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: MARCH 31, 1998
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
(Issuer'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 common stock outstanding at March 31, 1998 is: 1,596,952
Number of shares of common stock outstanding at March 31, 1998,
assuming dilution is: 1,839,417
<PAGE>2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The information required by Item 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
subsidary of the Company. The reorganization became effective January 2,
1996. The sole business operation of the Company is conducted through its
wholly owned subsidary, Humboldt Bank. The following discussion therefore,
although presented on a consolidated basis, analyzes primarily the financial
condition and results of operations of the Bank for the three month period
ended March 31, 1998. Prior to 1996, the Bank filed its periodic reports
under the Securities Exchange Act of 1934 with the Federal Reserve Board.
CHANGES IN FINANCIAL CONDITION
During the three month period ended March 31, 1998, deposits increased $5.7
million or 2.2% to $260.9 million. During the same period, gross loans
increased $6.7 million or 4.1% to $167.3 million, as a result of an increase
in real estate loans, commercial loans and lease financing loans being
partially offset by a small decrease in consumer loans.
Investment securities decreased $1.8 million or 2.2% to $78.4 million. Excess
liquidity during the period was invested in federal funds. Loans held for
sale increased to $1.3 million.
During the three month period ending March 31, 1998, past due and non-accrual
loans increased to $4.8 million (1.6% of total assets), compared with $3.1
million (1.1% of total assets) at December 31, 1997. The Company's allowance
for loan losses at March 31, 1998 was 1.5% of loans and leases which compared
with 1.5% at December 31, 1997.
EARNINGS SUMMARY
Net income for the quarter ended March 31, 1998 was $875,000 or $0.55 per
share (diluted $0.48), compared with net income of $634,000 or $0.41 per share
(diluted $0.35) in the same quarter a year ago. This can be attributed to an
increase in interest income ($1,431,000 or 32.6%), an increase in non interest
income ($912,000 or 61.25%) offset by increases in interest expense ($492,000
or 33.3%), loan loss provision ($303,000 or 147.09%), non interest expenses
($1,058,000 or 32.5%) and taxes ($223,000 or 68.4%).
NET INTEREST INCOME
Total interest income increased $1,431,000 or 32.6% for the quarter ended
March 31, 1998, as compared to the prior year. During the same period,
interest expense increased $492,000 or 33.3%. Net interest income for the
quarter ended March 31, 1998 was 3.8 million and $2.9 million for the quarter
ended March 31, 1997. Average loans and leases as a percentage of average
<PAGE>3
earning assets was 64.8% during the quarter ended March 31, 1998, compared to
75.4% a year earlier. The average balance of other earning assets as a
percentage of average earning assets was 35.2% during the quarter ended March
31, 1998, compared to 24.6% 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 net additional provision to
the allowance for loan losses for the three month period ended March 31, 1998
of $303,000 compared to a decrease of $34,000 for the same period in 1997.
Loans charged off during the three month period totaled $345,000 in 1998 and
$48,000 in 1997. Recoveries in the same period were $32,000 in 1998 and
$6,000 in 1997.
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.
NON-INTEREST INCOME
Non-interest income consists of gain/loss on sale of loans and fixed assets,
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 quarter ended March 31, 1998, income from
these sources was $2.4 million, an increase of $912,000 from the same period
in 1997. The increase was attributable primarily to increases in Merchant
BankCard Department income, Issuing BankCard Department income, Lease
Department income and service charges on deposits partially offset by an
increase in loss on sale of loans.
NON-INTEREST EXPENSE
Non-interest expenses increased $1.0 million or 32.5% to $4.3 million for the
quarter ended March 31, 1998, compared to the same period in 1997. The
increase was due in part to increased personnel expenses, fixed asset expense,
Data Processing expense, Legal expense and Merchant BankCard Department
expense. During the quarter ended March 31, 1998, the Company had a total of
223 full-time equivalent employees, compared to 181 full-time equivalent
employees during the same quarter 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.
<PAGE>4
The Company is required to maintain certain regulatory minimum capital ratios.
The following table outlines these ratios at March 31, 1998:
REQUIRED COMPANY'S
MINIMUM ACTUAL
TIER 1 6.00 11.33
TOTAL CAPITAL 10.00 12.58
LEVERAGE 5.00 7.76
Future growth and earnings retention, as currently projected by management,
are expected to provide for the maintenance of capital ratios in conformity
with the requirements.
INCOME TAXES
The provision for income taxes was $549,000 for the quarter ended March 31,
1998, compared to $326,000 in the same quarter a year earlier. The provision
is classified as current tax liability for interim reporting purposes. The
tax rate was 38.6% for the quarter ended March 31, 1998, compared to 34.0% for
the same quarter in 1996.
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
33.5% at March 31, 1998, and 27.8% at December 31, 1997.
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
<PAGE>5
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about April 17, 1998, a Proxy Statement of Humboldt Bancorp was mailed
to shareholders of record as of March 31, 1998 by the Board of Directors
soliciting proxies for use at the Annual Meeting of Shareholders to be held on
May 21, 1998. At the meeting the shareholders will be asked to elect
management's nominees for Directors (12), to ratify the appointment of
Richardson and Company as independent certified accountants and to adopt
amendments to the Amended Humboldt Bancorp Stock Option Plan primarily
relating to an increase in the number of shares available for issuance under
the Plan, and the elimination of certain vesting provisions with respect to
options granted to Directors.
ITEM 5 - OTHER INFORMATION - NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit (27) - Financial Data Schedule
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 15, 1998 HUMBOLDT BANCORP
ALAN J. SMYTH
--------------
Alan J. Smyth
Senior Vice President and
Chief Financial Officer
THEODORE S. MASON
-----------------
Theodore S. Mason
President and Chief
Executive Officer
<PAGE>6
Humboldt Bancorp and Subsidiary
Notes to Consolidated Financial Statements
March 31, 1998
(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 March 31, 1998 and results of operations for the three 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 1997 Annual Report on Form 10-KSB.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the operating results through December 31, 1998.
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. This statement is 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.
At March 31, 1998, the Company's total recorded investment in impaired loans
was $462,775.00 for which there is a related allowance for credit losses of
$65,425.00 determined in accordance with these statements.
<PAGE>7
The Company believes that the related allowance for credit losses is
sufficient due to two of the loans, which total $451,922.00, being secured by
First Deeds of Trust with a low loan to value ratio. The average recorded
investment in the impaired loans during the three months ended March 31, 1998
was $462,838. The related amount of interest income recognized during the
period that such loans were impaired was $30,864.00 and the amount of interest
income recognized using a cash-basis method of accounting during the time
within the period that such loans were impaired was $253.00.
On March 31, 1998 the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
Comprehensive income is defined as "the change in equity [net assets] of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during
a period except those resulting from investments by owners and distributions
to owners." The Company's only item of comprehensive income at this time is
the change in unrealized gains on securities available for sale, net of
applicable deferred income taxes.
This Statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
Note 3 - Consolidation
The consolidated financial statements include the accounts of Humboldt Bancorp
and its wholly-owned subsidiary, Humboldt Bank. All material intercompany
accounts and transactions have been eliminated in consolidation.
Note 4 - Commitments
The bank has outstanding performance letters of credit of $4.0 million at
March 31, 1998.
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 March 31, 1998 was
1,594,488 and for the period ending March 31, 1997 was 1,562,980.
<PAGE>8
Net income per share (diluted) is calculated by using the weighted average
common shares (diluted) outstanding. The weighted average number of common
shares (diluted) used in computing the net income per common share (diluted)
for the period ending March 31, 1998 was 1,839,417 and for the period ending
March 31, 1997 was 1,834,789.
<PAGE>9
HUMBOLDT BANCORP AND SUBSIDIARY CONSOLIDATED BANK ONLY
CONSOLIDATED BALANCE SHEETS UNAUDITED AUDITED
(IN THOUSANDS OF DOLLARS) 03-31-98 12-31-97
ASSETS:
Cash and Due From Banks 20,387 21,442
Interest Bearing Deposits in Banks 3,020 3,020
Federal Funds Sold 5,010 3,520
Investment Securities
(At fair value of $78,385 and
$80,180 respectively) 78,385 80,180
Loans Held For Sale 1,345 48
LOANS
Real Estate-Construction and
Land Development 17,662 20,165
Real Estate-Commercial and Agriculture 70,745 65,772
Real Estate-Family and Multifamily
Residential 27,344 27,205
Commercial, Industrial and Agriculture 31,961 28,766
Lease Financing 10,097 8,732
Consumer Loans 9,058 9,502
State and Political Subdivisions 0 0
Other 422 502
167,289 160,644
Less: Deferred Loan Fees <813> <809>
-------- --------
TOTAL LOANS 166,476 159,835
Less: Allowance for Credit Losses <2,567> <2,371>
-------- -------
NET LOANS 163,909 157,464
Premises and Equipment (net) 5,873 5,635
OREO 0 148
Investment in Associated Companies 2,063 2,022
Intangible Assets 1,452 1,545
Other Assets 9,714 9,063
-------- -------
TOTAL ASSETS 291,158 284,087
LIABILITIES
Deposits:
Demand 74,936 70,767
Demand-Interest Bearing 52,879 52,004
Time - $1000,000 and over 42,212 40,643
Other Time 69,864 69,821
Savings 21,005 21,951
260,896 255,186
Borrowed Funds 1,758 1,761
Other Liabilities 4,119 3,586
266,773 260,533
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 1998
and 1,410,767 in 1997, issued and
outstanding 20,616 20,495
Retained Earnings 3,075 2,200
Additional Paid in Capital 114 114
Unrealized Gain/Loss 580 745
------ ------
TOTAL SHAREHOLDERS' EQUITY 24,385 23,554
------ -------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 291,158 284,087
NOTE: Humboldt Bancorp became effective January 2, 1996.
See notes to consolidated financial statements.
<PAGE>10
HUMBOLDT BANCORP AND SUBSIDIARY
STATEMENT OF INCOME AND
COMPREHENSIVE INCOME UNAUDITED UNAUDITED
For The Three Months Ended March 31, 1998 March 31, 1997
March 31, 1998 And 1997
(In Thousands of Dollars)
INTEREST INCOME
Interest and Fees on Loans 4,472 3,716
Interest on Deposits in Banks 42 2
Interest and Dividends on Securities 1,213 560
Interest on Federal Funds Sold 90 108
Total Interest Income 5,817 4,386
INTEREST EXPENSE
Interest on Demand Deposits 52 39
Interest on Other Savings Deposits 388 270
Interest on Time Deposits $100,000+ 557 354
Interest on all Other Time Deposits 946 801
Interest on Other Borrowings 28 15
Total Interest Expense 1,971 1,479
Net Interest Income 3,846 2,907
Provision for Loan Losses 509 206
NON INTEREST INCOME
Service Charges on Deposit Accounts 546 213
Other Fee Income 1,609 1,357
All Other Non-Interest Income 246 (81)
Total Non-Interest Income 2,401 1,489
Realized Gain/Loss on Securities 0 26
NON INTEREST EXPENSE
Salaries and Employee Benefits 2,135 1,592
Premises and Fixed Asset Expense 611 534
Other Non-Interest Expense 1,568 1,130
Total Non-Interest Expense 4,314 3,256
INCOME BEFORE TAXES 1,424 960
Applicable Income Taxes 549 326
NET INCOME 875 634
COMPREHENSIVE INCOME.
CHANGE IN UNREALIZED HOLDING GAINS
FOR PERIOD <165> <97>
COMPREHENSIVE INCOME 710 537
NET INCOME PER SHARE $0.55 $0.41
NET INCOME PER SHARE ASSUMING DILUTION $0.48 $0.35
<PAGE>11
HUMBOLDT BANCORP STATEMENT OF CASH FLOWS CONSOLIDATED BANK ONLY
For the Three Months Ended UNAUDITED UNAUDITED
March 31, 1998 and 1997 MARCH 31, 1998 MARCH 31, 1997
(In Thousands of Dollars)
OPERATING ACTIVITIES
Net Income - Adjustments to
reconcile net income to net cash
provided by operating activities: 875 634
Provision for Loan Loss 509 206
Depreciation 343 345
Amortization and Other 513 244
<Gain>/Loss on Sale of Securities 0 <25>
Equity in Loss/Income of Associated Company <41> 16
Net Change in Other Assets <495> <229>
Net Change in Other Liabilities 433 746
Net Change in Loans Held for Sale <1,297> 23
NET CASH PROVIDED BY OPERATING ACTIVITIES 940 1,960
INVESTING ACTIVITIES
Net Change in Interest-bearing Deposits
in Banks 0 0
Federal Funds Sold (Net) <1,490> <3,190>
Securities Held to Maturity
Investment Purchases 0 0
Proceeds from Maturities of Investments 0 0
Proceeds from Sale of Investments 0 0
Securities Available For Sale
Investment Purchases <2,753> <7,721>
Proceeds From Maturities of Investments 3,955 1,738
Proceeds From Sale of Investments 0 4,058
Net Change in Loans <6,954> <1,468>
Purchase of Premises and Equipment <581> <270>
Investment in Associated Company 0 <2,000>
NET CASH USED FOR INVESTING ACTIVITIES 7,823 8,853
FINANCING ACTIVITIES
Net Change in Deposits 5,170 7,247
Payments on Borrowed Funds <3> <3>
Stock Options Exercised 121 96
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,828 7,340
NET CHANGE IN CASH AND CASH EQUIVALENTS <1,055> 447
Cash and Due From Banks at Beginning
of Period 21,442 10,247
CASH AND DUE FROM BANKS AT END OF PERIOD 20,387 10,694
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period For:
Interest 1,958 1,472
Income Taxes 1,000 0
NON-CASH TRANSACTIONS
Unrealized Holding Losses on Securities 283 453
Deferred Income Taxes on Unrealized
Holding Losses on Securities 118 188
Deposit Liabilities Assumed in Exchange
for Assets Acquired in Connection
with Purchase of Branches 0 0
<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>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 20,387 10,694
<INT-BEARING-DEPOSITS> 3,020 20
<FED-FUNDS-SOLD> 5,010 9,760
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 78,385 41,547
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 167,821 146,348
<ALLOWANCE> (2,567) (2,310)
<TOTAL-ASSETS> 291,158 223,362
<DEPOSITS> 260,869 199,823
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 4,119 2,533
<LONG-TERM> 1,758 772
0 0
0 0
<COMMON> 20,616 17,275
<OTHER-SE> 3,769 2,959
<TOTAL-LIABILITIES-AND-EQUITY> 291,158 223,362
<INTEREST-LOAN> 4,472 3,716
<INTEREST-INVEST> 1,213 560
<INTEREST-OTHER> 132 110
<INTEREST-TOTAL> 5,817 4,386
<INTEREST-DEPOSIT> 1,943 1,464
<INTEREST-EXPENSE> 1,971 1,479
<INTEREST-INCOME-NET> 3,846 2,907
<LOAN-LOSSES> 509 206
<SECURITIES-GAINS> 0 26
<EXPENSE-OTHER> 4,314 3,256
<INCOME-PRETAX> 1,424 960
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 875 634
<EPS-PRIMARY> 0.55 0.41
<EPS-DILUTED> 0.48 0.35
<YIELD-ACTUAL> 1.24 1.21
<LOANS-NON> 559 73
<LOANS-PAST> 1,002 237
<LOANS-TROUBLED> 0 101
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 2,371 2,146
<CHARGE-OFFS> (345) (48)
<RECOVERIES> 32 6
<ALLOWANCE-CLOSE> 2,567 2,310
<ALLOWANCE-DOMESTIC> 184 794
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 2,385 1,516
</TABLE>
