SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
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 September 30, 1999 was: 4,721,361
<PAGE>2
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
The information required by Rule 10-01 of Regulation S-X is attached hereto as
Exhibit A.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The business operation of the Company is conducted through its wholly owned
subsidiaries, Humboldt Bank and Capitol Valley Bank, and a 50% interest with
Tehema Bancorp in Bancorp Financial Services, a company making consumer
automobile loans and commercial equipment leases of less than $100,000. The
following discussion presented on a consolidated basis analyzes the financial
condition and results of operations of the Company for the nine month period
ended September 30, 1999.
Changes in Financial Condition
During the nine-month period ended September 30, 1999, deposits increased $91.8
million or 32.3% to $375.8 million compared with $284.0 million at December 31,
1998. The increase in deposits is mainly the result of the acquisition of the
Burre Center and Ukiah branches of California Federal Bank in late August.
During the same period, total loans increased $24.2 million or 13.3% to $205.6
million compared with $181.4 million at December 31, 1998. The increase in loans
is primarily the result of increases in the real estate loan portfolio,
particularly family and multi-family residential loans, and commercial and
agricultural loans and to a much lesser degree in construction and land
development loans as well as commercial, industrial and agricultural loan, and
other loan portfolios. The increase was partially offset by decreases in the
state and political subdivision loan, the consumer loan, and the lease financing
loan portfolios. Loans held for sale decreased $7.0 million or 90.6% to $0.7
million compared with $7.7 million at December 31, 1998. The increase in
deposits is attributable to both internal growth ($20.9 million) and the
retention of deposits acquired from two branches of California Federal Bank
($70.9 million). The increase in loans is attributable to internal growth and is
not the result of acquisitions.
At September 30, 1999, deposits had increased $98.5 million or 35.5% from $277.3
million at September 30, 1998. Total loans had increased $22.7 million or 12.4%
from $183.6 million at September 30, 1998. The increase in deposits is
attributable to both internal growth ($27.6 million) and the retention of
deposits acquired from two branches of California Federal Bank ($70.9 million).
The increase in loans is attributable to internal growth and is not the result
of acquisitions.
Investment securities increased $28.4 million or 36.5% to $106.2 million at
September 30, 1999 compared with $77.8 million at December 31, 1998, and federal
funds sold increased $53.9 million or 2,395.3% to $56.2 million compared with
$2.3 million at December 31, 1998. The increase in investment securities was
mainly the result of the increase in deposits partially offset by an increase in
loan demand. The increase in federal funds sold was mainly the result of the
California Federal Bank acquisition and a planned build-up of federal funds for
year-end liquidity purposes.
At September 30, 1999, investments had increased $26.8 million or 33.7% from
$79.4 million at September 30, 1998. The increase in investments is mainly
attributable to the investment of funds received from the California Federal
Loan acquisition.
<PAGE>3
During the nine month period ending September 30, 1999, past due and non-accrual
loans decreased $0.6 million or 21.4% to $2.2 million (0.5% of total assets),
compared with $2.8 million (0.9% of total assets) at December 31, 1998. The
Company's allowance for loan losses at September 30, 1999, was 1.6% of loans and
leases compared with 1.6% at December 31, 1998.
At September 30, 1999, past due and non-accrual loans had increased $0.4 million
or 22.2% to $2.8 million from $1.8 million at September 30, 1998. The Company's
allowance for loan losses at September 30, 1999, was 1.6% of total loans and
leases, which compared with 1.5% at September 30, 1998.
Earnings Summary
Net income for the nine months ended September 30, 1999, increased $379,000 to
$3,190,000 or $0.70 per share (diluted $0.64), compared with net income of
$2,811,000 or $0.64 per share (diluted $0.58) in the same period a year ago. The
increase can be attributed to increases in interest income of $55,000 or 0.3%,
non-interest income of $5,073,000 or 59.6%. Bancorp financial services income of
$203,000 or 209.3%, decreases in interest expense of $220,000 or 3.8%, provision
for loan losses of $844,000 or 54.8%, and taxes of $183,000 or 10.6% and by
increases in non-interest expense of $6,106,000 or 42.2% and an increase in
realized loss on securities of $93,000 or 100.0%
Net income for the three months ended September 30, 1999, decreased $12,000 to
$1,096,000 or $0.01 per share (diluted $0.01 per share), compared with net
income of $1,108,000 or $0.25 per share (diluted $0.23 per share) in the same
three month period a year ago. This decrease of $12,000 can be accounted for by
increases in interest expense ($106,000 or 5.4%), and non-interest expense
($2,425,000 or 46.7%) off-set by increases in interest income ($282,000 or
4.7%), non-interest income ($1,770,000 or 53.6%), and Bancorp financial services
income ($63,000 or 90.0%), and decreases in loan loss provision ($326,000 or
63.1%) and taxes ($153,000 or 23.0%) and increases in realized loss on
securities ($75,000 or 100%).
Net Interest Income
Total interest income increased $55,000 or 0.3% for the nine months ended
September 30, 1999, compared with the prior year. During the same period,
interest expense decreased $220,000 or 3.8%. Net interest income for the nine
months ended September 30, 1999, was $12.2 million and $11.9 million for the
period ended September 30, 1998. Average loans and leases as a percentage of
average earning assets was 66.7% during the nine months ended September 30,
1999, compared to 65.3% a year earlier. The average balance of other earning
assets as a percentage of average earning assets was 33.3% during the nine
months ended September 30, 1999, compared with 34.7% a year earlier.
Total interest income increased $282,000 or 4.7% for the three months ended
September 30, 1999, and interest expense decreased $106,000 or 5.4% compared
with the same three-month period in the prior year. Net interest income for the
three months ended September 30, 1999, was $4.3 million and $4.1 million for the
three months ended September 30, 1998. The increase in interest income is
accounted for by increases in federal funds sold ($231,000), and interest and
dividends on securities ($148,000) offset by small decreases in interest and
fees on loans ($64,000) and interest on deposits in banks ($33,000). The
increase in interest expense is attributable to increases in interest on savings
deposits ($34,000), all other time deposits ($86,000) and interest on other
borrowings ($32,000) offset by decreases in interest on demand deposits ($5,000)
and interest on time deposits of $100,000 or more, ($41,000).
<PAGE>4
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, 1999, of $697,000 compared to
$1,541,000 for the same period in 1998. Loans charged off during the nine-month
period totaled $821,000 in 1999 and $1,280,000 in 1998. Recoveries in the same
period were $308,000 in 1999 and $147,000 in 1998. The reduction in loans
charged off in 1999 compared to 1998 is primarily due to a planned scaling back
of the Company's credit card issuing operations.
The Company recorded a provision to the allowance for loan losses for the three
month period ended September 30, 1999, of $191,000 compared with $517,000 in the
same period in 1998. Loans charged off during the three-month period totaled
$290,000 in 1999 and $414,000 in 1998. Recoveries in the same period were
$50,000 in 1999 and $40,000 in 1998.
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. During the nine months ended September 30, 1999,
income from these sources increased $5.1 million or 60.0% to $13.6 million,
compared with $8.5 million in 1998. The increase was accounted for by increases
in Merchant BankCard Department income ($5.0 million), service charges on
deposits ($0.3 million), other income (0.4 million) and gain on sale of loans
($0.1 million), offset by decreases in Issuing BankCard Department income ($0.5
million), and Lease Department income ($0.2 million).
In the three months ended September 30, 1999, non-interest income was $5.1
million; an increase of $1.8 million or 54.5% compared with $3.3 million for the
same period in 1998. The increase is attributable primarily to increases in
Merchant Bankcard Department income ($1.9 million), service charges on deposits
($0.1 million), and other non-interest income ($0.2 million) and decreases in
Issuing Bank Card Department income ($0.2 million) and FNMA servicing rights
(0.2 million).
Non-Interest Expense
During the nine months ended September 30, 1999, non-interest expenses increased
$6.1 million or 42.1% to $20.6 million, compared with $14.5 million for the same
period in 1998. The increase is attributable to increased personnel expenses
($1.9 million), premises expense ($0.1million) and other non interest expenses
($4.1 million) which include increases in Merchant Bankcard Department expense
($3.5 million), outside consulting expense ($0.1 million), legal expense ($0.1
million), telephone expense ($0.2 million), and organizational expense ($0.2
million)
During the three months ended in September 30, 1999, non-interest expense was
$7.6 million an increase of $2.4 million of 46.2%, compared with $5.2 million
for the same period in 1998. The increase is attributable to increased personnel
expenses ($0.7 million), premises expense ($0.1) and other non interest expenses
($1.6 million) which includes increases in Merchant Bankcard Department expense
($1.4 million), legal expense ($0.1 million), and telephone expense ($0.1
million).
<PAGE>5
Number of Employees
At September 30, 1999, the Company had 319 full-time equivalent employees,
compared to 257 full-time equivalent employees at the same period a year
earlier.
In the three months ended September 30, 1999, the number of full-time equivalent
employees increased by 33 compared with 9 in the same three months period in
1998.
Year 2000 Issue
General
The Company formed a committee of senior company personnel in late 1997 to
address the issue of computer programs and embedded computer chips being unable
to distinguish between the year 1900 and the year 2000. The committee meets on a
regular basis to evaluate, review progress, and make recommendations on the
various phases of the Year 2000 project. The Company is satisfied with the
progress made to date and is on track to complete the project in time for the
Year 2000 date change.
Project
The Company-wide project is divided into seven major phases
1. The Awareness Phase
2. The Assessment Phase
3. The Vendor, Customer and Employee Notification Phase
4. The Vendor and Customer Response Review Phase
5. The Testing Phase
6. The Contingency Phase
7. The Renovation Phase
The Awareness Phase consisted of gaining executive level support for the
resources necessary to perform compliance work, for establishing a Year 2000
project team and for developing an overall strategy that encompassed the
in-house core system, out-sourced systems, vendors, customers, and suppliers
including correspondents. The Awareness Phases is fully completed.
The Assessment Phase consisted of assessing the size, scope, and complexity of
the problem, detailing the magnitude of the effort necessary to address the Year
2000 project and the preparation of a Year 2000 action plan. This phase
identified all hardware, software, network, ATM and various other processing
platforms, and customers and vendor interdependencies affected by the year
2000-date change. The assessment went beyond informational systems to include
environmental systems that are dependent on embedded microchips such as security
systems, elevators and vaults. The Assessment Phase is fully completed.
The Vendor, Customer, and Employee Notification Phase consisted of the
following:
1. The mailing of letters to critical vendors requesting information on their
Year 2000 compliance plans and readiness.
2. The mailing of letters to and personal contact with major customers (with
special emphasis given key loan customers), to ascertain their awareness,
preparations and compliance plans relative to the Year 2000 problem.
<PAGE>6
3. Company staff members were guest speakers at several service clubs in the
area outlining the Year 2000 problem.
4. Meetings were held with all staff members within the Company to advise them
of the Year 2000 problem, and the steps the Company was taking to ensure
compliance.
5. The Bank's Year 2000 Policy statement, as well as other informational items,
has been made available to both customers and other interested parties.
The Vendor, Customer, and Employee Notification Phases is completed. The
Company, however, will continue to keep vendors, customers and employees updated
on its compliance progress and general Year 2000 issues.
The Testing Phase is a multifaceted process that is critical to the Year 2000
project and inherent in each phase of the project plan. This process includes
the testing of incremental changes to hardware and software components. In
addition to testing upgraded components, connections with other systems have
been verified to ensure that internal and external users accept all changes. The
committee is assuring the effective and timely completion of all hardware and
software testing prior to final implementation and has ongoing discussions with
their vendors of their testing efforts. The Company has prepared, and the Board
of Directors has approved, the Company's Year 2000 Test Plan. Test scripts for
all critical applications are complete and have been executed without incident.
The Company's core operating system was unit tested in December 1998, with
initial end-to-end interface testing executed in March 1999 and completed in
June 1999. All critical dates have been tested for the core operating system.
With the exception of a few minor unrelated and explainable anomalies, the
system has proven to be compliant. Additional testing of critical interfaces to
the Company's core system was completed by the end of June 1999. As well,
several of the organization's ancillary systems have been tested without
incident. The Company has completed the necessary testing as required by its
regulatory agencies. Additional "comfort" testing is ongoing and the Company
intends to continue testing through the rest of 1999 and into the Year 2000
(Leap Year). The additional testing will cover any upgrades to existing systems,
as well as any new hardware or software the Company implements prior to the end
of the year.
The Contingency Phase consists of a comprehensive plan to address remediation
and business resumption functions that rely on mission critical systems. An
updated version of the Contingency Plan, which contains an overview of the
organization's contingency testing and training plans, was completed by June 30,
1999, and was submitted to the Board of Directors for review and approval on
July 15, 1999. The Company began to test the contingency plan in September 1999
and anticipates that each branch and department will have completed contingency
testing by October 29 1999. The Company believes that the Contingency Plan is a
living document, which will be continuously updated as necessary throughout
1999.
The Renovation Phase consists of renovating, replacing and retiring
non-compliant systems, as well as evaluating Year 2000 code enhancements,
hardware and software upgrades, system replacements and other associated
changes. The Company anticipates that the Renovation Phase will continue
throughout the remainder of 1999.
Costs
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
The estimated total cost of the Year 2000 project is approximately $500,000. A
minimal amount, other than time of the committee members, has been expended on
<PAGE>7
the Year 2000 project as of September 1999. The Company is also expensing and
reserving $10,000 a month for possible loan losses caused by Year 2000 problems.
This reserve will be approximately $225,000 at December 31, 1999.
Risks
The failure to correct material Year 2000 problems could result in the
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from
uncertainty of the Year 2000 readiness of third party suppliers and customers,
the Company is unable to specifically determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. However, its ongoing
Year 2000 efforts are expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its critical vendors. The Company believes that,
with implementation of new business systems, if necessary, and the completion of
the project as scheduled, the possibility of significant interruptions of normal
operations should be reduced to a minimum.
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, 1999.
REQUIRED COMPANY'S
MINIMUM ACTUAL
TIER 1 6.00 11.11
TOTAL CAPITAL 10.00 12.33
LEVERAGE 5.00 8.17
Future growth and earnings retention, as currently anticipated by management, is
expected to provide for the maintenance of capital ratios in conformity with the
requirements.
Income Taxes
The provision for income taxes was $1,537,000 for the nine months ended
September 30, 1999, compared to $1,720,000 in the same period a year earlier.
The provision is classified as current tax liability for interim reporting
purposes. The tax rate was 34.7% for the nine months ended September 30, 1999,
compared to 38.8% for the same period in 1998.
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 Company's primary liquidity ratio, which
is the ratio of liquid assets to total deposits, was 38.2% at September 30,
25.0% at June 30, and 28.7% at March 31, 1999 respectively and 30.6% at
September 30, 1998.
<PAGE>8
Asset/Liability Management
The Company's Asset and Liability Committee ("ALCO") meets on a quarterly basis
and monitors the impact of changing interest rates on the Company's earnings and
economic value. The Company uses a simulation model to estimate the change in
the Company's net interest margin (NIM) for various rate scenarios. The Company
uses a combined net present value and going-concern model to calculate economic
risk.
Interest Rate Risk. The table below shows the potential change in NIM (before
taxes) if rates change as of September 30, 1999. These estimates are based on
the existing repricing schedule (see repricing table) as well as consideration
of convexity when rates change (e.g., mortgage-backed securities cash flow
changes). The Company's NIM increases if rates rise, and declines if rates fall.
The cause of this slight exposure to declining rates is due to the Company's
concentration of short-term and rate sensitive loans as of September 30, 1999.
Economic Risk. The Company also measures the potential change in the net present
value of the Company's net existing assets and liabilities if rates change (the
"economic value of equity" or "EVE"). The table below also shows the EVE. The
EVE is determined by valuing the Company assets and liabilities as of September
30, 1999, using a present value cash flow calculation as if the Company is
liquidated. The EVE declines when rates increase because there are more fixed
rate assets than liabilities. However, the Company's NIM earnings would also
increase as rates increased (from the interest rate risk) and this benefit would
offset the decline in EVE.
% Change in NIM
Change in NIM to Shareholder
Change in (In thousands Equity
Interest Rates pre-tax) (pre-tax) % of EVE
-------------- ------------- ---------------- --------
+2% $1,195 4.5% (13%)
+1% $ 583 2.2% ( 7%)
-1% ($ 584) (2.2%) 7%
-2% ($1,201) (4.5%) 13%
<PAGE>9
The following table sets forth the repricing opportunities for the assets and
liabilities of the Company at September 30, 1999. Assets and Liabilities are
classified by the earliest possible repricing date or maturity, whichever comes
first.
<TABLE>
<CAPTION>
REPRICING IN
---------------------------------------------------------------------
Three One Five Years
Less Than Through Through Three Through Over Non-
Three Twelve Three Through Fifteen Fifteen Interest
Months Months Years Five Years Years Years Bearing Total
------ ------ ----- ---------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Net Loans $ 81,522 $ 15,642 $ 27,358 $ 42,292 $ 25,211 $ 14,312 $ 206,337
Investment Securities 1,630 14,287 51,513 13,083 20,065 4,645 105,223
Federal Funds Sold 56,145 56,145
FHLB Stock $ 987 987
Interest-bearing deposits
with banks 20 20
Non-interest earning assets 50,455 50,455
-----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 139,317 $ 29,929 $ 78,871 $ 55,375 $ 45,276 $ 18,957 $ 51,442 $ 419,167
===============================================================================================
LIABILITIES:
Non-interest-bearing deposits $ 118,267 $ 118,267
Interest-bearing deposits $ 149,547 $ 81,392 $ 24,803 $ 1,806 257,548
Borrowings 22 69 1,502 3,045 4,638
Other liabilities 5,898 5,898
Stockholders' equity 32,816 32,816
-----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 149,569 $ 81,461 $ 26,305 $ 4,851 0 0 $ 156,981 $ 419,167
===============================================================================================
Interest rate sensitivity gap $ -10,252 $ -51,532 $ 52,566 $ 50,524 $ 45,276 $ 18,957
Cumulative interest rate
sensitivity gap $ -10,252 $ -61,784 $ -9,218 $ 41,306 $ 86,582 $ 105,539
</TABLE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISKS
See Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation - Asset/Liability Management.
<PAGE>10
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
On December 7, 1998, the case of Freeman, et al. V. Citibank (South Dakota) NA,
et al., Civil Action No. CV-98-RRA-3029-S, was filed in the United States
District Court, Northern District of Alabama, Northern Division. This case is a
purported class action brought on behalf of Mr. Freeman and others similarly
situated (VISA credit cardholders issued by Citibank (South Dakota), hereinafter
"Citibank"), against Citibank and VISA International (hereinafter "VISA") to (a)
enjoin the collection of debts charged to Citibank Visa cards for gambling at
Internet casino web-sites; (b) have Internet casino gambling declared unlawful;
and (c) recover all payments including principal, interest and penalties,
received by Citibank and Visa related to such debts. Mr. Freeman is alleging
that Citibank and Visa were facilitating, participating in and profiting from
gambling by allowing Mr. Freeman to use his Citibank Visa card to purchase
"e-cash" at a web-site owned and operated by a provider of such "virtual"
commodity (hereinafter the "Merchant Provider"), which he accessed from an
online casino operation. Mr. Freeman proceeded to play the game of blackjack
with his e-cash and lost $30. The action alleges violation of the federal Wire
Act and the federal Racketeering Influenced and Corrupt Organizations Act
("RICO"). Mr. Freeman is seeking treble damages pursuant to RICO, punitive
damages and attorney's fees, in addition to compensatory damages and declaratory
relief. Citibank has pending a motion to compel arbitration in the case: the
plaintiff has moved to consolidate this action with others, which have been
filed against Visa across the country. Neither motion has been heard by the
court to date.
Humboldt Bank is not a defendant in the Freeman case. However, Humboldt Bank
provides merchant processing for the Merchant Provider used by Mr. Freeman and
on April 21, 1999, Citibank sent a letter to Humboldt Bank seeking indemnity for
the Freeman action pursuant to VISA regulations. Humboldt Bank and Citibank have
had preliminary discussions regarding this matter, but Humboldt Bank at this
time has neither acknowledged nor disputed the applicability of the Visa
regulation cited by Citibank. The Freeman action is in its preliminary stages
and the outcome at this time cannot be determined. A similar lawsuit in a United
States District Court in Wisconsin (not involving Humboldt Bank insofar as is
known) was recently dismissed; however, that decision is not binding on the
Freeman Court. Until the Freeman action is ultimately determined, any potential
action against Humboldt Bank by Citibank would be premature. In the event it is
ultimately determined that Humboldt Bank is obligated to indemnify Citibank,
Humboldt Bank intends to seek indemnity against both the Merchant Provider and
the company which through its independent marketing efforts presented the
Merchant Provider's application for merchant services to Humboldt Bank.
We are also involved in other litigation; the outcome of which, we believe will
not have a material effect on our operations or financial condition.
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 -
(a) On April 7, 1999, Humboldt Bank entered into a purchase agreement to
acquire two branch offices located at 959 Myrtle Avenue, Eureka, CA
95501 and 607 South State Street, Ukiah, CA 95482 from California
<PAGE>11
Federal Savings Bank. On August 29, 1999, under the terms of the
purchase agreement, Humboldt Bank acquired all of the assets relating
to California Federal's Eureka and Ukiah branch offices including
cash, loans, real property, contracts and intangible assets and
assumed deposits and other liabilities relating to the branches. The
purchase price for the two branches was equal to approximately 3.25%
of the aggregate deposits acquired by Humboldt Bank. Total loans and
deposits to acquired by Humboldt Bank were approximately $55,700 and
$72.2 million, respectively.
(b) The Company and Global Bancorp and its subsidiary Capitol Thrift &
Loan have entered into an Agreement And Plan of Reorganization and
Merger, as amended and restated. Global Bancorp is a California bank
holding company headquartered in Napa, California. Global Bancorp has
one subsidiary consisting of Capitol Thrift & Loan, a California
licensed industrial loan company. Under the terms of the agreement,
the Company will be the surviving corporation of the merger and
Capitol Thrift & Loan will become a wholly-owned subsidiary of the
Company. As a part of the agreement, immediately prior to the merger,
Humboldt Bank will purchase a branch office of Capitol Thrift & Loan,
located in San Jose, California, which at the time of the acquisition
will have an estimated $63 million in assets and $63 million in
liabilities.
The total consideration to be paid for the merger will be
approximately $16,500,000, of which approximately $11,000,000 will be
paid in cash and the balance of approximately $5,500,000 will be paid
in the form of a Company promissory note. The promissory note amount
is subject to adjustment and is payable in full on January 30, 2002,
subject to acceleration under certain conditions.
The merger is subject to certain conditions including approval by the
shareholders of Global Bancorp and regulatory approval.
(c) In September 1999, the Company acquired all the outstanding shares of
Silverado Merger Corporation, previously Silverado Bank, a bank in
organization which had yet to raise the necessary capital to open as a
commercial banking institution, for 45,002 shares of the Company's
common stock and warrants to purchase up to 90,000 shares of common
stock of the Company at $12.00 per share. Under terms of the
acquisition, the former Silverado Merger Corporation shareholders will
assist Capitol Valley Bank in achieving certain business objectives.
In the event Capitol Valley Bank fails to achieve certain business
objectives such as developing new business accounts or assumes
undisclosed liabilities, (a) the Company has the right to repurchase
the 45,002 shares of common stock for $1.00 each, and (b) the warrants
to purchase up to 90,000 shares of common stock for $12.00 per share
cannot be exercised. As part of the acquisition, Capitol Valley Bank
hired Silverado Merger Corporation's president, and entered into
non-competition agreements with the shareholders of Silverado Merger
Corporation prohibiting them from participating in any financial
institution within 30 miles of Capitol Valley Bank until December 31,
2002. In addition, Capitol Valley Bank's board was expanded to include
three to five new directors consisting of some of the prior directors
of Silverado Merger Corporation. Finally, as part of the agreement,
some shareholders and supporters of Silverado Merger Corporation
purchased approximately $1.6 million of Humboldt Bancorp's restricted
common stock at $12.00 per share pursuant to a private placement.
<PAGE>12
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
<PAGE>13
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: November 5, 1999 HUMBOLDT BANCORP
/s/ Alan J. Smyth
------------------------------------------------
Alan J. Smyth
Senior Vice President and Chief Financial Officer
/s/ Theodore S. Mason
------------------------------------------------
Theodore S. Mason
President and Chief Executive Officer
<PAGE>14
Humboldt Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1999
(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
Subsidiaries at September 30, 1999, and 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 1998 Annual Report on Form 10-K. The results
of operations for the nine months ended September 30, 1999, are not necessarily
indicative of the operating results through December 31, 1999.
Note 2 - New Accounting Policies
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 are required.
Note 3 - Consolidation
The consolidated financial statements include the accounts of Humboldt Bancorp
and its wholly owned subsidiaries, Humboldt Bank and Capitol Valley Bank and 50%
in Bancorp Financial Services. All material intercompany accounts and
transactions have been eliminated in consolidation.
<PAGE>15
Note 4 - Commitments
The Company has outstanding performance letters of credit of $4.6 million at
September 30, 1999, compared to $7.0 million at September 30, 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 September 30, 1999, was
4,537,595 and for the period ending September 30, 1998, was 4,421,492.
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 September 30, 1999, was 4,976,807 and for the period ending
September 30, 1998, was 4,884,343.
<PAGE>16
<TABLE>
<CAPTION>
HUMBOLDT BANCORP AND SUBSIDIARIES CONSOLIDATED CONSOLIDATED
CONSOLIDATED BALANCE SHEETS UNAUDITED AUDITED
(IN THOUSANDS OF DOLLARS) 09-30-99 12-31-98
------------ ------------
<S> <C> <C>
ASSETS:
Cash and Due From Banks $ 25,401 $ 28,626
Interest Bearing Deposits in Banks 20 3,020
Federal Funds Sold 56,145 2,250
Investment Securities (At fair value of $106,210
and $77,802 respectively) 106,210 77,802
Loans Held For Sale 719 7,677
LOANS
Real Estate-Construction and Land Development 22,997 20,667
Real Estate-Commercial and Agriculture 91,842 80,197
Real Estate-Family and Multifamily Residential 41,799 27,549
Commercial, Industrial and Agriculture 35,523 33,981
Lease Financing 7,518 9,867
Consumer Loans 5,493 7,782
State and Political Subdivisions 641 1,512
Other 660 585
206,473 182,140
Less: Deferred Loan Fees (855) (724)
TOTAL LOANS 205,618 181,416
Less: Allowance for Credit Losses (3,239) (3,055)
NET LOANS 202,379 178,361
Premises and Equipment (net) 9,421 7,950
OREO 0 175
Investment in Associated Companies 2,581 2,281
Intangible Assets 3,960 1,760
Other Assets 12,331 10,073
---------- ----------
TOTAL ASSETS $ 419,167 $ 319,975
========== ==========
LIABILITIES
Deposits:
Demand 118,267 96,884
Demand-Interest Bearing 58,822 50,090
Time - $1000,000 and over 57,663 46,355
Other Time 107,807 69,478
Savings 33,256 21,160
375,815 283,967
Borrowed Funds 4,638 3,402
Other Liabilities 5,898 4,758
386,351 292,127
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares authorized,
none issued
Common stock, no par value; 50,000,000 shares authorized,
4,721,361 shares in 1999 and 1,778,887 in 1998, issued and
outstanding 27,768 25,580
Retained Earnings 4,670 1,485
Additional Paid in Capital 298 297
Unrealized Gain/Loss 80 486
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 32,816 27,848
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 419,167 $ 319,975
========== ==========
</TABLE>
<PAGE>17
<TABLE>
<CAPTION>
HUMBOLDT BANCORP AND SUBSIDIARIES
STATEMENT OF INCOME AND COMPREHENSIVE INCOME UNAUDITED UNAUDITED
For The Three Months Ended September 30, 1999 and 1998 September 30, September 30,
(In Thousands of Dollars) 1999 1998
------------- -------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 4,870 $ 4,934
Interest on Deposits in Banks 11 44
Interest and Dividends on Securities 1,034 886
Interest on Federal Funds Sold 423 192
---------- ----------
Total Interest Income 6,338 6,056
INTEREST EXPENSE
Interest on Demand Deposits 50 55
Interest on Other Savings Deposits 312 278
Interest on Time Deposits $100,000+ 598 639
Interest on all Other Time Deposits 1,015 929
Interest on Other Borrowings 79 47
---------- ----------
Total Interest Expense 2,054 1,948
---------- ----------
Net Interest Income 4,284 4,108
Provision for Loan Losses 191 517
NON INTEREST INCOME
Service Charges on Deposit Accounts 642 503
Other Fee Income 3,843 2,178
All Other Non-Interest Income 587 621
---------- ----------
Total Non-Interest Income 5,072 3,302
Realized Gain/Loss on Securities (75) 0
NON INTEREST EXPENSE
Salaries and Employee Benefits 3,089 2,376
Premises and Fixed Asset Expense 807 659
Other Non-Interest Expense 3,719 2,155
---------- ----------
Total Non-Interest Expense 7,615 5,190
---------- ----------
INCOME BEFORE TAXES 1,475 1,703
Applicable Income Taxes 512 665
Bancorp Financial Services Income 133 70
---------- ----------
NET INCOME 1,096 1,108
COMPREHENSIVE INCOME.
CHANGE IN UNREALIZED HOLDING GAINS FOR PERIOD (33) 347
---------- ----------
COMPREHENSIVE INCOME 1,063 1,455
========== ==========
NET INCOME PER SHARE $0.24 $0.25
========== ==========
NET INCOME PER SHARE ASSUMING DILUTION $0.22 $0.23
========== ==========
</TABLE>
<PAGE>18
<TABLE>
<CAPTION>
HUMBOLDT BANCORP AND SUBSIDIARIES
STATEMENT OF INCOME AND COMPREHENSIVE INCOME UNAUDITED UNAUDITED
For The Nine Months Ended September 30, 1999 and 1998 September 30, September 30,
(In Thousands of Dollars) 1999 1998
------------ -------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 14,136 $ 13,998
Interest on Deposits in Banks 73 132
Interest and Dividends on Securities 2,939 3,238
Interest on Federal Funds Sold 696 421
---------- ----------
Total Interest Income 17,844 17,789
INTEREST EXPENSE
Interest on Demand Deposits 135 156
Interest on Other Savings Deposits 821 967
Interest on Time Deposits $100,000+ 1,805 1,794
Interest on all Other Time Deposits 2,649 2,818
Interest on Other Borrowings 225 120
---------- ----------
Total Interest Expense 5,635 5,855
---------- ----------
Net Interest Income 12,209 11,934
Provision for Loan Losses 697 1,541
NON INTEREST INCOME
Service Charges on Deposit Accounts 1,805 1,543
Other Fee Income 10,051 5,755
All Other Non-Interest Income 1,729 1,214
---------- ----------
Total Non-Interest Income 13,585 8,512
Realized Gain/Loss on Securities (93) 0
NON INTEREST EXPENSE
Salaries and Employee Benefits 8,659 6,763
Premises and Fixed Asset Expense 2,092 1,962
Other Non-Interest Expense 9,826 5,746
---------- ----------
Total Non-Interest Expense 20,577 14,471
---------- ----------
INCOME BEFORE TAXES 4,427 4,434
Applicable Income Taxes 1,537 1,720
Bancorp Financial Services Income 300 97
---------- ----------
NET INCOME 3,190 2,811
COMPREHENSIVE INCOME.
CHANGE IN UNREALIZED HOLDING GAINS FOR PERIOD (406) (82)
---------- ----------
COMPREHENSIVE INCOME 2,784 2,729
========== ==========
NET INCOME PER SHARE $0.70 $0.64
========== ==========
NET INCOME PER SHARE ASSUMING DILUTION $0.64 $0.58
========== ==========
</TABLE>
<PAGE>19
<TABLE>
<CAPTION>
HUMBOLDT BANCORP STATEMENT OF CASH FLOWS CONSOLIDATED CONSOLIDATED
For the Nine Months Ended September 30, 1999 and 1998 UNAUDITED UNAUDITED
(In Thousands of Dollars) September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income - Adjustments to reconcile net income to net
cash provided by operating activities: 3,190 2,811
Provision for Loan Loss 697 1,541
Depreciation 1,115 1,131
Amortization and Other 977 1,182
(Gain)/Loss on Sale of Securities 93 0
Equity in Income of Associated Company (300) (160)
Net Change in Other Assets (728) (906)
Net Change in Other Liabilities 1,142 2,079
Net Change in Loans Held for Sale 6,958 (3,190)
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,144 4,488
INVESTING ACTIVITIES
Net Change in Interest-bearing Deposits in Bank 3,000 0
Federal Funds Sold (Net) (53,895) (5,860)
Securities Available-for-sale
Investment Purchases (57,939) (21,501)
Proceeds From Maturities of Investments 23,920 20,522
Proceeds From Sale of Investments 4,000 446
Net Change in Loans (24,715) (21,860)
Purchases of Premises and Equipment (2,586) (3,943)
Proceeds from disposal of Premises and Equipment 0 181
Premium paid on deposits purchased (2,355) 0
Proceeds from Sale of Foreclosed Real Estate 175 148
Investment in Associated Company (1,242) (92)
--------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (111,637) (31,959)
FINANCING ACTIVITIES
Net change in deposits 91,848 22,099
Net change in borrowings 1,300 1,700
Payments of Borrowed Funds (64) (38)
Sale of Stock 1,844 0
Stock options exercised 343 297
Fractional shares purchased (3) (8)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 95,268 24,050
--------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,225) (3,421)
Cash and Due From Banks at Beginning of Period 28,626 21,442
--------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD 25,401 18,021
========= ==========
SUPPLEMENTAL DISCLOSURES
Cash Paid During the Period For: Interest 5,435 5,937
Income Taxes 1,835 1,905
NON-CASH TRANSACTIONS
Unrealized Holding (Gains)losses on Securities (406) (141)
Deferred Income Taxes on Unrealized Holding Losses on
Securities 290 59
Deposit Liabilities Assumed in Exchange for Assets
Acquired in Connection with Purchase of Branches 72,105 0
Stock Dividend 0 4,723
Loans Transferred to REO 0 175
</TABLE>
<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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 25,401
<INT-BEARING-DEPOSITS> 20
<FED-FUNDS-SOLD> 56,145
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 106,210
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 206,337
<ALLOWANCE> (3,239)
<TOTAL-ASSETS> 419,167
<DEPOSITS> 375,815
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,898
<LONG-TERM> 4,638
0
0
<COMMON> 27,768
<OTHER-SE> 5,048
<TOTAL-LIABILITIES-AND-EQUITY> 419,167
<INTEREST-LOAN> 14,136
<INTEREST-INVEST> 2,939
<INTEREST-OTHER> 696
<INTEREST-TOTAL> 17,771
<INTEREST-DEPOSIT> 73
<INTEREST-EXPENSE> 5,635
<INTEREST-INCOME-NET> 12,209
<LOAN-LOSSES> 697
<SECURITIES-GAINS> (93)
<EXPENSE-OTHER> 20,577
<INCOME-PRETAX> 4,727
<INCOME-PRE-EXTRAORDINARY> 4,727
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,190
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 5.79
<LOANS-NON> 955
<LOANS-PAST> 162
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,055
<CHARGE-OFFS> (821)
<RECOVERIES> 308
<ALLOWANCE-CLOSE> 3,239
<ALLOWANCE-DOMESTIC> 1,043
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,196
</TABLE>
