<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended JUNE 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ________ to ______________.
COMMISSION FILE NO. 000 - 26505
COMMUNITY BANCORP INC.(1)
(Exact name of registrant as specified in its charter)
DELAWARE 33-0859334
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
130 WEST FALLBROOK STREET, FALLBROOK, CA 92028
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (760) 723-8811
-----------------------------------
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Number of shares of common stock outstanding as of June 30, 2000:
2,536,981
Transitional Small Business Disclosure Format (check one):
Yes [ ] No[x]
--------
(1) The Company is the successor registrant to Fallbrook National Bank, which
previously filed reports pursuant to the Securities Exchange Act of 1934 with
the Comptroller of the Currency.
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMMUNITY BANCORP INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31,
(UNAUDITED) 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 20,548 $ 15,376
Interest bearing deposits in financial institutions 1,277 800
Federal Reserve Bank stock 253 253
Investment securities held-to-maturity, at amortized cost 6,711 6,710
Loans held for investment 187,749 142,667
Less allowance for loan losses (1,637) (1,327)
---------- ----------
Net loans held for investment 186,112 141,340
Loans held for sale 9,610 2,854
Premises and equipment, net 2,294 2,392
Accrued interest and other assets 3,640 2,957
Deferred tax asset 744 744
Servicing asset, net 1,660 1,796
Interest-only strip, at fair value 543 551
---------- ----------
Total Assets $ 233,392 $ 175,773
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $ 175,174 $ 129,795
Non-interest bearing 33,454 28,337
---------- ----------
Total deposits 208,628 158,132
Other borrowings 11,019 3,971
Accrued expenses and other liabilities 2,396 2,333
---------- ----------
Total liabilities 222,043 164,436
SHAREHOLDERS' EQUITY
Common stock, $0.625 par value; authorized 10,000,000 shares, issued and
outstanding, 2,537,000 at June 30, 2000 and
December 31, 1999 1,585 1,585
Additional paid-in capital 4,713 4,713
Unearned ESOP contribution (1,019) (796)
Retained earnings 6,075 5,835
Treasury stock, at cost - 883 shares (5) -
---------- ----------
Total shareholders' equity 11,349 11,337
---------- ----------
Total Liabilities and Shareholders' Equity $ 233,392 $ 175,773
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS FOR THE THREE MONTHS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) ENDED JUNE 30, ENDED JUNE 30,
(UNAUDITED) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,186 $ 5,841 $ 4,461 $ 3,003
Interest on cash equivalents 345 233 242 170
Interest on interest bearing deposits in financial institutions 24 20 15 10
Interest on investment securities 203 62 105 20
-------- ------- ------- -------
TOTAL INTEREST INCOME 8,758 6,156 4,823 3,203
-------- ------- ------- -------
Interest expense on deposits 3,487 1,854 1,899 985
Interest expense on other borrowed money 421 43 307 21
-------- ------- ------- -------
TOTAL INTEREST EXPENSE 3,908 1,897 2,206 1,006
-------- ------- ------- -------
Net interest income before provision for loan losses 4,850 4,259 2,617 2,197
-------- ------- ------- -------
Provision for loan losses 337 315 177 165
-------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,513 3,944 2,440 2,032
Other operating income:
Customer service charges 219 178 111 96
Other fee income 452 665 157 362
Net gain on sale of loans 93 1,713 46 849
Loan servicing fees, net 323 270 163 107
-------- ------- ------- -------
TOTAL OTHER OPERATING INCOME 1,087 2,826 477 1,414
-------- ------- ------- -------
Other operating expenses:
Salaries and employee benefits 2,628 3,145 1,259 1,574
Occupancy 399 427 202 211
Telephone 131 127 63 72
Premises and equipment 285 243 140 119
Marketing and promotions 152 155 83 80
Data processing 410 362 196 181
Professional services 352 237 160 130
Director, officer and employee expenses 239 244 129 134
Office expenses 154 189 73 92
ESOP loan expense 102 102 51 51
Other non-recurring expense - 20 - -
Other expenses 340 268 228 153
-------- ------- ------- -------
TOTAL OTHER OPERATING EXPENSES 5,192 5,519 2,584 2,797
-------- ------- ------- -------
Income before income taxes 408 1,251 333 649
Income taxes 167 516 136 267
-------- ------- ------- -------
NET INCOME $ 241 $ 735 $ 197 $ 382
======== ======= ======= =======
COMPREHENSIVE INCOME $ 241 $ 735 $ 197 $ 382
======== ======= ======= =======
Basic earnings per share $ 0.10 $ 0.31 $ 0.08 $ 0.16
Diluted earnings per share $ 0.10 $ 0.30 $ 0.08 $ 0.16
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) FOR THE SIX MONTHS
(UNAUDITED) ENDED JUNE 30,
2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 241 $ 735
Adjustments to reconcile net income to net cash (used in) provided
Depreciation and amortization 289 665
Provision for loan losses 337 315
Net gain on sale of loans (93) (1,713)
Loans originated for sale (10,268) (34,013)
Unrealized gain on interest-only strips (33) -
Capitalization of interest-only strips - (7)
Amortization of interest only strips 41 110
Capitalization of servicing asset - (294)
Amortization of servicing asset 136 174
Writedown of servicing asset - (307)
Proceeds from sale of loans 9,067 48,242
Decrease (increase) in accrued interest and other assets (683) (79)
Decrease in accrued expenses and other liabilities 63 (307)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (903) 13,521
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (50,493) (14,937)
Net maturities of (additions to) interest bearing time deposits (477) -
Maturities of securities held-to-maturity - 700
Purchase of securities held-to-maturity - (5,465)
Net additions to premises and equipment (194) (304)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (51,164) (20,006)
CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits:
Interest bearing 45,379 11,470
Non-interest bearing 5,117 4,297
Purchase of treasury stock (5) -
Exercise of stock options - 15
Repayment of line of credit (3,277) (102)
Advances to ESOP 325 -
Proceeds from other borrowings 9,700 3,175
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,239 18,855
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,172 12,370
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 15,376 $ 6,064
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,548 $ 18,434
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
COMMUNITY BANCORP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION:
The interim financial statements included herein have been prepared by Community
Bancorp Inc. without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). The interim financial statements
include Community Bancorp Inc. and its wholly owned subsidiaries Fallbrook
National Bank (the "Bank") and Community (CA) Capital Trust I (the "Trust"),
(collectively, the "Company") as consolidated with the elimination of all
intercompany transactions. Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, have been
condensed or omitted pursuant to such SEC rules and regulations. Nevertheless,
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's latest Annual Report as found on Form 10KSB. In the opinion of
management, all adjustments, including normal recurring adjustments necessary to
present fairly the financial position of the Company with respect to the interim
financial statements and the results of its operations for the interim period
ended June 30, 2000, have been included. Certain reclassifications may have been
made to prior year amounts to conform to the 2000 presentation. The results of
operations for interim periods are not necessarily indicative of results for the
full year.
NOTE 2 LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES:
A summary of loans as of June 30, 2000 and December 31, 1999 is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-----------------------------------
(dollars in thousands)
<S> <C> <C>
Construction loans $ 34,763 $ 27,661
Real estate one to four family 28,256 21,601
Real estate commercial and multi family 93,044 61,263
Consumer home equity lines of credit 2,669 2,649
Consumer other 10,348 9,302
Aircraft 19,840 17,113
Commercial 8,565 6,064
-----------------------------------
Total gross loans 197,484 145,693
Deferred loan fees 657 688
Discount on unguaranteed portion of loans retained (782) (860)
Allowance for loan losses (1,637) (1,327)
-----------------------------------
Net loans $195,722 $144,194
===================================
</TABLE>
The Company's lending activities are concentrated primarily in Southern
California. Although the Company seeks to avoid undue concentrations of loans to
a single industry based upon a single class of collateral, real estate and real
estate associated business areas are among the principal industries in the
Company's market area. As a result, the Company's loan and collateral portfolios
are, to some degree, concentrated in those industries. The Company evaluates
each credit on an individual basis and determines collateral requirements
accordingly. When real estate is taken as collateral, advances are generally
limited to a certain percentage of the appraised value of the collateral at the
time the loan is made, depending on the type of loan, the underlying property
and other factors.
5
<PAGE>
NOTE 3 SALES AND SERVICING OF SBA LOANS:
Starting in the first quarter of 2000, the Company changed its policy to hold to
maturity the guaranteed portion of SBA 7a loans. In the past, the Company
generated revenues from the origination of loans guaranteed by the SBA and the
sale of guaranteed and unguaranteed portions of those loans in the secondary
market. The Company retained the servicing on the sale of SBA loans that creates
loan servicing income. The Company measures the servicing asset by discounting
the respective cash flow for the estimated expected life of the loans. The
Company uses industry prepayment statistics in estimating the expected life.
Servicing assets are initially measured at market rates.
If the fair value of the servicing assets is less than the amortized carrying
value, the asset is considered impaired. A valuation allowance must be
established for the impaired asset by a charge against income for the difference
between the amortized carrying value and the fair value. As of June 30, 2000,
there was no material difference between the Company's amortized carrying value
for the servicing assets and the fair value and the Company had no valuation
allowance established for these assets.
NOTE 4 CONTINGENCIES:
Because of the nature of its activities, the Company is at all times subject to
pending and threatened legal actions which arise out of the normal course of its
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
NOTE 5 FORMATION OF HOLDING COMPANY:
The Company was formed through a holding company reorganization of Fallbrook
National Bank, wherein Fallbrook National Bank became the wholly owned
subsidiary of Community Bancorp Inc. as of June 25, 1999. The transaction was
based on a one for one exchange of shares of Fallbrook National Bank stock for
shares of common stock of Community Bancorp Inc., and was not considered a
taxable event for IRS purposes. Such business combination was accounted for at
historical cost, similar to a pooling of interest. All references to periods
prior to June 30, 1999 are references to financial statements of the Bank.
6
<PAGE>
NOTE 6 EARNINGS PER SHARE
The following tables are a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for the net earnings for the Company
(dollars in thousands, except share data):
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
2000 1999
---------------------------------------- ----------------------------------------
Earnings Shares Per Share Earnings Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Earnings $ 241 $ 735
=========== ===========
Basic EPS Earnings available
to common shareholders $241 2,418,813 $ 0.10 $ 735 2,397,945 $ 0.31
Effect of Dilutive Securities
Options - 33,800 - - 58,013 -
----------- ------------- --------- ----------- ------------- ---------
Diluted EPS Earnings
Available to common
Shareholders plus assumed
Conversions $ 241 2,452,613 $ 0.10 $ 735 2,455,958 $ 0.30
=========== ========= ========= =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the three months ended June 30,
-----------------------------------
2000 1999
---------------------------------------- ----------------------------------------
Earnings Shares Per Share Earnings Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Earnings $ 197 $ 382
=========== ===========
Basic EPS Earnings available
to common shareholders $ 197 2,403,484 $ 0.08 $ 382 2,400,039 $ 0.16
Effect of Dilutive Securities
Options - 39,603 - - 55,968 -
----------- ------------- --------- ----------- ------------- ---------
Diluted EPS Earnings
Available to common
shareholders plus assumed
conversions $ 197 2,443,087 $ 0.08 $ 382 2,456,007 $ 0.16
=========== ========= ========= =========== ========= =========
</TABLE>
7
<PAGE>
NOTE 7 SEGMENT INFORMATION
The following disclosure about segments of the Company is made in accordance
with the requirements of Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company changed its internal reporting in 1999, and now segregates its
operations into two primary segments: Banking Division and SBA Lending Division.
The Company determines operating results of each segment based on an internal
management system that allocates certain expenses to each.
<TABLE>
<CAPTION>
For the six months ended June 30,
-----------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------
BANKING SMALL BUSINESS TOTAL BANKING SMALL BUSINESS TOTAL
DIVISION ADMINISTRATION COMPANY DIVISION ADMINISTRATION COMPANY
LENDING LENDING
DIVISION DIVISION
("SBA) ("SBA)
-----------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 6,675 $ 2,083 $ 8,758 $ 4,128 $ 2,028 $ 6,156
Interest expense 2,377 1,531 3,908 830 1,067 1,897
-----------------------------------------------------------------------------------
Net interest income before
provision 4,298 552 4,850 3,298 961 4,259
Allowance for loan losses 268 69 337 315 - 315
Other income 550 537 1,087 580 2,246 2,826
Other expenses 3,718 1,474 5,192 4,121 1,398 5,519
-----------------------------------------------------------------------------------
Income before income taxes 862 (454) 408 (558) 1,809 1,251
Income taxes 355 (188) 167 (231) 747 516
-----------------------------------------------------------------------------------
Net income $ 507 $ (266) $ 241 $ (327) $ 1,062 $ 735
===================================================================================
Asset employed at quarter end $ 174,113 $ 59,279 $ 233,392 $ 122,045 $ 33,563 $ 155,608
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
For the three months ended June 30,
-----------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------
BANKING SMALL BUSINESS TOTAL BANKING SMALL BUSINESS TOTAL
DIVISION ADMINISTRATION COMPANY DIVISION ADMINISTRATION COMPANY
LENDING LENDING
DIVISION DIVISION
("SBA) ("SBA)
-----------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 3,634 $ 1,189 $ 4,823 $ 2,244 $ 959 $ 3,203
Interest expense 1,317 889 2,206 499 507 1,006
-----------------------------------------------------------------------------------
Net interest income before
provision 2,317 300 2,617 1,745 452 2,197
Allowance for loan losses 147 30 177 165 - 165
Other income 269 208 477 149 1,265 1,414
Other expenses 1,829 755 2,584 2,153 644 2,797
-----------------------------------------------------------------------------------
Income before income taxes 610 (277) 333 (424) 1,073 649
Income taxes 251 (115) 136 (176) 443 267
-----------------------------------------------------------------------------------
Net income $ 359 $ (162) $ 197 $ (248) $ 630 $ 382
===================================================================================
Asset employed at quarter end $ 174,113 $ 59,279 $ 233,392 $ 122,045 $ 33,563 $ 155,608
===================================================================================
</TABLE>
8
<PAGE>
NOTE 8 RECENT ACCOUNTING DEVELOPMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 was effective for all fiscal quarters beginning after
June 15, 1999. In July 1999, SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," was issued, which delays the effective date of SFAS No. 133
to fiscal years beginning after June 15, 2000. Earlier application is
encouraged, but it is permitted only as of the beginning of any fiscal quarter
that begins after June 1998. The adoption of the provisions of SFAS No. 133, as
amended by SFAS No. 137 and by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment to FASB Statement
No. 133" issued June 2000, is not expected to have a material impact on the
results of operations, the financial position, or cash flows of the Company.
In December 1999, the Securities and Exchange Committee issued Staff
Accounting Bulletin 101, Revenue Recognition ("SAB 101"). SAB 101 summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to selected revenue recognition issues in financial statements.
Implementation of SAB 101, which was delayed by the issuance of SAB 101A on
March 27, 2000 and SAB 101B on June 26, 2000 is required by the fourth
quarter of 2000. It is not expected that the adoption of SAB 101, as amended,
will have a material impact on the Company's results of operations, financial
position or cash flows.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the major factors that
influenced the financial performance of the Company for the six and three months
ended June 30, 2000. This analysis should be read in conjunction with the
Company's 1999 Annual Report as filed on form 10KSB and with the unaudited
financial statements and notes as set forth in this report.
Statements concerning future performance, developments or events concerning
expectation for growth and market forecasts, and any other guidance on future
periods, constitute forward-looking statements which are subject to a number of
risks and uncertainties which might cause actual results to differ materially
from stated expectations.
RESULTS OF OPERATIONS
NET INCOME
Net income decreased 67.21% to $241,000 for the six months ended June 30, 2000
compared to $735,000 for the six months ended June 30, 1999. Basic earnings per
share was $0.10 and $0.31 for the six months ended June 30, 2000 and 1999,
respectively. Diluted earnings per share was $0.10 and $0.30 for the six months
ended June 30, 2000 and 1999, respectively. Earnings per share for the six
months ended June 30, 1999 were adjusted for the effects of a stock dividend
paid in November 1999. The decrease in net income was mainly due to the decrease
in other operating income, partially offset by an increase in net interest
income after provision for loan losses and a decrease in other operating
expenses. Interest income increased due to an increase in average interest
earning assets, and other operating income decreased during the six months ended
June 30, 2000 due to the Company's change in policy from selling the guaranteed
and unguaranteed portions of SBA 7a loans to retention of the SBA 7a loans. This
change in policy became effective January 1, 2000. Although management
anticipates that earnings will improve throughout each of the remaining quarters
of 2000, the net income for the year will be significantly reduced when compared
to 1999. Management expects that earnings will improve significantly in 2001 as
the increased net interest income will more than offset the revenue from gain on
sale of loans.
Return on average assets for the six months ended June 30, 2000 was 0.23%
compared to 1.04% for the six months ended June 30, 1999. The decrease in the
return on average assets from 1999 to 2000 was due to the reduction in net
income noted above, combined with the 50% growth in total assets, which was part
of the Company's strategic plan. The return on average equity was 4.30% for the
six months ended June 30, 2000 compared to 14.77% for the six months ended June
30, 1999.
Net income decreased 48.43% to $197,000 for the three months ended June 30, 2000
compared to $382,000 for the three months ended June 30, 1999. Basic earnings
per share were $0.08 and $0.16 for the three months ended June 30, 2000 and
1999, respectively. Diluted earnings per share were $0.08 and $0.16 for the
three months ended June 30, 2000 and 1999, respectively. Earnings per share for
the three months ended June 30, 1999 were adjusted for the effects of a stock
dividend paid in December 1999. The decrease in net income was mainly due to the
decrease in other operating income, partially offset by an increase in net
interest income after provision for loan losses and a decrease in other
operating expenses. Interest income increased due to an increase in average
interest earning assets, and other operating income decreased during the three
months ended June 30, 2000 due to the Company's change in policy from selling
the guaranteed and unguaranteed portions of SBA 7a loans to retention of the SBA
7a loans. This change in policy became effective January 1, 2000.
Return on average assets for the three months ended June 30, 2000 was 0.36%
compared to 1.03% for the three months ended June 30, 1999. The decrease in the
return on average assets from 1999 to 2000 was due to the decrease in net
income, as noted above. The return on
10
<PAGE>
average equity was 7.10% for the three months ended June 30, 2000 compared to
14.97% for the three months ended June 30, 1999.
INTEREST INCOME
Net interest income is the most significant component of the Company's income
from operations. Net interest income is the difference (the "interest rate
spread") between the gross interest and fees earned on the loan and investment
portfolios and the interest paid on deposits and other borrowings. Net interest
income depends on the volume of and interest rate earned on interest earning
assets and the volume of and interest rate paid on interest bearing liabilities.
The following table sets forth a summary of average balances with corresponding
interest income and interest expense as well as average yield and cost
information for the periods presented. Average balances are derived from daily
balances, and nonaccrual loans are included as interest earning assets for
purposes of this table.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID RATE/YIELD BALANCE EARNED/PAID RATE/YIELD
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average assets
Securities and time at other banks 7,924 227 5.76% 2,883 82 5.74%
Fed funds sold 12,085 345 5.74% 10,067 233 4.67%
Loans
Commercial 72,642 3,257 9.02% 52,959 2,712 10.33%
Real Estate 90,792 4,610 10.21% 57,354 2,874 10.11%
Consumer 7,259 319 8.84% 5,558 255 9.25%
----------------------- --------------------------
Total loans 170,693 8,186 9.64% 115,871 5,841 10.17%
----------------------- --------------------------
Total earning assets 190,702 8,758 9.24% 128,821 6,156 9.64%
Non earning assets 16,289 14,055
--------- ---------
Total average assets $ 206,991 $ 142,876
========= =========
Average liabilities and shareholders equity
Interest bearing deposits
Savings and interest bearing accounts 58,749 654 2.24% 62,683 767 2.47%
Time deposits 98,028 2,833 5.81% 44,385 1,087 4.94%
----------------------- --------------------------
Total interest bearing deposits 156,777 3,487 4.47% 107,068 1,854 3.49%
Demand deposits 28,850 - - 23,471 -
Sub-debt 5,440 302 11.16% -
Other borrowings 2,360 119 10.14% 949 43 9.14%
----------------------- --------------------------
Total interest bearing liabilities 193,427 3,908 4.06% 131,488 1,897 2.91%
Accrued expenses and other liabilities 2,289 1,353
Net shareholders equity 11,275 10,035
------- -------
Total average liabilities
shareholders equity 206,991 142,876
========= =========
Net interest spread 5.18% 6.73%
========== =========
Net interest income 4,850 4,259
========= ========
Net yield on interest earnings assets 5.11% 6.67%
---------- ---------
</TABLE>
Interest income for the six months ended June 30, 2000 increased to $8.8
million, compared to $6.2 million for the six months ended June 30, 1999. This
increase was due to an increase in the average balance of interest earning
assets, partially offset by a decrease in the yield on those assets. Average
interest earning assets increased to $190.7 million for the six months ended
June 30, 2000 compared to $128.8 million for the six months ended June 30, 1999.
The yield on interest earning assets decreased to 9.24% for the six months ended
June 30, 2000 compared to
11
<PAGE>
9.64% for the six months ended June 30, 1999. During the fourth quarter of 1999,
the Company changed its estimates as to the costs of originating a loan, which
resulted in a higher monthly amortization cost being charged against interest
income. This in turn reduced the yield on the loans originated. In addition,
increased competition by other financial intermediaries has resulted in tighter
margins than had previously been experienced by the Company. The largest single
component of interest earning assets was loans receivable, which had an average
balance of $170.7 million with a yield of 9.64% for the six months ended June
30, 2000 compared to $115.9 million with a yield of 10.17% for the six months
ended June 30, 1999. The increase in the average balance of loans receivable was
attributable to the expansion of the Company as part of the Company's strategic
plan, including the retention of SBA 7a loans.
Interest expense for the six months ended June 30, 2000 increased to $3.9
million compared to $1.9 million for the six months ended June 30, 1999. This
increase was due to an increase in average deposits and other borrowings,
combined with a change in the composition of those liabilities, and by an
increase in the cost of those liabilities. Average interest-bearing
liabilities increased to $193.4 million for the six months ended June 30,
2000 compared to $131.5 million for the six months ended June 30, 1999.
Average time deposits increased to $98.0 million with a cost of 5.81% for the
six months ended June 30, 2000 compared to $44.4 million with a cost of 4.94%
for the six months ended June 30, 1999. Beginning on January 1, 2000, the
Company changed its policy regarding the sale of SBA 7a loans from one of
selling the guaranteed and unguaranteed portions to retaining the guaranteed
and unguaranteed portions. The resulting increase in total loans is being
funded by both retail and wholesale certificates of deposit, with the
wholesale deposits having a higher interest rate than the retail deposits.
Although the wholesale deposits have a higher interest rate, there is limited
operating costs associated with acquiring and managing these liabilities. As
of June 30, 2000 wholesale deposits totaled $22.1 million and have maturities
ranging from three months to one year. In addition, interest rates in general
have risen considerably from the second quarter of 1999 to the second quarter
of 2000.
Other average borrowings increased to $7.8 million with a cost of 10.85% for
the six months ended June 30, 2000, compared to $1.0 million with a cost of
9.14% for the six months ended June 30, 1999.The Company borrowed $3.2
million in June, 1999, of which $3.0 million was used to increase capital at
its Bank subsidiary. The Company's subsidiary, Community (CA) Capital Trust
I, issued $10 million of 11.0% Fixed Rate Capital Trust Pass-through
Securities ("TRUPS-Registered Trademark-"), with a liquidation value of
$1,000 per share. The Company used the proceeds to pay off the $3.2 million
in borrowed funds, and invested an additional $6.0 million in the Bank.
12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID RATE/YIELD BALANCE EARNED/PAID RATE/YIELD
<S> <C> <C> <C> <C> <C> <C>
Average Assets
Securities and time at other banks 8,086 120 5.97% 3,157 30 3.81%
Fed funds sold 16,443 242 5.92% 14,535 170 4.69%
Loans
Commercial 78,089 1,790 9.22% 51,761 1,384 10.72%
Real Estate 96,203 2,510 10.49% 58,814 1,485 10.13%
Consumer 7,287 161 8.89% 5,840 134 9.20%
------------------------ -------------------------
Total loans 181,579 4,461 9.88% 116,415 3,003 10.35%
------------------------ -------------------------
Total earning assets 206,108 4,823 9.41% 134,107 3,203 9.58%
Non earning assets 15,732 15,174
--------- ---------
Total average assets $ 221,840 $ 149,281
========= =========
Average liabilities and shareholders
equity
Interest bearing deposits
Savings and interest bearing
accounts 59,352 311 2.11% 64,769 399 2.47%
Time deposits 108,014 1,588 5.91% 46,494 586 5.06%
------------------------ -------------------------
Total interest bearing deposits 167,366 1,899 4.56% 111,263 985 3.55%
Demand deposits 30,026 - 0.00% 25,380 - 0.00%
Sub-debt 10,000 277 11.14% - - 0.00%
Other borrowings 1,055 30 11.44% 922 21 9.14%
------------------------ -------------------------
Total interest bearing liabilities 208,447 2,206 4.26% 137,565 1,006 2.93%
Accrued expenses and other liabilities 2,240 1,482
Net shareholders Equity 11,153 10,234
--------- ---------
Total average liabilities
shareholders equity 221,840 149,281
========= =========
Net interest spread 5.15% 6.65%
======== ========
Net interest income 2,617 2,197
=========== ==========
Net yield on interest earnings assets 5.11% 6.57%
======== ========
</TABLE>
Interest income for the three months ended June 30, 2000 increased to $4.8
million, compared to $3.2 million for the three months ended June 30, 1999. This
increase was due to an increase in the average balance of interest earning
assets, partially offset by a decrease in the yield on those assets. Average
interest earning assets increased to $206.1 million for the three months ended
June 30, 2000 compared to $134.1 million for the three months ended June 30,
1999. The yield on interest earning assets decreased to 9.41% for the three
months ended June 30, 2000 compared to 9.58% for the three months ended June 30,
1999. During the fourth quarter of 1999, the Company changed its estimates as to
the costs of originating a loan, which resulted in a higher monthly amortization
cost being charged against interest income. This in turn reduced the yield on
the loans originated. In addition, increased competition by other financial
intermediaries has resulted in tighter margins than had previously been
experienced by the Company. The largest single component of interest earning
assets was loans receivable, which had an average balance of $181.6 million with
a yield of 9.88% for the three months ended June 30, 2000 compared to $116.4
million with a yield of 10.35% for the three months ended June 30, 1999. The
increase in the average balance of loans receivable was attributable to the
expansion of the Company as part of the Company's strategic plan, including the
retention of SBA 7a loans.
Interest expense for the three months ended June 30, 2000 increased to $2.2
million compared to $1.0 million for the three months ended June 30, 1999. This
increase was due to an increase in average deposits and other borrowings,
combined with a change in the composition of those liabilities, and by an
increase in the cost of those liabilities. Average interest-bearing liabilities
13
<PAGE>
increased to $208.4 million for the three months ended June 30, 2000 compared to
$137.6 million for the three months ended June 30, 1999. Average time deposits
increased to $108.0 million with a cost of 5.91% for the three months ended June
30, 2000 compared to $46.5 million with a cost of 5.06% for the three months
ended June 30, 1999. Beginning on January 1, 2000, the Company changed its
policy regarding the sale of SBA 7a loans from one of selling the guaranteed and
unguaranteed portions to retaining the guaranteed and unguaranteed portions. The
resulting increase in total loans is being funded by both retail and wholesale
certificates of deposit, with the wholesale deposits having a higher interest
rate than the retail deposits. Although the wholesale deposits have a higher
interest rate, there is limited operating costs associated with acquiring and
managing these liabilities. In addition, interest rates in general have risen
considerably from the second quarter of 1999 to the second quarter of 2000.
Other average borrowings increased to $11.1 million with a cost of 11.17% for
the three months ended June 30, 2000, compared to $1.0 million with a cost of
9.14% for the three months ended June 30, 1999.The Company borrowed $3.2
million in June, 1999, of which $3.0 million was used to increase capital at
its Bank subsidiary. The Company's subsidiary, Community (CA) Capital Trust
I, issued $10 million of 11.0% Fixed Rate Capital Trust Pass-through
Securities ("TRUPS-Registered Trademark-"), with a liquidation value of
$1,000 per share. The Company used the proceeds to pay off the $3.2 million
in borrowed funds, and invested an additional $6.0 million in the Bank.
NET INTEREST INCOME BEFORE PROVISION FOR ESTIMATED LOAN LOSSES
Net interest income before provision for estimated loan losses for the six
months ended June 30, 2000 was $4.9 million, compared to $4.3 million for the
six months ended June 30, 1999. This increase was primarily due to the increase
in average interest earning assets and partially offset by a decrease in the net
interest margin. Average interest earning assets were $190.7 million for the six
months ended June 30, 2000 with a net interest margin of 5.11% compared to
$128.8 million with a net interest margin of 6.67% for the six months ended June
30, 1999. The decline in the net interest margin was primarily due to the rising
interest rate environment, combined with the increased use of certificates of
deposits as well as other borrowed funds in order to support its expanding loan
portfolio. In addition, the decline in yield on interest earning assets due to
the change of estimates regarding the cost of originating a loan and the
increased competition in the market place contributed to the decreased margin.
Management believes that a rising interest rate environment will positively
effect the yield on interest earning assets in the future, while the increased
cost of liabilities through the additional use of wholesale deposits and
borrowed funds will offset this improvement, resulting in a slightly reduced
margin for the subsequent quarters in 2000. However, management believes that
the increased volume of interest earning assets due to the retention of SBA 7a
loans will result in a significantly higher net interest income in the future.
Net interest income before provision for estimated loan losses for the three
months ended June 30, 2000 was $2.6 million, compared to $2.2 million for the
three months ended June 30, 1999. This increase was primarily due to the
increase in average interest earning assets and partially offset by a decrease
in the net interest margin. Average interest earning assets were $206.1 million
for the three months ended June 30, 2000 with a net interest margin of 5.11%
compared to $134.1 million with a net interest margin of 6.57% for the three
months ended June 30, 1999. The decline in the net interest margin was primarily
due to the rising interest rate environment, combined with the increased use of
certificates of deposits as well as other borrowed funds in order to support its
expanding loan portfolio. In addition, the decline in yield on interest earning
assets due to the change of estimates regarding the cost of originating a loan
and the increased competition in the market place contributed to the decreased
margin.
PROVISION FOR LOAN LOSSES
Net charge offs totaled $27,000 for the six months ended June 30, 2000 compared
to $21,000 during the six months ended June 30, 1999. Due to the growth in loans
and the historical loss experience associated with the various loan types, the
provision for loan losses totaled $337,000
14
<PAGE>
for the six months ended June 30, 2000 compared to $315,000 for the six months
ended June 30, 1999. As a result of the increase in total loans outstanding,
management increased the allowance for loan losses to $1.6 million as of June
30, 2000 compared to $1.3 million as of June 30, 1999. As of June 30, 2000, the
allowance was 0.83% of total gross loans compared to 1.15% as of June 30, 1999.
When excluding the guaranteed portions of loans and loans held for sale, the
allowance was 1.02% and 1.23% respectively as a percentage of total gross loans
as of June 30, 2000 and June 30, 1999. The allowance for loan losses as a
percentage of nonaccrual loans was 92.74% as of June 30, 2000 compared to
120.07% as of June 30, 1999. When excluding the guaranteed portion of nonaccrual
loans, the allowance for loan losses as a percentage of nonaccrual loans was
292.81% as of June 30, 2000 compared to 155.13% as of June 30, 1999.
For the three months ended June 30, 2000, net charge offs totaled $68,000
compared to $21,000 for the three months ended June 30, 1999. Provisions for
loan losses totaled $177,000 for the three months ended June 30, 2000 compared
to $165,000 for the three months ended June 30, 1999.
Nonaccrual loans as of June 30, 2000 were $1.8 million, of which $1.2 million is
guaranteed by the SBA, compared to $1.8 million, with $1.4 million guaranteed by
the SBA as of December 31, 1999 and $1.1 million, with $242,000 guaranteed by
the SBA as of June 30, 1999.
In determining the adequacy of the allowance for loan losses, management
initially considers the allowances specifically allocated to individual impaired
loans, and next considers the level of general loss allowances deemed
appropriate for the balance of the portfolio based on factors including the
levels of classified assets, general portfolio trends relative to asset and
portfolio size, asset categories, potential credit concentrations, nonaccrual
loan levels, historical loss experience, risks associated with changes in
economic and business conditions, and other factors. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to make additional provisions for loan losses based upon
judgments which differ from those of management.
OTHER OPERATING INCOME
Other operating income represents non-interest types of revenue and is comprised
primarily of other fee income, loan servicing fees and service charges on
deposit accounts. Prior to January 1, 2000 gain on sale income made up a
significant portion of other fee income. Other operating income was $1.1 million
for the six months ended June 30, 2000 compared to $2.8 million months ended
June 30, 1999. This represents a decrease of $1.7 million, or 61.5%, when
comparing the six month period ended June 30, 2000 to the six month period ended
June 30, 1999. The decrease was mainly due to a decrease in the gain on sale of
loans, which totaled $93,000 for the six month period ended June 30, 2000
compared to $1.7 million for the six month period ended June 30, 1999. The
decrease in gain on sale of loans was due to a change in the Company's policy to
retain SBA 7a loans versus selling such loans in the secondary market. The
Company sold $6.4 million in mortgage loans and $2.6 million in SBA 504 loans
during the six months ended June 30, 2000 compared to $18.5 million in mortgage
loans and $28.7 million in SBA 504 and 7a loans during the six month period
ended June 30, 1999.
Other operating income was $477,000 for the three months ended June 30, 2000
compared to $1.4 million for the three months ended June 30, 1999. This
represents a decrease of $937,000, or 66.3%, when comparing the three month
period ended June 30, 2000 to the three month period ended June 30, 1999. The
decrease was mainly due to a decrease in the gain on sale of loans, which
totaled $46,000 for the three month period ended June 30, 2000 compared to
$849,000 for the three month period ended June 30, 1999. The decrease in gain on
sale of loans was due to a change in the Company's policy to retain SBA 7a loans
versus selling such loans in the secondary market. The Company sold $3.2 million
in mortgage loans and $1.6 million in SBA 504 loans during the three months
ended June 30, 2000 compared to $16.9 million in mortgage loans and $14.0
million in SBA 504 and 7a loans during the three month period ended June 30,
1999.
15
<PAGE>
Prior to January 1, 2000, a major portion of other operating income was
generated through the sale of loans consisting of SBA loans and mortgage loans.
During the six months ended June 30, 2000, the Company originated $28.1 million
in SBA government guaranteed loans compared to $22.3 million during the six
months ended June 30, 1999. The Company originated $7.2 million in mortgage
loans during the six months ended June 30, 2000 compared to $18.5 million for
the six months ended June 30, 1999. The Company sold approximately $2.6 million
in SBA 504 loans and $6.4 million in mortgage loans during the six month period
ended June 30, 2000. This decrease reflects the change in the Company's strategy
when compared to sales of $28.7 million in SBA loans and $18.5 million in
mortgage loans sold during the six month period ended June 30, 1999. The sales
for the six month period ended June 30, 2000 resulted in a gain of $93,000,
compared to $1.7 million for the six month period ended June 30, 1999. Prior to
1999, the Company had not sold any unguaranteed portions of SBA loans. In the
future, the Company may, from time to time, sell unguaranteed portions of SBA
loans in order to manage its asset growth, capital and liquidity.
During the three months ended June 30, 2000, the Company originated $17.8
million in SBA government guaranteed loans compared to $10.3 million during the
three months ended June 30, 1999. The Company originated $3.6 million in
mortgage loans during the three months ended June 30, 2000 compared to $6.9
million for the three months ended June 30, 1999. The Company sold approximately
$1.6 million in SBA 504 loans and $3.3 million in mortgage loans during the
three month period ended June 30, 2000. This decrease reflects the change in the
Company's strategy when compared to sales of $14.0 million in SBA loans and $6.9
million in mortgage loans sold during the three month period ended June 30,
1999. The sales for the three month period ended June 30, 2000 resulted in a
gain of $46,000, compared to $849,000 for the three month period ended June 30,
1999. Prior to 1999, the Company had not sold any unguaranteed portions of SBA
loans. In the future, the Company may, from time to time, sell unguaranteed
portions of SBA loans in order to manage its asset growth, capital and
liquidity.
Other fee income totaled $452,000 for the six months ended June 30, 2000
compared to $665,000 for the six months ended June 30, 1999. For the three
months ended June 30, 2000 and 1999 other fee income totaled $157,000 and
$362,000 respectively. The decrease in other fee income for the three month and
six month periods reflect the decrease in fees from brokering of loans which the
Company does not directly fund.
Servicing fees, net, totaled $323,000 for the six months ended June 30, 2000
compared to $270,000 for the six months ended June 30, 1999. For the quarter
ended June 30, 2000 servicing fees, net, totaled $163,000 compared to
$107,000 for the quarter ended June 30, 1999. The increase in servicing fees
reflects the general industry trend of declining prepayment speeds on SBA
loans, which is a result of the rising interest rate environment.
Customer service charges increased to $219,000 for the six months ended June 30,
2000 compared to $178,000 for the six months ended June 30, 1999. For the
quarter ended June 30, 2000 customer service charges increased to $111,000
compared to $96,000 for the quarter ended June 30, 1999. This increase was due
to the expansion of the branch operations as part of the Company's strategic
plan.
OTHER OPERATING EXPENSES
Other operating expenses are non-interest types of expenses and are incurred by
the Company in its normal course of business. Salaries and employee benefits,
occupancy, telephone, premises and equipment, marketing and promotions, data
processing, professional services, director, officer and employee expenses,
office, ESOP loan and other expenses are the major categories of other operating
expenses. Other operating expenses decreased to $5.2 million for the six months
ended June 30, 2000 compared to $5.5 million for the six months ended June 30,
1999. For the three months ended June 30, 2000 and 1999, other operating
expenses decreased to $2.6 million from $2.8 million.
16
<PAGE>
The Company's efficiency ratio, which is the ratio of recurring operating
expenses to net interest income before provision for loan losses plus
non-interest income, increased to 87.45% for the six months ended June 30, 2000
compared to 77.61% for the six months ended June 30, 1999. The increase in
efficiency ratio was due to the decrease in other operating income, and was
partially offset by the increase in net interest income and decrease in
operating expenses. Management anticipates the efficiency ratio will decline
(improve) as the net interest income increases due to the retention of SBA 7a
loans and growth in other loans. The majority of the cost decrease can be
attributed to the change of estimates of the deferred cost associated with loan
production. The effect of change of estimates was to decrease salary and benefit
expense. Salary and benefit expenses decreased to $2.6 million for the six
months ended June 30, 2000 compared to $3.1 million for the six months ended
June 30, 1999. The decrease in salaries and benefit expenses was partially
offset by an increase in other normal operating expenses, which were $2.6
million for the six months ended June 30, 2000 compared to $2.4 million for the
six months ended June 30, 1999. The largest increase in other normal operating
expenses was professional services, including legal, accounting and regulatory
expenses, which increased to $352,000 for the six months ended June 30, 2000,
compared to $237,000 for the six months ended June 30, 1999. The increase in
professional expenses was due to additional costs of operating a holding
company, along with increased litigation expenses due to the appeal of a
lawsuit.
17
<PAGE>
The following table compares each of the components of other operating expenses
for the six months ended June 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE THREE MONTHS ENDED JUNE 30,
--------------------------------- -----------------------------------
2000 1999 CHANGE $ 2000 1999 CHANGE $
<S> <C> <C> <C> <C> <C> <C>
Other operating expenses:
Salaries and employee benefits 2,628 3,145 (517) 1,259 1,574 (315)
Occupancy 399 427 (28) 202 211 (9)
Telephone 131 127 4 63 72 (9)
Premises and equipment 285 243 42 140 119 21
Marketing and promotions 152 155 (3) 83 80 3
Data processing 410 362 48 196 181 15
Professional services 352 237 115 160 130 30
Director, officer and employee
expenses 239 244 (5) 129 134 (5)
Office expenses 154 189 (35) 73 92 (19)
ESOP loan expense 102 102 - 51 51 -
Other non-recurring expense - 20 (20) - - -
Other expenses 340 268 (128) 228 153 75
----- ----- ---- ----- ----- ----
TOTAL OTHER OPERATING EXPENSES 5,192 5,519 (327) 2,584 2,797 (213)
----- ----- ---- ----- ----- ----
</TABLE>
PROVISION FOR INCOME TAXES
The effective income tax rate was 40.9% for the six months ended June 30, 2000
compared to 41.2% for the six months ended June 30, 1999. Provisions for income
taxes totaled $167,000 and $516,000 for the six months ended June 30, 2000 and
1999, respectively.
For the three months ended June 30, 2000 and 1999, the effective income tax rate
was 40.8% and 41.1%, respectively. Provisions for income taxes totaled $136,000
and $267,000 for the three months ended June 30, 2000 and 1999, respectively.
FINANCIAL CONDITION
SUMMARY OF CHANGES IN CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 COMPARED TO DECEMBER 31, 1999
Total assets of the Company increased to $233.4 million as of June 30, 2000
compared to $175.8 million as of December 31, 1999 and $155.6 million as of June
30, 1999. This increase was due to the growth in net loans to $195.7 million as
of June 30, 2000, compared to $144.2 million as of December 31, 1999, and were
$110.7 million as of June 30, 1999.
Deposits grew to $208.6 million as of June 30, 2000 compared to $158.1 million
as of December 31, 1999 and were $139.9 million as of June 30, 1999. Cash and
cash equivalents increased to $20.5 million as of June 30, 2000 compared to
$15.4 million as of December 31, 1999 and were $28.7 million as of June 30,
1999. The increase in cash and cash equivalents was due to the increase in
deposits combined with the proceeds received from the Trust Preferred offering.
See "Capital."
Shareholders' equity was approximately the same, totaling $11.3 million as of
June 30, 2000 and of December 31, 1999, and was $10.4 million as of June 30,
1999. Please refer to the capital section of this discussion for further
information.
18
<PAGE>
INVESTMENTS
The Company's investment portfolio consists primarily of certificates of deposit
with other financial institutions, agency securities and overnight investments
in the Federal Funds market. As of June 30, 2000, certificates of deposit with
other financial institutions totaled $1.3 million, compared to $800,000 as of
December 31, 1999 and June 30, 1999. At each of the periods $500,000 was pledged
as collateral for the Employee Stock Ownership Plan ("ESOP") loan from another
California bank which is funding the Company's ESOP. US Government and other
securities totaled $ 6.7 million as of June 30, 2000 and December 31, 1999, and
were $6.4 million as of June 30, 1999. These securities are held as collateral
for public funds and treasury, tax and loan deposits. Average Federal Funds sold
for the six months ended June 30, 2000 was $12.1 million compared to $10.1
million for the six months ended June 30, 1999.
LOANS
Loan balances, net of the allowance for loan losses, increased to $195.7 million
as of June 30, 2000 compared to $144.2 million as of December 31, 1999 and
$110.7 million as of June 30, 1999. A healthy loan demand resulted in a 71.4%
annualized growth rate in total gross loans for the six months ended June 30,
2000, led by a 51.9% annualized increase in real estate commercial and
multi-family loans. This rapid increase is due to the retention of the SBA 7a
loans, as part of the Company's change in strategy, which became effective
January 1, 2000. The servicing portfolio, which consists primarily of SBA loans
sold to other investors, being serviced by the Company was $87.8 million as of
June 30, 2000 compared to $92.2 million as of December 31, 1999 and $92.0
million as of June 30, 1999.
LOAN ORIGINATION AND SALE. The following table sets forth the Company's loan
originations by category and purchases, sales and principal repayments of loans
for the periods indicated:
19
<PAGE>
<TABLE>
<CAPTION>
At or for the six months At or for the three months
ended June 30, ended June 30,
----------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance 144,194 108,709 169,228 115,803
Loans originated:
Commercial loans 9,686 10,274 6,429 6,064
Real estate:
Construction loans 39,280 24,761 26,176 16,227
One-to four-family 22,041 25,882 8,972 11,298
Commercial 41,132 23,433 23,625 8,491
Consumer 4,294 2,326 2,136 1,069
----------------------------------------------------------
Total loans originated 116,433 86,676 67,338 43,149
Loans sold
Real estate:
One-to four-family 6,372 18,515 3,263 6,902
Commercial 2,601 28,730 1,562 13,986
----------------------------------------------------------
Total loans sold 8,973 47,245 4,825 20,888
Less:
Principal repayments 56,195 36,803 36,014 27,129
Other net charges (1) (263) 631 5 229
----------------------------------------------------------
Total Loans 195,722 110,706 195,722 110,706
==========================================================
</TABLE>
-------------
(1) Other net changes include changes in allowance for loan losses,
deferred loan fees, loans in process and unamortized premiums and
discounts.
NONPERFORMING ASSETS. Nonperforming assets consist of nonperforming loans and
other real estate owned ("OREO"). Nonperforming loans are those loans which have
(i) been placed on nonaccrual status, (ii) been subject to troubled debt
restructurings, or (iii) become contractually past due 90 days or more with
respect to principal or interest and have not been restructured or placed on
nonaccrual status.
20
<PAGE>
The following table sets forth the Company's non-performing assets at
the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
-------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Total loans .................................................... $ 197,359 $ 145,521 $ 111,992
Total loans held for investment ................................ 187,749 142,667 104,339
Government guaranteed portion of total loans ................... 24,495 10,653 5,097
Non-accrual loans .............................................. $ 1,765 $ 1,809 $ 1,071
Troubled debt restructurings ................................... - - -
Loans contractually past due 90 days or more with respect
to either principal or interest and still accruing interest - - -
----------- ----------- -----------
Total non-performing loans ................................ 1,765 1,809 1,071
Other real estate owned ........................................ - - -
----------- ----------- -----------
Total non-performing assets .................................... $ 1,765 $ 1,809 $ 1,071
=========== =========== ===========
Non-performing loans net of government guarantees .............. $ 559 $ 414 $ 905
Allowance for loan losses to total loans ....................... 0.83% 0.91% 1.15%
Allowance for loan losses to total loans held for
investment, net of gov't guarantees .......................... 1.02% 1.01% 1.30%
Allowance for loan losses to nonaccrual loans .................. 92.75% 73.36% 120.07%
Allowance for loan losses to non-performing loans .............. 92.75% 73.36% 120.07%
Allowance for loan losses to non-performing loans, net of
gov't Guarantees .............................................. 292.84% 320.53% 142.10%
Allowance for loan losses to non-performing assets ............. 92.75% 120.07% 73.36%
Total non-performing assets to total assets .................... 0.76% 1.03% 0.69%
Total non-performing loans net of gov't Guarantees, to
total assets ................................................. 0.24% 0.24% 0.58%
Total non-performing loans to total loans ...................... 0.89% 1.24% 0.96%
Total non-performing loans, net of gov't Guarantees, to
total Loans .................................................. 0.28% 0.28% 0.81%
</TABLE>
NONACCRUAL LOANS. Nonaccrual loans are impaired loans where the original
contractual amount may not be fully collectible. The Company measures its
impaired loans by using the fair value of the collateral if the loan is
collateral-dependent and the present value of the expected future cash flows
discounted at the loan's effective interest rate if the loan is not
collateral-dependent. As of June 30, 2000, December 31, 1999 and June 30, 1999,
all impaired or nonaccrual loans were collateral-dependent. The Company places
loans on nonaccrual status that are delinquent 90 days or more or when a
reasonable doubt exists as to the collectibility of interest and principal. The
Company had seven loans on nonaccrual status as of June 30, 2000, totaling $1.8
million. Of this total $1.2 million is guaranteed by the SBA. As of December 31,
1999, the Company had eight loans on nonaccrual status, totaling $1.8 million,
with $1.4 million guaranteed by the SBA. As of June 30, 1999 the Company had six
loans on nonaccrual status, totaling $1.1 million with $166,000 guaranteed by
the SBA.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risks
inherent in its loan portfolio and the general economy. The allowance is
increased by provisions charged against earnings and reduced by net loan
chargeoffs. Loans are charged off when they are deemed to be uncollectible, or
partially charged off when portions of a loan are deemed to be uncollectible.
Recoveries are generally recorded only when cash payments are received.
In determining the adequacy of the allowance for loan losses, management
initially considers the allowances specifically allocated to individual impaired
loans, and next considers the level of general loss allowances deemed
appropriate for the balance of the portfolio based on factors including the
levels of classified assets, general portfolio trends relative to asset and
portfolio size, asset categories, potential credit concentrations, nonaccrual
loan levels, historical loss experience, risks associated with changes in
economic and business conditions, and other factors. In addition, various
regulatory agencies, as an integral part of their examination process,
21
<PAGE>
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to make additional provisions for loan losses based upon
judgments which differ from those of management.
The following table sets forth information regarding the Company's allowance for
loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------------------
2000 1999
----------------------------------------
(dollars in thousands)
<S> <C> <C>
Balance at beginning of period................... $1,327 $992
Chargeoffs:
Real estate loans:
One- to four- family.................... - -
Commercial.............................. 58 19
Consumer.................................... 19 4
------ ----
Total chargeoffs........................ 77 23
Recoveries:
Real estate loans:
One- to four-family..................... - -
Commercial.............................. 49 1
Consumer.................................... 1 1
------ ----
Total recoveries................. 50 2
------ ----
Net chargeoffs................................... 27 21
Provision for loan losses........................ 337 315
------ ----
Balance at end of period......................... $1,637 $1,286
====== ======
Net charge offs to average loans................. 0.03% 0.04%
</TABLE>
As of June 30, 2000 the balance in the allowance for loan losses was $1.6
million compared to $1.3 million as of June 30, 1999. As a percentage of total
loans the allowance was 0.83% as of June 30, 2000 compared to 1.15% as of June
30, 1999. As a percentage of total loans held for investment, net of the
government guarantees, the allowance was 1.02% as of June 30, 2000, compared to
1.30% as of June 30, 1999. Management believes the allowance at June 30, 2000 is
adequate based upon its ongoing analysis of the loan portfolio, historical loss
trends and other factors.
OTHER REAL ESTATE OWNED. There was no other real estate owned during the six
months ended June 30, 2000 and 1999.
CAPITAL
The Company's capital was approximately the same, totaling $11.3 million as of
June 30, 1999 and December 31, 1999. In 1997 the Company adopted an Employee
Stock Ownership Plan ("ESOP") which was funded with a $1.2 million line of
credit. As of June 30, 2000 the indebtedness of the ESOP in the amount of $1.0
million is shown as a deduction from shareholders' equity. In future years
capital will be increased as the unearned ESOP contributions are made by the
Company. During the three month period ended June 30, 2000, the Company repaid
principal totaling $51,000, and advanced $325,000 against the line. The Company
will be advancing an additional $130,000 during the remainder of 2000, and is
planning to contribute approximately $204,000 annually to this program.
As part of the Company's strategic plan, during the third quarter of 1998 the
Board elected to eliminate cash dividends in favor of retaining earnings to
support future growth. A 5% stock dividend was declared and paid to shareholders
of record as of November 30, 1999.
The Company's strategic plan addresses the future capital needs of the Company.
During March, 2000, the Company's wholly owned subsidiary, Community (CA)
Capital Trust I (the "Trust"), a
22
<PAGE>
Delaware business trust, issued $10 million of 11.0% Fixed Rate Capital Trust
Pass-through Securities ("TRUPS-Registered Trademark-"), with a liquidation
value of $1,000 per share. The securities have semi-annual interest payments,
with principal due at maturity in 2030. The Trust used the proceeds from the
sale of the trust preferred securities to purchase junior subordinated
debentures of the Company. The Company received $9.7 million from the Trust upon
issuance of the junior subordinated debentures, of which $3.2 million was used
to pay off borrowings of the Company, and $6.0 million was contributed to the
Bank to increase its capital. The $10 million is shown as other borrowings on
the books of the Company, while the net $6.5 million is in cash and cash
equivalents.
At June 30, 2000 and December 31, 1999, all capital ratios were above all
current Federal capital guidelines for a "well capitalized" bank. As of June 30,
2000, the Bank's regulatory total capital to risk-weighted assets ratio was
12.09% compared to 10.87% as of December 31, 1999. The Bank's regulatory tier 1
capital to risk-weighted assets ratio was 11.22% as of June 30, 2000 compared to
9.94% as of December 31, 1999. The Bank's regulatory tier 1 capital to average
assets ratio was 9.56% as of June 30, 2000 compared to 8.5% as of December 31,
1999.
As of June 30, 2000, the Company's regulatory total capital to risk-weighted
assets ratio was 9.06% compared to 8.71% as of December 31, 1999. The
Company's regulatory tier 1 capital to risk-weighted assets ratio was 8.18%
as of June 30, 2000, compared to 7.78% as of December 31, 1999. The Company's
regulatory tier 1 capital to average assets ratio was 6.82% as of June 30,
2000, compared to 6.67% as of December 31, 1999.
LIQUIDITY
The Bank closely monitors its liquidity so that the cash requirements for loans
and deposit withdrawals are met in an economical manner. Management monitors
liquidity in relation to trends of loans and deposits for short term and long
term requirements. Liquidity sources are cash, deposits with other banks,
overnight Federal Funds investments, unpledged interest bearing deposits at
other banks, investment securities and the ability to sell loans. As of June 30,
2000 liquid assets as a percentage of deposits were 11.7% compared to 12.1% as
of December 31, 1999.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None to report.
ITEM 2 CHANGES IN SECURITIES
None to report
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None to report
ITEM 4 SUBMISSION OF MATTERS TO SECURITY HOLDERS
On May 31, 2000 the Company had its annual Shareholders Meeting. At the meeting
the shareholders elected the following directors:
23
<PAGE>
<TABLE>
<CAPTION>
------------------------------ ---------------- -------------- -----------------
DIRECTORS VOTES FOR VOTES SHARES NOT VOTED
WITHHELD
------------------------------ ---------------- -------------- -----------------
<S> <C> <C> <C>
E. Steve LeFevre 2,143,630 37,535 355,816
------------------------------ ---------------- -------------- -----------------
Corey Seale 2,143,520 37,645 355,816
------------------------------ ---------------- -------------- -----------------
Granger Haugh 2,165,415 15,750 355,816
------------------------------ ---------------- -------------- -----------------
Robert H.S. Kirkpatrick 2,165,282 15,883 355,816
------------------------------ ---------------- -------------- -----------------
Philip O. Oberhansley 2,165,415 15,750 355,816
------------------------------ ---------------- -------------- -----------------
Thomas E. Swanson 2,165,415 15,750 355,816
------------------------------ ---------------- -------------- -----------------
Gary M. Youmans 2,165,415 15,750 355,816
------------------------------ ---------------- -------------- -----------------
</TABLE>
ITEM 5 OTHER INFORMATION
None to report
ITEM 6 EXHIBITS AND REPORTS FROM 8-K
(a) Financial Data Schedule
(b) On April 4, 2000, the Company filed an 8-K Report, pursuant to Item 5
thereof, discussing the trust preferred securities referred to in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital."
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
COMMUNITY BANCORP INC.
(Registrant)
Date August 14, 2000 /s/ THOMAS E. SWANSON
---------------- -------------------------------------------
Thomas E. Swanson
President and Chief Executive Officer
Date August 14, 2000 /s/ L. BRUCE MILLS, JR.
---------------- -------------------------------------------
L. Bruce Mills, Jr.
Sr. Vice President, Chief Financial Officer
25
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
27 Financial Data Schedule
26
