<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 June 30, 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: 1,705,658 shares outstanding (June 30, 1999)
<PAGE>
INDEX
TEHAMA BANCORP
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets: June 30, 1999 and December
31, 1998
Condensed Consolidated Statements of Income: Three months ended
June 30, 1999 and 1998; and six months ended June 30, 1999 and
1998
Condensed Consolidated Statement of Changes in Shareholder
Equity: December 31, 1996 through June 30, 1999
Condensed Consolidated Statement of Cash Flows: Six months ended
June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements: June 30,
1999
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEHAMA BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,277,374 $ 8,362,664
Federal funds sold 8,700,000 14,400,000
Investment securities (market value of $41,269,926 at
June 30, 1999 and $47,440,300 at December 31, 1998) 41,242,081 47,092,556
Loans, less allowance for loan losses of $1,618,610 at
June 30, 1999 and $2,080,831 at December 31, 1998 122,452,733 119,009,536
Bank premises and equipment, net 2,379,098 2,337,327
Other real estate owned
283,397 49,981
Accrued interest receivable and other assets 9,387,197 8,529,900
------------- -------------
TOTAL ASSETS $ 195,721,880 $ 199,781,964
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 42,404,081 $ 39,191,013
Interest bearing 134,665,724 141,319,598
------------- -------------
Total deposits 177,069,805 180,510,611
Accrued interest payable and other liabilities 1,643,136 1,560,096
------------- -------------
Total liabilities 178,712,941 182,070,707
------------- -------------
Stockholders' equity
Preferred stock - no par value; 2,000,000 shares
authorized; none issued
------------- -------------
Common stock - no par value; 4,000,000 shares
authorized; 1,705,658 shares issued and outstanding
at June 30, 1999 (1,672,129 at December 31, 1998) 13,118,065 12,824,202
Retained earnings 4,942,956 4,908,485
Unrealized (loss) gain on available-for-sale investment
securities, net of taxes (1,052,082) (21,430)
------------- -------------
Total stockholders' equity 17,008,939 17,711,257
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 195,721,880 $ 199,781,964
------------- -------------
------------- -------------
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
TEHAMA BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended,
June 30, June 30,
(Unaudited) (Unaudited)
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,653,996 $ 5555 $5555 $5,539,967
2,766,404 5,239,459
Interest on Federal funds sold 79,197 262,904 281,643 469,052
Interest on investment securities:
Taxable 506,196 246,542 973,190 499,693
Exempt from Federal income taxes 156,487 137,957 316,418 279,421
---------- ---------- ---------- ----------
Total interest income 3,395,876 3,413,807 6,810,710 6,788,133
Interest expense on deposits 1,249,080 1,352,983 2,590,708 2,666,550
---------- ---------- ---------- ----------
Net interest income 2,146,796 2,060,824 4,220,002 4,121,583
Provision for loan losses 300,000 320,000 725,000 695,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,846,796 1,740,824 3,495,002 3,426,583
---------- ---------- ---------- ----------
Non-interest income:
Service charges 192,457 174,315 370,627 343,230
Merchant processing fees 269,800 336,899 582,419 666,970
Loan servicing fees 11,303 14,890 26,865 31,801
Gain on sale of loans 32,867 28,303 53,261 61,086
Other income 393,223 131,325 645,497 226,656
---------- ---------- ---------- ----------
Total non-interest income 899,650 685,732 1,678,669 1,329,743
Non-interest expense:
Salaries and employee benefits 1,058,926 875,855 2,089,197 1,734,610
Occupancy 249,751 222,471 487,089 438,618
Other 765,011 632,781 1,375,435 1,159,657
---------- ---------- ---------- ----------
Total non-interest expense 2,073,688 1,731,107 3,951,721 3,332,885
---------- ---------- ---------- ----------
Income before income taxes 672,758 695,449 1,221,950 1,423,441
Income taxes 160,500 221,285 333,500 449,058
---------- ---------- ---------- ----------
Net income $ 512,258 $ 474,164 $ 888,450 $ 974,383
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share $ 0.30 $ 0.29 $ 0.53 $ 0.59
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.30 $ 0.28 $ 0.52 $ 0.57
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
shares outstanding 1,702,127 1,657,298 1,688,157 1,648,879
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of shares
outstanding including common
stock equivalents 1,708,081 1,714,112 1,722,737 1,713,921
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
TEHAMA BANCORP
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER EQUITY
<TABLE>
<CAPTION>
Unrealized
Loss on
Avail.-for-Sale Comprehensive
Retained Investment Income
Shares Amount Earnings Securities Total (Loss)
--------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
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 1,300,766
Cash dividend - $.40 per share (644,376) (644,376)
Unrealized Gain (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
Cash dividend - $.40 per share (662,219) (662,219)
Unrealized Gain (Loss) on Available-
for-Sale Investment Securities (31,310) (31,310) (31,310)
--------- ------------ ------------ ------------ ------------ ------------
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 52,213 530,510 530,510
Retirement of Common Stock (18,684) (236,647) (236,647)
Net Income 888,450 888,450 888,450
Cash dividend - $.50 per share (853,979) (853,979)
Unrealized Gain (Loss) on Available-
for-Sale Investment Securities (1,030,652) (1,030,652) (1,030,652)
--------- ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 705,658 $13,118,065 $4,942,956 $(1,052,082) $17,008,939 $(142,202)
--------- ------------ ------------ ------------ ------------ ------------
--------- ------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
TEHAMA BANCORP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
(Unaudited)
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 888,450 $ 974,383
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses 725,000
695,000
Depreciation and amortization 200,234
160,134
Net change deferred loan origination fees & costs 776,322
(48,845)
(Increase) decrease in Interest Receivable and Other Assets (1,003,455) (474,315)
(Decrease) increase in Interest Payable and Other Liabilities 83,040 163,469
------------ ------------
Net cash provided (used) by operating activities 1,669,591 1,469,826
------------ ------------
Cash flows from investing activities:
Net (increase) decrease in maturities, purchases and sales of
investment securities 4,819,823 2,250,704
Net (increase) decrease in loans (4,944,519) (175,216)
Purchases of premises and equipment (219,388) (112,845)
Proceeds from sale of equipment -- 260,000
------------ ------------
Net cash provided (used) in investing activities (344,084) 2,222,643
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, interest-bearing
and savings accounts 6,164,080 6,588,323
Net increase (decrease) in time deposits (9,604,886) 1,289,190
Payments of cash dividends (853,979) (662,219)
Retirement of common stock (236,647) --
------------ ------------
Proceeds from exercise of stock options 420,635 298,939
------------ ------------
Net cash provided (used) by financing activities (4,110,797) 7,514,233
------------ ------------
Increase (decrease) in cash and cash equivalents (2,785,290) 11,206,702
Cash and cash equivalents at beginning of year 22,762,664 12,927,578
------------ ------------
Cash and cash equivalents at June 30, $ 19,977,374 $ 24,134,280
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A Basis of Presentation
The financial information included herein is unaudited (although the
12/31/98 data is derived from audited financial statements), but has been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. 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, changes
in shareholder equity, and cash flows of the interim periods presented.
Certain information and footnotes required by generally accepted accounting
principles for 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. Operating results for the six months ended June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary Tehama Bank, and a 50% interest in
Bancorp Financial Services, Inc. All material intercompany accounts and
transactions have been eliminated in consolidation.
Note B Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). This
statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. For the Company,
comprehensive income includes net income reported on the statement of income and
changes in the fair value of its available-for-sale investments reported as
other comprehensive income.
Note C Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if options or other contracts
to issue common stock were exercised and converted into common stock. Diluted
earnings per share is computed by dividing net income by the weighted average of
common shares outstanding including common stock equivalents of options.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Tehama Bancorp (the "Company") is the bank holding company for Tehama Bank
(the "Bank"), a state chartered, Federal Reserve member-bank. The following is
management's discussion and analysis of the financial condition and results of
operations of the Company for the quarter ending June 30, 1999, with comparative
data from the quarter ending June 30, 1998. Some discussion may naturally focus
solely on the Bank as that entity comprises the substantial majority of the
consolidated company. The focus 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.
The Bank operates out of its main office located at 237 South Main Street,
Red Bluff, Tehama County, CA 96080, and five other community branch offices
located in: Los Molinos (Tehama County), Chico (Butte County), Orland and
Willows (Glenn County) and Redding (Shasta County). The Bank operates as one
business segment providing banking services to the Company's clients primarily
in the Northern California counties noted above. The Bank's principal business
consists of attracting deposits from the general public and using the funds to
originate commercial, real estate and installment loans to both consumers and
businesses. The Bank's primary source of revenue is interest income from its
loan and investment portfolios. In addition to the Bank, the Company maintains a
50% ownership interest in Bancorp Financial Services, Inc. ("BFS"), a leasing
company located in Sacramento, CA. BFS concentrates on small ticket business
equipment and automobile leases over a broader service area encompassing
numerous western states.
In addition to the historical information contained herein, this Form 10-Q
quarterly report contains certain forward-looking statements, within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934. Readers
of this quarterly report should understand that these forward-looking statements
involve certain risks and uncertainties that could cause actual results to
differ materially from those suggested in the forward-looking statements.
Forward looking statements use phrases such as "expected to" and "on target to"
Risks and uncertainties in forward looking statements include, but are not
limited to, the following factors: competitive pressure in the banking industry,
changes in the regulatory environment, changes in the interest rate environment
and/or volatility in interest sensitive deposits, general economic conditions in
the Bank's major service areas, a deterioration in credit quality resulting in
an increase to the provision for loan losses, operational risks including data
processing or other technological system failures, asset / liability matching
risks and liquidity risks, and changes in the securities markets.
EARNINGS SUMMARY
The Company's net income in the second quarter 1999 totaled $512,258
contributing toward a year-to-date net income of $888,450. The second quarter's
net income increased 36.17% over the first quarter of 1999, and represents an
8.03% increase over the same period in 1998. Year-to-date net income as of June
30, 1999 has decreased 8.82% from June 30, 1998 year-to-date net income.
Earnings per share for the second quarter 1999 totaled $0.30 ($0.30 diluted)
compared to $0.29 ($0.28 diluted) for the second quarter 1998. Earnings per
share year-to-date 1999 totaled $0.53 ($0.52 diluted) compared to $0.59 ($0.57
diluted) for the same period in 1998. The overall decline in year to date net
income is still projected to be short-term and is primarily attributed to the
start-up costs associated with the opening of the new Redding branch in
September 1998 and two new departments created at year-end 1998, and to slow
growth in the loan portfolio during the first half of
<PAGE>
1999. The full service Redding Branch, opened in renovated quarters in September
1998, positions the Bank to aggressively pursue commercial lending opportunities
in the Redding/Shasta County marketplace. Overhead costs (non-interest expense)
to staff and maintain this branch were expected to exceed initial revenues from
this location. Asset and loan growth has been steady and this branch is expected
to significantly increase its contribution to the Bank's total income during the
remainder of 1999. This location also houses the Bank's business unit that
originates Small Business Administration and other government guaranteed
business loans. While this unit covers the Bank's entire service area, the
Redding location offers the greatest potential to actively pursue this market.
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.
Year-to-date results as of the end of the second quarter meet projections and
this business unit is expected to exceed its original projections for the second
half of the year. 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 performance projections
for this business unit call for steady growth in business (and related income)
throughout 1999. As of the end of the second quarter, this business unit has
also met its projections and is on target to exceed projections during the
second half of the year.
Loan growth throughout the Bank and across the loan portfolio spectrum has
been slower than projected for the first half of the year. One exception, has
been in the Bank's dealer lending portfolio. Restructuring lending policies,
enhancing the quality of acceptable collateral and adding additional staffing
resources has helped this niche of the consumer loan portfolio provide some
significant growth to the Bank's earning assets in the second quarter. In the
latter half of the second quarter, growth in commercial loan applications in
process increased significantly and has resulted in increased booking of new
loans in July.
NET INTEREST INCOME
The primary source of income for the Company is net interest income, the
difference between interest earned on assets (loans and investments) and
interest paid on deposits and other borrowings taken by the Bank to fund these
assets. Changes in net interest income can be attributed to changes in the yield
on interest-earning assets and to changes in the rate paid on interest-bearing
liabilities. It can also be attributed to changes in the volume of
interest-earning assets and interest-bearing liabilities. Net interest income
for the quarter ending June 30, 1999 totaled $2,146,796, a 4.17% increase over
the $2,060,824 for the second quarter in 1998. Year-to-date net interest income
totals $4,220,002, a 2.39% increase over the $4,121,583 for the prior year.
BALANCE SHEET ANALYSIS
Total assets of $195,721,880 at June 30, 1999 represent a decrease of
$4,060,084 or 2.03% from the 1998 year-end figure of $199,781,964. Net loans
increased $3,443,197 or 12.42% from December 31, 1998. Total deposits of
$177,069,805 at June 30, 1999 represent a decrease of $3,440,806 or 1.91% from
the 1998 year-end figure of $180,510,611. As a component of total deposits,
non-interest bearing deposits increased from 21.7% to 24.0%. Net loans grew in
the second quarter of 1999 as a result of Tehama Bank's positioning over a
broader marketplace than ever before, and certain growth and expansion
opportunities, as discussed in the earnings summary above, have helped create a
foundation for significant growth.
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses decreased $462,221 from December 31, 1998 to
June 30, 1999. The decrease is primarily attributed to one lending relationship
for which additional allowance for loan loss was provided for at year end 1998,
with the loans subsequently being charged off in the six months ended June 30,
1999. 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. Non-interest income for the quarter ending
June 30, 1999 totaled $899,650, an increase of 31.20% over the $685,732 for the
second quarter 1998. Year to date non-interest income totaled $1,678,669 and
increase of 26.24% over the $1,329,743 for the prior year.
Deposit account service charges for the quarter ended June 30, 1999
increased 10.41% from the same period in 1998. Year to date account service
charges increased 7.98% over the prior year. The combined gain on sale of loans,
servicing fees on loans sold, and other income increased 151% for the quarter
ended June 30, 1999 from the same period in 1998. The year to date combined gain
on sale of loans, servicing fees on loans sold, and other income increased 127%
over the prior year. Growth in other 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. In
addition, the Company's share of net income from its joint venture in a leasing
company (Bancorp Financial Services, Inc.) increased to $196,976 from $109,020
for the six months ended June 30, 1999 and 1998, respectively.
NON-INTEREST EXPENSE
Non-interest expense consists of salaries and related benefits, occupancy
and equipment expense and other expenses. Non-interest expense totaled
$3,951,721 for the six months ended June 30, 1999, an increase of 18.57% over
the same period in 1998. For the second quarter non-interest expenses totaled
$2,073,688 an increase of 19.79% 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 and new Redding branch previously
mentioned.
INCOME TAXES
Income taxes through June 30, 1999 totaled $333,500 or 28% of net income
before taxes. Income taxes through the same period in 1998 totaled $449,058 or
32% of net income before taxes. Variations in volumes of tax-exempt securities,
loans and leases, and their respective income, are primarily responsible for the
change in the tax rate.
<PAGE>
LIQUIDITY AND CAPITAL
The Bank manages its liquidity to ensure that sufficient funds are
available to support asset growth and satisfy cash flow requirements created by
fluctuations in deposits. Primary sources of liquidity include cash and amounts
due from correspondent banks, federal funds sold, and unpledged
available-for-sale investments. The Company's primary liquidity ratio, the ratio
of liquid assets to total assets, was 25.0% at June 30, 1999 compared to 28.8%
at December 31, 1998 and 22.2% at June 30, 1998. Another indication of a
company's liquidity is its 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
June 30, 1999 was 69.12%, an increase from the 65.93% ratio at December 31,
1998.
Capital adequacy is generally quantified by measures established by
regulatory agencies and requires the Company and the Bank to maintain minimum
amounts of capital and ratios of capital to assets. Overall capital is monitored
by management on a daily basis and reported to the Company's Board of Directors
on a monthly basis. The following table reflects the Company's capital ratios as
of June 30, 1999 compared to the minimum regulatory requirement and the minimum
requirement for "well-capitalized" institutions.
<TABLE>
<CAPTION>
Company Minimum Well Capitalized
------- ------- ----------------
<S> <C> <C> <C>
Leverage Ratio 8.8% 4.0% 5.0%
Tier 1 Risk-Based Capital Ratio 13.3% 4.0% 6.0%
Total Risk Based Capital Ratio 14.6% 8.0% 10.0%
</TABLE>
YEAR 2000 READINESS
The Bank established a Year 2000 Task Force comprised of senior managers
representing all units within the organization. The objective of the task force
is to ensure that the Bank is fully prepared for the change in the century date.
The Task Force has accomplished its goal in that all computer modifications,
replacements and necessary changes have been completed. The service provider of
the Bank's main computer system has tested and certified that the system is
ready for the year 2000 change of date.
Listed below are some of the key accomplishments:
- - The Bank's business and technology operations have been reviewed to
determine the impact of the Year 2000 change of date.
- - The risk to bank operations of computer hardware and software impacted by
the century change has been assessed.
- - Critical systems, software and networks have been upgraded to Year 2000
readiness.
- - All hardware and software systems (including interfaces) have been tested
and certified.
- - Contingency plans have been developed for all mission-critical
applications.
In any project involving the identification, testing and modification of
hardware and software there is a risk that all potential problems will not be
satisfactorily addressed on time. To mitigate this risk, the Bank has formulated
contingency plans for all mission critical operations to reduce the
<PAGE>
impact of any unexpected failure resulting from the century change. Furthermore,
the Bank has updated its business continuity plans for the entire organization
and has addressed both liquidity and cash management as directed by the
"Interagency Statement on Year 2000 Project Management Awareness".
Interdependencies with other parties makes it impossible to guarantee that
disruptions will not occur. Management believes that its efforts will minimize
significant problems and enable it to respond quickly and to maintain high
levels of customer service.
The Bank will continue an ongoing vendor management program to obtain
information about the Year 2000 readiness of all our vendors and service
providers.
Ultimately, the potential impact of Year 2000 issues will depend not only
on the corrective measures the Bank 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 Bank, or whose financial
condition or operational capability is important to the Bank, such as suppliers
or customers. The Bank, 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 Bank 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 Bank's future business
operations could be negatively impacted.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is subject.
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Tehama Bancorp was held on April 27,
1999. Shareholders voted on candidates for the board of directors, and the 1999
Stock Option Plan. No candidates were proposed in opposition to the slate of
candidates submitted by management, and the following incumbent directors were
elected, and the 1999 Stock Option Plan approved by the votes indicated:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
--------------------- --------- --------------
<S> <C> <C>
Henry C. Arnest, III 1,050,030 4,736
Louis J. Bosetti 1,050,580 4,186
Harry Dudley 1,046,270 8,496
William P. Ellison 1,050,217 4,549
Garry D. Fish 1,049,951 4,815
Max M. Froome 1,034,375 20,391
Orville K. Jacobs 1,034,276 20,490
Gary C. Katz 1,050,217 4,549
John W. Koeberer 1,049,973 4,793
Raymond C. Lieberenz 1,050,580 4,186
Leslie L. Melburg 1,050,580 4,186
Gary L. Napier 1,047,443 7,323
Eugene F. Penne 1,050,580 4,186
John D. Regh 1,050,580 4,186
Terrance A. Rust 1,050,580 4,186
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION VOTES FOR VOTES AGAINST VOTES WITHHELD
---------------------- --------- ------------- --------------
<S> <C> <C> <C>
1999 Stock Option Plan 1,006,485 32,302 16,017
</TABLE>
ITEM 5. OTHER INFORMATION - None
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.
<PAGE>
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.
AUGUST 12, 1999 BY: /S/ WILLIAM M. JENKINS
- ---------------------------- -------------------------------
Date William M. Jenkins
Vice President &
Chief Financial Officer
AUGUST 12, 1999 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 Worksheet -- Article 9
</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 ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,277
<INT-BEARING-DEPOSITS> 134,666
<FED-FUNDS-SOLD> 8,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,101
<INVESTMENTS-CARRYING> 12,141
<INVESTMENTS-MARKET> 12,166
<LOANS> 124,072
<ALLOWANCE> 1,619
<TOTAL-ASSETS> 195,722
<DEPOSITS> 177,070
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,843
<LONG-TERM> 0
0
0
<COMMON> 13,178
<OTHER-SE> 3,891
<TOTAL-LIABILITIES-AND-EQUITY> 17,008
<INTEREST-LOAN> 5,240
<INTEREST-INVEST> 1,571
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,811
<INTEREST-DEPOSIT> 2,591
<INTEREST-EXPENSE> 2,591
<INTEREST-INCOME-NET> 4,220
<LOAN-LOSSES> 725
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,652
<INCOME-PRETAX> 1,222
<INCOME-PRE-EXTRAORDINARY> 1,222
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 4,655
<LOANS-NON> 072
<LOANS-PAST> 223
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,266
<ALLOWANCE-OPEN> 2,081
<CHARGE-OFFS> 1,257
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 1,619
<ALLOWANCE-DOMESTIC> 1,619
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
