SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2 filed on January 16, 2001)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
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.)
2440 6th Street
Eureka, CA
(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, 2000 was: 5,916,343
<PAGE>2
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, Capitol Thrift and Loan
(which was acquired on April 7, 2000), and a 50% interest in Bancorp Financial
Services, a company making automobile and small ticket leasing loans. The
following discussion presented on a consolidated basis analyzes the financial
condition and results of operations of the Company for the three month and nine
month periods ended September 30, 2000.
Changes in Financial Condition
During the nine-month period ended September 30, 2000, deposits increased $138.3
million or 36.5% to $516.9 million compared with $378.6 million at December 31,
1999. The increase in deposits is the result of increases in all types of
deposits. During the same period, total loans increased $162.9 million or 72.0%
to $389.2 million compared with $226.3 million at December 31, 1999. The
increase in loans is primarily the result of increases in the real estate loan
portfolio, particularly commercial and agricultural loans and family and
multi-family residential loans, and to a lesser degree construction and land
development loans as well as commercial, industrial and agricultural loan, state
and political subdivision loans and other loans. The increase was partially
offset by decreases in lease financing loans and to a lesser degree in consumer
loans. Loans held for sale decreased $2.1 million or 100.0% to $0.0 million
compared with $2.1 million at December 31, 1999. The increase in loans and
deposits is attributable to both internal growth (loans $52.1million, deposits
$31.7 million) and the result of the Capitol Thrift and Loan acquisition (loans
$110.8 million, deposits $106.6 million).
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 decreased $15.0 million or 13.0% to $100.4 million at
September 30, 2000, compared with $115.4 million at December 31, 1999, and
federal funds sold increased $14.0 million or 65.4% to $35.4 million compared
with $21.4 million at December 31, 1999. The decrease in investment securities
was mainly the result increased internal loan demand. The increase in federal
funds sold was the result of a planned build-up of federal funds at Capitol
Thrift and Loan, an aggressive deposit generation program at Capitol Valley Bank
in anticipation of increased loan, which was partially offset by a decrease in
federal funds sold at Humboldt Bank due to increased loan demand.
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.
During the nine month period ending September 30, 2000, past due and non-accrual
loans, as a result of the Capitol Thrift and Loan acquisition, increased $1.5
million or 50.0% to $4.5 million (0.8% of total assets), compared with $3.0
<PAGE>3
million (0.7% of total assets) at December 31, 1999. The Company's allowance for
loan losses at September 30, 1999, was 1.6% of loans and leases compared with
1.5% at December 31, 1999.
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.
Earnings Summary
Net income for the nine months ended September 30, 2000, increased $1.8 million
to $5.0 million or $0.88 per share (diluted $0.82), compared with net income of
$3.2 million 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 $12.8 million
or 71.9%, and non-interest income of $7.1 million or 52.2%, offset by increases
in interest expense of $6.8 million or 121.4%, provision for loan losses of $0.9
million or 12.9%, and taxes of $0.9 or 60.0%, and non-interest expense of $9.5
million or 46.1.
Net income for the three months ended September 30, 2000, increased $2.2 million
to $5.0million or $0.37 per share (diluted $0.35 per share), compared with net
income of $1.1 million or $0.22 per share (diluted $0.20 per share) in the same
three month period a year ago. This increase of $2.2 million can be accounted
for by increases in interest income ($12.0 million or 64.2%), and non-interest
income ($7.1 million or 52.2%) off-set by increases in interest expense ($5.1
million or 69.9%), non-interest expense ($10.4 million or 52.8%), loan loss
provision ($0.3 million or 25.0%) and taxes ($1.1 million or 78.6%).
Net Interest Income
Total interest income increased $12.8 million or 71.9% for the nine months ended
September 30, 2000, compared with the prior year. During the same period,
interest expense increased $6.8 million or 121.4%. Net interest income for the
nine months ended September 30, 2000, was $18.3 million and $12.2 million for
the period ended September 30, 1999. Average loans and leases as a percentage of
average earning assets was 70.5% during the nine months ended September 30,
2000, compared to 66.7% a year earlier. The average balance of other earning
assets as a percentage of average earning assets was 29.5% during the nine
months ended September 30, 2000, compared with 33.3% a year earlier.
Total interest income increased $12.0 million or 64.2% for the three months
ended September 30, 2000, and interest expense increased $5.1 million or 69.9%
compared with the same three-month period in the prior year. Net interest income
for the three months ended September 30, 2000, was $18.3 million and $11.4
million for the three months ended September 30, 1999. The increase in interest
income is accounted for by increases in federal funds sold ($0.6 million),
interest and dividends on securities ($1.7 million) and interest and fees on
loans ($9.7 million). The increase in interest expense is attributable to
increases in interest on savings deposits ($2.5 million), all other time
deposits ($1.5 million), interest on other borrowings ($0.4 million) and
interest on time deposits of $100,000 or more, ($0.7 million).
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, 2000, of $1.6 million compared to $0.7
million for the same period in 1999. Loans charged off during the nine-month
period totaled $0.9 million in 2000 and $0.8 million in 1999. Recoveries in the
same period were $89,000 in 2000 and $308,000 in 1999. The increase in the loan
loss provision in 2000 is the result of the acquisition of Capitol Thrift and
Loan.
<PAGE>4
The Company recorded a provision to the allowance for loan losses for the three
month period ended September 30, 2000 of $0.4 million compared with $0.2 million
in the same period in 1999. Loans charged off during the three-month period
totaled $0.4 million in 2000 and $0.3 million in 1999. Recoveries in the same
period were $43,000 in 2000 and $50,000 in 1999.
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, 2000,
income from these sources increased $7.1 million or 52.2% to $20.7 million,
compared with $13.6 million in 1999. The increase was accounted for by increases
in Merchant BankCard Department income ($6.6 million), service charges on
deposits ($0.5 million), and other income ($0.5 million), offset by decreases in
Issuing BankCard Department income ($0.1 million), and Lease Department income
($0.4 million).
In the three months ended September 30, 2000, non-interest income was $7.1
million; an increase of $2.0 million or 39.2% compared with $5.1 million for the
same period in 1999. The increase is attributable primarily to increases in
Merchant Bankcard Department income ($1.8 million), service charges on deposits
($0.2 million), and other non-interest income ($0.1 million) and decreases in
Lease Department income ($0.1 million).
Non-Interest Expense
During the nine months ended September 30, 2000, non-interest expenses increased
$9.5 million or 46.1% to $30.1 million, compared with $20.6 million for the same
period in 1999. The increase is attributable to increased personnel expenses
($3.5 million), premises expense ($0.6 million) and other non interest expenses
($5.4 million) which include increases in Merchant Bankcard Department expense
($4.8 million), outside consulting expense ($0.1 million), core deposit
intangible expense ($0.2 million), board related expense ($0.1 million),
non-local travel expense ($0.1 million) and other outside service expense ($0.1
million)
During the three months ended in September 30, 2000, non-interest expense was
$10.4 million an increase of $2.8 million of 36.8%, compared with $7.6 million
for the same period in 1999. The increase is attributable to increased personnel
expenses ($1.3 million), premises expense ($0.2) and other non interest expenses
($1.3 million) which includes increases in Merchant Bankcard Department expense
($1.0 million), outside consulting expense ($0.1 million), other outside service
expense ($0.1 million), and core deposit intangible expense ($0.1 million).
Number of Employees
At September 30, 2000, the Company had 399 full-time equivalent employees,
compared to 319 full-time equivalent employees at the same period a year
earlier.
In the three months ended September 30, 2000, the number of full-time equivalent
employees decreased by 7 compared with an increase of 33 in the same three
months period in 1999.
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>5
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 10.56
TOTAL CAPITAL 10.00 11.81
LEVERAGE 5.00 8.58
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 $2.5 million for the nine months ended
September 30, 2000, compared to $1.5 in the same period a year earlier. The
provision is classified as current tax liability for interim reporting purposes.
The tax rate was 34.8% for the nine months ended September 30, 2000, compared to
34.7% for the same period in 1999.
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 23.8% at September 30,
24.1% at June 30, and 33.2% at March 31, 2000 respectively and 38.2% at
September 30, 1999.
Non-Performing Assets
Humboldt Bancorp's policy is to recognize interest income on an accrual basis
unless the full collectibility of principal and interest is uncertain. Loans
that are delinquent 90 days or more, unless well secured and in the process of
collection, are placed on nonaccrual status on a cash basis, and previously
accrued but uncollected interest is reversed against income. Thereafter, income
is recognized only as it is collected in cash. Collectibility is determined by
considering the borrower's financial condition, cash flow, quality of
management, the existence of collateral or guarantees and the state of the local
economy.
<PAGE>6
The following table provides information with respect to all non-performing
assets.
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, September 30,
1999 2000
-----------------------------------
<S> <C> <C>
Loans on nonaccrual status - $767 $2,023
Loans - leases past due - greater than 90 days 282 1,449
Restructured loans 0 0
-----------------------------------
Total nonperforming loans $1,049 $3,472
Other real estate owned 120 808
-----------------------------------
Total nonperforming assets $1,169 $4,280
===================================
Allowance for loan losses $3,354 $6,186
Ratio of total nonperforming assets to total assets 0.28% 0.72%
Ratio of total nonperforming loans to total loans 0.46% 0.89%
Ratio of allowance for loan losses to total
nonperforming assets 286.91% 144.53%
</TABLE>
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, 2000. 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, 2000.
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, 2000, 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.
<PAGE>7
% 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%
The following table sets forth the repricing opportunities for the assets and
liabilities of the Company at September 30, 2000. Assets and Liabilities are
classified by the earliest possible repricing date or maturity, whichever comes
first.
<TABLE>
<CAPTION>
REPRICING IN
Less Three One Three Five
Than Through Through Through Years Over Non-
Three Twelve Three Five Through Fifteen Interest
(In thousands) Months Months Years Years Fifteen Years Bearing Total
--------- --------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Net Loans $ 124,723 $ 42,398 $ 75,355 $ 56,671 $ 61,367 $ 28,654 $ 389,168
Investment Securities 412 8,357 49,004 13,227 24,829 3,519 99,348
Federal Funds Sold 35,395 35,395
FHLB Stock $ 1,073 1,073
Interest-bearing deposits
with banks 45 99 144
Non-interest earning assets 67,097 67,097
--------- --------- --------- -------- -------- -------- --------- ---------
TOTAL ASSETS $ 160,575 $ 50,854 $ 124,359 $ 69,898 $ 86,196 $ 32,173 $ 68,170 $ 592,225
========= ========= ========= ======== ======== ======== ========= =========
LIABILITIES:
Non-interest-bearing deposits $ 132,724 $ 132,724
Interest-bearing deposits $ 192,570 $ 153,866 $ 33,083 $ 4,682 384,201
Borrowings 3,024 5,172 217 8,251 16,684
Other liabilities 11,651 11,651
Stockholders' equity 46,985 46,985
--------- --------- --------- -------- -------- -------- --------- ---------
Total liabilities and
stockholders' equity $ 195,594 $ 159,038 $ 33,300 $ 13,933 0 0 $ 191,360 $ 592,225
========= ========= ========= ======== ======== ======== ========= =========
Interest rate sensitivity gap $ (35,019) $(108,184) $ 91,059 $ 56,965 $ 86,196 $ 32,173
Cumulative interest rate
sensitivity gap $ (35,019) $(143,203) $ (52,144) $ 4,821 $ 91,017 $123,190
</TABLE>
<PAGE>8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this amendment number 2 to Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 15, 2001 HUMBOLDT BANCORP
/s/ Patrick J. Rusnak
Patrick J. Rusnak
Chief Financial Officer
/s/ Theodore S. Mason
Theodore S. Mason
President and Chief Executive Officer
