<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, 1999, 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: 1,707,957 shares outstanding (March 31, 1999)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEHAMA BANCORP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Cash and due from banks $ 7,919,319 $ 8,362,664
Federal funds sold 5,200,000 14,400,000
Investment securities (market value of $54,857,182 at
March 31, 1999 and $47,440,300 at December 31, 1998) 54,558,613 47,092,556
Loans, less allowance for loan losses of $1,945,758 at
March 31, 1999 ($2,080,831 at December 31, 1998) 119,065,622 119,009,536
Bank premises and equipment, net 2,350,994 2,337,327
Other real estate 83,039 49,981
Accrued interest receivable and other assets 9,254,352 8,529,900
--------------- ---------------
TOTAL ASSETS $ 198,431,939 $ 199,781,964
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 37,295,635 $ 39,191,013
Interest bearing 141,306,260 141,319,598
--------------- ---------------
Total deposits 178,601,895 180,510,611
Accrued interest payable and other liabilities 1,545,173 1,560,096
--------------- ---------------
Total liabilities 180,147,068 182,070,707
--------------- ---------------
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; 1,707,957 shares issued and outstanding
at March 31, 1999 (1,672,129 at December 31, 1998) 13,163,481 12,824,202
Retained earnings 5,284,677 4,908,485
Unrealized (loss) gain on available-for-sale investment
securities, net of taxes (163,287) (21,430)
--------------- ---------------
Total stockholders' equity 18,284,871 17,711,257
--------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 198,431,939 $ 199,781,964
--------------- ---------------
--------------- ---------------
</TABLE>
The financial information included herein is unaudited, although the 12/31/98
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,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,585,463 $ 2,773,563
Interest on Federal funds sold 202,446 206,148
Interest on investment securities:
Taxable 466,994 253,151
Exempt from Federal income taxes 159,931 141,464
------------- -------------
Total interest income 3,414,834 3,374,326
Interest expense on deposits 1,341,628 1,313,567
------------- -------------
Net interest income 2,073,206 2,060,759
Provision for loan losses 425,000 375,000
------------- -------------
Net interest income after
provision for loan losses 1,648,206 1,685,759
------------- -------------
Non-interest income:
Service charges 178,170 168,915
Merchant processing fees 312,619 330,071
Loan servicing fees 15,562 16,911
Gain on sale of loans 20,394 32,783
Other income 252,274 95,331
------------- -------------
Total non-interest income 779,019 644,011
------------- -------------
Non-interest expense:
Salaries and employee benefits 1,030,271 858,755
Occupancy 237,338 216,147
Other 610,424 526,876
------------- -------------
Total non-interest expense 1,878,033 1,601,778
------------- -------------
Income before income taxes 549,192 727,992
Income taxes 173,000 227,773
------------- -------------
Net income $ 376,192 $ 500,219
------------- -------------
------------- -------------
Basic earnings per share $ 0.23 $ 0.30
------------- -------------
------------- -------------
Diluted earnings per share $ 0.22 $ 0.29
------------- -------------
------------- -------------
Weighted average number of
shares outstanding 1,674,032 1,640,234
------------- -------------
------------- -------------
Weighted average number of shares
outstanding including common
stock equivalents 1,719,047 1,697,547
------------- -------------
------------- -------------
</TABLE>
The financial information included herein is unaudited, although the 12/31/98
data is derived from audited financial statements; however, the information
reflects all adjustments (consisting soley 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
STATEMENT OF CHANGES IN SHAREHOLDER EQUITY
<TABLE>
<CAPTION>
Unrealized
Loss on
Avail.-for-Sale
Retained Investment Comprehensive
Shares Amount Earnings Securities Total Income
----------- -------------- ------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 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 $ 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) (61,898)
----------- -------------- ------------- ------------ -------------- -------------
Balance at December 31, 1996 1,610,940 12,225,722 2,905,644 (18,190) 15,113,176 $ 1,877,563
----------- -------------- ------------- ------------ -------------- -------------
-------------
Stock Options Exercised and Tax
Related Benefit 17,351 112,042 112,042
Net Income 1,300,766 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 28,070
----------- -------------- ------------- ------------ -------------- -------------
Balance at December 31, 1997 1,628,291 12,337,764 3,562,034 9,880 15,909,678 $ 1,328,836
----------- -------------- ------------- ------------ -------------- -------------
-------------
Stock Options Exercised and Tax
Related Benefit 62,641 746,997 746,997
Retirement of Common Stock (18,803) (260,559) (260,559)
Net Income 2,008,670 2,008,670 $ 2,008,670
Unrealized Loss on Available-for-Sale
Investment Securities (31,310) (31,310) (31,310)
Cash dividend - $.40 per share (662,219) (662,219)
----------- -------------- ------------- ------------ -------------- -------------
Balance at December 31, 1998 1,672,129 12,824,202 4,908,485 (21,430) 17,711,257 $ 1,977,360
----------- -------------- ------------- ------------ -------------- -------------
-------------
Stock Options Exercised and Tax
Related Benefit 45,218 460,277 460,277
Retirement of Common Stock (9,390) (120,998) (120,998)
Net Income 376,192 376,192 $ 376,192
Unrealized Loss on Available-for-Sale
Investment Securities (141,857) (141,857) (141,857)
----------- -------------- ------------- ------------ -------------- -------------
Balance at March 31, 1999 1,707,957 $ 13,163,481 $ 5,284,677 $ (163,287) $ 18,284,871 $ 234,335
----------- -------------- ------------- ------------ -------------- -------------
----------- -------------- ------------- ------------ -------------- -------------
</TABLE>
<PAGE>
TEHAMA BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 376,192 $ 500,219
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 425,000 375,000
Depreciation and amortization 99,376 65,666
Increase (decrease) net deferred loan origination fees & costs (353,637) (8,532)
(Increase) decrease in Interest Receivable and Other Assets (526,464) 41,952
(Decrease) increase in Interest Payable and Other Liabilities (14,923) (124,878)
Change in Unrealized Gain (Loss) on Securities (141,857) (5,275)
-------------------------------
Net cash provided by operating activities (136,313) 844,152
-------------------------------
Cash flows from investing activities:
Net (increase) decrease in maturities, purchases and sales of
investment securities (7,607,914) 2,059,342
Net (increase) decrease in loans (127,449) 3,794,535
Purchases of premises and equipment (101,734) (90,730)
Proceeds from sale of equipment - -
Proceeds from sale of other real estate - 260,000
-------------------------------
Net cash used in investing activities (7,837,097) 6,023,147
-------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing
transaction accounts and savings accounts 2,249,260 4,683,020
Net increase in time deposits (4,157,976) 416,808
Payments for fractional shares - -
Payments of cash dividends - -
Retirement of Common Stock (120,998)
Proceeds from exercise of stock options 359,779 295,842
-------------------------------
Net cash provided by financing activities (1,669,935) 5,395,670
-------------------------------
(Decrease) increase in cash and cash equivalents (9,643,345) 12,262,969
Cash and cash equivalents at beginning of year 22,762,664 12,927,578
-------------------------------
Cash and cash equivalents at March 31, $ 13,119,319 $ 25,190,547
-------------------------------
</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 March 31, 1999, with comparative data for
the quarter ending March 31, 1998. Some discussion may naturally focus soley on
Tehama Bank (the "Bank") as that entity comprises the majority of the
consolidated 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 first quarter 1999 totaled $376,192.
The first quarter's net income decreased 24.8% from the same period in 1998.
The decline is projected to be short-term and is attributed primarily to
start-up costs associated with the opening of the new Redding branch in
September 1998 and two new departments created at year-end. In December 1998,
a new Manufactured Housing Loan Department was established. The focus of this
business is to generate fee income by originating manufactured housing loans
that are then funded by or sold to investors. As of the end of the first
quarter results are ahead of original projections. Also in December 1998, the
Bank established an ATM Cash Servicing Department. This department focuses on
generating fee income by supplying cash to independently owned ATM machines.
The projected start-up period for this department extends beyond the first
quarter, however, after its initial ramp-up, it should also contribute
significantly to the Bank's fee income. Basic earnings per share totaled
$0.23 and diluted earnings per share totaled $0.22 for the first quarter 1999
compared to $0.30 and $0.29, respectively, for the first quarter 1998.
Bancorp Financial Services, the leasing company that the Company jointly owns
with Humboldt Bancorp, contributed $97,606 towards the Company's net income
in the first quarter.
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 March 31, 1999 totaled $2,073,206, a 1% increase
over the $2,060,759 for the first quarter in 1998.
BALANCE SHEET ANALYSIS
Total assets of $198,431,939 at March 31, 1999 represent a decrease of
$1,350,025 or 1% from the 1998 year-end figure of $199,781,964. Net loans
increased $56,086 from December 31, 1998. Total deposits of $178,601,895 at
March 31, 1999 represent a decrease of $1,908,716 or 1% from the 1998 year-end
figure of $180,510,611. The mix of interest bearing and non-interest bearing
deposits has remained stable from year-end 1998 to March 31, 1999. Loan
growth in the first quarter of 1999 has been relatively flat and this trend
is similarly reflected in deposits and total assets, both of which show small
decreases over year end 1998. However, Tehama Bank is now very well
positioned over a broader marketplace than ever before, and the growth
and expansion opportunities detailed above have helped create a foundation
for significant growth.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses, as a percentage of gross outstanding
loans as of March 31, 1999 was 1.6%, compared to 1.7% as of December 31, 1998.
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.
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 processing of
merchant credit card transactions. Year-to-date non-interest income totaled
$779,019, an increase of 21% over the same period in 1998.
<PAGE>
Deposit account service charges for the three months ended March 31,
1999 increased 6% from the same period in 1998. The combined gain on sale of
loans, servicing fees on loans sold, and other income increased 119% for the
three months ended March 31, 1999 from the same period in 1998. Growth in
non-interest income is attributed to the activity from the Bank's
Manufactured Housing Department, ATM Cash Servicing Department and to an
increase in the volume of residential real estate loans that are originated
but then funded by a broker. Each of these activities contributes fee income
to the Bank that is accounted for as "other" income.
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and related benefits,
occupancy and equipment expense and other expenses. Non-interest expense totaled
$1,878,033 as of March 31, 1999, an increase of 17% over the same period in
1998. Most of the increase in non-interest expense is attributed to personnel
and other start up expenses associated with the newer departments previously
mentioned.
INCOME TAXES
Income taxes through March 31, 1999 totaled $173,000 or 32% of net
income before taxes. Income taxes through the same period in 1998 totaled
$227,773 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 March 31, 1999 was 66.6%, an
increase from the 65.9% ratio at December 31, 1998.
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
March 31, 1999 was 12.8%, the same as at December 31, 1998 compared to the
regulatory minimum of 10.0% for "Well-Capitalized" banking institutions. At
March 31, 1999, Tier 1 Capital was approximately $14,545,000 compared to the
regulatory minimum of $7,563,000 for a "Well-Capitalized" institution.
YEAR 2000 READINESS
Tehama Bank has established a Year 2000 Task Force comprised of senior
managers representing all units within the Bank. The objective of the task force
is to ensure Tehama Bank is fully prepared for the change in the century date.
Task force objectives and status to date include:
- - Review of the Bank's business and technology operations to determine the
impact of the Year 2000 date change. Completed 1st quarter of 1998
- - Assessment of the risk to bank operations from computer hardware and
software impacted by the millennium change. Completed 2nd quarter of 1998
- - Upgrade critical systems, software and networks to Year 2000 readiness.
Completed 3rd quarter 1998
- - Test and certify all hardware and software systems (including interfaces).
Initiated 3rd quarter 1998, to be completed by 2nd quarter 1999
- - Develop contingency plans for all mission-critical applications. Completed
in 1st quarter 1999
Tehama Bank has completed the inventory, assessment and renovation
phases of our plan. In addition, we have completed an internal review of
technology assets which may be sensitive to the change in the century date.
Tehama Bank is currently in the midst of the testing and implementation
<PAGE>
phases. We plan to complete testing and have all system changes implemented by
June 30, 1999, as recommended by the Federal Financial Institutions
Examination Council (FFIEC). Additionally, we have purchased an independent
third party review of our main data processing provider to ensure that it will
be Y2K complaint. We are confident that all the steps Tehama Bank is taking
will meet the Bank's and our customers needs during the Year 2000.
Regarding our vendors, Tehama Bank has established an ongoing vendor
management program to obtain information about the Year 2000 readiness of
vendors and service providers. A Year 2000 risk assessment program is also
underway to evaluate the impact of Year 2000 on our significant borrowers and
funds providers. In addition, liquidity risk planning is underway to ensure that
we will be able to meet the needs of our customers. We have taken a proactive
approach to awareness and communication, both in the organization as well as the
community.
In any project involving the identification, testing and modification of
hardware and software there is a risk that not all potential problems will be
satisfactorily addressed on time. To mitigate this risk, Tehama Bank is
formulating contingency plans for all mission critical operations to reduce the
impact of any unexpected failure resulting from the century change. Furthermore,
Tehama Bank is updating its business continuity plans for the entire
organization. These plans include provisions for supplementary human resources,
outsourcing of operational activities and alternate sources of power in the
event that a power failure or other type of business disruption occurs.
Tehama Bank will continue to face the Year 2000 computer challenge
head-on in our effort to ensure "business as usual" for you in the new
millennium.
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.
<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.
MAY 14, 1999 BY: /s/ William M. Jenkins
- ---------------------------- -------------------------------
Date William M. Jenkins
Vice President & Chief Financial
Officer
MAY 14, 1999 BY: /s/ William P. Ellison
- ---------------------------- ----------------------------------
Date William P. Ellison
President & Chief Executive Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, AND
STATEMENT OF CHANGES IN SHAREHOLDER EQUITY, AND IS QUALIFIED IN TS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,919
<INT-BEARING-DEPOSITS> 141,306
<FED-FUNDS-SOLD> 5,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,812
<INVESTMENTS-CARRYING> 12,746
<INVESTMENTS-MARKET> 13,038
<LOANS> 119,066
<ALLOWANCE> 1,946
<TOTAL-ASSETS> 198,432
<DEPOSITS> 178,602
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,545
<LONG-TERM> 0
0
0
<COMMON> 13,163
<OTHER-SE> 5,285
<TOTAL-LIABILITIES-AND-EQUITY> 198,432
<INTEREST-LOAN> 2,585
<INTEREST-INVEST> 830
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,415
<INTEREST-DEPOSIT> 1,342
<INTEREST-EXPENSE> 1,342
<INTEREST-INCOME-NET> 2,073
<LOAN-LOSSES> 425
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,878
<INCOME-PRETAX> 549
<INCOME-PRE-EXTRAORDINARY> 549
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 4.530
<LOANS-NON> 1,553
<LOANS-PAST> 251
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,757
<ALLOWANCE-OPEN> 2,081
<CHARGE-OFFS> 603
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 1,946
<ALLOWANCE-DOMESTIC> 1,946
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
