<PAGE> 1
FORM 10-Q
UNITED STATES
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 September 30, 2000.
[ ] 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
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(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0780371
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(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
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(Registrant's Telephone Number, Including Area Code)
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(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: 11,815,411 shares as of
November 8, 2000.
<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 September 30, 2000 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 September 30, 2000 have been
made. The results of operations for the period ended September 30, 2000 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
September 30,2000 and December 31,1999
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 37,921,216 $ 45,392,374
Federal funds sold 3,000,000 366,296
--------------- ---------------
Total cash and cash equivalents 40,921,216 45,758,670
Interest bearing deposits 1,085,196 523,243
Investment Securities: (note B)
Securities available for sale 189,401,721 159,086,627
Securities held to maturity 2,573,491 2,921,978
--------------- ---------------
Total investment securities 191,975,212 162,008,605
Federal Home Loan and Federal Reserve Bank stock, at cost 8,961,300 11,885,800
Loans: (note C)
Commercial 124,872,680 129,275,430
Agricultural 58,434,357 50,853,898
Real estate-construction 124,497,327 89,167,767
Real estate-other 446,614,415 344,378,738
Consumer 44,780,429 43,082,863
--------------- ---------------
Total Loans 799,199,208 656,758,696
Net deferred loan fees (4,500,274) (3,303,169)
Allowance for credit losses (7,768,824) (5,696,222)
--------------- ---------------
Net Loans 786,930,110 647,759,305
Premises and equipment 13,430,208 12,130,243
Other real estate owned 1,598,514 1,304,729
Cash surrender life insurance 16,924,636 14,294,521
Deferred tax asset 7,537,039 7,622,616
Intangible assets 18,349,953 5,139,322
Accrued interest and other assets 13,171,259 9,700,618
--------------- ---------------
TOTAL ASSETS $ 1,100,884,643 $ 918,127,672
=============== ===============
</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
September 30,2000 and December 31,1999
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
--------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 189,467,713 $ 174,711,805
Money Market and NOW 177,943,351 133,592,522
Savings 65,183,309 64,004,639
Time deposits under $100,000 243,278,162 183,862,025
Time deposits $100,000 and over 169,343,124 145,161,883
--------------- ---------------
Total Deposits 845,215,659 701,332,874
Fed funds purchased 1,500,000 15,550,000
Federal Home Loan Bank advances 145,350,000 112,200,000
Capital lease obligations 2,948,462 2,924,310
Company-obligated mandatorily redeemable
Capital Securities of subsidiary trusts holding
solely Subordinated Debentures of the Company 32,400,000 22,400,000
Accrued interest and other liabilities 7,437,975 5,475,128
--------------- ---------------
Total Liabilities 1,034,852,096 859,882,312
Stockholders' Equity:
Preferred shares, no par value;
10,000,000 shares authorized;
issued 0 shares in 2000 and 1999 -- --
Common shares,no par value, Authorized
25,000,000 in 2000 and 1999,
Outstanding: 11,815,411 in 2000 and
11,786,328 in1999 59,722,360 57,449,500
Undivided Profits 9,204,794 5,252,469
Accumulated other comprehensive
income, net of tax of $2,011,505 in
2000 and $3,102,348 in 1999 (2,894,607) (4,456,609)
--------------- ---------------
Total Stockholders' Equity 66,032,547 58,245,360
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,100,884,643 $ 918,127,672
=============== ===============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Nine Month
Periods Ended Periods Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $ 19,524,995 $ 14,053,729 $ 55,263,370 $ 38,912,135
Interest on Investment Securities-Taxable 2,330,799 1,845,717 6,882,504 5,356,788
Interest on Investment Securities-Nontaxable 723,593 634,473 2,087,574 1,807,353
Other Interest Income 17,406 64,285 82,619 532,076
------------ ------------ ------------ ------------
Total Interest Income 22,596,793 16,598,204 64,316,067 46,608,352
Interest Expense:
Interest on Money Market and NOW 1,465,213 855,041 3,907,946 2,519,421
Interest on Savings Deposits 276,138 359,673 880,556 1,158,267
Interest on Time Deposits 6,395,576 3,948,825 17,357,963 11,612,793
Interest on Other Borrowings 2,759,641 1,595,210 7,931,552 3,356,144
------------ ------------ ------------ ------------
Total Interest Expense 10,896,568 6,758,749 30,078,017 18,646,625
------------ ------------ ------------ ------------
Net Interest Income 11,700,225 9,839,455 34,238,050 27,961,727
Provision for Credit Losses 675,000 700,000 2,225,000 2,050,000
------------ ------------ ------------ ------------
Net Interest Income after Provision for Credit Losses 11,025,225 9,139,455 32,013,050 25,911,727
Non-interest Income:
Service Charges and Fees 1,619,912 1,107,770 4,813,068 3,278,998
Gain on Sale of Loans and Servicing Fees 373,651 436,853 996,994 1,296,005
Gain/(Loss) on Sale of Securities -- (4,496) -- 1,755
Other Income 303,493 70,744 969,542 258,687
------------ ------------ ------------ ------------
Total Non-interest Income 2,297,056 1,610,871 6,779,604 4,835,445
Non-interest Expense:
Salaries and Employee Benefits 4,805,096 3,768,241 14,865,760 11,493,054
Occupancy Expenses 859,277 672,417 2,360,687 1,971,226
Furniture and Equipment 764,838 657,652 2,273,489 1,870,533
Other Expenses (note D) 3,468,352 2,995,177 10,215,102 8,949,085
------------ ------------ ------------ ------------
Total Non-interest Expense 9,897,563 8,093,487 29,715,038 24,283,898
------------ ------------ ------------ ------------
Income Before Income Taxes 3,424,718 2,656,839 9,077,616 6,463,274
Income Taxes 1,161,513 945,905 2,995,763 2,359,501
------------ ------------ ------------ ------------
------------ ------------
Net Income $ 2,263,205 $ 1,710,934 $ 6,081,853 $ 4,103,773
============ ============ ============ ============
Per Share Data: (note E)
Net Income - Basic $ 0.19 $ 0.15 $ 0.51 $ 0.36
Net Income - Diluted $ 0.19 $ 0.15 $ 0.51 $ 0.35
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
VIB CORP AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Shares Accumulated
------------------------ Other
Number of Undivided Comprehensive
Shares Amount Profits Income Total
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1999 10,513,543 $ 50,445,799 $ 5,052,918 $ 103,430 $ 55,602,147
Comprehensive Income
Net income 5,865,723 5,865,723
Other comprehensive income
Unrealized losses on securities, net
of taxes of $3,173,065 (4,559,004) (4,559,004)
Less reclassification adjustments for gains
included in net income,net of taxes of $720 (1,035) (1,035)
------------
Total other comprehensive income (4,560,039)
------------
TotalComprehensive income 1,305,684
Cash dividends (26,326) (26,326)
Stock dividend 646,076 5,639,846 (5,639,846)
Exercise of stock options 283,408 1,363,674 1,363,674
Including the realization of
Tax benefits of $224,000
Exercise of stock warrants 10 181 181
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 11,443,037 57,449,500 5,252,469 (4,456,609) $ 58,245,360
Comprehensive Income
Net income 6,081,853 6,081,853
Other comprehensive income
Unrealized losses on securities, net
of taxes of $1,085,459 1,562,002 1,562,002
------------
Total Comprehensive income 7,643,855
Cash dividends (6,869) (6,869)
Stock dividend (note F) 343,056 2,122,659 (2,122,659)
Exercise of stock options 29,318 150,201 150,201
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2000 11,815,411 $ 59,722,360 $ 9,204,794 $ (2,894,607) $ 66,032,547
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine-Month
<TABLE>
<CAPTION>
Periods Ended
September 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,081,853 $ 4,103,773
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,877,805 433,917
Deferred income taxes (802,696) (366,897)
Provision for credit losses 2,225,000 2,050,000
Originations of loans held for sale (25,599,051) (56,805,037)
Proceeds from sale of loans 32,130,639 71,238,539
Net gain on loan sales and securitization (1,066,885) (1,013,196)
Gain on sale of other real estate owned (73,338) (49,045)
Net (increase)/decrease in cash surrender value of life insurance (830,115) 406,950
Net realized gains in available for sale securities -- (1,755)
Net amortization of premium/discount on available
for sale securities (81,411) 192,988
Net change in accrued interest, other assets,
and other liabilities (2,130,591) (975,326)
------------- -------------
Net cash provided by operating activities 12,731,210 19,214,911
Cash flow from investing activities:
Purchases of investment securities (12,430,113) (81,435,858)
Net cash received from purchase of branches -- 110,295,948
Net cash used for purchase of King's River State Bank (15,596,765) --
Net cash (paid)/received for the purchase and settlement
of life insurance (1,800,000) (5,773,747)
Proceeds from sales of other real estate owned 1,472,593 620,276
Proceeds from sales of investment securities -- 2,485,943
Proceeds from maturities of investment securities 14,594,275 20,641,178
Loans granted net of repayments (94,591,003) (135,114,392)
Premises and equipment expenditures (2,210,869) (1,480,857)
Net increase in interest bearing deposits (561,953) 88,306
------------- -------------
Net cash used by investing activities (111,123,835) (89,673,203)
Cash flow from financing activities:
Net increase/(decrease) in demand deposits and savings 16,087,619 (26,069,892)
Net increase/(decrease) in time deposits 55,750,067 (812,254)
Net change in capitalized lease obligations 24,152 29,475
Net change in fed funds purchased (14,050,000) 61,700,000
Net change in other borrowings 25,600,000 6,500,000
Proceeds from Capital Securities 10,000,000 22,400,000
Payments for dividends (6,868) (17,053)
Proceeds from exercise of stock options and warrants 150,201 206,538
------------- -------------
Net cash provided by financing activities 93,555,171 63,936,814
Net change in cash and cash equivalents ($ 4,837,454) ($ 6,521,478)
============= =============
Cash and cash equivalents:
Beginning of period $ 45,758,670 $ 35,308,264
End of period $ 40,921,216 $ 28,786,786
Supplemental disclosure of cash flow information:
(in Thousands)
Cash paid for interest expense $ 29,733 $ 18,679
Cash paid (received) for income taxes $ 1,517 $ 1,930
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(A) General
See Note A of Notes to Financial Statements incorporated by reference in
the Company's 1999 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 1999 Annual Report on Form 10-K, 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, Bank of Stockdale, Kings River State Bank, Valley
Capital Trust and VIBC Capital Trust I. 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 September 30, 2000 had a net
unrealized loss of approximately $4,906,000, as compared with a net unrealized
loss of approximately $7,645,000 at December 31, 1999, a decrease during the
nine months beginning January 1, 2000 of $2,739,000. The change for the period
is attributable to a rising interest rate environment offset to a greater degree
by the recomposition of the portfolio due to the acquisition of Kings River
State Bank.
Investment Securities
September 30, 2000
-----------------------
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
($ In 000's) Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Available-for Sale Securities:
U.S. Treasury Securities $ 2,171 $ 11 $ 1 $ 2,181
U.S. Government and
Agency Securities 84,543 62 2,276 82,329
State and Political Subd 67,267 470 1,908 65,829
Mortgage-Backed Securities 38,051 60 682 37,429
Other Equity 2,275 1 642 1,634
-------- -------- -------- ---------
$194,307 $ 604 $ 5,509 $189,402
Held-to-Maturity Securities:
Mortgage-Backed Securities $ 2,573 $ -0- $ 55 $ 2,518
</TABLE>
8
<PAGE> 9
December 31, 1999
-----------------------------------
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
($ In 000's) Cost Gains Losses Value
-------------------------------------------------
<S> <C> <C> <C>
Available-for Sale Securities:
U.S. Treasury Securities $ 597 $ 10 -- $ 607
U.S. Government and
Agency Securities 77,890 11 $ 2,921 74,980
State and Political Subd 56,999 10 3,274 53,735
Mortgage-Backed Securities 29,409 7 778 28,638
Other Equity 1,750 -- 623 1,127
-------- -------- -------- --------
$166,645 $ 38 $ 7,596 $159,087
Held-to-Maturity Securities:
Mortgage-Backed Securities $ 2,922 $ -- $ 87 $ 2,835
</TABLE>
Investment securities carried at approximately $151,239,000 and
$146,002,000, at September 30, 2000 and December 31,1999, 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 and central 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
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 September 30, 2000 and
December 31,1999 the Company was servicing approximately $155,337,000 and
$146,432,000, respectively, in loans previously sold.
A summary of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31,1999
------------------ ----------------
($ In 000's)
<S> <C> <C>
Balance at beginning of year $5,696 $4,296
Additions to the allowance charged to expense 2,225 2,592
Additions due to purchase of Kings River
State Bank 654 --
Recoveries on loans charged off 147 62
Loans charged off 953 1,254
Balance at end of period $7,769 $5,696
</TABLE>
9
<PAGE> 10
A summary of nonperforming loans and assets follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31,1999
------------------ ----------------
($ In 000's)
<S> <C> <C>
Non-accrual loans $3,727 $6,185
Loans 90 days past due and still accruing 365 16
------ ------
Total nonperforming loans 4,092 6,201
Other Real Estate Owned 1,598 1,305
------ ------
Total nonperforming assets $5,690 $7,506
Nonperforming loans to total ending loans .51% .95%
Nonperforming assets to total loans and
Other Real Estate Owned .71% 1.15%
</TABLE>
(D) Other Expenses
Other expenses for the periods indicated are as follows:
<TABLE>
<CAPTION>
($ In 000's) September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Data Processing $ 2,011 $ 1,654
Advertising 435 401
Legal and Professional 2,023 1,577
Regulatory Assessments 172 201
Insurance 213 166
Amortization of Intangibles 965 417
Office Expenses 1,747 1,503
Promotion 1,190 1,142
Merger Related -- 682
Other 1,459 1,206
------ -------
Total Other Expenses $10,215 $ 8,949
</TABLE>
(E) Earnings Per Share
Basic earnings per share are calculated based on the weighted average
number of common shares outstanding during each period as follows: 11,811,723
for the nine months ended September 30, 2000 and 11,511,124 for the nine months
ended September 30, 1999; 11,815,411 for the three months ended September 30,
2000 and 11,522,734 for the three months ended September 30, 1999.
Diluted earnings per share are computed by dividing net earnings by the
weighted average common equivalent shares outstanding during the respective
periods as follows: 11,833,783 for the nine months ended September 30, 2000 and
11,630,410 for the nine months ended September 30, 1999; 11,831,969 for the
three months ended September 30, 2000 and 11,597,129 for the three months ended
September 30, 1999. Common share equivalents include dilutive common stock
option share equivalents determined by using the treasury stock method.
(F) Stock Dividend
At a regularly scheduled Board meeting held on March 21,2000, the Board of
Directors of the Company approved a 3% stock dividend for shareholders of record
on May 26,2000. The dividend was paid on June 9, 2000. Consequently, all per
share information has been restated to reflect the effect of the stock dividend.
(G) Business Combination
On January 7, 2000 the Company acquired 100% of the outstanding common
stock of Kings River Bancorp (KRB) for $21,728,277 in cash in a transaction
which resulted in Kings River State Bank
10
<PAGE> 11
becoming a wholly owned subsidiary. At or for the year ended December 31, 1999
KRB had total assets of approximately $87,690,000, interest and noninterest
income of approximately $7,956,000 and pretax income of approximately
$1,920,000. The acquisition was accounted for using the purchase method of
accounting in accordance with APB No. 16, "Business Combinations". Under this
method of accounting, the purchase price is allocated to the assets acquired and
deposits and liabilities assumed based on their fair values as of the
acquisition date. Goodwill arising from the transaction totaled $13,589,017 and
will be amortized over 20 years on a straight-line basis. The results of KRB's
operations have been included in those reported by the Company beginning on
January 10, 2000.
11
<PAGE> 12
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. This document may contain
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. For a
discussion of factors that could cause actual results to differ, please see the
Company's publicly available Securities and Exchange Commission filings,
including its Annual Report on Form 10-K for the year ended December 31, 1999
and particularly the discussion of "Other Significant Factors" within that
document.
GENERAL
-------
VIB Corp's financial performance through the third quarter of 2000 continued to
be indicative of the execution of business plans that facilitate the Company's
strategic direction. Improvement in overall efficiency was evident in the
continued integration of VIB Corp's first quarter 2000 acquisition of Kings
River State Bank, headquartered in Reedley, California. In addition, strong
credit quality and significant business demand in the markets the Company serves
contributed greatly to the third quarter results.
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. The warrants expired on October 29,1999.
On January 7, 2000, VIB Corp acquired Kings River State Bank (KRB), Reedley,
California, pursuant to an Agreement and Plan of Reorganization dated September
7, 1999. As a result of the merger, the Company acquired total assets of $87.9
million, comprising $5.9 million in cash and due from banks, $25.3 million in
securities and investments, $54.4 million in net loans and $2.3 million in other
assets. Total liabilities assumed amounted to $80.1 million, of which $72.7
million comprised deposits. The remainder represented other borrowed funds and
other liabilities.
The KRB merger was accounted for using the purchase method of accounting in
accordance with APB No. 16, "Business Combinations". The Company paid
$21,728,277 in exchange for 100% of the outstanding common stock of KRB.
12
<PAGE> 13
On July 26, 2000, the Company raised approximately $10.0 million in net proceeds
from an offering of "trust preferred" securities in a private placement
conducted as a part of a pooled offering sponsored by First Union Securities,
Inc. The proceeds were used to increase Valley Independent Bank's capital by
$8.5 million, with the balance used for general corporate purposes. The Company
formed a wholly-owned New York common law trust subsidiary, VIBC Capital Trust I
(the "Trust"), for the specific purpose of: (1) investing in the Company's
11.695% Junior Subordinated Notes (the "Notes"), due July 19, 2030; (2) selling
11.695% Preferred Securities (the "Preferred Securities"), representing a 97%
beneficial interest in the Notes owned by the Trust; and (3) issuing Common
Securities (the "Common Securities") to the Company, representing a 3%
beneficial interest in the Notes owned by the Trust.
On July 12, 2000, the Company entered into a Placement Agent Agreement (the
"Agreement") with First Union Securities, Inc. (the "Placement Agent"). On July
26, 2000, the Company issued $10.309 million in Notes to the Trust.
Concurrently, the Trust issued $10.0 million of the Preferred Securities to the
Placement Agent and $309,000 of the Common Securities to the Company. The Notes
were purchased by the Trust concurrently with the Trust's issuance of the
Preferred Securities and the Common Securities. The proceeds to the Company, net
of the Placement Agent's fees and other offering expenses, was approximately
$9.6 million, which is treated as Tier II capital for regulatory purposes.
The interest on the Notes will be deductible and paid by the Company and
represents the sole source of the Trust's revenues available for distributions
to the holders of the Preferred Securities. The Company has the right, assuming
that no default has occurred regarding the Notes, to defer interest payments on
the Notes, at any time and for a period of up to twenty consecutive calendar
quarters. The Preferred Securities will mature concurrently with the notes on
July 19, 2030; but can be called after July 10, 2010. Consolidated net income
for the nine months ended September 30, 2000 was $6.1 million or $.51 per
share-diluted based upon average shares outstanding of 11,833,783. This compares
with net income of $4.1 million, or $.35 per share-diluted based upon the
average shares outstanding of 11,630,410 for the same period in 1999.
Net income for the three months ending September 30, 2000 was $2.3 million, or
$.19 per share-diluted based upon average shares outstanding of 11,831,969. This
compared with net earnings of $1.7 million, or $.15 per share-diluted based upon
the average shares outstanding of 11,597,129 for the same period in 1999.
On March 21, 2000, the Board of Directors approved a 3% stock dividend for
shareholders of record on May 26, 2000. The dividend was paid on June 9, 2000.
All per share figures have been retroactively adjusted for this and previous
stock dividends and splits.
13
<PAGE> 14
Total gross loans at September 30, 2000 were $794.7 million, which represented
an increase of $141.2 million or 21.6% from December 31, 1999. This increase
includes the acquisition of $54.4 million in loans pursuant to the merger with
KRB. Since September 30, 1999, total gross loans have increased $176.0 million
or 28.4%.
In connection with the Company's strategic growth plan, Kings River State Bank
plans to open full service branches in the communities of Visalia and Selma,
California during the fourth quarter of the year 2000. Bank of Stockdale will
open a full service branch in Las Vegas, Nevada also during the fourth quarter.
YEAR 2000 READINESS COMPLIANCE
------------------------------
During 1999 and earlier the Company and its banking subsidiaries evaluated,
tested and upgraded computer systems to assure proper recognition of date
sensitive information when the date changed to the year 2000 ("Y2K"). Computer
systems that did not properly recognize the year 2000 would have generated
erroneous data or caused the system to fail.
VIB expended $523,000 through December 31, 1999 on Y2K compliance. The estimated
value of internal resources allocated to the Y2K compliance program and the cost
of computer hardware purchased through December 31,1999 was approximately
$281,000 for Stockdale. Subsequent to the year 2000 rollover date there have
been no related losses and no material costs at any of the subsidiaries.
NET INTEREST INCOME
-------------------
Average interest earning assets totaled $951.0 million during the nine months
ending September 30, 2000, an increase of $211.7 million or 28.6% 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 $198.4 million or 36.0% to $748.8 million as compared to average loans of
$550.4 million for the nine-month period ended September 30, 1999. Average
interest bearing liabilities in the first nine months of 2000 increased $206.1
million or 34.5% to average $802.8 million as compared to the same period last
year. During this comparative period average interest bearing deposit categories
increased $120.9 million or 22.9% to $650.0 million. Average borrowed funds
increased $85.1 million or 125.7% to $152.8 million during the same time frame.
These comparative changes in average deposits and borrowed funds include the
effects of the merger with KRB, discussed earlier.
Interest income for the nine-month period ending September 30, 2000 was $64.3
million, an increase of $17.7 million or 38.0% compared to the first nine months
in 1999. The increase in interest income was primarily the result of the volume
increases previously discussed and the additional interest income provided by
KRB. This increase was partially enhanced by an increased interest rate
environment. The yield
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<PAGE> 15
on interest earning assets increased 60 basis points to 9.03% for the nine-month
period ended September 30, 2000 from 8.43% for the comparative period last year.
Interest expense increased $11.4 million or 61.3% during the nine months ended
September 30, 2000 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 with a proportionately greater increase in higher
costing certificate of deposits and borrowed funds as well as the addition of
trust preferred debt in the third quarter. The increase was partially caused by
a higher interest rate environment and the addition of interest expense from
KRB. The cost of interest bearing funds increased 82 basis points from 4.18% for
the nine months ended September 30, 1999 to 5.00% for the nine months ended
September 30, 2000.
Net interest income was $34.2 million for the nine months ending September 30,
2000, representing an increase of $6.3 million or 22.4% from the same period
ended September 30, 1999. 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 4.03% for the
nine-month period ending September 30, 2000, compared to 4.25% for the same
period in 1999. The decrease in net interest spread is due to the large increase
in short-term borrowed funds as well as the addition of the trust-preferred debt
in a period of rising interest rates. Net interest income as a percentage of
average interest earning assets, or the net interest margin, decreased to 4.81%
for the period ending September 30, 2000, compared to 5.06% for the period
ending September 30, 1999. The decrease in net interest margin is mainly
attributable to a shift to higher cost liabilities.
Interest income for the third quarter ended September 30,2000 was $22.6 million,
which represented an increase of $6.0 million or 36.1% to the comparative period
ending September 30,1999. Interest expense was $10.9 million for the three-month
period ending September 30,2000, an increase of $4.1 million or 61.2%. Net
interest income during the third quarter ending September 30,2000 was $11.7
million, an increase of $1.9 million or 18.9% for the comparative period ending
September 30, 1999. The same factors affecting the first nine month periods also
apply to the third quarter comparison of 2000 to 1999.
PROVISION FOR CREDIT LOSSES
---------------------------
The allowance for credit losses at September 30, 2000 was $7.8 million, compared
to $5.7 million at December 31, 1999 and $5.2 million at September 30, 1999,
increases of $2.1 million or 36.4% and $2.6 million or 49.5%, respectively. As a
percent of total loans, the allowance was .98% at September 30, 2000, compared
to .87% at December 31, 1999 and .84% at September 30, 1999.
The provision for credit losses was $2,225,000 for the first nine months of
2000, compared with $2,050,000 provided for the nine months ended September 30,
1999, an
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<PAGE> 16
increase of 8.5%. The provision was $675,000 for the third quarter of 2000
compared to $700,000 for the third quarter of 1999, a decrease of $25,000 or
3.6%.
Total non-performing loans as of September 30, 2000 were $4.1 million as
compared to $5.1 million at September 30, 1999 and $6.2 million at December 31,
1999. Non-performing loans decreased $2.1 million during the nine months ended
September 30, 2000.
Net charge-offs were $806,000 for the nine months ended September 30, 2000. This
represents a decrease of $344,000 when compared to $1,150,000 in net charge offs
for the same period in 1999. During the third quarter ending September 30, 2000,
$.5 million was recorded in net charge-offs compared to $.5 million net
charge-offs in the third quarter of 1999.
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 loans with general allocations
assigned to the various loan categories. Loans classified by the subsidiary
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 Company believes the consolidated allowance at September 30,
2000, was adequate based on present economic conditions and its ongoing
evaluation of the risks inherent in the subsidiary banks' loan portfolios.
NON-INTEREST INCOME
-------------------
Total non-interest income amounted to $6.8 million for the nine months ended
September 30, 2000 representing an increase of $1.9 million or 40.2% compared
with the same period in the prior year. The primary reasons for the increase in
non-interest income was a $1,534,000 increase in service charges on deposits,
which includes income generated by KRB of $299,000, and an increase in other
income of $710,855 including $334,000 from KRB that includes $178,000 in fees
collected from funding mortgage loans. These increases were partially offset by
a reduction in gains on the sale of loans of $332,000.
Total non-interest income for the third quarter of 2000 was $2.3 million, an
increase of $.7 million or 42.6% from the third quarter of 1999. The increase in
total non-interest income is attributable to the addition of non-interest income
from KRB and an increase in service charges on deposits, offset by a reduction
in the gain on sale of loans.
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<PAGE> 17
NON-INTEREST EXPENSE
--------------------
Total non-interest expense for the nine months ended September 30, 2000 was
$29.7 million, an increase of $5.4 million or 22.4% as compared to the same
period in 1999. After adjusting for $.7 million in merger and one-time related
expenses, non-interest expense for the nine months ended September 30, 1999 was
$23.6 million. After the merger related adjustment in 1999 and adjusting for
$3.7 million in non-interest expense attributable to KRSB in the first nine
months of 2000, the increase in the first nine months of 2000 was $2.4 million
or 10.2%.
Salary expense during the nine months ended September 30, 2000 was $11.1
million, an increase of $2.3 million or 26.1% over the comparable period in
1999. The growth in salary expense is attributable to the acquisition of KRB,
merit increases, paid commissions and performance incentives.
Employee benefits expense was $3.9 million for the period ending September 30,
2000, an increase of $1.2 million or 44.4% from the same period in the prior
year. The increase in benefits expense is attributable to the previously
discussed acquisition of KRB, increased 401K and ESOP funding costs and the
funding of a simplified early retirement plan.
Occupancy expense was $2,361,000 for the nine-month period ended September 30,
2000, an increase of $389,000 or 19.8% as compared to the first nine months in
1999. Furniture and equipment expense was $2,273,000 for the nine-month period
ended September 30, 2000, an increase of $403,000 or 21.5% from the same period
in 1999. These increases were primarily the result of the KRB acquisition and
increased depreciation expense on planned additions to computer hardware and
software expenditures.
Other operating expense amounted to $10.2 million during the nine-month period
ended September 30, 2000, an increase of $1.3 million or 14.1% from the same
period in the prior year. Increases in data processing, legal and professional
fees along with the increased amortization of intangibles offset by a decrease
in merger related expenses were the primary causes for the increase in this
category.
For the third quarter of 2000, total non-interest expenses were $9.9 million, an
increase of $1.8 million or 22.3% from $8.1 million for the third quarter of
1999. The increases in each category were for the same reasons as noted above
for the comparable nine month periods with the exception of the merger costs
discussed previously.
INCOME TAXES
------------
Income tax expense for the nine months ending September 30, 2000 was $3.0
million as compared with $2.4 million for the same period in 1999. The increase
in expense was primarily attributable to the additional expense of $.6 million
attributable to KRSB. The Company's effective tax rate was 33.0% for both the
nine months ended
17
<PAGE> 18
September 30, 2000 as well as the same period in the prior year adjusted for
non-taxable merger related costs.
Income taxes for the third quarter were $1.2 million, an increase of $216,000 or
22.8% from the third quarter of 1999. The increase in expense was primarily
related to a $2.5 million increase in the Company's taxable operating income
offset by a $1.8 million increase in non-interest expense. The Company's
effective tax rate was 33.9% for the three months ended September 30, 2000 as
compared to 35.6% for the same period in the prior year. The decline in
effective tax rate is primarily attributable to an increase in tax exempt
interest from municipal securities.
CAPITAL RESOURCES
-----------------
Total stockholders' equity as of September 30, 2000 was $66.0 million, which
represented an increase of $7.8 million from December 31, 1999, and $9.5 million
from September 30, 1999. The increase since December 31, 1999 included $6.1
million in net income and a $1.6 million decrease in the cumulative unrealized
loss on securities classified as available for sale along with $150,000 received
from the exercise of stock options. The increase since September 30, 1999
included $7.8 million in net income and a $.4 million decrease in the cumulative
unrealized loss on securities classified as available for sale along with $1.3
million received from the exercise of stock options.
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 September 30, 2000 the
Tier 1 and total risk based capital ratios were 8.63% and 10.65%, respectively,
compared to 10.96% and 12.09%, respectively, at September 30, 1999. 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 6.90% at September 30, 2000, compared to
8.78% at September 30, 1999. The Company's leverage ratio also exceeds the
current regulatory minimum of 3.0%. Accordingly, the Company's capital ratios,
which place it in the "well capitalized" category, exceed all regulatory
minimums and support future planned growth, but may not be adequate to support
additional acquisitions.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
----------------------------------------
The Company's consolidated liquidity position remained adequate to meet future
contingencies. At September 30, 2000 the Company had $143.9 million in net
Federal funds purchased and FHLB advances outstanding. This compared to $98.9
million in net Federal funds and FHLB advances outstanding at September 30,
1999. Since December 31, 1999, net Federal funds purchased and FHLB advances has
increased $15.7 million. The Company's consolidated liquidity ratio at September
30, 2000 was
18
<PAGE> 19
19.8%. This ratio represented a decrease from 22.39% at September 30, 1999 and a
decrease from 25.6% at December 31, 1999.
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
existing and future funding commitments 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 manage 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.
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 subsidiaries' 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
subsidiaries' 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
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<PAGE> 20
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 Company's
projected changes in NPV and net interest income for the various rate shock
levels as of September 30, 2000.
<TABLE>
<CAPTION>
VIB CORP
Change in Net Portfolio Value
At September 30, 2000
NET PORTFOLIO ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES VALUE CHANGE CHANGE
------------------------ ------------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C>
300 basis point rise $124,405 ($28,753) -18.8%
200 basis point rise 132,928 (20,230) -13.2%
100 basis point rise 145,013 (8,145) -5.3%
Base Rate Scenario 153,158 - -
100 basis point decline 158,924 5,766 3.8%
200 basis point decline 158,113 4,955 3.2%
300 basis point decline 150,972 (2,186) -1.4%
Change in Net Interest Income
At September 30, 2000
<CAPTION>
NET INTEREST ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES INCOME (000'S) CHANGE (000'S) CHANGE (000'S)
------------------------ -------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
300 basis point rise $ 47,918 (1,141) -2.3%
200 basis point rise 48,798 (261) -0.5%
100 basis point rise 49,369 310 0.6%
Base Rate Scenario 49,059 - -
100 basis point decline 48,344 (715) -1.5%
200 basis point decline 46,658 (2,401) -4.9%
300 basis point decline 44,938 (4,121) -8.4%
</TABLE>
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<PAGE> 21
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 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 September 30, 2000 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 1.2% at September 30, 2000 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 item is included in ITEM 2 - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
21
<PAGE> 22
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
Not applicable. -
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:
Regulation S-K
Exhibit No. Description Page
27 Financial Data Schedule 24
(b) Current Reports on Form 8-K:
During the quarter ended September 30, 2000 the Company filed the following
Current Reports on Form 8-K:
Description Date of Report
Issuance of Trust Preferred Securities July 26,2000
22
<PAGE> 23
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: November 9, 2000
/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
23
