant BankCard, the Issuing BankCard Department and Lease
Department income.
NON-INTEREST EXPENSE
Non-interest expenses increased $3.3 million or 40.3% to $11.4 million for the
nine months ended September 30, 1997, compared to the same period in 1996. The
increase was primarily due to increased personnel expenses, fixed asset
expense, Merchant BankCard and Issuing BankCard Department expense. At
September 30, 1997, the Company had a total of 193 full-time equivalent
employees, compared to 161 full-time equivalent employees during the same
period a year earlier.
CAPITAL RESOURCES
Management seeks to maintain adequate capital to support anticipated asset
growth and credit risks and to ensure that the Company meets all regulatory
capital requirements.
The Company is required to maintain certain regulatory minimum capital ratios.
The following table outlines these ratios at September 30, 1997:
REQUIRED MINIMUM COMPANY'S ACTUAL
TIER 1 6.00% 10.58%
TOTAL CAPITAL 10.00% 11.76%
LEVERAGE 5.00% 7.59%
Future growth and earnings retention, as currently projected by management, are
expected to provide for the maintenance of capital ratios in conformance with
the requirements.
INCOME TAXES
The provision for income taxes was $1,073,000 for the nine months ended
September 30, 1997, compared to $1,381,000 in the same period a year earlier.
The provision is classified as current tax liability for interim reporting
purposes. The tax rate was 33.7% for the nine months ended September 30, 1997,
compared to 38.6% for the same period in 1996. This small reduction was
recommended by the Company's tax consultant.
<PAGE>5
LIQUIDITY
The Company manages its liquidity to ensure that sufficient funds are available
to meet loan commitments and deposit fluctuations. Primary sources of
liquidity include cash and due from bank deposits, unpledged short-term U.S.
Government securities and federal funds sold. The Bank's primary liquidity
ratio, which is the ratio of liquid assets to total deposits, was 37.1% at
September 30, 1997, and 26.4% at December 31, 1996. The large increase can be
attributed to the purchase of the Garberville office of CalFed in May 1997.
<PAGE>6
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings that would have a material
adverse effect on its financial statements.
ITEM 2 - CHANGES IN SECURITIES - NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5 - OTHER INFORMATION - NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed by the undersigned, thereunto duly authorized.
Date: November 14, 1997 HUMBOLDT BANCORP
ALAN J. SMYTH
______________________________________
Alan J. Smyth
Senior Vice President & Chief Financial
Officer
THEODORE S. MASON
______________________________________
Theodore S. Mason
President & C.E.O.
<PAGE>7
<TABLE>
<CAPTION>
HUMBOLDT BANCORP AND SUBSIDIARY CONSOLIDATED BANK ONLY
CONSOLIDATED BALANCE SHEETS UNAUDITED AUDITED
(IN THOUSANDS OF DOLLARS) 09/30/97 12/31/96
<S> <C> <C>
ASSETS:
Cash and Due From Banks 18,082 10,247
Interest Bearing Deposits in Banks 3,020 20
Federal Funds Sold 10,020 6,570
Investment Securities (Market Value of $71,212 and
$39,933 respectively) 71,212 39,933
Loans Held For Sale 521 63
LOANS
Real Estate-Construction & Land Development 24,261 21,205
Real Estate-Commercial and Agriculture 60,077 61,030
Real Estate-Family & Multifamily Residential 27,509 31,456
Commercial, Industrial & Agriculture 27,857 20,559
Lease Financing 5,268 3,168
Consumer Loans 11,049 4,529
State and Political Subdivisions 0 2,875
Other 1,880 850
157,901 145,672
Less: Deferred Loan Fees <811> <765>
TOTAL LOANS 157,090 144,907
Less: Allowance For Credit Losses <2,233> <2,146>
NET LOANS 154,857 142,761
Premises and Equipment (net) 5,621 6,064
Intangible Assets 1,668 933
Other Assets 11,092 8,147
TOTAL ASSETS 276,093 214,738
LIABILITIES (Deposits)
Demand 66,337 50,412
Demand-Interest Bearing 51,631 41,511
Time - $100,000 and over 38,768 26,432
Other Time 69,989 57,951
Savings 22,094 16,270
248,819 192,576
Borrowed Funds 765 775
Other Liabilities 4,129 1,787
253,713 195,138
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares
authorized, none issued
Common stock, no par value; 1,000,000 shares
authorized, 1,576,542 shares in 1997 and
1,392,855 in 1996, issued and outstanding 20,609 17,179
Retained Earnings 1,051 2,060
Unrealized Gain/Loss 720 361
TOTAL SHAREHOLDERS' EQUITY 22,380 19,600
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 276,093 214,738
</TABLE>
NOTE: Humboldt Bancorp became effective January 2, 1996.
<PAGE>8
HUMBOLDT BANCORP
STATEMENT OF OPERATIONS
For the three months ended June 30, UNAUDITED UNAUDITED
1997 & 1996 SEPT. 30, 1997 SEPT. 30, 1996
(in thousands of dollars)
INTEREST INCOME
Interest and Fees on Loans $4,150 $3,618
Interest on Deposits in Banks 46 14
Interest & Dividends on Securities 932 522
Interest on Federal Funds Sold 220 83
Total Interest Income: 5,348 4,237
INTEREST EXPENSE
Interest on Demand Deposits 43 38
Interest on Other Savings Deposits 331 273
Interest on Time Deposits $100,000+ 495 310
Interest on All Other Time Deposits 981 752
Interest on Other Borrowings <3> 12
Total Interest Expense: 1,847 1,385
Net Interest Income 3,501 2,852
Provision For Loan Losses 115 76
NON-INTEREST INCOME
Service Charges on Deposit Accounts 298 201
Other Fee Income 1,444 1,128
All Other Non-interest Income 271 23
Total Non-interest Income: 2,013 1,352
Realized Gain/Loss on Securities 56 3
NON-INTEREST EXPENSE
Salaries & Employee Benefits 1,692 1,463
Premises & Fixed Asset Expense 641 496
Other Non-interest Expense 2,005 959
Total Non-interest Expense: 4,338 2,918
INCOME BEFORE TAXES 1,117 1,213
Applicable Income Taxes 344 473
NET INCOME 773 740
INCOME PER SHARE $0.43 $0.42
NOTE: HUMBOLDT BANCORP BECAME EFFECTIVE JANUARY 2, 1996.
*See notes to consolidated financial statements
<PAGE>9
HUMBOLDT BANCORP
STATEMENT OF OPERATIONS
For the nine months ended Sept. 30, UNAUDITED UNAUDITED
1997 & 1996 SEPT. 30, 1997 SEPT. 30, 1996
(in thousands of dollars)
INTEREST INCOME
Interest and Fees on Loans $11,755 $10,116
Interest on Deposits in Banks 71 40
Interest & Dividends on Securities 2,189 1,799
Interest on Federal Funds Sold 482 252
Total Interest Income: 14,497 12,207
INTEREST EXPENSE
Interest on Demand Deposits 121 121
Interest on Other Savings Deposits 878 804
Interest on Time Deposits $100,000+ 1,260 910
Interest on All Other Time Deposits 2,673 2,230
Interest on Other Borrowings 39 36
Total Interest Expense: 4,971 4,101
Net Interest Income 9,526 8,106
Provision For Loan Losses 465 539
NON-INTEREST INCOME
Service Charges on Deposit Accounts 788 505
Other Fee Income 3,963 2,946
All Other Non-interest Income 701 85
Total Non-interest Income: 5,452 3,536
Realized Gain/Loss on Securities 102 627
NON-INTEREST EXPENSE
Salaries & Employee Benefits 4,939 4,122
Premises & Fixed Asset Expense 1,768 1,276
Other Non-interest Expense 4,726 2,752
Total Non-interest Expense: 11,433 8,150
INCOME BEFORE TAXES 3,182 3,580
Applicable Income Taxes 1,073 1,381
NET INCOME 2,109 2,199
INCOME PER SHARE $1.18 $1.29
NOTE: HUMBOLDT BANCORP BECAME EFFECTIVE JANUARY 2, 1996
*See notes to consolidated financial statements
<PAGE>10
HUMBOLDT BANCORP STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1997 & 1996
(in thousands of dollars)
CONSOLIDATED BANK ONLY
UNAUDITED UNAUDITED
SEPT. 30, 1997 SEPT. 30, 1996
OPERATING ACTIVITIES
Net Income - Adjustments to reconcile net
income to net cash provided by 2,109 2,199
operating activities:
Provision for Loan Loss 465 539
Depreciation 1,149 712
Amortization and Other 949 668
<Gain>/Loss on Sale of Securities <102> <627>
Equity in Loss/Income of Associated Company 24 0
Net Change in Other Assets <1,224> <932>
Net Change in Other Liabilities 2,456 1,059
Net Change in Loans Held for Sale <458> 956
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,368 4,574
INVESTING ACTIVITIES
Net Change in Interest-bearing Deposits in
Banks <3,000> 100
Federal Funds Sold (Net) <3,450> <1,580>
Investment Purchases <48,445> <9,867>
Proceeds From Maturities and Sale of
Investments 17,238 26,610
Net Change in Loans <12,523> <27,905>
Purchase of Premises and Equipment <670> <1,511>
Premium Paid on Deposits Purchased <1,039> <27,905>
Investment in Associated Company <2,000> <1,511>
NET CASH USED FOR INVESTING ACTIVITIES <53,889> <43,569>
FINANCING ACTIVITIES
Net Change in Deposits 56,168 11,958
Payments on Borrowed Funds <10> <9>
Stock Options Exercised and Stock Dividends 203 0
Fractional Shares Purchased <5> <5>
NET CASH PROVIDED BY FINANCING ACTIVITIES 56,356 11,944
NET CHANGE IN CASH AND CASH EQUIVALENTS 7,835 <27,051>
Cash and Due From Banks at Beginning of Period 10,247 7,281
CASH AND DUE FROM BANKS AT END OF PERIOD 18,082 <19,770>
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period For: Interest 4,950 4,084
Income Taxes 1,289 2,089
NON-CASH TRANSACTIONS
Unrealized Holding (Gain)Losses on Securities <1,233> <1,036>
Deferred Income Taxes on unrealized holding
losses on securities 512 148
Deposit Liabilities assumed in exchange for
assets acquired in connection with purchase
of branches 75 0
Stock Dividend 3,113 2,184
<PAGE>11
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of Management, the unaudited interim consolidated financial
statements contain all adjustments of a normal recurring nature, which are
necessary to present fairly the financial condition of Humboldt Bancorp and
Subsidiary at September 30, 1997 and the results of operations for the nine
months then ended.
Certain information and footnote disclosures presented in the Company's annual
financial statements are not included in these interim financial statements.
Accordingly, the accompanying unaudited interim consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's 1996 Annual Report on Form 10-KSB.
The results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the operating results through December 31, 1997.
NOTE 2 - NEW ACCOUNTING POLICIES
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan". This statement addresses the accounting and
reporting by creditors for impairment of certain loans. A loan is impaired
when, based upon current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. These statements are applicable to
all loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment such as consumer installment loans and loans held for sale which
are measured at fair value or at the lower of cost or fair value. Impairment
is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, the Company measures impairment based on a loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Loans are measured for impairment as part of the Company's normal internal
asset review process.
Interest income is recognized on impaired loans in a manner similar to that of
all loans. It is the Company's policy to place loans that are delinquent 90
days or more as to principal or interest on a nonaccrual of interest basis
unless secured and in the process of collection, and to reverse from current
income accrued but uncollected interest. Cash payments subsequently received
on nonaccrual loans are recognized as income only where the future collection
of principal is considered by management to be probable.
<PAGE>12
At September 30, 1997, the Company's total recorded investment in impaired
loans was $80,000 for which there is a related allowance for credit losses of
$53,000 determined in accordance with these Statements.
The average recorded investment in the impaired loans during the nine months
ended September 30, 1997 was $81,000. The related amount of interest income
recognized during the period that such loans were impaired was $8,000 and the
amount of interest income recognized using a cash-basis method of accounting
during the time within the period that the loans were impaired was $1,000.
NOTE 3 - CONSOLIDATION
The consolidated financial statements include the accounts of Humboldt Bancorp
and its wholly-owned subsidiary, Humboldt Bank and subsidiary. All material
intercompany accounts and transactions have been eliminated in consolidation.
NOTE 4 - COMMITMENTS
The Bank has outstanding performance letters of credit of $3.9 million at
September 30, 1997.
NOTE 5 - NET INCOME PER COMMON SHARE
Net income per share is calculated by using the weighted average common shares
outstanding. The weighted average number of common shares used in computing
the net income per common share for the period ending September 30, 1997 was
1,791,061 and for the period ending September 30, 1996 was 1,702,454.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
INTERNALLY GENERATED REPORTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,082
<INT-BEARING-DEPOSITS> 3,020
<FED-FUNDS-SOLD> 10,020
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,212
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 157,090
<ALLOWANCE> (2,233)
<TOTAL-ASSETS> 276,093
<DEPOSITS> 248,819
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,129
<LONG-TERM> 765
0
0
<COMMON> 20,609
<OTHER-SE> 1,771
<TOTAL-LIABILITIES-AND-EQUITY> 276,093
<INTEREST-LOAN> 11,755
<INTEREST-INVEST> 2,189
<INTEREST-OTHER> 553
<INTEREST-TOTAL> 14,497
<INTEREST-DEPOSIT> 71
<INTEREST-EXPENSE> 4,971
<INTEREST-INCOME-NET> 9,526
<LOAN-LOSSES> 465
<SECURITIES-GAINS> 102
<EXPENSE-OTHER> 11,433
<INCOME-PRETAX> 3,182
<INCOME-PRE-EXTRAORDINARY> 3,182
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,109
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 6.00
<LOANS-NON> 195
<LOANS-PAST> 242
<LOANS-TROUBLED> 91
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,146
<CHARGE-OFFS> (423)
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 2,233
<ALLOWANCE-DOMESTIC> 798
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,435
</TABLE>
