SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1 (filed on January 10, 2001
(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, 2000, 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
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(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
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (530) 528-3000
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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: 1,898,510 shares outstanding (December 31, 2000)
<PAGE>2
Tehama Bancorp hereby amends Item 2. of Part I. of its quarterly report on Form
10-Q for the quarterly period ended September 30, 2000 as follows:
Item 2. Management's Discussion & 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 and nine-month periods ending
September 30, 2000, with comparative data from the same periods ending September
30, 1999. 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's main office is located at 333 Main Street, Red Bluff, Tehama
County, CA 96080, with 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's administrative offices are located at
239 South Main Street, Red Bluff, Tehama County, CA 96080. 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. On March 15, 2000, the Company invested an
additional $999,750 in BFS. After such investment, the Company still maintained
a 50% ownership in BFS.
On September 20, 2000, Tehama Bancorp and Humboldt Bancorp announced the
signing of a definitive Agreement and Plan of Reorganization and Merger (the
"Agreement") under which Humboldt Bancorp will acquire all of the outstanding
shares of common stock of Tehama Bancorp pursuant to a tax-free exchange of
shares. The Agreement, which has been approved unanimously by the Boards of
Directors of both companies, is subject to conditions customary to transactions
of this type, including approval by the shareholders of both Humboldt Bancorp
and Tehama Bancorp, approval by bank regulatory authorities, and satisfaction of
certain other terms and conditions. The merger will be accounted for under the
pooling-of-interests method of accounting.
In addition to the historical information contained herein, this Form 10-Q
quarterly report may contain certain forward-looking statements, within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, and regulations issued thereunder. 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 third quarter of 2000 totaled $904,531,
which was a 52.0% increase over the third quarter of 1999. Basic earnings per
share for the third quarter of 2000 was $0.48 ($0.46 diluted) compared to $0.32
($0.32 diluted) for the third quarter of 1999. Growth in net income during the
third quarter is the continuation of several business strategies initiated in
1999. Increasing the resources and focus on business banking relationships
throughout the Bank's service area resulted in significant growth in commercial
and commercial real estate loan bookings. Average real estate loans increased
$16,518,246 from a quarterly average of $58,381,044 in the third quarter of 1999
to $74,899,290 in the third quarter of 2000. Additionally, the Bank's dealer
lending business continues to provide steady growth in the consumer loan
portfolio, which increased $18,658,928, from a quarterly average of $27,904,717
in the third quarter of 1999 to $46,563,645 in the third quarter of 2000. The
Bank's ATM Cash Servicing Department, established in December 1998, also
contributed significantly to the growth in other income.
In 1991, Tehama Bank contracted with Cardservice International, Inc. (CSI)
for the solicitation on behalf of the Bank of merchants who accept credit cards
as payment for goods and services. As a result, the Bank has obtained electronic
credit card draft processing relationships with approximately 27,000 merchants
on a nationwide basis. The Bank also entered into an agreement with First Data
Resources, Inc. for the processing of merchant credit card transactions. Because
of increased competition for this business among community banks, the Bank and
CSI renegotiated their contract in March of 1999 for an additional five years.
Among other things, the contract provided for a declining level of fee income
<PAGE>3
over the life of the contract, a provision whereby the Bank reimburses CSI for
50% of the earnings on all funds held by the Bank for CSI, and the elimination
of reimbursement by CSI of personnel costs incurred by the Bank in providing
merchant card services to CSI. Merchant card fee income reflects a decrease of
11.5% in a comparison of third quarter 2000 to third quarter 1999. Fee income to
the Bank from CSI totaled $689,180 for the nine months ended September 30, 2000,
compared to $841,052 for the nine months ended September 30, 1999. Fee income
under the revised contract is expected to decline to approximately $900,000 in
2000, $700,000 in 2001, and $600,000 in 2002 and 2003.
Net income for the nine months ended September 30, 2000 was $2,292,821, an
increase of $809,230 (54.6%) over the same period in 1999. Basic earnings per
share for the nine months ended September 30, 2000 was $1.21 ($1.18 diluted),
compared to $0.79 ($0.79 diluted) for the same period in 1999.
Balance Sheet Analysis
Total assets of $243,070,186 at September 30, 2000 represent an increase of
$31,276,061 or 14.8% from the 1999 year-end figure of $211,794,125. During this
same period net loans increased $23,907,413 or 16.7% while total investments
decreased by $503,489 or 1.3%. Total deposits of $209,791,102 at September 30,
2000 represent an increase of $21,323,705 or 11.3% from the 1999 year-end figure
of $188,467,397. Non-interest bearing deposits were 24.5% of total deposits at
September 30, 2000, compared with 26.9% at December 31, 1999. Savings deposits
of $39,719,030 at September 30, 2000 represents an increase of $24,144,180 or
155.0% from the 1999 year end figure of $15,574,850. This increase is due to the
introduction of a promotional savings product, a high yield account with a
$20,000 minimum balance requirement.
The Company also invested in Class C Lease-Backed Notes issued by B F S
Funding Company, L.L.C., a wholly owned subsidiary of Bancorp Financial
Services, Inc. The initial investment of $2,375,654 was funded by long-term
borrowings with another bank, which matures in 2003. The balance of the
investment and borrowings at September 30, 2000, was $2,042,693 and $2,007,904,
respectively.
Allowance for Loan Losses
The allowance for loan losses increased $234,597 from December 31, 1999 to
September 30, 2000. The provision for loan losses for the nine months ended
September 30, 2000 was $700,000 compared to $1,025,000 for the nine months ended
September 30, 1999. The decrease in the provision is due to the improvement in
the quality of the loan portfolio, and reduction in loan charge-offs. 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.
The following table presents information concerning the allowance:
<TABLE>
<S> <C> <C> <C>
September 30, 2000 September 30, 1999 December 31, 1999
------------------ ------------------ -----------------
Allowance at beginning of period $ 2,148,074 $ 2,080,831 $ 2,080,831
Provision for loan losses 700,000 1,025,000 1,325,000
Losses charged to the allowance (542,408) (1,336,649) (1,438,474)
Recoveries of amounts charged off 77,005 109,904 180,717
------------------ ------------------ -----------------
Allowance at end of period $ 2,382,671 $ 1,879,086 $ 2,148,074
================== ================== =================
Ending loan portfolio (Before allowance for loan losses) $ 169,315,829 $ 137,494,102 $ 145,173,819
================== ================== =================
Ending allowance as a percentage of ending loan portfolio 1.41% 1.37% 1.48%
================== ================== =================
</TABLE>
Nonaccrual, Past Due and Restructured Loans
Tehama Bancorp's current policy is to cease accruing interest when a loan
becomes 90-days past due as to principal or interest; when the full, timely
collection of interest or principal becomes uncertain; or when a portion of the
principal balance has been charged off, unless the loan is well secured and in
<PAGE>4
the process of collection. When a loan is placed on nonaccrual status, the
accrued and uncollected interest receivable is reversed and the loan is
accounted for on the cash or cost recovery method thereafter, until qualifying
for return to accrual status. Generally, a loan may be returned to accrual
status when all delinquent interest and principal become current in accordance
with the terms of the loan agreement or when the loan is both well secured and
in process of collection. The following table sets forth nonaccrual loans and
loans past due 90 days or more as of September 30, 2000, June 30, 2000 and
December 31, 1999, respectively:
<TABLE>
<S> <C> <C> <C>
(In Thousands) September 30, 2000 June 30, 2000 December 31, 1999
------------------- ------------- ------------------
Past due 90 days or more and still accruing:
Real estate $ 1,390 $ 27 $ 75
Commercial 1,377 858 516
Installment and other 49 33 26
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Total 2,816 918 617
Nonaccrual loans 365 497 751
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Total nonperforming loans $ 3,181 $ 1,415 $ 1,368
=================== ============= ==================
Interest foregone $ 28 $ 40 $ 70
=================== ============= ==================
</TABLE>
At September 30, 2000, the recorded investment in loans that are considered
impaired was $89,000. Such impaired loans had a valuation allowance of $45,000.
At June 30, 2000, the recorded investment in impaired loans was $213,000. Such
impaired loans had a valuation allowance of $106,000. At December 31, 1999, the
recorded investment in loans that are considered impaired was $259,000. Such
impaired loans had a valuation allowance of $78,000. Tehama Bancorp recognized
no interest income on impaired loans during these periods. There were no
troubled debt restructurings or loan concentrations in excess of 10% of total
loans not otherwise disclosed as a category of loans as of December 31, 1999.
Management is not aware of any potential problem loans, which were accruing and
current at December 31, 1999, where serious doubt exists as to the ability of
the borrower to comply with the present repayment terms.
The increase in loans past due 90 days or more and still accruing was
attributable to one agricultural credit relationship in the aggregate amount of
$2.1 million consisting of a combination of real estate and commercial loans.
These loans were pending a restructure and refinancing at September 30, 2000 and
were paid in full on October 6, 2000 from an unrelated lender.
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 September 30, 2000 totaled $2,411,291, an increase of
$142,474 (6.3%) increase over the $2,268,817 for the third quarter of 1999. Net
interest income for the nine months ended September 30, 2000 totaled $7,250,746,
an increase of $761,927 (11.7%) over the same period in 1999.
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, fee income generated by the processing of merchant credit card
transactions, ATM cash servicing fees and earnings on life insurance policies.
Non-interest income for the quarter ending September 30, 2000 totaled
$1,122,257, an increase of 8.8% over the $1,031,101 for the third quarter of
1999. Non-interest income for the nine months ended September 30, 2000 totaled
$3,021,168, an increase of $311,398 (11.5%) over the $2,709,770 for the same
period in 1999.
Deposit account service charges for the quarter ended September 30, 2000
increased 16.5% (21.2% for the nine month period) from the same period in 1999.
Processing fees on brokered loans declined $54,216 or 85.0% ($137,170 or 63.3%
for the nine month period), due to a decrease in origination volume as a result
of increased loan rates. Merchant card processing revenue was down $50,000 or
<PAGE>5
20.0% ($192,419 or 23.1% for the nine month period), in line with contractual
decreases in processing volume and fee income. Income from ATM cash servicing
was up $182,732 or 109.3% in the third quarter of 2000 ($496,665 or 198.3% for
the nine month period), from $167,260 in the third quarter of 1999 ($250,419 for
the nine month period), reflecting the startup of that unit in early 1999.
The Company's share of net income from its joint venture in a leasing
company, Bancorp Financial Services, decreased $41,244 or 45.4%, from the third
quarter of 1999, and increased $35,221 or 12.2% from the nine months ended
September 30, 1999.
Non-interest expense
Non-interest expense consists of salaries and related benefits, occupancy
and equipment expense and other expenses. Non-interest expense totaled
$2,060,617 for the three months ended September 30, 2000, a decrease of $110,760
(5.1%) over the same period in 1999 and was $6,252,693 for the nine months ended
September 30, 2000, an increase of $129,595 (2.1%) over the same period in 1999.
Personnel expense was down $22,585 or 2.1% for the third quarter of 2000
($45,036 or 1.4% for the nine month period) compared with the third quarter of
1999, due primarily to staff reductions through attrition.
Occupancy expense was up $43,203 or 15.8% in the third quarter of 2000
($137,282 or 18.1% for the nine month period), primarily attributable to
increases in depreciation expense on bank premises and equipment associated with
new branch and loan center facilities.
Other expenses were down $131,378 or 15.6% in the third quarter of 2000
compared with the third quarter of 1999, due primarily to reduction in legal and
professional fees specifically related to renegotiation of a credit
relationship. Other expenses were up $37,349 or 1.7% for the nine month period
over the same period in 1999, due to increases in public relations and
advertising expenses, increases in supplies, telephone and postage expenses,
increases in officers salary continuation expenses and increases in software
licensing fees, all associated with the expansion of Bank services and new
facilities. The renegotiated merchant card processing contract included a
provision whereby the Bank is obligated to reimburse the outside vendor for a
portion of the earnings on transaction float previously retained by the Bank,
which also contributed to the increase in other expenses.
Net income before taxes
Net income before taxes was $1,372,931 for the third quarter of 2000, an
increase of $544,390 (65.7%) over the $828,541 for the third quarter of 1999.
For the nine months ended September 30, 2000, net income before taxes was
$3,319,221, an increase of $1,268,730 (61.9%) over the same period in 1999.
Income Taxes
Income taxes accrued for the three months ended September 30, 2000 totaled
$468,400 or 34.1% of net income before taxes, compared with $233,400 or 28.2% of
net income before taxes for the same period in 1999. Income taxes accrued for
the nine months ended September 30, 2000 totaled $1,026,400 or 30.9% of net
income before taxes, compared with $566,900 or 27.6% of net income before taxes
for the same period in 1999. Variations in volumes of tax-exempt securities,
loans and leases, and their respective income, are primarily responsible for the
change in the tax rate.
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 available-for-sale
investments. The Bank's primary liquidity ratio, the ratio of liquid assets to
total assets, was 16.4% at September 30, 2000 compared to 20.6% at December 31,
1999 and 21.2% at September 30, 1999. 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 September 30,
2000 was 80.7% compared to a ratio of 75.9% at December 31, 1999 and 75.1% ratio
at September 30, 1999.
Tehama Bancorp's sources of liquidity consist of overnight funds sold to
correspondent banks, unpledged marketable investments, a Federal funds line of
credit with a correspondent bank, a line of credit with the Federal Home Loan
Bank of San Francisco backed by a pledge of marketable investments, and loans
held for sale. Additional liquidity can be obtained through new borrowings from
the Federal Home Loan Bank of San Francisco secured by a pledge of eligible real
estate loans or sales of eligible real estate loans or the guaranteed portion of
government guaranteed loans in the secondary market, promotional activities to
attract new deposit accounts within the Bank's market areas, increasing the rate
paid on interest-bearing deposit accounts, and raising deposits, primarily time
<PAGE>6
certificates of deposit, outside the Bank's market area through the use of
brokered certificates of deposit or the use of national certificate of deposit
quotation services. The Bank has not obtained brokered certificates of deposit
in the past and does not currently have any brokered certificates of deposit on
its books.
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 September 30, 2000 compared to the minimum regulatory requirement and the
minimum requirement for "well-capitalized" institutions.
<TABLE>
<S> <C> <C> <C> <C>
Company Bank Minimum Well Capitalized
------- ------ ------- ----------------
Leverage Ratio 9.4% 7.6% 4.0% 5.0%
Tier 1 Risk-Based Capital Ratio 11.9% 9.7% 4.0% 6.0%
Total Risk Based Capital Ratio 13.1% 10.9% 8.0% 10.0%
</TABLE>
<PAGE>7
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.
January 5, 2001 BY: /s/ RANDALL A. SHELL
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Date Randall A. Shell
Senior Vice President &
Chief Financial Officer
January 5, 2001 BY: /s/ WILLIAM P. ELLISON
---------------- -----------------------
Date William P. Ellison
President & Chief
Executive Officer
