<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 June 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
August 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 June 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 June 30, 2000 have been made. The
results of operations for the period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the full year.
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<PAGE> 3
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30,2000 and December 31,1999
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 48,412,289 $ 45,392,374
Federal funds sold 0 366,296
--------------- ---------------
Total cash and cash equivalents 48,412,289 45,758,670
Interest bearing deposits 818,016 523,243
Investment Securities: (note B)
Securities available for sale 187,724,000 159,086,627
Securities held to maturity 2,676,860 2,921,978
--------------- ---------------
Total investment securities 190,400,860 162,008,605
Federal Home Loan and Federal Reserve Bank stock, at cost 8,245,300 11,885,800
Loans: (note C)
Commercial 116,616,670 129,275,430
Agricultural 65,780,830 50,853,898
Real estate-construction 108,376,886 89,167,767
Real estate-other 432,709,283 344,378,738
Consumer 45,310,687 43,082,863
--------------- ---------------
Total Loans 768,794,356 656,758,696
Net deferred loan fees (3,892,197) (3,303,169)
Allowance for credit losses (7,577,554) (5,696,222)
--------------- ---------------
Net Loans 757,324,605 647,759,305
Premises and equipment 13,367,764 12,130,243
Other real estate owned 1,550,323 1,304,729
Cash surrender life insurance 16,634,788 14,294,521
Deferred tax asset 7,647,708 7,622,616
Intangible assets 17,728,392 5,139,322
Accrued interest and other assets 12,420,504 9,700,618
--------------- ---------------
TOTAL ASSETS $ 1,074,550,549 $ 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
June 30,2000 and December 31,1999
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 191,471,701 $ 174,711,805
Money Market and NOW 174,223,501 133,592,522
Savings 67,406,268 64,004,639
Time deposits under $100,000 254,926,885 183,862,025
Time deposits $100,000 and over 179,005,658 145,161,883
--------------- ---------------
Total Deposits 867,034,013 701,332,874
Fed funds purchased -- 15,550,000
Federal Home Loan Bank advances 113,900,000 112,200,000
Capital lease obligations 2,942,135 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 6,441,666 5,475,128
--------------- ---------------
Total Liabilities 1,012,717,814 859,882,312
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 in 1999 59,722,360 57,449,500
Undivided Profits 6,941,589 5,252,469
Accumulated other comprehensive
income, net of tax of $3,344,151 in
2000 and $3,102,348 in 1999 (4,831,214) (4,456,609)
--------------- ---------------
Total Stockholders' Equity 61,832,735 58,245,360
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,074,550,549 $ 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 Six Month
Periods Ended Periods Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $18,332,905 $13,050,330 $35,738,375 $24,858,406
Interest on Investment Securities-Taxable 2,302,771 1,834,827 4,551,705 3,511,071
Interest on Investment Securities-Nontaxable 682,442 634,018 1,363,981 1,172,880
Other Interest Income 19,050 73,179 65,213 467,791
----------- ----------- ----------- -----------
Total Interest Income 21,337,168 15,592,354 41,719,274 30,010,148
Interest Expense:
Interest on Money Market and NOW 1,279,460 814,696 2,442,733 1,664,380
Interest on Savings Deposits 296,001 399,431 604,418 798,594
Interest on Time Deposits 5,828,411 3,833,127 10,962,387 7,663,968
Interest on Other Borrowings 2,702,792 1,183,748 5,171,911 1,760,934
----------- ----------- ----------- -----------
Total Interest Expense 10,106,664 6,231,002 19,181,449 11,887,876
----------- ----------- ----------- -----------
Net Interest Income 11,230,504 9,361,352 22,537,825 18,122,272
Provision for Credit Losses 700,000 675,000 1,550,000 1,350,000
----------- ----------- ----------- -----------
Net Interest Income after Provision for Credit Losses 10,530,504 8,686,352 20,987,825 16,772,272
Non-interest Income:
Service Charges and Fees 1,679,246 1,192,229 3,193,156 2,171,228
Gain on Sale of Loans and Servicing Fees 341,674 427,410 623,343 859,152
Gain/(Loss) on Sale of Securities -- 6,251 -- 6,251
Other Income 447,815 115,713 666,049 187,942
----------- ----------- ----------- -----------
Total Non-interest Income 2,468,735 1,741,603 4,482,548 3,224,573
Non-interest Expense:
Salaries and Employee Benefits 5,076,600 3,784,067 10,060,664 7,724,813
Occupancy Expenses 767,770 654,548 1,501,410 1,298,809
Furniture and Equipment 773,556 594,743 1,508,651 1,212,881
Other Expenses (note D) 3,439,974 2,816,256 6,746,750 5,953,907
----------- ----------- ----------- -----------
Total Non-interest Expense 10,057,900 7,849,614 19,817,475 16,190,410
----------- ----------- ----------- -----------
Income Before Income Taxes 2,941,339 2,578,341 5,652,898 3,806,435
Income Taxes 962,925 849,710 1,834,250 1,413,596
----------- ----------- ----------- -----------
Net Income $ 1,978,414 $ 1,728,631 $ 3,818,648 $ 2,392,839
=========== =========== =========== ===========
Per Share Data: (note E)
Net Income - Basic $ 0.17 $ 0.15 $ 0.32 $ 0.21
Net Income - Diluted $ 0.17 $ 0.15 $ 0.32 $ 0.21
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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<PAGE> 6
VIB CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six-Month
Periods Ended
June 30,
---------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,818,648 $ 2,392,839
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,781,386 1,133,494
Deferred income taxes 216,711 (334,115)
Provision for credit losses 1,550,000 1,350,000
Originations of loans held for sale (16,291,066) (36,041,749)
Proceeds from sale of loans 20,213,062 43,022,281
Net gain on loan sales and securitization (385,898) (681,705)
Gain on sale of other real estate owned (73,338) (45,401)
Net (increase)/decrease in cash surrender value of life insurance (540,267) (203,880)
Net realized gains in available for sale securities -- (6,251)
Net amortization of premium/discount on available
for sale securities 17,882 123,410
Net change in accrued interest, other assets,
and other liabilities (1,114,521) (2,332,091)
------------- -------------
Net cash provided by operating activities 9,192,599 8,376,832
Cash flow from investing activities:
Purchases of investment securities (9,569,724) (79,782,082)
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) 1,012,770
Proceeds from sales of other real estate owned 1,472,593 390,439
Proceeds from sales of investment securities -- 1,104,583
Proceeds from maturities of investment securities 10,655,693 18,281,201
Loans granted net of repayments (62,333,702) (82,612,483)
Premises and equipment expenditures (1,489,500) (884,746)
Net increase in interest bearing deposits (294,773) (16,685)
------------- -------------
Net cash used by investing activities (78,956,178) (32,211,055)
Cash flow from financing activities:
Net increase/(decrease) in demand deposits and savings 16,594,716 (8,374,660)
Net increase/(decrease) in time deposits 77,061,324 (26,953,462)
Net change in capitalized lease obligations 17,825 21,249
Net change in fed funds purchased (15,550,000) 38,500,000
Net change in other borrowings (5,850,000) 7,500,000
Proceeds from Capital Securities -- 22,400,000
Payments for dividends (6,868) (17,053)
Proceeds from exercise of stock options and warrants 150,201 142,576
------------- -------------
Net cash provided by financing activities 72,417,198 33,218,650
Net change in cash and cash equivalents $ 2,653,619 $ 9,384,427
============= =============
Cash and cash equivalents:
Beginning of period $ 45,758,670 $ 35,308,264
End of period $ 48,412,289 $ 44,692,691
Supplemental disclosure of cash flow information:
(in Thousands)
Cash paid for interest expense $ 18,281 $ 11,887
Cash paid (received) for income taxes $ 3,583 $ 1,764
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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<PAGE> 7
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)
-----------
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 3,818,648 3,818,648
Other comprehensive income
Unrealized losses on securities, net
of taxes of $241,803 (374,605) (374,605)
-----------
Total Comprehensive income 3,444,043
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 June 30, 2000 11,815,411 $ 59,722,360 $ 6,941,589 $(4,831,214) $61,832,735
========== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE> 8
VIB CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(A) General
See Note A of Notes to Financial Statements incorporated by reference in
the Company's 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 June 30, 2000 had a net
unrealized loss of approximately $8,269,000, as compared with a net unrealized
loss of approximately $7,645,000 at December 31, 1999, an increase during the
six months beginning January 1, 2000 of $624,000. The change for the period is
attributable to a rising interest rate environment and the recomposition of the
portfolio due to the acquisition of Kings River State Bank.
Investment Securities
<TABLE>
<CAPTION>
June 30, 2000
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
($ In 000's) Cost Gains Losses Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for Sale Securities:
U.S. Treasury Securities $ 1,131 $ 7 -- $ 1,138
U.S. Government and
Agency Securities 85,195 11 $ 3,619 81,587
State and Political Subd. 68,100 36 3,012 65,124
Mortgage-Backed Securities 39,113 35 982 38,166
Other Equity 2,360 -- 651 1,709
-------- -------- -------- --------
$195,899 $ 89 $ 8,264 $187,724
Held-to-Maturity Securities:
Mortgage-Backed Securities $ 2,677 $ -0- $ 94 $ 2,583
</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 $157,539,000 and
$146,002,000, at June 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 June 30, 2000 and
December 31,1999 the Company was servicing approximately $147,505,000 and
$146,432,000, respectively, in loans previously sold.
A summary of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31,1999
------------- ----------------
($ In 000's)
<S> <C> <C>
Balance at beginning of year $5,696 $4,296
Additions to the allowance charged to expense 1,550 2,592
Additions due to purchase of Kings River
State Bank 654 --
Recoveries on loans charged off 76 62
Loans charged off 398 1,254
------ ------
Balance at end of period $7,578 $5,696
</TABLE>
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<PAGE> 10
A summary of nonperforming loans and assets follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31,1999
------------- ----------------
($ In 000's)
<S> <C> <C>
Non-accrual loans $3,812 $6,185
Loans 90 days past due and still accruing 13 16
------ ------
Total nonperforming loans 3,825 6,201
Other Real Estate Owned 1,576 1,305
------ ------
Total nonperforming assets $5,401 $7,506
Nonperforming loans to total ending loans .50% .95%
Nonperforming assets to total loans and
Other Real Estate Owned .70% 1.15%
</TABLE>
(D) Other Expenses
Other expenses for the periods indicated are as follows:
<TABLE>
<CAPTION>
($ In 000's) June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Data Processing $1,359 $1,107
Advertising 319 257
Legal and Professional 1,393 926
Regulatory Assessments 85 127
Insurance 94 112
Amortization of Intangibles 527 198
Office Expenses 1,152 1,005
Promotion 807 757
Merger Related -- 665
Other 1,011 800
------ ------
Total Other Expenses $6,747 $5,954
</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: 11,810,464 for the
six months ended June 30, 2000 and 11,505,175 for the six months ended June 30,
1999; 11,815,411 for the three months ended June 30, 2000 and 11,508,441 for the
three months ended June 30, 1999.
Diluted earnings per share for the three and six-month periods ended
June 30, 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 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 becoming a wholly owned subsidiary. At
or for the year ended December 31, 1999 KRB had total assets
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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 $13,116,387 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 second 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 second 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.
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<PAGE> 13
Consolidated net income for the six months ended June 30, 2000 was $3.8 million
or $.32 per share fully diluted based upon average shares outstanding of
11,835,450. This compares with net income of $3.1 million, adjusted for merger
and related non-recurring costs, or $.27 per share fully diluted based upon the
average shares outstanding of 11,648,716 for the same period in 1999.
Net income for the three months ending June 30, 2000 was $2.0 million, or $.17
per share fully diluted based upon average shares outstanding of 11,831,922.
This compared with net earnings of $1.7 million, or $.15 per share fully diluted
based upon the average shares outstanding of 11,592,478 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.
Total gross loans at June 30, 2000 were $764.9 million, which represented an
increase of $111.4 million or 17.1% from December 31, 1999. This increase
includes the acquisition of $54.4 million in loans pursuant to the merger with
KRB. Since June 30, 1999, total gross loans have increased $191.3 million or
33.3%.
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 will be used to increase Valley Independent Bank's capital by
at least $8.5 million, with the balance to be used for general corporate
purposes. 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 will be 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
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<PAGE> 14
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.
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 $937.6 million during the six months
ending June 30, 2000, an increase of $220.2 million or 30.7% 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 $209.4 million or 39.8% to $734.9 million as compared to average loans of
$525.5 million for the six-month period ended June 30, 1999. Average interest
bearing liabilities in the first six months of 2000 increased $216.4 million or
37.4% to average $794.6 million as compared to the same period last year. During
this comparative period average interest bearing deposit categories increased
$112.6 million or 21.4% to $639.2 million. Average borrowed funds increased
$103.8 million or 201.2% to $155.4 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 six-month period ending June 30, 2000 was $41.7 million,
an increase of $11.7 million or 39.0% compared to the first six 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 51 basis points to 8.95% for the
six-month period ended June 30, 2000 from 8.44% for the comparative period last
year.
Interest expense increased $7.3 million or 61.4% during the six months ended
June 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 as well as a deposit mix shift towards the higher interest bearing
categories. The increase was
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<PAGE> 15
partially caused by a higher interest rate environment and the addition of
interest expense from KRB. The cost of interest bearing funds increased 70 basis
points from 4.15% for the six-months ended June 30, 1999 to 4.85% for the six
months ended June 30, 2000.
Net interest income was $22.5 million for the six months ending June 30, 2000,
representing an increase of $4.4 million or 24.4% from the same period ended
June 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 4.09% for the six-month period ending
June 30, 2000, compared to 4.28% for the same period in 1999. The slight
decrease in net interest spread is due to the large increase in short-term
borrowed funds 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 4.83% for the period ending June 30, 2000, compared to 5.09% for
the period ending June 30, 1999. The decrease in net interest margin is
attributable to a greater proportionate increase in interest bearing liabilities
than in interest earning assets and the shift to higher cost liabilities.
Interest income for the second quarter ended June 30,2000 was $21.3 million,
which represented an increase of $5.7 million or 36.8% to the comparative period
ending June 30,1999. Interest expense was $10.1 million for the three-month
period ending June 30,2000, an increase of $3.9 million or 62.2%. Net interest
income during the second quarter ending June 30,2000 was $11.2 million, an
increase of $1.9 million or 20.0% for the comparative period ending June 30,
1999. The same factors affecting the first six month periods also apply to the
second quarter comparison of 2000 to 1999.
PROVISION FOR CREDIT LOSSES
The allowance for credit losses at June 30, 2000 was $7.6 million, compared to
$5.0 million at June 30, 1999, an increase of $2.5 million or 50.3%. As a
percent of total loans, the allowance was .99% at June 30, 2000, compared to
.88% at June 30, 1999 and .87% at December 31, 1999.
The provision for credit losses was $1,550,000 for the first six months of 2000,
compared with $1,350,000 provided for the six months ended June 30, 1999, an
increase of 14.8%. The provision was $700,000 for the second quarter of 2000
compared to $675,000 for the second quarter of 1999, an increase of $25,000 or
3.7%.
Total non-performing loans as of June 30, 2000 were $3.8 million as compared to
$5.4 million at June 30, 1999 and $6.2 million at December 31, 1999.
Non-performing loans decreased $2.4 million during the six months ended June 30,
2000.
Net charge-offs were $322,000 for the six months ended June 30, 2000. This
represents a decrease of $283,000 when compared to $605,000 in net charge offs
for the same period in 1999. During the second quarter ending June 30, 2000, $.2
million
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<PAGE> 16
was recorded in net charge-offs compared to $.4 million net charge-offs in the
second 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 June 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 $4.5 million for the six months ended June
30, 2000 representing an increase of $1.3 million or 39.0% compared with the
same period in the prior year. The primary reason for the increase in
non-interest income was a $1,022,000 increase in service charges on deposits,
which includes income generated by KRB of $193,000. Other significant items were
a reduction in the gain on sale of loans of $265,000 and additional other income
from KRB of $221,000 that includes $146,000 in fees collected from funding
mortgage loans.
Total non-interest income for the second quarter of 2000 was $2.5 million, an
increase of $.7 million or 41.8% from the second 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.
NON-INTEREST EXPENSE
Total non-interest expense for the six months ended June 30, 2000 was $19.8
million, an increase of $3.6 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 six months ended June 30, 1999 was $15.5 million.
After adjustment, the increase in the first six months of 2000 was $4.3 million
or 27.7%.
Salary expense during the six months ended June 30, 2000 was $7.5 million, an
increase of $1.6 million or 27.1% 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.
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<PAGE> 17
Employee benefits expense was $2.6 million for the period ending June 30, 2000,
an increase of $.8 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 and increased 401K and ESOP funding costs.
Occupancy expense was $1,501,000 for the six-month period ended June 30, 2000,
an increase of $203,000 or 15.6% as compared to the first six months in 1999.
Furniture and equipment expense was $1,509,000 for the six-month period ended
June 30, 2000, an increase of $296,000 or 24.4% 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 $6.7 million during the six-month period
ended June 30, 2000, an increase of $.8 million or 13.3% 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.
For the second quarter of 2000, total non-interest expenses were $10.1 million,
an increase of $2.2 million or 28.1% from $7.8 million for the second quarter of
1999. The increase in each category were for the same reasons as noted above for
the comparable six month periods with the exception of the merger costs
discussed previously.
INCOME TAXES
Income tax expense for the six months ending June 30, 2000 was $1.8 million as
compared with $1.4 million for the same period in 1999. The increase in expense
was primarily attributable to a $5.5 million increase in taxable operating
income offset by a $4.3 million increase in non-interest expense as adjusted for
non-taxable merger related costs. The Company's effective tax rate was 32.4% for
the six months ended June 30, 2000 as compared to 32.8% for the same period in
the prior year adjusted for non-taxable merger related costs.
Income taxes for the second quarter were $963,000, an increase of $113,000 or
13.3% from the second quarter of 1999. The increase in expense was primarily
related to a $2.6 million increase in the Company's taxable operating income
offset by a $2.2 million increase in non-interest expense. The Company's
effective tax rate was 32.7% for the three months ended June 30, 2000 as
compared to 33.0% for the same period in the prior year.
CAPITAL RESOURCES
Total stockholders' equity as of June 30, 2000 was $61.8 million, which
represented an increase of $3.6 million from December 31, 1999, and $6.1 million
from June 30, 1999.
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<PAGE> 18
The increase since December 31, 1999 included $3.8 million in net income and a
$375,000 increase in the cumulative unrealized loss on securities classified as
available for sale along with $142,000 received from the exercise of stock
options. The increase since June 30, 1999 included $7.3 million in net income
and a $2.5 million increase in the cumulative unrealized loss on securities
classified as available for sale along with $1.4 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 June 30, 2000 the Tier
1 and total risk based capital ratios were 8.54% and 9.48%, respectively,
compared to 11.24% and 12.50%, respectively, at June 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 6.78% at June 30, 2000, compared to
8.89% at June 30, 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 June 30, 2000 the Company had $113.9 million in net Federal
funds purchased and FHLB advances outstanding. This compared to $75 million in
net Federal funds and FHLB advances outstanding at June 30, 1999. Since December
31, 1999, net Federal funds purchased and FHLB advances has decreased $13.9
million. The Company's consolidated liquidity ratio at June 30, 2000 was 19.4%.
This ratio represented a decrease from 26.8% at June 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
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<PAGE> 19
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 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 June 30, 2000.
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VIB CORP
Change in Net Portfolio Value
at June 30, 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 $131,655 ($20,277) -13.3%
200 basis point rise 138,493 (13,439) -8.8%
100 basis point rise 147,295 (4,637) -3.1%
Base Rate Scenario 151,932 -- --
100 basis point decline 157,290 5,358 3.5%
200 basis point decline 154,874 2,942 1.9%
300 basis point decline 146,716 (5,216) -3.4%
</TABLE>
Change in Net Interest Income
at June 30, 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 $43,356 (1,336) -3.0%
200 basis point rise 44,292 (400) -0.9%
100 basis point rise 44,934 242 0.5%
Base Rate Scenario 44,692 -- --
100 basis point decline 44,992 300 0.7%
200 basis point decline 43,508 (1,184) -2.6%
300 basis point decline 41,771 (2,921) -6.5%
</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
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<PAGE> 21
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 June 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 June 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.
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<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
On April 27, 2000, the shareholders of the Company held their 2000
Annual Meeting. At the Annual Meeting the following directors were elected to
the term indicated:
<TABLE>
<CAPTION>
ONE YEAR TERM VOTES FOR VOTES WITHHELD
------------- --------- --------------
<S> <C> <C>
Tom Kelly 6,884,371 608,793
Edward McGrew 6,871,161 622,003
TWO YEAR TERM
R. Stephen Ellison 6,898,603 594,561
</TABLE>
The following directors' terms continued after the Annual Meeting and
expire in the year indicated:
EXPIRING IN 2001
Dennis L. Kern
EXPIRING IN 2002
Richard D. Foss
Ronald A. (Rusty) Pedersen
Alice Helen Lowery Westerfield
ITEM 5. OTHER INFORMATION
Not Applicable.
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<PAGE> 23
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 24
</TABLE>
(b) Current Reports on Form 8-K:
During the quarter ended June 30, 2000 the Company did not file any
Current Reports on Form 8-K.
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: August 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
