<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] Quarterly report pursuant to under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] 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: 333-43021
VIB Corp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0780371
- ------------------------------- ---------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1498 Main Street, El Centro, California 92243
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(Address of Principal Executive Offices)
(760) 337-3200
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if changed since Last
Report)
Indicate by check mark whether the registrant (1) 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 6,196,507 shares as of May
5, 1998.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Cash Flows, and Consolidated Statement of
Stockholders' Equity for the period ended March 31, 1998 have been prepared by
VIB Corp (the "Company") without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
financial condition at or for the period ended March 31, 1998 have been made.
The results of operations for the period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the full year.
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<PAGE> 3
Part 1. - Financial Information
Item 1. - Financial Statements
VIB CORP AND SUBSIDIARY
Consolidated Statements of Financial Condition
March 31,1998 and December 31,1997
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,981,840 $ 33,821,287
Federal funds sold 0 4,000,000
------------- -------------
Total cash and cash equivalents 30,981,840 37,821,287
Interest bearing deposits 584,988 586,000
Securities available for sale (note B) 76,360,040 69,287,466
Loans: (note C)
Commercial 47,795,914 46,049,768
Agricultural 32,025,959 49,128,668
Real estate-construction 36,567,363 35,926,148
real estate-other 181,125,224 157,566,136
Consumer 30,197,995 26,741,763
------------- -------------
Total Loans 327,712,455 315,412,483
Net deferred loan fees (1,920,813) (1,665,059)
Allowance for credit losses (2,742,190) (2,330,000)
------------- -------------
Net Loans 323,049,452 311,417,424
Premises and equipment 11,408,066 11,452,257
Other real estate owned 854,209 1,171,027
Cash surrender life insurance 2,368,162 2,282,805
Deferred tax asset 1,673,596 1,650,000
Goodwill 4,777,797 3,607,404
Accrued interest and other assets 4,741,604 4,891,773
------------- -------------
TOTAL ASSETS $ 456,799,754 $ 444,167,443
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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VIB CORP AND SUBSIDIARY
Consolidated Statements of Financial Condition
March 31,1998 and December 31,1997
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $115,114,281 $126,660,748
Money Market and NOW 103,143,269 93,732,297
Savings 45,484,639 40,811,775
Time deposits under $100,000 69,257,170 67,110,498
Time deposits $100,000 and over 75,963,624 70,897,030
------------ ------------
Total Deposits 408,962,983 399,212,348
Fed funds purchased 1,000,000 0
Capital lease obligations 2,854,181 2,842,336
Accrued interest and other liabilities 2,765,617 1,858,749
------------ ------------
Total Liabilities 415,582,781 403,913,433
Stockholders' Equity:
Preferred shares, no par value;
10,000,000 shares authorized;
issued 0 shares in 1998 and 1997 0 0
Common shares,no par value, Authorized
20,000,000 in 1998 and 13,500,000 in 1997,
Outstanding: 6,195,439 in 1998 and
6,187,397 in 1997 35,954,979 35,932,844
Undivided Profits 4,987,610 4,053,921
Accumulated other comprehensive
income, net of tax of $190,673 in
1998 and $186,000 in 1997 274,384 267,245
------------ ------------
Total Stockholders' Equity 41,216,973 40,254,010
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $456,799,754 $444,167,443
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 5
VIB CORP AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month
Periods Ended
--------------------------
March 31 March 31
1998 1997
---------- ----------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $7,980,927 $6,325,259
Interest on Investment Securities-Taxable 878,378 628,867
Interest on Investment Securities-Nontaxable 242,714 245,238
Other Interest Income 49,116 167,401
---------- ----------
Total Interest Income 9,151,135 7,366,765
Interest Expense:
Interest on Money Market and NOW 641,961 449,151
Interest on Savings Deposits 205,779 172,360
Interest on Time Deposits 1,840,846 1,743,292
Interest on Other Borrowings 125,431 1,642
---------- ----------
Total Interest Expense 2,814,017 2,366,445
---------- ----------
Net Interest Income 6,337,118 5,000,320
Provision for Credit Losses 555,000 305,000
---------- ----------
Net Interest Income after Provision for Credit Losses 5,782,118 4,695,320
Non-interest Income:
Service Charges and Fees 1,022,908 757,535
Gain on Sale of Loans and Servicing Fees 94,170 63,610
Gain on Sale of Securities 0 0
Other Income 58,672 49,298
---------- ----------
Total Non-interest Income 1,175,750 870,443
Non-interest Expense:
Salaries and Employee Benefits 2,702,906 2,366,953
Occupancy Expenses 461,224 344,382
Furniture and Equipment 492,755 448,176
Other Expenses (note D) 1,877,267 1,571,345
---------- ----------
Total Non-interest Expense 5,534,152 4,730,856
---------- ----------
Income Before Income Taxes 1,423,716 834,907
Income Taxes 490,000 270,000
---------- ----------
Net Income $ 933,716 $ 564,907
Per Share Data: (note E)
Net Income - Basic $ 0.15 $ 0.11
Net Income - Diluted $ 0.14 $ 0.10
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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VIBCORP AND SUBSIDIARY
Consolidated Statement of Stockholder's Equity
<TABLE>
<CAPTION>
Common Shares Accumulated
----------------------- Other
Number of Undivided Comprehensive
Shares Amount Profits Income Total
--------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance January 1,1997 5,458,892 $24,286,693 $2,473,963 $278,877 $27,039,533
Comprehensive Income
Net income 3,800,989 3,800,989
Other comprehensive income
Unrealized gains on securities, net
of taxes of $218,000 313,472 313,472
Less reclassification adjustments for gains
included in net income,net of taxes of $226,000 (325,104) (325,104)
-----------
Total other comprehensive income (11,632)
-----------
Total Comprehensive income 3,789,357
Issuance of common shares
net of expense of $123,425 510,660 8,809,374 8,809,374
Cash dividends (21,724) (21,724)
Stock dividends 120,510 2,199,307 (2,199,307) 0
Exercise of stock options
Including the realization of
Tax benefits of $96,000 97,335 637,470 637,470
--------- ----------- ---------- -------- -----------
Balance January 1,1998 6,187,397 35,932,844 4,053,921 267,245 $40,254,010
Comprehensive Income
Net income 933,716 933,716
Other comprehensive income
Unrealized gains on securities, net
of taxes of $4,960 7,139 7,139
-----------
Total other comprehensive income 7,139
-----------
Total Comprehensive income 940,855
Cash dividends (27) (27)
Exercise of stock options 7,924 19,834 19,834
Exercise of stock warrants 118 2,301 2,301
--------- ----------- ---------- -------- -----------
Balance at March 31,1998 6,195,439 $35,954,979 $4,987,610 $274,384 $41,216,973
========= =========== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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VIBCORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(in Thousands)
<TABLE>
<CAPTION>
For the Three-Month
Periods Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 934 $ 565
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 73 405
Deferred income taxes (29) (561)
Provision for credit losses 555 305
Originations of loans held for sale (166) (5,913)
Proceeds from sale of loans 553 0
Net loss/(gain) on loan sales and securitization (33) 0
Loss (Gain) on sale of other real estate owned (20) (2)
Net increase in cash surrender value of life insurance (85) (46)
Net realized gains in available for sale securities 0 (22)
Net amortization of premium/discount on available
for sale securities 51 22
Net change in accrued interest, other assets,
and other liabilities 1,080 (2,272)
-------- --------
Net cash provided (used) by operating activities 2,913 (7,519)
Cash flow from investing activities:
Purchases of available for sale securities (28,073) (39,475)
Net cash received from purchase of branches 6,524 39,223
Proceeds from sales of other real estate owned 702 428
Proceeds from sales of available for sale securities 0 627
Proceeds from maturities of available for sale securities 20,962 3,465
Loans granted net of repayments (4,268) (4,586)
Premises and equipment expenditures (471) (863)
Net decrease in interest bearing deposits 1 0
-------- --------
Net cash provided (used) by investing activities (4,623) (1,181)
Cash flow from financing activities:
Net increase in demand deposits and savings (10,626) 2,742
Net increase in time deposits 4,463 8,136
Net change in capitalized lease obligations 12 0
Payments for dividends 0 0
Net change in fed funds purchased 1,000 0
Proceeds from exercise of stock options and warrants 22 182
-------- --------
Net cash provided (used) by financing activities (5,129) 11,060
Net change in cash and cash equivalents ($ 6,839) $ 2,360
======== ========
Cash and cash equivalents:
Beginning of period $ 37,821 $ 34,886
End of period $ 30,982 $ 37,246
Supplemental disclosure of cash flow information:
(in Thousands)
Cash paid for interest expense $ 2,793 $ 2,218
Cash paid (received) for income taxes $ 222 $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
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VIB CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(A) General
See note A of Notes to Financial Statements incorporated by reference
in VIB CORP's (the "Company")1997 Annual Report on Form 10-K for a summary of
significant accounting policies.
The unaudited financial statements included herein were prepared from
the books of the Company in accordance with generally accepted accounting
principles and reflect all adjustments which are, in the opinion of management,
necessary to provide a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally conform to
the presentation reflected in the Company's 1997 Annual Report to Stockholders,
and reflect adjustments which are solely of a normal, recurring nature. The
current interim periods reported herein are included in the fiscal year subject
to independent audit at the end of the year. The unaudited financial statements
of VIB CORP include the accounts of the Company and its wholly-owned subsidiary,
Valley Independent Bank. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements. Certain items
previously reported have been reclassified to conform with the current period's
classifications.
(B) Available-for-sale Securities
The Company's available-for-sale securities portfolio at March
31, 1998 had a net unrealized gain of approximately $464,000, as
compared with a net unrealized gain of approximately $453,000 at
December 31, 1997, an improvement during the three months beginning
January 31, 1998 of $11,000.
Available-for-sale securities
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 518 $ 36 $ 554
U.S. Government and
Agency Securities 43,484 150 $ 100 43,534
State and Political Subd 20,240 382 4 20,618
Mortgage-Backed Securities 9,643 36 36 9,643
Other Equity 2,011 2,011
------- ------- ------- -------
$75,896 $ 604 $ 140 $76,360
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 507 $ 37 $ 544
U.S. Government and
Agency Securities 39,125 99 $ 28 39,196
State and Political Subd 18,567 335 18,902
Mortgage-Backed Securities 9,893 39 29 9,902
Other Equity 743 743
------- ------- ------- -------
$68,835 $ 510 $ 57 $69,287
</TABLE>
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<PAGE> 9
Investment securities carried at approximately $33,546,000 and
$6,328,000, at March 31,1998 and December 31,1997, respectively, were pledged to
secure public deposits, bank advances and other purposes as required by law.
(C ) Loans
The Company's loan portfolio consists primarily of loans to borrowers
within Imperial and Riverside counties,California and Yuma, Arizona. Although
the Company seeks to avoid concentrations of loans to a single industry or based
upon a single class of collateral, real estate and agricultural associated
businesses are among the principal industries in the Company's market area. As a
result, the Company's loan and collateral portfolio are, to some degree,
concentrated in those industries.
The Company also originates real estate related and farmland loans for
sale to governmental agencies and institutional investors. At March 31,1998 and
December 31,1997 the company was servicing approximately $66,811,000 and
$59,289,000, respectively, in loans previously sold.
A summary of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
March 31,1998 December 31,1997
------------- ----------------
<S> <C> <C>
Balance at beginning of year $2,330,000 $2,634,000
Additions to the allowance charged to expense 555,000 1,850,000
Recoveries on loans charged off 14,000 259,000
Loans charged off 157,000 2,413,000
---------- ----------
Balance at end of period $2,742,000 $2,330,000
</TABLE>
A summary of nonperforming loans and assets follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31,1997
-------------- ----------------
<S> <C> <C>
Non-accrual loans $3,867,000 $4,317,000
Loans 90 days past due and still accruing 73,000 373,000
---------- ----------
Total nonperforming loans 3,940,000 4,690,000
Other Real Estate Owned 854,000 1,171,000
---------- ----------
Total nonperforming assets $4,794,000 $5,861,000
Nonperforming loans to total ending loans 1.20% 1.49%
Nonperforming assets to total loans and
Other Real Estate Owned 1.46% 1.85%
</TABLE>
(D) Other Expenses
Other expenses for the periods indicated are as follows:
<TABLE>
<CAPTION>
March 31,1998 March 31,1997
------------- -------------
<S> <C> <C>
Data Processing $ 283,000 $ 234,000
Advertising 81,000 65,000
Legal and Professional 350,000 320,000
Regulatory Assessments 35,000 8,000
Insurance 38,000 37,000
Amortization of Intangibles 88,000 51,000
Office Expenses 352,000 317,000
Promotion 339,000 310,000
Other 311,000 229,000
---------- ----------
Total Other Expenses $1,877,000 $1,571,000
</TABLE>
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(E) Earnings Per Share
Earnings per share are calculated based on the weighted average number
of common shares outstanding during each period as follows: 6,192,148 for the
three months ended March 31, 1998 and 5,582,203 for the three months ended March
31, 1997, respectively.
Diluted earnings per share for the three month periods ended March
31,1998 and 1997, are computed by dividing net earnings by the weighted average
common equivalent shares outstanding during the respective periods. Common share
equivalents include dilutive common stock option share equivalents determined by
using the treasury stock method.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
This analysis is designed to provide a more complete understanding of the
material changes and trends related to the Company's financial condition,
results of operations, cash flow and capital resources. This discussion should
be read in conjunction with the attached Financial Statements included in Item
1, and the Company's Annual Report on Form 10-K.
GENERAL
During the first quarter of 1998 VIB Corp's financial performance was
highlighted with a significant increase in earnings growth, Valley Independent
Bank's acquisition of a branch location from Palm Desert National Bank in Palm
Springs, and the finalization of the bank holding company reorganization.
VIB Corp was incorporated on November 7, 1997 under the Laws of the State of
California at the direction of the Board of Directors of Valley Independent Bank
(the "Bank") for the purpose of becoming a bank holding company. The holding
company organization was consummated on March 12, 1998, pursuant to a Plan of
Reorganization and Merger Agreement dated November 18, 1997, and each
outstanding share of Valley Independent Bank's Common Stock was converted into
one share of the Company's Common Stock and all outstanding shares of Valley
Independent Bank's Common Stock were transferred to the Company in a transaction
accounted for as a pooling of interests. Further, each outstanding warrant to
purchase Valley Independent Bank's Common Stock, issued in connection with the
Bank's 1997 unit offering, was converted into a warrant to purchase the
Company's Common Stock.
Effective March 27, 1998 Valley Independent Bank, the sole wholly-owned
subsidiary bank of VIB Corp, acquired certain of the assets and certain of the
deposit liabilities of the Palm Springs, California branch office of Palm Desert
National Bank, a national banking association headquartered in Palm Desert,
California. As a result of the acquisition, the Bank assumed approximately
$16,122,000 in deposit liabilities, purchased $8,308,000 in loans outstanding,
purchased the fixed assets of the branch and assumed the lease for the branch
location. Valley Independent Bank paid a premium for the deposits assumed in the
amount of $1,225,000.
Valley Independent Bank also has plans to open new loan production offices
during the second quarter in San Diego County, California and Las Vegas, Nevada,
as well as in Phoenix and Tucson, Arizona later in 1998.
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During 1996 the Bank began the process of identifying and addressing issues
surrounding the year 2000 and their impact on the Bank's operations. That
process continued through 1997 during which the Bank conducted a comprehensive
review of its computer systems to identify applications that would be affected
by the year 2000 issue and the Bank developed an implementation plan to bring
the Bank's systems into compliance prior to the year 2000. The Bank's compliance
program includes review of bankwide computer processing systems as well as
review of third party vendors' interface systems and review of large corporate
borrowers' systems. During 1997 the Bank completed the assessment phase of its
program and anticipates, during 1998, to end the implementation and begin the
validation of hardware and software upgrades, system replacements, vendor
certifications and other associated changes. The Bank anticipates that final
implementation and validation will occur in early 1999, with final certification
of all internal systems by no later that June 30, 1999. Simultaneously, the Bank
will be evaluating the impact of year 2000 compliance on large corporate
customers as well as third party vendors.
The Bank expects to implement successfully the systems and programming changes
necessary to address the year 2000 issue and does not believe that the costs of
such actions will have a material effect on the Bank's results of operations or
financial condition. There can be no assurance, however, that there will not be
a delay in, or increased costs associated with the implementation of such
changes, and the Bank's inability to implement such changes could have an
adverse effect on the Company's future results of operations. Similarly, there
can be no assurance that third party vendors' systems will be year 2000
compliant and, consequently, the Bank could incur incremental costs to convert
to other vendors.
Net earnings for the three months ending March 31, 1998 were $934,000 or $.14
per share fully diluted based upon average shares outstanding of 6,518,483. This
compared with net earnings of $565,000 or $.10 per share fully diluted based
upon the average shares outstanding of 5,875,622 for the same period in 1997.
The Board of Directors approved a stock split in May 1997 and a stock dividend
in December 1997. All per share figures have been retroactively adjusted for
these and previous stock dividends and splits.
Loan growth was moderate during the three months ending March 31, 1998. This
growth was stimulated by the general economic soundness of the communities
serviced by Valley Independent Bank. Total gross loans at March 31, 1998 were
$325.8 million which represented an increase of $12.0 million or 3.8% from
December 31, 1997. Since March 31, 1997, total gross loans have increased $70.2
million or 27.5%. This increase since March 1997 also includes $8.3 million in
loans acquired in the Palm Springs branch office acquisition which was
consummated in March 1998.
12
<PAGE> 13
Total deposits at March 31, 1998 increased $9.8 million or 2.4% from year-end
1997 to $409.0 million. This increase includes the assumption of deposits
acquired from Palm Desert National Bank, discussed earlier, and the normal
seasonal deposit cycle experienced in the Imperial and Coachella Valleys as it
relates to the local agricultural business cycle. Total deposits, compared to
the March 31, 1997, increased $51.4 million or 14.4%.
The Bank's liquidity position, enhanced by the Palm Desert National Bank branch
acquisition, remained adequate to meet future contingencies. At March 31, 1998
the Bank had $1.0 million in federal funds purchased outstanding. This compared
to $12.0 million in federal funds sold outstanding at March 31, 1997. Since
December 31, 1997, Federal Funds sold have decreased $4.0 million. The Bank's
liquidity ratio at March 31, 1998 was 22.7%. This ratio represented a decrease
from 27.4% at March 31, 1997 and an increase from 21.2% at December 31, 1997.
The Company's separate (stand-alone) liquidity is based upon its separate liquid
resources and the ability of the Bank to pay it cash dividends. At March 31,
1998 the Company had adequate liquidity to meet its anticipated funding needs.
NET INTEREST INCOME
Average interest earning assets totaled $386.4 million during the first quarter
in 1998, an increase of $72.4 million or 23.1% compared to the same period last
year. All comparative areas of earning assets grew significantly with the
exception of average federal funds sold. This growth was highlighted by an
increase in average total loans of $63.3 million or 25.6% to $310.2 million.
Average interest bearing liabilities in the first quarter of 1998 increased
$44.8 million or 18.7% to average $283.9 million as compared to the same period
last year. During this comparative period average interest bearing deposit
categories increased $39.6 million or 16.6% to $278.6 million. Average borrowed
funds increased $5.3 million or 100.0% to $5.3 million during the same time
frame. These comparative changes were minimally affected by the Palm Springs
branch acquisition.
Interest income for the quarter ended March 31, 1998 was $9.2 million, an
increase of $1.8 million or 24.2% compared to the first quarter in 1997. The
increase in interest income was primarily the result of the volume increases
previously discussed. This increase was enhanced by a slightly increased
interest rate environment. The yield on interest earning assets increased 12
basis points to 9.13% in the first quarter of 1998 from 9.01% for the
comparative period last year.
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<PAGE> 14
Interest expense increased $.4 million or 18.9% during the quarter ended March
31, 1998 as compared to the same period last year. The increase in interest
expense was principally the result of volume increases in all interest bearing
categories. This increase was partially impacted by a slightly higher interest
rate environment. The cost of interest bearing funds increased 1 basis point
from 4.01% during the first quarter of 1997 to 4.02% for the quarter ended March
31, 1998.
Net interest income was $6.3 million for the first quarter in 1998, representing
an increase of $1.3 million or 26.7% from the quarter ended March 31, 1997. The
net interest spread, which represents the difference between the rate earned on
average interest earning assets and the rate paid on average interest bearing
liabilities increased to 5.53% for the period ending March 31, 1998, compared to
5.46% for the same period in 1997. Net interest income as a percentage of
average interest earning assets, or the net interest margin, increased to 6.61%
for the quarter ending March 31, 1998, compared to 6.43% for the quarter ending
March 31, 1997. The relatively greater increases in interest earning assets than
in interest bearing liabilities and the greater proportionate growth in loans,
the highest yielding assets, were the primary reasons for the comparative
increase in yield for both the net interest spread and the net interest margin.
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at March 31, 1998 was $2.7 million, compared to
$2.8 million at March 31, 1997, a decrease of $78,000 or 2.8%. As a percent of
total loans, the allowance was .84% at March 31, 1998, compared to 1.10% at
March 31, 1997.
The provision for credit losses was $555,000 for the first quarter of 1998,
compared with $305,000 provided for the quarter ended March 31, 1997, an
increase of 82.0%.
Total non-performing loans as of March 31, 1998 were $3.9 million as compared to
$5.1 million at March 31, 1997. Non-performing loans decreased $750,000 from
December 31, 1997 during the current first quarter.
Net charge-offs were $143,000 for the quarter ended March 31, 1998. This
compared to $120,000 in net charge offs for the same period in 1997.
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<PAGE> 15
The Bank has an established standard process for assessing the adequacy of the
allowance for credit losses. In addition to reviewing the inherent risks of the
loan portfolio, consideration is given to exposures such as economic conditions,
credit concentrations, collateral coverage, the composition of the loan
portfolio and trends in delinquencies. Specific allocations are identified by
loans with general allocations assigned to the various loan categories. Loans
classified by the Bank's internal review or by the regulatory authorities are
included in the process of assessing the adequacy of the allowance for credit
losses. This process seeks to maintain an allowance level adequate to provide
for potential losses.
Management of the Bank believes the allowance at March 31, 1998, was adequate
based on present economic conditions and its ongoing evaluation of the risks
inherent in the Bank's loan portfolio.
OTHER INCOME
Total other income amounted to $1,176,000 for the quarter ended March 31, 1998
representing an increase of $305,000 or 35.1% compared with the same period in
the prior year. A $265,000 increase in service charges on deposits, primarily a
result of two branch acquisitions in 1997 from Wells Fargo Bank, N.A. was the
principal reason for the increase in other income.
OTHER EXPENSE
Total other expense in the first quarter of 1998 was $5.5 million, an increase
of $.8 million or 17.0% as compared to the same period in 1997.
Salary expense during the first quarter of 1998 was $2.0 million, an increase of
$.2 million or 11.0% over the comparable period in 1997. The growth in salary
expense is attributable to staffing additions related to the 1997 Wells Fargo
Bank branch acquisitions, merit increases, paid commissions and performance
incentives.
Employee benefits expense was $690,000 for the period ending March 31, 1998, an
increase of $125,000 or 22.0% from the same period in the prior year. The
increase in benefits expense is attributable to the previously discussed
staffing additions, increased 401K and ESOP funding costs and increases in
medical insurance expense.
15
<PAGE> 16
Occupancy expense was $461,000 for the period ended March 31, 1998, an increase
of $117,000 or 33.9% as compared to the first quarter in 1997. Furniture and
equipment expense was $493,000 for the first quarter in 1998, an increase of
$45,000 or 9.9% from the same period in 1997. These increases were primarily the
result of the acquisitions previously discussed, as well as the costs related to
a new corporate facility, which was occupied commencing in July 1997.
Other operating expense amounted to $1,877,000 during the quarter ended March
31, 1998, an increase of $306,000 or 19.5% from the same period in the prior
year. Increases in the areas of intangible asset amortization, business
development, data processing, professional fee costs and expenses related to the
previously discussed acquisitions were the primary causes for the increase in
this category.
INCOME TAXES
Income tax expense for the three months ending March 31, 1998 was $490,000 as
compared with $270,000 for the same period in 1997. The increase in expense was
primarily attributable to a $589,000 increase in taxable operating income as
well as a slight increase in the Bank's effective tax rate from 32.3% for the
quarter ended March 31, 1997 to 34.4% for the quarter ended March 31, 1998. The
effective tax rate increase was primarily the result of increases in
non-deductible intangible asset amortization expense.
CAPITAL RESOURCES
Total stockholders' equity as of March 31, 1998 was $41.2 million which
represented an increase of $.9 million from December 31, 1997 and $13.7 million
from March 31, 1997. The increase since December 31, 1997 included $934,000 in
net income and a $7,000 increase in the cumulative unrealized gain on securities
classified as available for sale. The increase since March 31, 1997 included
$8.8 million in proceeds from a capital offering conducted by Valley Independent
Bank between September 9 and November 21, 1997.
16
<PAGE> 17
Under regulatory guidelines, capital adequacy is measured as a percentage of
risk-adjusted assets in which risk percentages are applied to assets on as well
as off the balance sheet. Tier 1 capital consists of common stock and retained
earnings and total capital includes a portion of the allowance for credit
losses. At March 31, 1998 the Tier 1 and total risk based capital ratios were
9.14% and 9.84%, respectively, compared to 7.76% and 8.68%, respectively, at
March 31, 1997. The current minimum regulatory guidelines for Tier 1 and total
risk-based capital ratios are 4.0% and 8.0%, respectively. The leverage ratio,
which is a measure of Tier 1 capital to adjusted average assets, was 8.26% at
March 31, 1998, compared to 6.66% at March 31, 1997. The Bank's leverage ratio
also exceeds the current regulatory minimum of 3.0%. Accordingly, the Bank's
capital ratios exceed all regulatory minimums and support future planned growth,
but may not be adequate to support additional acquisitions.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The Bank's Asset/Liability Committee (ALCO) functions to manage the maintenance
of liquidity and the preservation of net interest income when subjected to
fluctuations in market interest rates. The ability to meet funding commitments
present and in the future is the measure of liquidity. Liquidity is also needed
to meet borrowing needs, deposit withdrawals and asset growth. The Bank develops
liquidity through deposit growth, maturities and repayments of loans and
investments, net interest income, fee income and access to purchased funds
through correspondent banks or other entities.
Management maintains a liquidity policy which includes a liquidity contingency
plan to meet necessary or unforeseen liquidity requirements. Lines of credit
have been established with various correspondents, as well as the Federal
Reserve Bank, in order to meet short-term seasonal fluctuations.
Liquidity as measured in accordance with FDIC methodology at March 31, 1998 was
22.7%. This compared with a ratio of 27.4% at March 31, 1997 and 21.2% at
December 31, 1997. Liquidity at March 31, 1998 has decreased since the period
ended March 31, 1997. This decrease has been the combined result of increases in
loan growth and investment securities which have exceeded the increase in the
deposit base and an increase in borrowed funds.
17
<PAGE> 18
The ALCO Committee manages the interest rate sensitivity or repricing
characteristics of the Bank's assets and liabilities. The Bank's primary source
of earnings is net interest income, which is subject to movements in interest
rates. To minimize the effect of changes in rates the balance sheet requires
structuring in order that the repricing opportunities for both assets and
liabilities exist in nearly equivalent amounts at approximately similar time
intervals. Interval differences may exist at times creating interest sensitivity
gaps which represent the difference between interest sensitive assets and
interest sensitive liabilities. These gaps are static in nature and do not
consider future activity. As such, these gap measurements serve best as an
indicator for potential interest rate exposure.
The sensitivity to interest rate fluctuations is measured in several time
frames. Various strategies such as liability cost administration and
redeployment of asset maturities are utilized to preserve interest income from
the effect of changes in interest rates. The gap positions are monitored as a
function of the asset and liability management process. The monitoring process
includes the use of periodic simulated business forecasts which incorporate
various interest rate environments. Financial modeling is utilized to assist
management in maintaining consistent earnings in an environment of changing
interest rates.
At March 31, 1998, the Bank's thirty day and one year static gap ratios were
116.07% and 83.60%, respectively. These ratios compared with respective ratios
of 115.63% and 83.26%, respectively, at March 31, 1997. The Bank is presently
asset sensitive in the short term because of this "positive" 30-day gap ratio
and should experience increased yields in increasing rate environments and
decreased yields in decreasing rate environments. In the longer term, the Bank
is liability sensitive and should experience the opposite in yields in the
discussed rate environments.
VIB Corp is a legal entity, separate and distinct from its subsidiary bank.
Although there exists the ability to raise capital on its own behalf or borrow
from external sources, VIB Corp may obtain additional funds through dividends
paid by, and fees for services provided to its subsidiary bank.
Regulations limit the amount of dividends as well as service fees paid by
subsidiaries. VIB Corp's expenses are primarily covered by fees charged to and
dividends received from it's subsidiary bank. However, VIB Corp may not be able
to rely solely on its current or future subsidiaries to meet its obligations or
maintain its separate liquidity. Under such circumstances, VIB Corp would seek
other means to raise capital.
18
<PAGE> 19
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on an industrial company, primarily because its assets and
liabilities consist largely of monetary items. The relatively low ratio of fixed
assets to total assets of 2.5% at March 31, 1998, reduces the potential for
inflated earnings resulting from understated depreciation changes. However,
financial institutions are affected by inflation's impact on non-interest
expenses, such as salaries and occupancy expense, and to some extent, by the
inflative impact on interest rates.
19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best of the Company's knowledge, there are no pending legal
proceedings to which the Company is a party and which may have a materially
adverse effect upon the Company's property or business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 10, 1998, the shareholders of Valley Independent Bank held a
Special Meeting for the purpose of approving the bank holding company
reorganization pursuant to which Valley Independent Bank became the wholly-owned
subsidiary of the Company effective March 12, 1998. As of the record date for
the Special Meeting, there were 6,187,123 shares outstanding. At the Special
Meeting, 4,055,345 shares were cast in favor of the resolutions approving the
bank holding company reorganization, 153,932 shares were cast against, and
69,170 shares abstained from voting.
At the Special Meeting, the shareholders of Valley Independent Bank, as
the prospective shareholders of the Company, also voted to adopt the Company's
1997 Stock Option Plan. 3,917,465 shares voted in favor of the resolutions
ratifying the Stock Option Plan, 271,685 shares were cast against, 94,842 shares
abstained from voting, and there were 1,455 broker non-votes.
On that same date the then sole shareholder of the Company voted all of
then outstanding 100 shares of the Company's Common Stock in favor of the bank
holding company reorganization pursuant to a Unanimous Written Consent. Pursuant
to the terms of the bank holding company reorganization, the original sole
shareholder's shares were repurchased by the Company upon consummation of the
bank holding company reorganization.
ITEM 5. OTHER INFORMATION
Not applicable.
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Regulation S-K
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 23
</TABLE>
(b) Current Reports on Form 8-K:
During the quarter ended March 31, 1998 the Company filed a Current
Report on Form 8-K as follows:
<TABLE>
<CAPTION>
Description Date of Report
- ----------- --------------
<S> <C>
Consummation of bank holding company reorganization on March 19, 1998
March 12, 1998. The December 31, 1997 and 1996 financial
statements of Valley Independent Bank were filed with this Report.
</TABLE>
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIB CORP
Date: May 12, 1998
/s/ DENNIS L. KERN
-------------------------------------
Dennis L. Kern,
President and Chief Executive Officer
/s/ HARRY G. GOODING, III
-------------------------------------
Harry G. Gooding, III,
Executive Vice President and Chief
Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 30,981,840
<INT-BEARING-DEPOSITS> 584,988
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,360,040
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 323,049,452
<ALLOWANCE> (2,742,190)
<TOTAL-ASSETS> 456,799,745
<DEPOSITS> 406,962,983
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 2,765,617
<LONG-TERM> 2,854,181
0
0
<COMMON> 35,954,979
<OTHER-SE> 5,261,994
<TOTAL-LIABILITIES-AND-EQUITY> 456,799,754
<INTEREST-LOAN> 7,980,927
<INTEREST-INVEST> 1,121,092
<INTEREST-OTHER> 49,116
<INTEREST-TOTAL> 9,151,135
<INTEREST-DEPOSIT> 2,688,586
<INTEREST-EXPENSE> 125,431
<INTEREST-INCOME-NET> 6,337,118
<LOAN-LOSSES> 555,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,534,152
<INCOME-PRETAX> 1,423,716
<INCOME-PRE-EXTRAORDINARY> 1,432,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 933,716
<EPS-PRIMARY> 0.150
<EPS-DILUTED> 0.140
<YIELD-ACTUAL> 9.55
<LOANS-NON> 3,866,587
<LOANS-PAST> 73,506
<LOANS-TROUBLED> 1,439,423
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,329,988
<CHARGE-OFFS> 157,036
<RECOVERIES> 14,238
<ALLOWANCE-CLOSE> 2,742,190
<ALLOWANCE-DOMESTIC> 2,742,190
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
