<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 March 31, 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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0780371
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1498 MAIN STREET, EL CENTRO, CALIFORNIA 92243
- --------------------------------------------------------------------------------
(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: 11,816,362 shares as of May
8, 2000.
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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, 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 March 31, 2000 have been made.
The results of operations for the period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year.
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VIB CORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31,2000 and December 31,1999
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 45,528,390 $ 45,392,374
Federal funds sold 759,622 366,296
--------------- ---------------
Total cash and cash equivalents 46,288,012 45,758,670
Interest bearing deposits 549,213 523,243
Investment Securities: (note B)
Securities available for sale 189,687,387 159,086,627
Securities held to maturity 2,920,032 2,921,978
--------------- ---------------
Total investment securities 192,607,419 162,008,605
Federal Home Loan and Federal Reserve Bank stock, at cost 12,985,100 11,885,800
Loans: (note C)
Commercial 134,809,729 129,275,430
Agricultural 58,171,166 50,853,898
Real estate-construction 99,747,722 89,167,767
Real estate-other 389,384,065 344,378,738
Consumer 60,125,611 43,082,863
--------------- ---------------
Total Loans 742,238,293 656,758,696
Net deferred loan fees (3,601,792) (3,303,169)
Allowance for credit losses (7,030,497) (5,696,222)
--------------- ---------------
Net Loans 731,606,004 647,759,305
Premises and equipment 13,191,715 12,130,243
Other real estate owned 1,711,533 1,304,729
Cash surrender life insurance 14,564,043 14,294,521
Deferred tax asset 8,287,079 7,622,616
Intangible assets 17,992,050 5,139,322
Accrued interest and other assets 10,404,940 9,700,618
--------------- ---------------
TOTAL ASSETS $ 1,050,187,108 $ 918,127,672
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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VIB CORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31,2000 and December 31,1999
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 185,690,358 $ 174,711,805
Money Market and NOW 169,697,033 133,592,522
Savings 71,608,141 64,004,639
Time deposits under $100,000 224,168,528 183,862,025
Time deposits $100,000 and over 185,379,346 145,161,883
--------------- ---------------
Total Deposits 836,543,406 701,332,874
Fed funds purchased 10,000,000 15,550,000
Federal Home Loan Bank advances 111,450,000 112,200,000
Capital lease obligations 2,933,080 2,924,310
Company-obligated mandatorily redeemable
Capital Securities of subsidiary trust holding
solely Subordinated Debentures of the Company 22,400,000 22,400,000
Accrued interest and other liabilities 7,309,666 5,475,128
--------------- ---------------
Total Liabilities 990,636,152 859,882,312
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: 11,816,362 in 2000 and
11,786,328 in 1999 59,879,800 57,449,500
Undivided Profits 4,812,602 5,252,469
Accumulated other comprehensive
income, net of tax of $4,060,405 in
2000 and $3,102,348 in 1999 (5,141,446) (4,456,609)
--------------- ---------------
Total Stockholders' Equity 59,550,956 58,245,360
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,050,187,108 $ 918,127,672
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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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,
2000 1999
----------- -----------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $17,405,470 $11,808,076
Interest on Investment Securities-Taxable 2,248,934 1,773,206
Interest on Investment Securities-Nontaxable 681,539 538,862
Other Interest Income 46,163 297,650
----------- -----------
Total Interest Income 20,382,106 14,417,794
Interest Expense:
Interest on Money Market and NOW 1,163,273 849,684
Interest on Savings Deposits 308,417 399,163
Interest on Time Deposits 5,133,976 3,830,841
Interest on Other Borrowings 2,469,119 577,186
----------- -----------
Total Interest Expense 9,074,785 5,656,874
----------- -----------
Net Interest Income 11,307,321 8,760,920
Provision for Credit Losses 850,000 675,000
----------- -----------
Net Interest Income after Provision for Credit Losses 10,457,321 8,085,920
Non-interest Income:
Service Charges and Fees 1,513,910 978,999
Gain on Sale of Loans and Servicing Fees 281,669 431,742
Gain/(Loss) on Sale of Securities -- --
Other Income 218,234 72,229
----------- -----------
Total Non-interest Income 2,013,813 1,482,970
Non-interest Expense:
Salaries and Employee Benefits 4,984,064 3,940,746
Occupancy Expenses 733,640 644,261
Furniture and Equipment 735,095 618,138
Other Expenses (note D) 3,306,776 3,137,651
----------- -----------
Total Non-interest Expense 9,759,575 8,340,796
----------- -----------
Income Before Income Taxes 2,711,559 1,228,094
Income Taxes 871,325 563,886
----------- -----------
Net Income $ 1,840,234 $ 664,208
Per Share Data: (note E)
Net Income - Basic $ 0.16 $ 0.06
Net Income - Diluted $ 0.16 $ 0.06
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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VIBCORP 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 1,1999 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)
------------
Total Comprehensive 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 1,840,234 1,840,234
Other comprehensive income
Unrealized losses on securities, net
of taxes of $460,549 (684,837) (684,837)
------------
Total Comprehensive income 1,155,397
Cash dividends
Stock dividend (note F) 344,166 2,280,101 (2,280,101)
Exercise of stock options 29,159 150,199 150,199
------------ ------------ ------------ ------------ ------------
Balance at March 31,2000 11,816,362 $ 59,879,800 $ 4,812,602 $ (5,141,446) $ 59,550,956
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
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VIBCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three-Month
Periods Ended
March 31,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,840,234 $ 664,208
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 864,573 499,359
Deferred income taxes (208,660) 185,444
Provision for credit losses 850,000 675,000
Originations of loans held for sale (9,804,286) (16,778,281)
Proceeds from sale of loans 7,904,727 19,292,791
Net gain on loan sales and securitization (173,037) (344,797)
Gain/(Loss) on sale of other real estate owned 22,754 (2,133)
Net increase/(decrease) in cash surrender value of life insurance (269,522) 910,830
Net realized gains in available for sale securities -- --
Net amortization of premium/discount on available
for sale securities 65,387 75,764
Net change in accrued interest, other assets,
and other liabilities 1,769,045 (1,736,749)
------------- -------------
Net cash provided by operating activities 2,861,215 3,441,436
Cash flow from investing activities:
Purchases of investment securities (7,640,853) (72,445,391)
Net cash received from purchase of branches -- 110,295,948
Net cash used for purchase of King's River State Bank (15,596,765) 0
Proceeds from sales of other real estate owned 316,947 53,568
Proceeds from sales of investment securities -- --
Proceeds from maturities of investment securities 1,208,725 12,069,995
Loans granted net of repayments (29,408,063) (37,794,971)
Premises and equipment expenditures (660,296) (424,207)
Net increase in interest bearing deposits (25,970) (17,391)
------------- -------------
Net cash used by investing activities (51,806,275) 11,737,551
Cash flow from financing activities:
Net increase/(decrease) in demand deposits and savings 10,488,778 (12,950,647)
Net increase/(decrease) in time deposits 52,676,655 (7,329,016)
Net change in capitalized lease obligations 8,770 10,454
Net change in fed funds purchased (5,550,000) (13,000,000)
Net change in other borrowings (8,300,000) --
Proceeds from Capital Securities -- 22,400,000
Payments for dividends -- (3,142)
Proceeds from exercise of stock options and warrants 150,199 98,066
------------- -------------
Net cash provided by financing activities 49,474,402 (10,774,285)
Net change in cash and cash equivalents $ 529,342 $ 4,404,702
============= =============
Cash and cash equivalents:
Beginning of period $ 45,758,670 $ 35,308,264
End of period $ 46,288,012 $ 39,712,966
Supplemental disclosure of cash flow information:
(in Thousands)
Cash paid for interest expense $ 8,457 $ 5,547
Cash paid (received) for income taxes $ 70 $ 4
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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<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 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 and Valley
Capital 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, 2000 had a
net unrealized loss of approximately $8,795,000, as compared with a net
unrealized loss of approximately $7,645,000 at December 31, 1999, an increase
during the three months beginning January 1, 2000 of $1,150,000. The change for
the period is attributable to a rising interest rate environment and the
recomposition of the portfolio due to the acquisition of King's River State
Bank.
Investment Securities
<TABLE>
<CAPTION>
March 31, 2000
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
($ In 000's) Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for Sale Securities:
U.S. Treasury Securities $ 1,119 $ 8 -- $ 1,127
U.S. Government and
Agency Securities 83,639 5 $ 3,473 80,171
State and Political Subd. 68,226 19 3,658 64,587
Mortgage-Backed Securities 43,174 40 997 42,217
Other Equity 2,220 8 645 1,583
-------- -------- -------- --------
$198,379 $ 81 $ 8,773 $189,687
Held-to-Maturity Securities:
Mortgage-Backed Securities $ 2,920 $ -0- $ 103 $ 2,817
</TABLE>
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<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------
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 $ 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 $159,319,000 and
$146,002,000, at March 31, 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 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 March 31, 2000 and
December 31,1999 the Company was servicing approximately $148,558,000 and
$146,432,000, respectively, in loans previously sold.
A summary of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
($ In 000's)
<S> <C> <C>
Balance at beginning of year $5,696 $4,296
Additions to the allowance charged to expense 850 2,592
Additions due to purchase of Kings River
State Bank 654 --
Recoveries on loans charged off 66 62
Loans charged off 236 1,254
------ ------
Balance at end of period $7,030 $5,696
</TABLE>
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A summary of nonperforming loans and assets follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
($ In 000's)
<S> <C> <C>
Non-accrual loans $3,066 $6,185
Loans 90 days past due and still accruing 164 16
------ ------
Total nonperforming loans 3,230 6,201
Other Real Estate Owned 2,150 1,305
------ ------
Total nonperforming assets $5,380 $7,506
Nonperforming loans to total ending loans .44% .95%
Nonperforming assets to total loans and
Other Real Estate Owned .73% 1.15%
</TABLE>
(D) Other Expenses
Other expenses for the periods indicated are as follows:
<TABLE>
<CAPTION>
($ In 000's) March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Data Processing $ 670 $ 559
Advertising 147 123
Legal and Professional 615 375
Regulatory Assessments 43 54
Insurance 40 42
Amortization of Intangibles 264 96
Office Expenses 551 468
Promotion 370 380
Merger Related -- 657
Other 607 384
------ ------
Total Other Expenses $3,307 $3,138
</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: 11,673,964 for the
three months ended March 31, 2000 and 11,503,078 for the three months ended
March 31, 1999, respectively.
Diluted earnings per share for the three-month periods ended March 31,
2000 and 1999, 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.
(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 will be 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 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
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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
$13,116,387 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.
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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. 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 first 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 first 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. As of March 31, 2000, there were no remaining warrants
outstanding.
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.
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Consolidated net income for the three months ended March 31, 2000 was $1.8
million or $.16 per share fully diluted based upon average shares outstanding of
11,673,964. This compares with net income of $1.4 million, adjusted for merger
and related non-recurring costs, or $.12 per share fully diluted based upon the
average shares outstanding of 11,706,123 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 will be paid on June 9,
2000. All per share figures have been retroactively adjusted for this and
previous stock dividends and splits.
Total gross loans at March 31, 2000 were $738.6 million, which represented an
increase of $85.1 million or 13.0% from December 31, 1999. This increase
includes the acquisition of $54.4 million in loans pursuant to the merger with
KRB. Since March 31, 1999, total gross loans have increased $202.3 million or
37.7%.
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.
VALLEY INDEPENDENT BANK
During 1996 VIB began the process of identifying and addressing issues
surrounding the year 2000 and their impact on VIB's operations. Final
implementation, validation and certification of all internal systems were
accomplished by June 30,1999. Simultaneously, VIB conducted an evaluation for
the impact of Y2K compliance on large corporate customers as well as the third
party vendors. Subsequent to the year 2000 rollover date there have been no
related losses.
VIB expended $523,000 through December 31, 1999 on Y2K compliance.
BANK OF STOCKDALE
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 Y2K compliance program was to monitor the
progress of its software providers toward Y2K compliance and to prepare and test
future-date sensitive data of Stockdale in simulated processing.
As Stockdale relies upon third-party software vendors and service providers for
substantially all of its electronic data processing, the primary cost of the Y2K
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compliance program was the reallocation of internal resources for testing and
for the purchase of computer hardware and, therefore, did not represent
incremental expense to Stockdale. The estimated value of internal resources
allocated to the Y2K compliance program and the cost of computer hardware
through December 31,1999 was approximately $281,000
NET INTEREST INCOME
Average interest earning assets totaled $918.4 million during the three months
ending March 31, 2000, an increase of $224.5 million or 32.4% 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 $218.4 million or 43.9% to $716.0 million. Average interest bearing
liabilities in the first three months of 2000 increased $221.4 million or 39.9%
to average $776.0 million as compared to the same period last year. During this
comparative period average interest bearing deposit categories increased $100.2
million or 19.1% to $624.7 million. Average borrowed funds increased $121.2
million or 402.3% to $151.3 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 three-month period ending March 31, 2000 was $20.4
million, an increase of $6.0 million or 41.4% compared to the first three 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 on interest earning assets increased 68 basis points to
9.04% for the three-month period ended March 31, 2000 from 8.36% for the
comparative period last year.
Interest expense increased $3.4 million or 60.4% during the three months ended
March 31, 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 as well as a deposit mix shift towards the higher
interest bearing categories. 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 62 basis points from 4.10% for the
three-months ended March 31, 1999 to 4.72% for the three months ended March 31,
2000.
Net interest income was $11.3 million for the three months ending March 31,
2000, representing an increase of $2.5 million or 29.1% from the same period
ended March 31, 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 increased to 4.32% for the period ending
March 31, 2000, compared to 4.26% for the same period in 1999. The slight
increase in net interest spread is due to the quicker repricing of the Company's
earning assets 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 5.02% for the period ending March 31, 2000, compared to 5.08% for
the period ending March 31, 1999. The decrease in net
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<PAGE> 15
interest margin is attributable to a greater proportionate increase in interest
bearing liabilities than in interest earning assets.
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at March 31, 2000 was $7.0 million, compared to
$4.8 million at March 31, 1999, an increase of $2.2 million or 46.0%. As a
percent of total loans, the allowance was .95% at March 31, 2000, compared to
.90% at March 31, 1999 and .87% at December 31, 1999.
The provision for credit losses was $850,000 for the first three months of 2000,
compared with $675,000 provided for the three months ended March 31, 1999, an
increase of 25.9%.
Total non-performing loans as of March 31, 2000 were $3.2 million as compared to
$4.8 million at March 31, 1999 and $6.2 million at December 31, 1999.
Non-performing loans decreased $3.0 million during the three months ended March
31, 2000.
Net charge-offs were $170,000 for the three months ended March 31, 2000. This
represents an increase of $13,000 when compared to $157,000 in net charge offs
for the same period in 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 March 31, 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 $2.0 million for the three months ended
March 31, 2000 representing an increase of $.5 million or 35.8% compared with
the same period in the prior year. The primary reason for the increase in
non-interest income was a $535,000 increase in service charges on deposits,
which includes income generated by KRB of $91,000. Other significant items were
a reduction in the gain on sale of loans of $172,000 and additional other income
from KRB of $102,000 that includes $73,000 in fees collected from funding
mortgage loans.
15
<PAGE> 16
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended March 31, 2000 was $9.8
million, an increase of $1.4 million or 17.0% 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 three months ended March 31, 1999 was $7.6 million.
The increase in the first three months of 2000 was $2.1 million or 27.7%.
Salary expense during the three months ended March 31, 2000 was $3.7 million, an
increase of $634,000 or 20.7% 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 $1.3 million for the period ending March 31, 2000,
an increase of $409,000 or 46.7% from the same period in the prior year. The
increase in benefits expense is attributable to the previously discussed
acquisition of KRB and increased 401K and ESOP funding costs.
Occupancy expense was $734,000 for the three-month period ended March 31, 2000,
an increase of $89,000 or 13.9% as compared to the first three months in 1999.
Furniture and equipment expense was $735,000 for the three-month period ended
March 31, 2000, an increase of $117,000 or 18.9% from the same period in 1999.
These increases were primarily the result of the acquisition previously
discussed and increased depreciation expense on planned additions to computer
hardware and software expenditures.
Other operating expense amounted to $3.3 million during the three-month period
ended March 31, 2000, an increase of $169,000 or 5.4% from the same period in
the prior year. Increases in 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.
INCOME TAXES
Income tax expense for the three months ending March 31, 2000 was $871,000 as
compared with $564,000 for the same period in 1999. The increase in expense was
primarily attributable to a $2.9 million increase in taxable operating income
offset by a $719,000 increase in non-interest expense as adjusted for
non-taxable merger related costs. The Company's effective tax rate was 32.1% for
the three months ended March 31, 2000 as compared to 29.3% for the same period
in the prior year adjusted for non-taxable merger related costs.
CAPITAL RESOURCES
Total stockholders' equity as of March 31, 2000 was $59.6 million, which
represented an increase of $1.4 million from December 31, 1999, and $3.8 million
from March 31,
16
<PAGE> 17
1999. The increase since December 31, 1999 included $1.8 million in net income
and a $685,000 increase in the cumulative unrealized loss on securities
classified as available for sale. The increase since March 31, 1999 included
$7.0 million in net income and a $4.7 million increase in the cumulative
unrealized loss 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, 2000 the
Tier 1 and total risk based capital ratios were 8.51% and 9.49%, respectively,
compared to 11.51% and 12.52%, respectively, at March 31, 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 6.79% at March 31, 2000, compared to
9.16% at March 31, 1999. 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.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The Company's consolidated liquidity position remained adequate to meet future
contingencies. At March 31, 2000 the Company had $121.5 million in net Federal
funds purchased and FHLB advances outstanding. This compared to $6.7 million in
net Federal funds outstanding at March 31, 1999. Since December 31, 1999, net
Federal funds purchased and FHLB advances have increased $3.7 million. The
Company's consolidated liquidity ratio at March 31, 2000 was 20.3%. This ratio
represented a decrease from 27.9% at March 31, 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
17
<PAGE> 18
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 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 March 31, 2000.
18
<PAGE> 19
VIB CORP
Change in Net Portfolio Value
at March 31, 2000
<TABLE>
<CAPTION>
NET
PORTFOLIO ACTUAL PERCENTAGE
CHANGE IN INTEREST RATES VALUE CHANGE CHANGE
- ------------------------ --------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
300 basis point rise $164,713 ($ 7,159) -4.2%
200 basis point rise 170,273 (1,600) -0.9%
100 basis point rise 172,898 1,026 0.6%
Base Rate Scenario 171,872 -- --
100 basis point decline 166,689 (5,184) -3.0%
200 basis point decline 157,204 (14,669) -8.5%
300 basis point decline 136,166 (35,706) -20.8%
</TABLE>
Change in Net Interest Income
at March 31, 2000
<TABLE>
<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 $ 42,836 1,306 3.1%
200 basis point rise 42,548 1,018 2.4%
100 basis point rise 42,120 590 1.4%
Base Rate Scenario 41,530 -- --
100 basis point decline 40,783 (747) -1.8%
200 basis point decline 39,064 (2,466) -5.9%
300 basis point decline 37,600 (3,930) -9.5%
</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 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
19
<PAGE> 20
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, 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 1.3% at March 31, 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.
20
<PAGE> 21
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:
<TABLE>
<CAPTION>
Regulation S-K
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 23
</TABLE>
(b) Current Reports on Form 8-K:
During the quarter ended March 31, 2000 the Company filed a Current
Report on Form 8-K as follows:
<TABLE>
<CAPTION>
Description Date of Report
- ----------- --------------
<S> <C>
Consummation of Kings River State Bank acquisition January 7, 2000
</TABLE>
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIB CORP
Date: May 10, 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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 45,528,390
<INT-BEARING-DEPOSITS> 549,213
<FED-FUNDS-SOLD> 759,622
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 189,667,387
<INVESTMENTS-CARRYING> 2,920,032
<INVESTMENTS-MARKET> 2,817,447
<LOANS> 738,636,501
<ALLOWANCE> 7,030,497
<TOTAL-ASSETS> 1,050,187,108
<DEPOSITS> 836,543,406
<SHORT-TERM> 118,450,000
<LIABILITIES-OTHER> 7,309,666
<LONG-TERM> 28,333,080
0
0
<COMMON> 59,879,800
<OTHER-SE> (328,844)
<TOTAL-LIABILITIES-AND-EQUITY> 1,050,187,108
<INTEREST-LOAN> 17,405,470
<INTEREST-INVEST> 2,930,473
<INTEREST-OTHER> 46,163
<INTEREST-TOTAL> 20,382,106
<INTEREST-DEPOSIT> 6,605,666
<INTEREST-EXPENSE> 2,469,119
<INTEREST-INCOME-NET> 11,307,321
<LOAN-LOSSES> 850,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,759,576
<INCOME-PRETAX> 2,711,559
<INCOME-PRE-EXTRAORDINARY> 2,711,559
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,840,234
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
<YIELD-ACTUAL> 8.98
<LOANS-NON> 3,066,000
<LOANS-PAST> 164,000
<LOANS-TROUBLED> 3,819,952
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,350,100
<CHARGE-OFFS> 235,523
<RECOVERIES> 65,920
<ALLOWANCE-CLOSE> 7,030,497
<ALLOWANCE-DOMESTIC> 7,030,497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
