<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998, OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ______________
to _______________.
Commission File Number: 000-22797
TEHAMA BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 91-1775524
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
239 SOUTH MAIN STREET, RED BLUFF, CALIFORNIA 96080
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (530) 528-3000
--------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, No Par Value: 1,674,215 shares outstanding (September 30,
1998)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEHAMA BANCORP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 5,544,986 $ 5,927,578
Federal funds sold 25,900,000 7,000,000
Investment securities (market value of $25,682,321 at
Sept. 30, 1998 and $28,723,500 at Dec. 31, 1997) 25,295,486 28,426,765
Loans, less allowance for loan losses of $1,979,282 as
of Sept. 30, 1998 and $1,705,200 as of Dec. 31, 1997 121,812,773 118,731,801
Bank premises and equipment, net 2,275,885 1,955,630
Other real estate 160,277 338,957
Accrued interest receivable and other assets 8,346,555 7,341,297
------------------ -----------------
TOTAL ASSETS $ 189,335,962 $ 169,722,028
------------------ -----------------
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 36,697,968 $ 34,810,231
Interest bearing 134,469,301 117,860,826
------------------ -----------------
Total deposits 171,167,269 152,671,057
Accrued interest payable and other liabilities 893,111 1,141,293
------------------ -----------------
Total liabilities 172,060,380 153,812,350
------------------ -----------------
Commitments
Stockholders' equity
Preferred stock - no par value; 2,000,000 shares
authorized; none issued
Common stock - no par value; 4,000,000 shares
authorized; 1,674,215 shares issued and outstanding
as at Sept. 30, 1998 (1,628,291 at Dec. 31, 1997) 12,890,683 12,337,764
Retained earnings 4,367,506 3,562,034
Unrealized (loss) gain on available-for-sale investment
securities, net of taxes 17,393 9,880
------------------ -----------------
Total stockholders' equity 17,275,582 15,909,678
------------------ -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 189,335,962 $ 169,722,028
------------------ -----------------
------------------ -----------------
</TABLE>
The financial information included herein is unaudited, although the 12/31/97
data is derived from audited financial statements; however, the information
reflects all adjustments (consisting solely of normal recurring adjustments)
that are, in the opinion of management, necessary to a fair presentation of the
financial position, results of operations, and cash flows for the interim
periods.
<PAGE>
TEHAMA BANCORP
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended Nine months ended,
September 30, September 30,
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 2,863,151 $ 2,708,322 $ 8,403,118 $ 7,322,559
Interest on Federal funds sold 305,581 122,956 774,633 473,299
Interest on investment securities:
Taxable 234,147 307,207 733,840 987,428
Exempt from Federal income taxes 147,580 145,682 427,001 439,846
------------ ------------ ------------ ------------
Total interest income 3,550,459 3,284,167 10,338,592 9,223,132
Interest expense on deposits 1,454,445 1,342,567 4,120,995 3,859,039
------------ ------------ ------------ ------------
Net interest income 2,096,014 1,941,600 6,217,597 5,364,093
Provision for loan losses 218,000 490,000 913,000 850,000
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 1,878,014 1,451,600 5,304,597 4,514,093
------------ ------------ ------------ ------------
Non-interest income:
Service charges 180,378 149,457 523,608 384,728
Merchant processing fees 337,311 338,470 1,004,281 986,299
Loan servicing fees 13,111 18,896 44,912 56,381
Gain on sale of loans 33,038 9,833 94,124 30,236
Other income 114,300 31,414 340,956 79,331
------------ ------------ ------------ ------------
Total non-interest income 678,138 548,070 2,007,881 1,536,975
Non-interest expense:
Salaries and employee benefits 990,397 750,488 2,725,007 2,048,076
Occupancy 235,162 212,259 673,780 592,470
Other 626,676 584,140 1,786,333 1,600,493
------------ ------------ ------------ ------------
Total non-interest expense 1,852,235 1,546,887 5,185,120 4,241,039
------------ ------------ ------------ ------------
Income before income taxes 703,917 452,783 2,127,358 1,810,029
Income taxes 210,609 102,882 659,667 568,274
------------ ------------ ------------ ------------
Net income $ 493,308 $ 349,901 $ 1,467,691 $ 1,241,755
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per share $ 0.29 $ 0.21 $ 0.89 $ 0.76
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings per share $ 0.29 $ 0.21 $ 0.86 $ 0.74
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of
shares outstanding 1,674,301 1,644,100 1,657,446 1,644,100
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding including common
stock equivalents 1,714,992 1,669,726 1,715,831 1,669,726
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The financial information included herein is unaudited; however, the information
reflects all adjustments (consisting solely of normal recurring adjustments)
that are, in the opinion of management, necessary to a fair presentation of the
financial position, results of operations, and cash flows for the interim
periods presented.
<PAGE>
TEHAMA BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,467,691 $ 1,241,755
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 913,000 850,000
Depreciation and amortization 246,975 195,182
Disqualifying disposition of incentive stock options 82,103 -
Gain on investment in leasing company (187,180)
Increase (decrease) net deferred loan origination fees & costs 734,119 696,074
(Increase) decrease in Interest Receivable and Other Assets (590,236) (939,767)
(Decrease) increase in Interest Payable and Other Liabilities (248,182) (236,684)
Change in Unrealized Gain (Loss) on Securities 7,513 34,933
----------- -----------
Net cash provided by operating activities 2,425,803 1,841,493
----------- -----------
Cash flows from investing activities:
Net (increase) decrease in maturities, purchases and sales of
investment securities 3,138,792 2,509,649
Net (increase) decrease in loans (4,728,091) (27,381,004)
Net (increase) decrease 772 Investment - Leasing Company - (2,000,000)
Purchases of premises and equipment (534,132) (857,926)
Proceeds from sale of equipment - (707)
Proceeds from sale of other real estate 260,000 -
----------- -----------
Net cash used in investing activities (1,863,431) (27,729,988)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing
and savings accounts 13,115,397 18,944,772
Net increase in time deposits 5,380,815 12,470,491
Payments of cash dividends (662,219) (744,376)
Proceeds from exercise of stock options 121,043 49,272
----------- -----------
Net cash provided by financing activities 17,955,036 30,720,159
----------- -----------
(Decrease) increase in cash and cash equivalents 18,517,408 4,831,664
----------- -----------
Cash and cash equivalents at beginning of year 12,927,578 9,388,685
----------- -----------
Cash and cash equivalents at September 30, $31,444,986 $14,220,349
----------- -----------
</TABLE>
<PAGE>
TEHAMA BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER EQUITY
<TABLE>
<CAPTION>
Unrealized
Loss on
Avail.-for-Sale
Retained Investment
Shares Amount Earnings Securities Total
----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,450,621 $10,117,632 $2,924,523 $ 43,708 $13,085,863
----------- ----------- ----------- --------------- -----------
Stock Options Exercised and Tax
Related Benefit 15,468 152,601 152,601
Net Income 1,939,461 1,939,461
10% Stock Dividend 144,851 1,955,489 (1,958,340) (2,851)
Unrealized Loss on Available-for-Sale
Investment Securities (61,898) (61,898)
----------- ----------- ----------- --------------- -----------
Balance at December 31, 1996 1,610,940 $12,225,722 $2,905,644 $ (18,190) $15,113,176
----------- ----------- ----------- --------------- -----------
Stock Options Exercised and Tax
Related Benefit 17,351 112,042 112,042
Net Income 1,300,766 1,300,766
Cash dividend - $.40 per share (644,376) (644,376)
Unrealized Loss on Available-for-Sale
Investment Securities 28,070 28,070
----------- ----------- ----------- --------------- -----------
Balance at December 31, 1997 1,628,291 $12,337,764 $3,562,034 $ 9,880 $15,909,678
----------- ----------- ----------- --------------- -----------
Stock Options Exercised and Tax
Related Benefit 49,924 611,919 611,919
Net Income 1,467,691 1,467,691
Unrealized Loss on Available-for-Sale
Investment Securities 7,513 7,513
Cash dividend - $.40 per share (662,219) (662,219)
Repurchase shares (4,000) (59,000) (59,000)
----------- ----------- ----------- --------------- -----------
Balance at September 30, 1998 1,674,215 $12,890,683 $4,367,506 $ 17,393 $17,275,582
----------- ----------- ----------- --------------- -----------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
INTRODUCTION
The following is management's discussion and analysis of the consolidated
financial condition and results of operations of Tehama Bancorp (the "Company")
for the quarter ending September 30, 1998, with comparative data for the quarter
ending September 30, 1997. Some discussion may naturally focus soley on Tehama
Bank (the "Bank") as that entity comprises the majority of the consoldidated
company. The focus in this discussion is on information which is not otherwise
apparent from the financial statements in this quarterly report. Reference
should be made to those statements for a more thorough understanding of the
analysis presented.
EARNINGS OVERVIEW
Consolidated net income in the third quarter 1998 totaled $493,308
contributing toward a year-to-date net income of $1,467,691. The third
quarter's net income increased 4% from the prior quarter, as compared with a 22%
decrease over the same period in 1997. Year-to-date net income as of September
30, 1998 has increased 18% from September 30, 1997 year-to-date net income.
Both basic and diluted earnings per share for the third quarter 1998 totaled
$0.29 compared to $0.21 for the third quarter 1997. Basic earnings per share
year-to-date 1998 totaled $0.89 ($0.86 diluted) compared to $0.76 ($0.74
diluted) for the same period in 1997.
NET INTEREST INCOME
The primary source of income for the Bank is net interest income, the
difference between interest earned on assets (loans and investments) and
interest paid on deposits taken by the Bank to fund these assets. Net interest
income for the quarter ending September 30, 1998 totaled $2,096,014, an 8%
increase over the $1,941,600 for the third quarter in 1997. Year-to-date net
interest income totals $6,217,597, a 16% increase over the prior year.
BALANCE SHEET ANALYSIS
Total assets of $189,335,962 at September 30, 1998 represent an increase of
$19,613,934 or 12% from the 1997 year-end figure of $169,722,028. Net loans
increased $3,080,972 or 3% from December 31, 1997. Total deposits of
$171,167,269 at September 30, 1998 represent an increase of $18,496,212 or 12%
from the 1997 year-end figure of $152,671,057. As a component of total
deposits, non-interest bearing deposits decreased from 22.8% at December 31,
1997 to 21.4% at September 30, 1998.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses, as a percentage of gross outstanding loans
as of September 30, 1998 was 1.6%, compared to 1.4% as of December 31, 1997.
This increase is not reflective of a decline in quality of the loan portfolio,
but the result of a concerted effort to raise the level of reserves based on
comparative market data and trends. The allowance for loan losses reflects
management's judgment as to the level which is considered adequate to absorb
potential losses inherent in the loan portfolio. This allowance is increased by
provisions charged to expense and reduced by loan charge-offs, net of
recoveries. Management determines the provision charged to expense based on an
on-going analysis of the loan portfolio's product mix, delinquency ratios,
losses incurred and other factors.
<PAGE>
NON-INTEREST INCOME
Non-interest income consists primarily of service charges on deposit
accounts, other fees and charges collected by the Bank for both deposit accounts
and loans, gain on sale of loans and fee income generated by the Bank's Merchant
Bankcard department. Year-to-date non-interest income totaled $2,007,881 as of
September 30, 1998, an increase of 31% over the same period in 1997.
Deposit account service charges for the nine months ended September 30,
1998 increased 36% from the same period in 1997. The combined gain on sale
of loans and servicing fees on loans sold for the nine months ended September
30, 1998 increased 61% from the same period in 1997.
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and related benefits,
occupancy and equipment expense and other expenses. Non-interest expense
totaled $5,185,120 as of September 30, 1998, an increase of 22% over the same
period in 1997. For the third quarter non-interest expenses totaled
$1,852,235 an increase of 20% over the same period in 1997.
INCOME TAXES
Income taxes through September 30, 1998 totaled $659,667 or 31% of net
income before taxes. Income taxes through the same period in 1997 totaled
$568,274 or 31% of net income before taxes.
LIQUIDITY AND CAPITAL
Liquidity, the ability of a company to generate sufficient amounts of
cash to meet its short-term and long-term needs, is commonly measured by the
ratio of net loans to total deposits. The lower the ratio the more liquid
the Company's current position. However, since loans are generally the
highest yielding earning asset, the Bank attempts to maximize earnings
through the generation of additional loans, while maintaining sufficient
liquidity to meet its obligations. The loan-to-deposit ratio as of September
30, 1998 was 71.2%, a decrease from the 77.8% ratio at December 31, 1997.
For additional reference, this ratio was 75.4% at December 31, 1996 and 71.7%
at December 31, 1995.
Capital adequacy is generally quantified by measures established by
regulatory agencies and requires the Bank to maintain minimum amounts of
capital and ratios of capital to assets. The Bank's total risk-based capital
ratio as of September 30, 1998 was 12.15%, compared to 13.6% at December 31,
1997 and the regulatory minimum of 10.0% for "Well-Capitalized" banking
institutions. At September 30, 1998, Tier 1 Capital and Tier 2 Capital were
approximately $14,445,000 and $1,660,000, respectively.
YEAR 2000 READINESS
The Federal Financial Institution Examination Council (FFIEC) has
identified five phases for Year 2000 readiness: Awareness, Assessment,
Renovation, Validation, and Implementation. The Company has completed the
Awareness, Assessment, and Renovation Phases of our Year 2000 plan. We are
currently well into the Validation Phase and expect completion of that phase
to be completed by year-end. The Implementation Phase is projected to be
completed by March 31,1999. The Company believes that its plans for dealing
with the Year 2000 issue will result in timely and adequate modifications of
its systems and technology.
<PAGE>
Ultimately, the potential impact of Year 2000 issues will depend not
only on the corrective measures the Company undertakes, but also on the way
in which the Year 2000 issues are addressed by government, other businesses,
and any entity that provides data to, or receives data from, the Company, or
whose financial condition or operational capability is important to the
Company as suppliers or customers. The Company, therefore, has contacted
vendors, and clients with whom significant loan or deposit relationships are
maintained, to try and ascertain their Year 2000 readiness and the extent to
which the Company may be vulnerable to any third party issues. It is
possible that if all aspects of the Year 2000 issues are not adequately
resolved by these parties, the Company's future business operations could be
negatively impacted.
The Company's noninterest expense as of September 30, 1998 included
approximately $20,000 in direct expense and $140,000 in indirect expense
related to Year 2000 compliance. Direct expenses are those paid to third
parties for products and/or services used to renovate or test our systems.
Indirect expenses include the personnel costs of staff involved in addressing
the various Year 2000 issues. Additional costs in 1998 and into 1999 are
anticipated, with estimates for 1999 equaling expenditures in 1998.
The Company has regularly maintained an emergency preparedness plan,
designed to keep facilities and systems functioning during disasters. That
plan is the basis for the Company's contingency planning for any potential
Year 2000 related disruptions to business. Alternative vendors, delivery
systems, power sources and accounting systems are all being investigated.
Many routine functions can continue using manual processes and accounting
systems and procedures are being refined to implement those processes if
needed.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed in the Exhibit Index to this report are furnished
herewith and incorporated by reference.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company duly caused this report to be signed by the undersigned thereunto
duly authorized.
November 13, 1998 BY: /s/ William M. Jenkins
- --------------------------------- ---------------------------------
Date William M. Jenkins
Vice President & Chief Financial
Officer
November 13, 1998 BY: /s/ William P. Ellison
- --------------------------------- ---------------------------------
Date William P. Ellison
President & Chief Executive
Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------ -------------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS, STATEMENT OF INCOME, STATEMENT OF CASH
FLOWS, AND STATEMENT OF CHANGES IN SHAREHOLDER EQUITY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,545
<INT-BEARING-DEPOSITS> 134,469
<FED-FUNDS-SOLD> 25,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,165
<INVESTMENTS-CARRYING> 12,131
<INVESTMENTS-MARKET> 12,518
<LOANS> 123,792
<ALLOWANCE> 1,979
<TOTAL-ASSETS> 189,336
<DEPOSITS> 171,167
<SHORT-TERM> 11
<LIABILITIES-OTHER> 904
<LONG-TERM> 0
0
0
<COMMON> 12,891
<OTHER-SE> 4,368
<TOTAL-LIABILITIES-AND-EQUITY> 189,336
<INTEREST-LOAN> 8,403
<INTEREST-INVEST> 1,936
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,339
<INTEREST-DEPOSIT> 4,116
<INTEREST-EXPENSE> 4,121
<INTEREST-INCOME-NET> 6,218
<LOAN-LOSSES> 913
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 5,185
<INCOME-PRETAX> 2,127
<INCOME-PRE-EXTRAORDINARY> 2,127
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,468
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 7.57
<LOANS-NON> 315
<LOANS-PAST> 596
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,705
<CHARGE-OFFS> 802
<RECOVERIES> 163
<ALLOWANCE-CLOSE> 1,979
<ALLOWANCE-DOMESTIC> 1,979
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
