<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 March 31, 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: 1,655,548 shares outstanding (March 31,
1998)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEHAMA BANCORP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Cash and due from banks $ 5,690,547 $ 5,927,578
Federal funds sold 19,500,000 7,000,000
Investment securities (market value of $26,637,652 at
Mar. 31, 1998 and $28,723,500 at Dec. 31, 1997) 26,367,423 28,426,765
Loans, less allowance for loan losses of $1,940,999 as
of Mar. 31, 1998 and $1,705,200 as of Dec. 31, 1997 114,928,734 118,731,801
Bank premises and equipment, net 1,979,140 1,955,630
Other real estate 78,957 338,957
Accrued interest receivable and other assets 6,942,963 7,341,297
-------------- -----------------
TOTAL ASSETS $ 175,487,764 $ 169,722,028
-------------- -----------------
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 34,841,923 $ 34,810,231
Interest bearing 122,928,962 117,860,826
-------------- -----------------
Total deposits 157,770,885 152,671,057
Accrued interest payable and other liabilities 1,016,415 1,141,293
-------------- -----------------
Total liabilities 158,787,300 153,812,350
-------------- -----------------
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; 1,655,548 shares issued and outstanding
as at Mar. 31, 1998 and 1,628,291 at Dec. 31, 1997 12,633,606 12,337,764
Retained earnings 4,062,253 3,562,034
Unrealized (loss) gain on available-for-sale investment
securities, net of taxes 4,605 9,880
-------------- -----------------
Total stockholders' equity 16,700,464 15,909,678
-------------- -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 175,487,764 $ 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
March 31,
---------------------------------------
1998 1997
----------------- ------------------
(Tehama Bank Only)
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,773,563 $ 2,184,000
Interest on Federal funds sold 206,148 165,000
Interest on investment securities:
Taxable 253,151 323,000
Exempt from Federal income taxes 141,464 148,000
----------------- -----------------
Total interest income 3,374,326 2,820,000
Interest expense on deposits 1,313,567 1,201,000
----------------- -----------------
Net interest income 2,060,759 1,619,000
Provision for loan losses 375,000 170,000
----------------- -----------------
Net interest income after
provision for loan losses 1,685,759 1,449,000
----------------- -----------------
Non-interest income:
Service charges 168,915 99,000
Merchant processing fees 330,071 316,000
Loan servicing fees 16,911 18,000
Gain on sale of loans 32,783 12,000
Other income 95,331 37,000
----------------- -----------------
Total non-interest income 644,011 482,000
Non-interest expense:
Salaries and employee benefits 858,755 627,000
Occupancy 216,147 162,000
Other 526,876 486,000
----------------- -----------------
Total non-interest expense 1,601,778 1,275,000
----------------- -----------------
Income before income taxes 727,992 656,000
Income taxes 227,773 233,000
----------------- -----------------
Net income $ 500,219 $ 423,000
----------------- -----------------
----------------- -----------------
Basic earnings per share $ 0.30 $ 0.26
----------------- -----------------
Diluted earnings per share (with stock options) $ 0.29 $ 0.25
----------------- -----------------
Weighted average number of shares outstanding 1,640,234 1,610,940
Weighted average number of shares outstanding
including stock options 1,697,547 1,660,196
</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>
Three months ended
March 31,
---------------------------------------
1998 1997
----------------- ------------------
(Tehama Bank Only)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 500,219 $ 423,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 375,000 170,000
Depreciation and amortization 65,666 51,217
Increase (decrease) net deferred loan origination fees & costs (8,532) (13,657)
(Increase) decrease in Interest Receivable and Other Assets 41,952 (1,257,502)
(Decrease) increase in Interest Payable and Other Liabilities (124,878) 232,193
Change in Unrealized Gain (Loss) on Securities (5,275) 322,279
Net cash provided by operating activities 844,152 (72,470)
----------------- ------------------
Cash flows from investing activities:
Net (increase) decrease in maturities, purchases and sales of
investment securities 2,059,342 (932,722)
Net (increase) decrease in loans 3,794,535 (5,474,285)
772 Investment - Leasing Company - (2,000,000)
Purchases of premises and equipment (90,730) (585,551)
Proceeds from sale of equipment - -
Proceeds from sale of other real estate 260,000 -
Net cash used in investing activities 6,023,147 (8,992,558)
----------------- ------------------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing deposits 31,692 5,931,929
Net increase (decrease) in interest bearing deposits 5,068,136 17,080,226
Cash payments of dividends for fractional shares - -
Payments of cash dividends - -
Proceeds from exercise of stock options 295,842 -
Net cash provided by financing activities 5,395,670 23,012,155
----------------- ------------------
(Decrease) increase in cash and cash equivalents 12,262,969 13,947,127
----------------- ------------------
Cash and cash equivalents at beginning of year 12,927,578 9,388,685
----------------- ------------------
Cash and cash equivalents at March 31, $ 25,190,547 $ 23,335,812
----------------- ------------------
</TABLE>
<PAGE>
TEHAMA BANCORP
STATEMENT OF CHANGES IN SHAREHOLDER EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Avail.-for-Sale
Retained Investment
Shares Amount Earnings Securities Total
--------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 1,283,396 $ 8,105,964 $ 2,779,634 $ (127,582) $ 10,758,016
--------- ------------ ------------ --------------- --------------
Stock Options Exercised and Tax
Related Benefit 36,392 310,839 310,839
Net Income 1,848,679 1,848,679
10% Stock Dividend 130,833 1,700,829 (1,703,790) (2,961)
Unrealized Gain (Loss) on
Available-for-Sale Investment Securities 171,290 171,290
--------- ------------ ------------ --------------- --------------
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 Gain (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
Unrealized Gain (Loss) on
Available-for-Sale Investment Securities 28,070 28,070
Cash dividend (644,376) (644,376)
--------- ------------ ------------ --------------- --------------
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 27,257 295,842 295,842
Net Income 500,219 500,219
Unrealized Gain (Loss) on
Available-for-Sale Investment Securities (5,275) (5,275)
Cash dividend -
--------- ------------ ------------ --------------- --------------
BALANCE AT MARCH 31, 1998 1,655,548 $ 12,633,606 $ 4,062,253 $ 4,605 $ 16,700,464
--------- ------------ ------------ --------------- --------------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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 March 31, 1998. Since Tehama Bancorp, the
holding company, was not operational until July 1, 1997, the comparative data
from 1997 is for Tehama Bank only. The focus of 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 for the first quarter of 1998 totaled $500,219, up
18% over the comparable period in 1997. Net interest income and non-interest
income increased 27% and 33%, respectively, over the first quarter of 1997.
Non-interest expense and the provision for loan and lease losses also
increased over 1997, by 25% and 120%, respectively.
During the quarter ended March 31, 1998, basic earnings per share totaled
$0.30, and the closing market price per share was $16.75. During the
comparable quarter in 1997, basic earnings per share totaled $0.26, and the
closing market price per share was $12.25. Basic earnings per share are
calculated based on weighted average shares outstanding.
NET INTEREST INCOME
The Company's sole source of income is dividends from the Bank. 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. Interest income for the
quarter ending March 31, 1998 was comprised of $2,773,563 from loans,
$206,148 from federal funds sold and $394,615 from investment securities.
These income figures represent increases from first quarter 1997 of 27% for
loans and 25% for federal funds sold, while investment securities income
decreased 16%. Interest expense totaled $1,313,567 for the quarter, a 9%
increase over the same period in 1997.
BALANCE SHEET ANALYSIS
Total assets of $175,487,764 at March 31, 1998 represent an increase of 3%
over the 1997 year-end figure of $169,722,028. Net loans, which grew
significantly during most of 1997 and is the single largest component of the
Bank's assets, decreased 3% from December 31, 1997. Commercial and
residential construction loans and agricultural loans and lines of credit
have performed below expectations during the first quarter, largely due to
weather related delays. Residential mortgage loan volumes have been high in
the first quarter, but have not produced large increases in the Bank's loan
totals as most mortgages have been sold to the secondary real estate market.
The decrease in loan totals has resulted in an increase in funds available
for investment. However, low interest rates in the securities market coupled
with the pending utilization of agricultural lines-of-credit and draws on
construction loans during the spring months have resulted in most of these
funds being invested for the short-term in the federal funds sold category.
<PAGE>
Total deposits of $157,770,885 at March 31, 1998 represent an increase of
$5,099,828 or 3% from the 1997 year-end figure of $152,671,057. Non-interest
bearing deposits continue to increase their percentage of the overall mix of
deposits, increasing from 22% at December 31, 1998 to 28% of total deposits
at the end of the first quarter.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan and lease losses, as a percentage of gross loans as of
March 31, 1998 was 1.69%, compared to 1.4% as of December 31, 1997, 0.97% as
of December 31, 1996 and 1.00% as of December 31, 1995. Management believes
the present allowance for loan and lease losses is adequate to absorb
potential losses inherent in the loan portfolio. The 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 performance factors.
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 $644,011 as of March 31, 1998, an increase of 33% over the same
period in 1997. Service charges on deposit accounts increased 70% from first
quarter 1997 to first quarter 1998. Increases in number of deposit accounts
and increases in selected service charges during the latter part of 1997 have
produced this long term change in level of income. Income generated by the
Merchant Bankcard department increased 4% over the same period in 1997 and
accounts for approximately 51% of total non-interest income year-to-date.
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and related benefits, occupancy and
equipment expense and other expenses. Non-interest expense totaled
$1,601,778 as of March 31, 1998, an increase of 25% over the same period in
1997. Personnel expense is the largest component of non-interest expense and
increases in this category are primarily the result of increasing service
staff at branches and the loan center.
INCOME TAXES
Income taxes accrued through March 31, 1998 totaled $227,773 or 31% of net
income before taxes. Accrued income taxes through the same period in 1997
totaled $233,000 or 35% of net income before taxes. Variations in volumes of
tax-exempt securities, loans and leases, and their respective income, along
with increased earnings from the Bank's leasing company, of which only 20% is
taxable at the Bank's level, are primarily responsible for the decreased tax
rate compared to the increase in income before taxes in the two periods.
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
<PAGE>
loans, while maintaining sufficient liquidity to meet its obligations. The
loan-to-deposit ratio as of March 31, 1998 was 73%, a decrease from the 78%
ratio at December 31, 1997. For additional reference, this ratio was 75% at
December 31, 1996, 72% at December 31, 1995 and 78 at December 31, 1994. The
decrease in loans experienced in the first quarter, combined with growth in
deposits, contributed to the decrease in this ratio from year-end. Another
key element in maintaining liquidity is by increasing core deposits, those
deposits that are stable and can be counted on to not fluctuate widely over
time. The growth noted previously in non-interest bearing demand deposits
involves those type of core accounts and adds to the satisfactory liquidity
position of the Bank.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS 130, REPORTING COMPREHENSIVE
INCOME, which establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial
statements. SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income,
but are normally excluded from net income, be reported. Other comprehensive
(loss)/income, net of taxes, was comprised of the unrealized (loss)/gain on
available-for-sale investment securities for the three months ended March 31,
1998 and 1997 and totaled ($5,275) and $322,279, respectively. Total
comprehensive income, net of taxes, (actual net income adjusted by the
unrealized (loss)/gain on securities) was $494,944 and $745,279 for the three
month periods ended March 31, 1998 and 1997, respectively.
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.
May 13, 1998 BY: /s/ William M. Jenkins .
- ----------------------------- -----------------------------
Date William M. Jenkins
Vice President
& Chief Financial Officer
May 13, 1998 BY: /s/ Frank S. Onions .
- ----------------------------- -----------------------------
Date Frank S. Onions
Senior Vice President
May 13, 1998 BY: /s/ William P. Ellison .
- ----------------------------- -----------------------------
Date William P. Ellison
President & Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,691
<INT-BEARING-DEPOSITS> 122,929
<FED-FUNDS-SOLD> 19,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,618
<INVESTMENTS-CARRYING> 9,749
<INVESTMENTS-MARKET> 10,019
<LOANS> 116,870
<ALLOWANCE> 1,941
<TOTAL-ASSETS> 175,488
<DEPOSITS> 157,771
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,016
<LONG-TERM> 0
0
0
<COMMON> 12,634
<OTHER-SE> 4,066
<TOTAL-LIABILITIES-AND-EQUITY> 16,700
<INTEREST-LOAN> 2,774
<INTEREST-INVEST> 395
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,374
<INTEREST-DEPOSIT> 1,314
<INTEREST-EXPENSE> 1,314
<INTEREST-INCOME-NET> 2,061
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 1,602
<INCOME-PRETAX> 728
<INCOME-PRE-EXTRAORDINARY> 728
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 500
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 5.296
<LOANS-NON> 750
<LOANS-PAST> 327
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,340
<ALLOWANCE-OPEN> 1,705
<CHARGE-OFFS> 185
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 1,941
<ALLOWANCE-DOMESTIC> 1,941
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
