<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, 1999.
[ ] 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
Incorporation or Organization) Identification No.)
1498 MAIN STREET, EL CENTRO, CALIFORNIA 92243
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(760) 337-3200
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
it 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: 10,846,755 shares as of May
7, 1999.
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<PAGE> 2
PART 1
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, 1999 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, 1999 have been made.
The results of operations for the period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the full year.
2
<PAGE> 3
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 34,398,271 $ 32,058,948
Federal funds sold 5,314,695 3,249,316
------------- -------------
Total cash and cash equivalents 39,712,966 35,308,264
Interest bearing deposits 739,950 722,559
Investment Securities (note B) 184,370,950 125,058,559
Loans: (note C)
Commercial 74,059,053 72,319,129
Agricultural 36,889,101 44,331,588
Real estate-construction 71,416,106 61,679,821
Real estate-other 307,543,655 276,303,688
Consumer 46,420,813 46,719,192
------------- -------------
Total Loans 536,328,728 501,353,418
Net deferred loan fees (3,074,205) (3,524,697)
Allowance for credit losses (4,814,016) (4,296,414)
------------- -------------
Net Loans 528,440,507 493,532,307
Premises and equipment 12,406,550 12,426,157
Other real estate owned 1,065,129 1,071,064
Cash surrender life insurance 7,731,908 8,642,738
Deferred tax asset 3,396,012 3,175,915
Intangible assets 6,073,135 5,010,833
Accrued interest and other assets 7,942,871 6,279,864
------------- -------------
TOTAL ASSETS $ 791,879,978 $ 691,228,260
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 4
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 146,896,583 $ 162,393,380
Money Market and NOW 144,295,215 142,157,859
Savings 76,005,745 55,148,291
Time deposits under $100,000 200,337,555 124,436,631
Time deposits $100,000 and over 122,938,440 115,522,088
------------- -------------
Total Deposits 690,473,538 599,658,249
Fed funds purchased 12,000,000 25,000,000
Capital lease obligations 2,896,796 2,886,342
Company-obligated mandatorily redeemable
Capital Securities of subsidiary trust holding
solely Subordinated Debentures of the Company 22,400,000 --
Other Borrowings 4,000,000 4,000,000
Accrued interest and other liabilities 4,330,066 4,081,523
------------- -------------
Total Liabilities 736,100,400 635,626,114
Stockholders' Equity:
Preferred shares, no par value;
10,000,000 shares authorized;
issued 0 shares in 1999 and 1998 -- --
Common shares,no par value, Authorized
25,000,000 in 1999 and 1998,
Outstanding: 10,846,755 in 1999 and
10,828,949 in 1998 53,387,190 50,445,799
Undivided Profits 2,870,658 5,052,917
Accumulated other comprehensive
income, net of tax of ($334,104) in
1999 and $71,437 in 1998 (478,270) 103,430
------------- -------------
Total Stockholders' Equity 55,779,578 55,602,146
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 791,879,978 $ 691,228,260
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
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VIB CORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month
Periods Ended
--------------------------
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $11,808,076 $10,064,911
Interest on Investment Securities-Taxable 1,676,244 1,279,787
Interest on Investment Securities-Nontaxable 538,862 242,714
Other Interest Income 394,612 114,432
----------- -----------
Total Interest Income 14,417,794 11,701,844
Interest Expense:
Interest on Money Market and NOW 849,684 696,971
Interest on Savings Deposits 399,163 280,735
Interest on Time Deposits 3,830,841 2,991,384
Interest on Other Borrowings 577,186 133,556
----------- -----------
Total Interest Expense 5,656,874 4,102,646
----------- -----------
Net Interest Income 8,760,920 7,599,198
Provision for Credit Losses 675,000 705,000
----------- -----------
Net Interest Income after Provision for Credit Losses 8,085,920 6,894,198
Non-interest Income:
Service Charges and Fees 978,999 1,165,358
Gain on Sale of Loans and Servicing Fees 431,742 262,514
Gain on Sale of Securities -- --
Other Income 72,229 128,063
----------- -----------
Total Non-interest Income 1,482,970 1,555,935
Non-interest Expense:
Salaries and Employee Benefits 3,940,746 3,297,122
Occupancy Expenses 644,261 548,673
Furniture and Equipment 618,138 558,292
Other Expenses (note D) 3,137,651 2,339,456
----------- -----------
Total Non-interest Expense 8,340,796 6,743,543
----------- -----------
Income Before Income Taxes 1,228,094 1,706,590
Income Taxes 563,886 547,153
----------- -----------
Net Income $ 664,208 $ 1,159,437
Per Share Data: (note E)
Net Income - Basic $ 0.06 $ 0.11
Net Income - Diluted $ 0.06 $ 0.11
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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<PAGE> 6
VIB CORP AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Shares Accumulated
--------------------------- Other
Number of Undivided Comprehensive
Shares Amount Profits Income Total
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1,1998 (note F) 10,089,580 $ 46,590,570 $ 3,170,790 $ 252,269 $ 50,013,629
Comprehensive Income
Net income 4,868,441 4,868,441
Other comprehensive income
Unrealized gains on securities,
net of taxes of $97,191 139,862 139,862
Less reclassification
adjustments for gains
included in net income, net
of taxes of $200,622 (288,701) (288,701)
------------
Total other comprehensive income (148,839)
------------
Total Comprehensive income 4,719,602
Exercise of warrants 2,496 38,513 38,513
Cash dividends (27,693) (27,693)
Stock dividends 235,559 2,958,621 (2,958,621) 0
Exercise of stock options
Including the realization of
Tax benefits of $180,000 185,908 858,095 858,095
------------ ------------ ------------ ------------ ------------
Balance December 31,1998 10,513,543 50,445,799 5,052,917 103,430 $ 55,602,146
Comprehensive Income
Net income 664,208 664,208
Other comprehensive income
Unrealized losses on securities,
net of taxes of ($405,541) (581,700) (581,700)
Less reclassification
adjustments for gains included
in net income,net of taxes of $0 -- --
------------
Total other comprehensive income (581,700)
------------
Total Comprehensive income 82,508
Cash dividends (3,142) (3,142)
Stock dividend 315,925 2,843,325 (2,843,325) 0
Exercise of stock options 17,277 97,886 97,886
Exercise of stock warrants 10 180 180
------------ ------------ ------------ ------------ ------------
Balance at March 31,1999 10,846,755 $ 53,387,190 $ 2,870,658 $ (478,270) $ 55,779,578
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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<PAGE> 7
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three-Month
Periods Ended
March 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 664,208 $ 1,159,437
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization (162,863) 102,004
Deferred income taxes 185,444 (30,388)
Provision for credit losses 675,000 705,000
Originations of loans held for sale (16,778,281) (12,110,010)
Proceeds from sale of loans 19,292,791 14,717,807
Net gain on loan sales and securitization (344,797) (201,205)
Gain on sale of other real estate owned (2,133) (19,093)
Net increase/(decrease) in cash surrender value of life insurance 910,830 (104,926)
Net realized gains in available for sale securities -- --
Net amortization of premium/discount on available
for sale securities 75,764 73,857
Net change in accrued interest, other assets,
and other liabilities (1,736,749) 1,073,373
------------- -------------
Net cash provided (used ) by operating activities 2,779,214 5,365,856
Cash flow from investing activities:
Purchases of investment securities (72,445,391) (28,093,045)
Net cash received from purchase of branches 110,295,948 6,524,474
Proceeds from sales of other real estate owned 53,568 704,440
Proceeds from sales of investment securities -- --
Proceeds from maturities of investment securities 12,069,995 23,361,044
Loans granted net of repayments (37,132,749) (10,466,258)
Premises and equipment expenditures (424,207) (519,590)
Net (increase)/decrease in interest bearing deposits (17,391) 1,012
------------- -------------
Net cash provided (used) by investing activities 12,399,773 (8,487,923)
Cash flow from financing activities:
Net decrease in demand deposits and savings (12,950,647) (9,740,877)
Net increase/(decrease) in time deposits (7,329,016) 142,576
Net change in capitalized lease obligations 10,454 11,845
Net change in fed funds purchased (13,000,000) 1,000,000
Net change in other borrowings -- 1,000,000
Proceeds from Capital Securities 22,400,000 --
Payments for dividends (3,142) (26)
Proceeds from exercise of stock options and warrants 98,066 22,134
------------- -------------
Net cash provided (used) by financing activities (10,774,285) (7,564,348)
Net change in cash and cash equivalents $ 4,404,702 $ (10,686,415)
============= =============
Cash and cash equivalents:
Beginning of period $ 35,308,264 $ 45,757,468
End of period $ 39,712,966 $ 35,071,053
Supplemental disclosure of cash flow information:
(in Thousands)
Cash paid for interest expense $ 5,546,662 $ 4,097,101
Cash paid (received) for income taxes $ 4,000 $ 222,431
</TABLE>
The accompanying notes are an integral part of
the financial statements.
7
<PAGE> 8
VIB CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(A) General
See note A of Notes to Financial Statements incorporated by reference in the
Company's 1998 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 1998 Annual Report to Stockholders, and
reflect adjustments that 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 subsidiaries,
Valley Independent Bank ("VIB" or the "Bank"), the Bank of Stockdale
("Stockdale") and Valley Capital Trust (the "Trust"). All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. Certain items previously reported have been reclassified
to conform to the current period's classifications.
(B) Investment Securities
The Company's investment securities portfolio at March 31, 1999 had a net
unrealized loss of approximately $812,000, as compared with a net unrealized
gain of approximately $174,000 at December 31, 1998, a change during the three
months beginning January 1, 1999 of $986,000. The change for the quarter is
attributable to a rising interest rate environment and the recomposition of the
portfolio due to the application of funds received in the acquisition of the
Hemet branch of Fremont Investment and Loan ("Fremont").
INVESTMENT SECURITIES
MARCH 31, 1999
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 561 $ 29 $ 590
U.S. Government and
Agency Securities 82,989 -- 671 82,318
State and Political Subd 57,010 47 -- 57,057
Mortgage-Backed Securities 38,488 26 243 38,271
Other Equity 6,135 -- -- 6,135
-------- -------- -------- --------
$185,183 $ 102 $ 914 $184,371
</TABLE>
8
<PAGE> 9
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 550 $ 37 $ 587
U.S. Government and
Agency Securities 44,384 114 133 44,365
State and Political Subd 38,052 450 263 38,239
Mortgage-Backed Securities 35,870 98 129 35,839
Other Equity 6,029 -- -- 6,029
-------- -------- -------- --------
$124,885 $ 699 $ 525 $125,059
</TABLE>
Investment securities carried at approximately $115,702,000 and $72,237,000, at
March 31, 1999 and December 31, 1998, 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
southern California, Las Vegas, Nevada 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 areas. 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, 1999 and
December 31, 1998 the Company was servicing approximately $108,978,000 and
$121,628,000, respectively, in loans previously sold.
A summary of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of year $4,296 $3,145
Additions to the allowance charged to expense 675 2,704
Recoveries on loans charged off 12 178
Loans charged off 169 1,731
------ ------
Balance at end of period $4,814 $4,296
</TABLE>
9
<PAGE> 10
A summary of nonperforming loans and assets follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans $4,180 $4,315
Loans 90 days past due and still accruing 640 567
------ ------
Total nonperforming loans 4,820 4,882
Other Real Estate Owned 1,065 1,071
------ ------
Total nonperforming assets $5,885 $5,953
Nonperforming loans to total ending loans .90% .97%
Nonperforming assets to total loans and
Other Real Estate Owned 1.10% 1.18%
</TABLE>
(D) Other Expenses
Other expenses for the periods indicated are as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Data Processing $ 559 $ 370
Advertising 123 136
Legal and Professional 375 385
Regulatory Assessments 54 45
Insurance 42 60
Amortization of Intangibles 96 88
Office Expenses 468 433
Promotion 380 349
Merger Related 657
Other 384 473
------ ------
Total Other Expenses $3,138 $2,339
</TABLE>
(E) Earnings Per Share
Earnings per share are calculated based on the weighted average number of common
shares outstanding during each period as follows: 10,842,753 for the three
months ended March 31, 1999 and 10,637,656 for the three months ended March 31,
1998, respectively.
Diluted earnings per share for the three month periods ended March 31, 1999 and
1998, 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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<PAGE> 11
(F) Stockholders' Equity
On January 28, 1999 the Bank of Stockdale, F.S.B., Bakersfield, California,
became the Company's wholly-owned subsidiary in a stock-for-stock merger
transaction pursuant to a definitive agreement entered into on September
15, 1998. The Company issued 2,355,334 shares of its common stock for all of the
Bank of Stockdale's issued and outstanding shares of common stock. The Bank of
Stockdale will continue to operate as a separate, wholly owned subsidiary under
its current name and federal savings bank charter. The merger was accounted for
utilizing the pooling of interests method of accounting and all prior period
financial information has been restated to reflect consolidated financial
information. The Bank of Stockdale's total stockholder's equity at the time of
merger was $9,759,619.
(G) Supplemental Disclosure of Combined Results
The following table summarizes the separate results of the combined entities for
the periods shown prior to the merger with Bank of Stockdale:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Interest and Noninterest Income:
The Company -- Pre-merger $ 3,847 $ 10,327
Bank of Stockdale -- Pre-merger 991 2,931
The Company -- Post-merger 11,063 --
----------- ----------
Total $ 15,901 $ 13,258
=========== ==========
Net Income:
The Company -- Pre-merger $ 343 $ 934
Bank of Stockdale -- Pre-merger (423) 225
The Company -- Post-merger 744 --
----------- ----------
Total $ 664 $ 1,159
=========== ==========
</TABLE>
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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 1999 VIB Corp's financial performance was
highlighted by a significant increase in core earnings growth, the acquisition
of its second bank subsidiary, Bank of Stockdale, headquartered in Bakersfield,
California, the addition of a new market maker, Sandler O'Neil of New York, New
York, and the acquisition by the Company's subsidiary, Valley Independent Bank,
a branch, of location in Hemet, California.
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
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.
On September 15, 1998, VIB Corp and Bank of Stockdale, F.S.B., Bakersfield,
California, entered into an Agreement and Plan of Reorganization pursuant to
which Bank of Stockdale would become a wholly-owned subsidiary of VIB Corp and
continue to operate under its federal stock savings bank charter. As a result of
the merger, the Company acquired total assets of $144.4 million, comprising $9.1
million in cash and due from banks, $23.5 million in securities and investments,
$102.4 million in net loans and $9.4 million in other assets. Total liabilities
assumed amounted to $134.6 million, of which $128.9 million comprised deposits.
The remainder represented other borrowed funds and other liabilities.
The Stockdale Merger was accounted for as a pooling of interest. The Company
issued 2,355,430 shares of its Common Stock in exchange for all 1,212,265 shares
of Stockdale's issued and outstanding common stock (at an exchange ratio of
1.943 to 1). Additionally Mr. Ed Hickman, Stockdale's President and Chief
Executive Officer and one of its Directors, was added to the Company's Board of
Directors.
12
<PAGE> 13
On September 22, 1998 VIB entered into a branch acquisition agreement with
Fremont Investment & Loan, to acquire certain of the assets and to assume
certain of the liabilities of Fremont's Hemet branch office, including
substantially all the deposits of the branch. On January 22, 1999, the
acquisition was consummated. VIB assumed approximately $112 million in deposits
and the lease on the branch premises, and acquired approximately $27,000 in
loans as well as cash on hand and fixtures and equipment associated with the
branch. The consideration paid amounted to approximately $1.12 million.
In connection with the branch acquisition by Valley Independent Bank it was
anticipated that VIB would require additional capitalization. On February 5,
1999, the Company raised approximately $22.4 million in net proceeds from an
offering of up to $23 million of Capital Securities in a private placement. The
proceeds were to be used to increase Valley Independent Bank's capital by at
least $8.5 million with the balance to be used for general corporate purposes.
On December 19, 1998, the Company formed a wholly-owned business trust
subsidiary, Valley Capital Trust, pursuant to the laws of the state of Delaware.
The Company formed the Trust for the specific purpose of (1) investing in the
Company's 9.00 percent Junior Subordinate Debentures (the "Debentures"), due
February 5, 2029; (2) selling 9.00 percent Cumulative Capital Securities (the
"Capital Securities"), representing a 97 percent beneficial interest in the
Debentures owned by the Trust; and (3) issuing beneficial interest in the
Debentures owned by the Trust.
On January 29, 1999, the Company entered in a Purchase Terms Agreement (the
"Agreement") with First Tennessee Capital markets, a subsidiary of First
Tennessee Bank, N.A. (the "Placement Agent"). Pursuant to the Agreement, the
Placement Agent solicited subscriptions for the purchase of up to $23 million of
the Capital Securities from accredited investors within the meaning of Rule 501
of Regulation D of the Securities Act.
On February 5, 1999, the Company issued $23.093 million in Debentures to the
Trust. Concurrently, the Trust issued $22.4 million of the Capital Securities to
the accredited investors and $693,000 of Common Securities to the Company. The
Debentures were purchased by the Trust concurrently with the Trust's issuance of
the Capital Securities and Common Securities. The proceeds to the Company, net
of the Placement Agent's fees and other offering expenses, was approximately
$22.4 million, of which approximately $17.4 million will be treated as Tier 1
capital for regulatory purposes.
The interest on the Capital Securities will be deductible. The Company has the
right, assuming that no default has occurred, to defer interest payments at any
time and for a period of up to twenty consecutive calendar quarters. The Capital
Securities will mature on February 5, 2029, but can be called after February 5,
2009.
13
<PAGE> 14
Consolidated net income for the quarter ended March 31, 1999, adjusted for
merger and related non-recurring costs, was $1.4 million or $.13 per share fully
diluted based upon average shares outstanding of 11,034,143. This compares with
net income of $1.2 million or $.11 per share fully diluted based upon the
average shares outstanding of 11,108,038 for the same period in 1998. After
merger and related non-recurring costs, net income for the period ending March
31, 1999 was $.7 million or $.06 per share fully diluted.
On March 23, 1999, the Board of Directors approved a 3% stock dividend for
shareholders of record on May 14, 1999. All per share figures have been
retroactively adjusted for this and previous stock dividends and splits.
Total gross loans at March 31, 1999 were $536.3 million, which represented an
increase of $35.0 million or 7.0% from December 31, 1998. Since March 31, 1998,
total gross loans have increased $114.3 million or 27.1%.
Total deposits at March 31, 1999 increased $90.8 million or 15.1% from year-end
1998 to $690.5 million. This increase includes the assumption of deposits
acquired from Fremont Investment & Loan, discussed earlier, and the normal
seasonal deposit cycle experienced in the Imperial, Coachella and Central
Valleys as it relates to the local agricultural business cycle. Total deposits,
compared to March 31, 1998, increased $165.1 million or 31.4%.
YEAR 2000 READINESS COMPLIANCE
Many computer systems will not properly recognize date sensitive information
when the date changes to the year 2000 ("Y2K"). Computer systems that do not
properly recognize the year 2000 could generate erroneous data or cause the
system to fail. Those computer systems will have to be modified or replaced
prior to the year 2000 in order to remain functional.
During 1996 VIB 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 VIB conducted a comprehensive review
of its computer systems to identify applications that would be affected by the
year 2000 issue and VIB developed an implementation plan to bring VIB's systems
into compliance prior to the year 2000. VIB's compliance program includes review
of bank-wide computer processing systems as well as review of third party
vendors' interface systems and review of large corporate borrowers' systems.
During 1997 VIB completed the assessment phase of its program and during 1998,
began the implementation and validation of hardware and software upgrades,
system replacements, vendor certifications and other associated changes. VIB
anticipates that final implementation and validation will occur in early 1999,
with final certification of all internal systems by no later than June 30, 1999.
Simultaneously, VIB has been evaluating the impact of year 2000 compliance on
large corporate customers as well as the third party vendors.
14
<PAGE> 15
As of March 1999, VIB has completed its assessment of year 2000 risk in this
regard and has established a reserve of $600,000 and liquidity policies to
mitigate this risk. The ongoing assessment on this risk is monitored on a
monthly basis with appropriate adjustments to reserves, as required. While
management considers the $600,000 in reserves adequate as of March 31, 1999,
such amount is subject to change based on an ongoing review. Consequently, the
amount provided at March 31, 1999, should not be interpreted as indicative of
future adequacy.
VIB has established detailed contingency plans for all mission critical and
secondary operating systems. Trigger dates have been established for activating
any required contingency plan. VIB has also established a Business Resumption
Plan specific to year 2000, which is coordinated with VIB's Disaster Recovery
Plan. An additional measure taken by VIB has been to establish a currency
contingency plan, which addresses the potential failure of the commercial
payment systems (electronic funds transfer, automated teller machines, and point
of sale equipment). This plan also addresses the increasing speculation
regarding short and long-term unavailability of certain consumer goods, which
may prompt people to accumulate or hoard cash in quantities sufficient to meet
their perceived needs for a month or more. This plan addresses potential
customer fears by establishing procedures to provide for any extreme demand for
cash.
VIB is currently on schedule to implement 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 VIB's results of operations or
financial condition. VIB has expended $225,000 through March 31, 1999 and
expects to spend an additional $196,000 in 1999. There can be no assurance,
however, that there will not be a delay in, or increased costs associated with
the implementations of such changes, and VIB'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, VIB could incur
incremental costs to convert to other vendors.
Bank of Stockdale engages the services of third-party software vendors and
service providers for substantially all of its electronic data processing. As
such, a primary focus of Stockdale's Year 2000 compliance program is to monitor
the progress of its software providers toward Year 2000 compliance and to
prepare and test future-date sensitive data of Stockdale in simulated
processing.
Stockdale's Year 2000 compliance program has been divided into the following
phases: (1) inventorying date-sensitive information technology and other
business systems; (2) assigning priorities to identified items and assessing the
efforts required for Year 2000 compliance of those determined to be material to
Stockdale: (3) upgrading or replacing material items that are determined not to
be Year 2000 compliant and testing material items; (4) assessing the status of
third party risks; and (5) designing and implementing contingency and business
continuation plans.
15
<PAGE> 16
As part of the ongoing supervision of the banking industry, bank regulatory
agencies are continuously surveying Stockdale's progression and results in each
of the phases.
In the first phase of Stockdale's Year 2000 compliance program, Stockdale
conducted a thorough inventory of current information technology systems,
software, and embedded technologies that could be affected by year 2000 issues.
Non-information technology systems such as climate control systems, telephone
systems, vault and building security equipment were also surveyed. This stage of
the Year 2000 compliance program is complete.
In phase two of Stockdale's Year 2000 compliance program, results from the
inventory were assessed and evaluated to determine the Year 2000 impact and
necessary actions required to obtain Year 2000 compliance. Stockdale divided the
results of the inventory into two principal categories - those information
technology systems that are considered by Stockdale to be "mission critical",
and those that are not. Stockdale defines a "mission critical system" as a
system that is vital to the successful continuance of Stockdale's core business
and/or maintaining customer account integrity. Stockdale has identified 16
mission critical systems that could be affected by Year 2000 issues. To obtain
Year 2000 compliance for these mission critical systems, Stockdale has opted to
upgrade or replace all such systems that are determined not to be Year 2000
compliant.
Phase three of Stockdale's Year 2000 compliance program includes the upgrading,
replacement and/or retirement of systems and testing. Stockdale will first
address mission critical systems and then non-mission critical systems. This
phase of the Y2K compliance program is ongoing and is scheduled to be completed
during the first six months of 1999. For Stockdale's internal systems, necessary
actions primarily consist of upgrading computer hardware and equipment. Such
hardware upgrades should be completed by September 30, 1999. Stockdale estimates
that 95% of its third party software upgrades have been completed. Testing of
updated or new systems is ongoing and scheduled to be completed by June 30,
1999. "Future-date" testing of upgrades and/or replacements is being conducted
along with test to ensure integration with Stockdale's overall data processing
environment. As of March 31, 1999, Stockdale estimates that testing of mission
critical systems was 81% completed.
The fourth phase of Stockdale's Y2K compliance program, assessing third-party
risks, includes the process of identifying and prioritizing critical suppliers,
borrowers, and customers at the direct interface level as well as other material
relationships with third parties, including various exchanges, clearing houses,
other banks, telecommunications companies and public utilities. This evaluation
includes communicating with the third parties about their plans and progress in
addressing Year 2000 issues. Detailed evaluations of the most critical third
parties have been initiated. Evaluation of critical Stockdale customers and
borrowers was completed in November 1998 and updated for new customers through
March 31, 1999. In this regard a reserve of $80,000 was established in 1999.
Evaluations of other critical third parties are scheduled for completion by June
30, 1999. No problems have been identified to date.
16
<PAGE> 17
These evaluations will be followed with contingency plans, which are ongoing and
scheduled to be completed in the second quarter 1999, with follow up reviews
scheduled through the remainder of 1999.
The final phase of Stockdale's Y2K compliance program relates to contingency
plans. Stockdale maintains contingency plans in the normal course of business
designed to be deployed in the event of various potential business
interruptions. These plans have been expanded to address Y2K-specific
interruptions such as power and telecommunication infrastructure failures, and
will continue to be supplemented if and when the results of systems and
contingency plan integration testing identify additional business functions at
risk. Such enhancements to existing plans will likely include remediation of
systems, reinstallation of software, installation of third-party vendor software
or some combination of alternatives.
As Stockdale relies upon third-party software vendors and service providers for
substantially all of its electronic data processing, the primary cost of the
Year 2000 compliance program has been and will continue to be the reallocation
of internal resources for testing and for the purchase of computer hardware and,
therefore, does not represent incremental expense to Stockdale. The estimated
value of internal resources allocated to the Y2K compliance program and the cost
of computer hardware is approximately $240,000 of which approximately $181,000
had been expended through March 31, 1999. Stockdale's total costs associated
with required modifications to be Year 2000 compliant is not expected to be
material to its results of operations, liquidity and capital resources.
NET INTEREST INCOME
Average interest earning assets totaled $693.9 million during the first quarter
in 1999, an increase of $187.5 million or 37.0% compared to the same period last
year. All comparative areas of earning assets grew significantly. This growth
was highlighted by an increase in average total loans of $93.9 million or 23.3%
to $497.6 million. Average interest bearing liabilities in the first quarter of
1999 increased $164.8 million or 42.3% to average $554.6 million as compared to
the same period last year. During this comparative period average interest
bearing deposit categories increased $141.7 million or 36.8% to $524.5 million.
Average borrowed funds increased $23.6 million or 363.1% to $30.1 million during
the same time frame. These comparative changes in average deposits and borrowed
funds include the effects of the branch acquisition and issuance of the Capital
Securities, respectively, discussed earlier.
Interest income for the quarter ended March 31, 1999 was $14.4 million, an
increase of $2.7 million or 23.2% compared to the first quarter in 1998. The
increase in interest income was primarily the result of the volume increases
previously discussed. This increase was partially offset by a decreased interest
rate environment. The yield on interest earning assets decreased 94 basis points
to 8.43% in the first quarter of 1999 from 9.37% for the comparative period last
year.
17
<PAGE> 18
Interest expense increased $1.6 million or 37.9% during the quarter ended March
31, 1999 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 as well as a deposit mix shift towards the higher interest bearing
categories. This increase was partially impacted by a lower interest rate
environment. The cost of interest bearing funds decreased 13 basis points from
4.27% during the first quarter of 1998 to 4.14% for the quarter ended March 31,
1999.
Net interest income was $8.8 million for the first quarter in 1999, representing
an increase of $1.2 million or 15.3% from the quarter ended March 31, 1998. 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 decreased to 4.29% for the period ending March 31, 1999, compared to
5.10% for the same period in 1998. Net interest income as a percentage of
average interest earning assets, or the net interest margin, decreased to 5.12%
for the quarter ending March 31, 1999, compared to 6.09% for the quarter ending
March 31, 1998. A lower interest rate environment and a shift in the deposit mix
towards the higher interest bearing categories and the issuance of the Capital
Securities, offset by 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 decrease 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, 1999 was $4.8 million, compared to
$3.7 million at March 31, 1998, an increase of $1.1 million or 29.7%. As a
percent of total loans, the allowance was .90% at March 31, 1999, compared to
.87% at March 31, 1998.
The provision for credit losses was $675,000 for the first quarter of 1999,
compared with $705,000 provided for the quarter ended March 31, 1998, a decrease
of 4.3%.
Total non-performing loans as of March 31, 1999 were $4.8 million as compared to
$6.8 million at March 31, 1998. Non-performing loans decreased $62,000 from
December 31, 1998 during the current first quarter.
Net charge-offs were $157,000 for the quarter ended March 31, 1999. This
represents a decrease of $12,000 when compared to $169,000 in net charge offs
for the same period in 1998.
The subsidiary banks have an established standard process for assessing the
adequacy of the allowance for credit losses. In addition to reviewing the
inherent risks of their respective loan portfolios, 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 individual loan with general allocations
18
<PAGE> 19
assigned to the various loan categories. Loans classified by the subsidiary
banks' 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 Company believes the consolidated allowance at March 31, 1999,
was adequate based on present economic conditions and its ongoing evaluation of
the risks inherent in the subsidiary Banks' loan portfolios.
NON-INTERST INCOME
Total non-interest income amounted to $1,483,000 for the quarter ended March 31,
1999 representing a decrease of $73,000 or 4.7% compared with the same period in
the prior year. A $186,000 decrease in service charges on deposits as well as a
$56,000 decrease in other income related to a one-time prior period insurance
recovery, partially offset by an increase of $169,000 in the gain on sale of
small business government guaranteed loans were the primary reasons for the
decrease in non-interest income.
NON-INTEREST EXPENSE
Total non-interest expense in the first quarter of 1999 was $8.3 million, an
increase of $1.6 million or 23.7% as compared to the same period in 1998.
Salary expense during the first quarter of 1999 was $3.0 million, an increase of
$.5 million or 19.7% over the comparable period in 1998. The growth in salary
expense is attributable to staffing additions related to the 1998 Palm Springs,
California branch acquisition from Palm Desert National Bank, the previously
discussed Hemet, California branch acquisition from Fremont Investment & Loan,
merit increases, paid commissions and performance incentives.
Employee benefits expense was $1.0 million for the period ending March 31, 1999,
an increase of $155,000 or 18.9% 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.
Occupancy expense was $664,000 for the period ended March 31, 1999, an increase
of $116,000 or 21.1% as compared to the first quarter in 1998. Furniture and
equipment expense was $618,000 for the first quarter in 1999, an increase of
$60,000 or 10.7% from the same period in 1998. These increases were primarily
the result of the acquisitions previously discussed, increased depreciation
expense on planned additions to computer hardware and software expenditures.
19
<PAGE> 20
Other operating expense amounted to $3.1 million during the quarter ended March
31, 1999, an increase of $798,000 or 34.1% from the same period in the prior
year. Increases in data processing as well as $699,000 in merger and related
non-recurring expenses were the primary causes for the increase in this
category.
INCOME TAXES
Income tax expense for the three months ending March 31, 1999 was $564,000 as
compared with $547,000 for the same period in 1998. The slight increase in
expense was primarily attributable to a $221,000 increase in taxable operating
income adjusted for 699,000 in non-tax deductible merger and related
non-recurring costs, offset by a decrease in the Company's adjusted effective
tax rate from 32.1% for the quarter ended March 31, 1998 to 29.3% for the
quarter ended March 31, 1999. The effective tax rate decrease was primarily the
result of increases in non-taxable investment interest income.
CAPITAL RESOURCES
Total stockholders' equity as of March 31, 1999 was $55.8 million which
represented an increase of $177,000 from December 31, 1998 and $5.3 million
from March 31, 1998. The increase since December 31, 1998 included $664,000 in
net income and a $582,000 decrease in the cumulative unrealized gain on
securities classified as available for sale. The increase since March 31, 1998
included $4.4 million in net income and a $.7 million decrease in the cumulative
unrealized gain on securities classified as available for sale.
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, a qualifying
percentage of the Capital Securities, and retained earnings and total capital
includes a portion of the allowance for credit losses. At March 31, 1999 the
Tier 1 and total risk based capital ratios were 11.51% and 12.52% respectively,
compared to 8.67% and 10.33% respectively, at March 31, 1998. 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 9.16% at March 31, 1999, compared to
8.03% at March 31, 1998. The Company's leverage ratio also exceeds the current
regulatory minimum of 3.0%. Accordingly, the Company's capital ratios exceed all
regulatory minimums and support future planned growth, but may not be adequate
to support additional acquisitions.
20
<PAGE> 21
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The Company's consolidated liquidity position, enhanced by the Fremont
Investment & Loan branch acquisition, remained adequate to meet future
contingencies. At March 31, 1999 the Company had $6.7 million in net federal
funds purchased outstanding. This compared to $.4 million in federal funds
purchased outstanding at March 31, 1998. Since December 31, 1998, net Federal
Funds purchased have decreased $15.1 million. The Company's consolidated
liquidity ratio at March 31, 1999 was 27.9%. This ratio represented an increase
from 22.3% at March 31, 1998 and an increase from 22.4% at December 31, 1998.
The Company's subsidiary banks' Asset/Liability Committees ("ALCO") function 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 subsidiaries develop liquidity through deposit growth, maturities
and repayments of loans and investments, net interest income, fee income and
access to purchase funds through correspondent banks or other entities.
The subsidiaries' ALCO manages the interest rate sensitivity or repricing
characteristics of their assets and liabilities. The primary source of earnings
for the subsidiaries 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 and 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.
The Company's subsidiaries do not maintain a trading account for any class of
financial instrument nor do they engage in hedging activities or purchase
high-risk derivative instruments. Furthermore, the subsidiaries are not subject
to foreign currency exchange rate risk or commodity price risk.
21
<PAGE> 22
In addition to gap measurement, the subsidiaries ALCO are further responsible
for the measurement of interest rate risk, i.e., the risk of loss in value due
to changes in interest rates. The respective ALCO monitor and consider methods
of managing interest rate risk by monitoring changes in net portfolio value
("NPV") and net interest income under various interest rate scenarios. The
subsidiary bank ALCO attempts to manage the various components of their
respective balance sheets to minimize the impact of sudden and sustained changes
in interest rates on NPV and net interest income.
The subsidiary banks' exposure to interest rate risk is reviewed on a periodic
basis by their respective Boards of Directors and the ALCO. If potential changes
to NPV and net interest income resulting from hypothetical interest rate swings
are not within the limits established by the Board, the Board may direct
management to adjust its assets and liability mix to bring interest rate risk
within Board-approved limits.
The subsidiary banks utilize interest rate sensitivity analysis to measure
interest rate risk by computing estimated changes in NPV of its cash flows from
assets and liabilities within a range of assumed changes in market interest
rates. NPV represents the market value of portfolio equity and is equal to the
market value of assets minus the market value of liabilities. This analysis
assesses the risk of loss in market rate sensitive instruments in the event of
sudden and sustained increases and decreases in market interest rates ranging
from one hundred to three hundred basis points. The subsidiary banks' Boards of
Directors have adopted interest rate risk policies, which establish a maximum
limit of decrease in the NPV in the event of sudden and sustained increases, and
decreases in market interest rates. The following tables present the VIB's
projected changes in NPV and net interest income for the various rate shock
levels as of March 31, 1999 and the Bank of Stockdale's as of December 31, 1998.
VALLEY INDEPENDENT BANK
Change in Net Portfolio Value
at March 31, 1999
<TABLE>
<CAPTION>
NET PORTFOLIO ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES VALUE CHANGE CHANGE
- ------------------------ ------------- -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
300 basis point rise $60,624 $(13,686) -18.42%
200 basis point rise 64,735 (9,575) -12.89%
100 basis point rise 69,319 (4,991) -6.72%
Base Rate Scenario 74,310 -- --
100 basis point decline 76,961 2,651 3.57%
200 basis point decline 78,972 4,662 6.27%
300 basis point decline 81,527 7,217 9.71%
</TABLE>
22
<PAGE> 23
Change in Net Interest Income
at March 31, 1999
<TABLE>
<CAPTION>
NET INTEREST ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES INCOME CHANGE CHANGE
- ------------------------ -------------- -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
300 basis point rise $30,304 $ (306) -1.00%
200 basis point rise 30,449 (1610 -0.53%
100 basis point rise 30,553 (57) -0.19%
Base Rate Scenario 30,610 -- --
100 basis point decline 29,906 (704) -2.30%
200 basis point decline 29,264 (1,346) -4.40%
300 basis point decline 27.948 (2,662) -8.70%
</TABLE>
BANK OF STOCKDALE
Change in net Portfolio Value
AT December 31, 1998
<TABLE>
<CAPTION>
NET PORTFOLIO ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES VALUE CHANGE CHANGE
- ------------------------ ------------- -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
300 basis point rise $ 7,959 $(5,092) -39.02%
200 basis point rise 9,734 (3,317) -25.42%
100 basis point rise 11,452 (1,599) -12.25%
Base Rate Scenario 13,051 -- --
100 basis point decline 14,574 1,523 11.67%
200 basis point decline 16,365 3,314 25.39%
300 basis point decline 18,663 5,612 43.00%
</TABLE>
Change in Net Interest Income
at December 31, 1998
<TABLE>
<CAPTION>
NET INTEREST ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES INCOME CHANGE CHANGE
- ------------------------ -------------- -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
300 basis point rise $6,970 $ 507 7.84%
200 basis point rise 6,798 335 5.18%
100 basis point rise 6,623 160 2.48%
Base Rate Scenario 6,463 -- --
100 basis point decline 6,281 (182) -2.82%
200 basis point decline 6,368 (95) -1.47%
300 basis point decline 6,176 (287) -4.44%
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in the
computation of NPV. Although certain assets and liabilities may have similar
maturities or periods within which they will reprice, they may react differently
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate
23
<PAGE> 24
in advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. There may also be repayment risk
if interest rates rise on loans.
Computation of forecasted effects of hypothetical interest rate changes should
not be relied upon as indicative of actual future results. Further, the
computations do not contemplate any actions the ALCO could undertake in response
to change in interest rates.
The Company is a legal entity, separate and distinct from its subsidiaries.
Although there exists the ability to raise capital on its own behalf (such as
the recent private placement of Capital Securities) or borrow from external
sources, the Company may obtain additional funds through dividends paid by, and
fees for services provided to, its subsidiaries. Regulations limit the amount of
dividends as well as service fees paid by subsidiaries. The Company's expenses
have been primarily covered by fees charged to and dividends received from VIB
and it is anticipated that the Company will be able to continue to rely on
dividends from its subsidiaries to fund its separate operations and obligations.
The Company may not always be able to rely solely on its current or future
subsidiaries to meet its obligations, including obligations under the Capital
Securities, or to maintain its separate liquidity. Under such circumstances, the
Company would be forced to seek other means to raise capital.
At March 31, 1999 the Company had adequate liquidity to meet its anticipated
funding needs.
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 1.6% at March 31, 1999, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information in response to this form is included in Item 2 - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
24
<PAGE> 25
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 January 12, 1999, the shareholders of the Company held a Special
Meeting for the purpose of approving the acquisition of Bank of Stockdale,
F.S.B. As of the record date for the Special Meeting there were 7,896,533 shares
outstanding. At the Special Meeting, 4,582,101 shares were cast in favor of the
resolutions approving the acquisition, 239,736 shares were cast against, and
46,720 shares abstained from voting.
ITEM 5. OTHER INFORMATION
- ------- -----------------
Not applicable.
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 27
</TABLE>
(b) Current Reports on Form 8-K:
During the quarter ended March 31, 1999 the Company filed Current
Reports on Form 8-K as follows:
<TABLE>
<CAPTION>
Description Date of Report
- ----------- --------------
<S> <C>
Shareholder and regulatory approvals to acquire Bank of Stockdale January 14, 1999
Private placement offering of Capital Securities and issuance of Debentures to February 5, 1999
subsidiary business trust
Consummation of Bank of Stockdale acquisition and Hemet branch acquisition February 9, 1999
</TABLE>
<PAGE> 26
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 14, 1999
/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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 34,398,271
<INT-BEARING-DEPOSITS> 739,950
<FED-FUNDS-SOLD> 5,314,695
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 181,632,598
<INVESTMENTS-CARRYING> 2,738,352
<INVESTMENTS-MARKET> 2,732,768
<LOANS> 528,440,507
<ALLOWANCE> (4,814,016)
<TOTAL-ASSETS> 791,879,978
<DEPOSITS> 690,473,538
<SHORT-TERM> 12,000,000
<LIABILITIES-OTHER> 4,330,066
<LONG-TERM> 29,296,796
0
0
<COMMON> 53,387,190
<OTHER-SE> 2,392,388
<TOTAL-LIABILITIES-AND-EQUITY> 791,879,978
<INTEREST-LOAN> 11,808,076
<INTEREST-INVEST> 2,312,068
<INTEREST-OTHER> 297,650
<INTEREST-TOTAL> 14,417,794
<INTEREST-DEPOSIT> 5,079,688
<INTEREST-EXPENSE> 577,186
<INTEREST-INCOME-NET> 8,760,920
<LOAN-LOSSES> 675,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,340,796
<INCOME-PRETAX> 1,228,094
<INCOME-PRE-EXTRAORDINARY> 1,228,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664,208
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 7.98
<LOANS-NON> 4,180,000
<LOANS-PAST> 640,000
<LOANS-TROUBLED> 5,580,408
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,296,414
<CHARGE-OFFS> 169,260
<RECOVERIES> 11,862
<ALLOWANCE-CLOSE> 4,814,016
<ALLOWANCE-DOMESTIC> 4,814,016
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
