<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2000
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required) for the period from ____________ to ____________
Commission File Number 000-29105
CENTENNIAL FIRST FINANCIAL SERVICES
(Name of Small Business Issuer in its Charter)
Incorporated in the State of California
IRS Employer Identification Number 91-1995265
Address: 218 East State Street, Redlands, CA 92373
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
Check whether the issuer: (1) filed all reports required to be filed by
Telephone: (909) 798-3611 Section 13 or 15(d) of the Securities 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 |_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common stock, 675,844 shares
(September 30, 2000)
Transitional Small Business Disclosure Format: Yes |_| No |X|
<PAGE>
FORM 10-QSB CROSS REFERENCE INDEX
PAGE
PART I
ITEM 1 Financial Statements 2-7
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-21
PART II
ITEM 1 Legal Proceedings 22
ITEM 2 Changes in Securities and Use of Proceeds 22
ITEM 3 Defaults Upon Senior Securities 22
ITEM 4 Submission of Matters to a Vote of Security Holders 22
ITEM 5 Other Information 22
ITEM 6 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 23
Signatures 23
<PAGE>
CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
September 30, 2000 and December 31, 1999
Dollar amounts in thousands
<TABLE>
<CAPTION>
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,655 $ 5,230
Federal funds sold 13,335 2,150
-------- --------
Total cash and cash equivalents 23,990 7,380
Interest-bearing deposits in financial institutions 3,055 3,612
Investment securities, available for sale 7,422 7,793
Federal Home Loan Bank stock, at cost 52 210
Loans, net 53,930 52,382
Accrued interest receivable 445 378
Premises and equipment, net 2,000 1,690
Other assets 2,069 2,562
-------- --------
Total assets $ 92,963 $ 76,007
======== ========
LIABILITIES
Deposits:
Noninterest-bearing $ 19,155 $ 18,135
Interest-bearing and NOW accounts 32,046 17,881
Savings 8,709 12,008
Time deposits $100,000 or greater 15,580 10,235
Other time deposits 10,026 10,881
-------- --------
Total deposits 85,516 69,140
Accrued interest payable 366 242
Other liabilities 715 297
-------- --------
Total liabilities 86,597 69,679
-------- --------
Federal Home Loan Bank borrowings -- --
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $4 stated value; authorized 10,000,000 shares,
issued and outstanding 675,844 and 677,028 shares
at September 30, 2000 and December 31, 1999, respectively 2,703 2,708
Additional paid-in capital 2,857 2,660
Retained earnings 937 1,165
Accumulated other comprehensive loss (131) (205)
-------- --------
Total stockholders' equity 6,366 6,328
-------- --------
Total liabilities and stockholders' equity $ 92,963 $ 76,007
======== ========
</TABLE>
-2-
<PAGE>
CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three and Nine Months Ended September 30, 2000 and 1999
Dollars in thousands except for per share amounts
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 1,715 $ 1,436 $ 5,026 $ 3,744
Deposits in financial institutions 46 58 149 182
Federal funds sold 171 38 278 95
Investments 105 117 320 382
------- ------- ------- -------
Total interest income 2,037 1,649 5,773 4,403
------- ------- ------- -------
Interest expense:
Demand and savings deposits 248 164 602 456
Time deposits $100,000 or greater 192 115 508 322
Other time deposits 185 124 496 386
Interest expense on borrowed funds -- -- 46 --
------- ------- ------- -------
Total interest expense 625 403 1,652 1,164
------- ------- ------- -------
Net interest income 1,412 1,246 4,121 3,239
Provision for loan losses -- 75 580 165
------- ------- ------- -------
Net interest income after provision for loan losses 1,412 1,171 3,541 3,074
------- ------- ------- -------
Other income:
Customer service fees 125 115 399 279
Gain from sale of loans 60 129 241 197
Gain (loss) from sale of investment securities 11 -- 11 (2)
Gain on sale of investment in BancData Solutions -- -- 906 --
Other income 58 54 206 233
------- ------- ------- -------
Total other income 254 298 1,763 707
------- ------- ------- -------
Other expenses:
Salaries and wages 592 463 1,592 1,267
Employee benefits 108 138 562 377
Net occupancy expense 114 93 302 262
Other operating expense 507 446 1,908 1,197
------- ------- ------- -------
Total other expenses 1,321 1,140 4,364 3,103
------- ------- ------- -------
Income before provision for income taxes 345 329 940 678
Provision for income taxes 113 114 314 217
------- ------- ------- -------
Net income $ 232 $ 215 $ 626 $ 461
======= ======= ======= =======
Basic earnings per share $ .34 $ .31 $ .91 $ .66
======= ======= ======= =======
Diluted earnings per share $ .31 $ .28 $ .84 $ .61
======= ======= ======= =======
</TABLE>
-3-
<PAGE>
CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000 and 1999
Dollars in thousands
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income (Loss) Total
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ 2,669 $ 2,634 $ 501 $ 14 $ 5,818
Comprehensive income:
Net income -- -- 461 -- 461
Change in net unrealized gain
(loss) on investment securities
available for sale, after
tax effects -- -- -- (176) (176)
-------
Total comprehensive income 285
-------
Exercise of stock options 20 15 -- -- 35
------- ------- ------- ------- -------
BALANCE, SEPTEMBER 30, 1999 $ 2,689 $ 2,649 $ 962 $ (162) $ 6,138
======= ======= ======= ======= =======
(Unaudited)
BALANCE, DECEMBER 31, 1999 $ 2,708 $ 2,660 $ 1,165 $ (205) $ 6,328
Comprehensive income:
Net income -- -- 626 -- 626
Change in net unrealized gain
(loss) on investment securities
available for sale, after
tax effects -- -- -- 74 74
-------
Total comprehensive income 700
-------
Stock and cash dividend 135 412 (584) -- (37)
Exercise of stock options 38 22 -- -- 60
Repurchase and retirement of
common stock and stock options (178) (237) (270) -- (685)
------- ------- ------- ------- -------
BALANCE, SEPTEMBER 30, 2000 $ 2,703 $ 2,857 $ 937 $ (131) $ 6,366
(Unaudited) ======= ======= ======= ======= =======
</TABLE>
-4-
<PAGE>
CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
Dollars in thousands (Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 626 $ 461
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 231 168
Provision for loan losses 580 165
Gain from sale of loans (181) (225)
Loss on sale of investments -- 2
Gain from sale of investment in BancData Solutions (906) --
Amortization of deferred loan fees (302) (128)
Gain on redemption of Federal Home Loan Bank stock (11) --
Deferred income tax benefit (4) (10)
Amortization of premiums on investment
securities available for sale 9 29
Amortization of premiums on investment
securities held to maturity -- 7
Increase in cash surrender value of life insurance 185 (82)
Decrease (increase) in assets:
Accrued interest receivable (67) (40)
Other assets (54) 190
Increase (decrease) in liabilities:
Accrued interest payable 124 (89)
Other liabilities 418 134
------- -------
Net cash provided by operating activities 648 582
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in financial institutions 557 425
Net sales, maturities and (purchases) of available-for-sale securities 488 252
Net sales, maturities and (purchases) of held to maturity investments -- 800
Purchases of Federal Home Loan Bank Stock -- (210)
Proceeds form sale of investment in BancData Solutions 1,219 --
Proceeds from redemption of Federal Home Loan Bank stock 169 --
Net increase in loans (1,644) (8,024)
Additions to bank premises and equipment (541) (122)
------- -------
Net cash provided by (used in) investing activities 248 (6,879)
------- -------
</TABLE>
-5-
<PAGE>
CENTENNIAL FIRST FINANCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
Dollars in thousands (Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits $ 11,886 $ 2,313
Net increase in time deposits 4,490 2,458
Proceeds from Federal Home Loan Bank borrowings 3,000 --
Repayments of Federal Home Loan Bank borrowings (3,000) --
Cash dividends paid in lieu of fractional shares (3) --
Cash dividends paid (34) --
Payments to acquire common stock and stock options (685) --
Proceeds from exercise of stock options 60 35
-------- --------
Net cash provided by financing activities 15,714 4,806
-------- --------
Net increase (decrease) in cash and cash equivalents 16,610 (1,491)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,380 11,305
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 23,990 $ 9,814
======== ========
SUPPLEMENTARY INFORMATION
Interest paid $ 1,529 $ 1,253
======== ========
Income taxes paid $ 268 $ 308
======== ========
</TABLE>
-6-
<PAGE>
CENTENNIAL FIRST FINANCIAL SERVICES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial information included herein has been
prepared in conformity with the accounting principles and practices in
Centennial First Financial Services Corporation's ("the Company")
consolidated financial statements included in the Annual Report for the
year ended December 31, 1999. The accompanying interim consolidated
financial statements contained herein are unaudited. However, in the
opinion of the Company, all adjustments, consisting of normal recurring
items necessary for a fair presentation of the operating results for the
periods shown, have been made. The results of operations for the nine
months ended September 30, 2000 may not be indicative of operating results
for the year ending December 31, 2000. Certain prior year and prior
quarter amounts have been reclassified to conform to current
classifications. Cash and cash equivalents consist of cash, due from
banks, and federal funds sold.
Note 2. EARNINGS PER SHARE
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflects
additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to
income that would result from the assumed issuance. Potential common
shares that may be issued by the Company relate solely to outstanding
stock options and are determined using the treasury stock method.
The weighted-average number of shares used in computing basic and diluted
earnings per share are as follows:
In thousands Three Months Ended September 30,
2000 1999
Basic shares 687 702
Dilutive effect of stock options 57 53
Diluted shares 744 755
In thousands Nine Months Ended September 30,
2000 1999
Basic shares 687 702
Dilutive effect of stock options 57 53
Diluted shares 744 755
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Centennial First Financial Services (the "Company") is the holding company for
Redlands Centennial Bank in Redlands, California. This discussion focuses
primarily on the results of operations of the Company on a consolidated basis
for the nine months ended September 30, 2000 and the financial condition of the
Company as of that date.
The following discussion presents information pertaining to the financial
condition and results of operations of the Company and its subsidiary and should
be read in conjunction with the financial statements and notes thereto presented
in this 10-QSB. Average balances, including balances used in calculating certain
financial ratios, are generally comprised of average daily balances.
Certain matters discussed in this report are forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Such risks
and uncertainties include, but are not limited to, the competitive environment
and its impact on the Company's net interest margin, changes in interest rates,
asset quality risks, concentrations of credit and the economic health of the San
Bernardino Area and Southern California, volatility of rate sensitive deposits,
asset/liability matching risks, the dilutive impact which might occur upon the
issuance of new shares of common stock and liquidity risks. Therefore, the
matters set forth below should be carefully considered when evaluating the
Company's business and prospects. For additional information concerning these
risks and uncertainties, please refer to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.
OVERVIEW
EARNINGS SUMMARY
The Company reported net income of $232,000, or $0.34 per share basic and $0.31
per share diluted, for the third quarter of 2000. This compares to net income of
$215,000, or $0.31 per share basic and $0.28 per share diluted, for the same
period in 1999.
For the nine months ended September 30, 2000, the Company reported net income
$626,000, or $0.91 per share basic and $0.84 per share diluted. This compares to
net income of $461,000, or $0.66 per share basic and $0.61 per share diluted for
the same period in 1999. Growth in average loans as a percentage of earning
assets continued to positively impact the net interest margin during the three
and nine months ended September 30, 2000. Additionally, the Company's earnings
were assisted by the sale of its investment in its service bureau, BancData
Solutions, during the first part of April 2000.
Return on average assets and return on average equity for the third quarter of
2000 were 1.08% and 14.96%, respectively, as compared to 1.15% and 14.19%,
respectively, for the same period of 1999. Return on average assets and return
on average equity for the nine months ended September 30, 2000 were 0.99% and
13.15%, respectively, as compared to 1.55% and 19.31% for the same period of
1999.
-8-
<PAGE>
LOANS HELD FOR INVESTMENT
Net loans held for investment increased by $1.5 million, or 3.0%, during the
first nine months of 2000 as demand for commercial, real estate construction and
development loans increased. The following table sets forth the amount of total
loans outstanding by category as of the dates indicated (dollar amounts in
thousands):
September 30, 2000 December 31, 1999
Real estate loans
Construction and development $ 13,216 23.95% $ 15,248 28.70%
Mortgage loans 14,431 26.15% 12,533 23.60%
Commercial loans 20,708 37.52% 18,686 35.10%
Automobile loans 2,407 4.36% 2,468 4.60%
Indirect loans 1,231 2.56% 1,845 3.50%
Equity loans 1,415 2.23% 876 1.60%
Consumer and other loans 1,784 3.23% 1,531 2.90%
-------- -------- -------
55,192 100.00% 53,187 100.00%
Unearned income (395) (224)
Allowance for loan losses (867) (581)
------- -------
$53,930 $52,382
======= =======
In the normal practice of extending credit, the Company accepts real estate
collateral on loans that have primary sources of repayment from commercial
operations. The total amount of loans secured by real estate equaled $32.9
million, or 59.6% of the total portfolio as of September 30, 2000. Due to the
Company's limited marketing area, its real estate collateral is primarily
concentrated in the San Bernardino Area and Southern California. The Company
believes that its prudent underwriting standards for real estate secured loans
provide an adequate safeguard against declining real estate prices that may
affect a borrower's ability to liquidate the property and repay the loan.
However, no assurance can be given that real estate values will not decline and
impair the value of the security for loans held by the Company.
The Company focuses its portfolio lending on commercial, real estate, and
construction loans. The performance of commercial loans is generally dependent
upon future cash flows from business operations including the sale of products,
merchandise and services. The successful completion or operation of real estate
projects is dependent upon future sales. Risks attributable to such loans can be
significantly increased, often to a greater extent than other loans, by regional
economic factors and real estate prices.
-9-
<PAGE>
NONPERFORMING ASSETS
The Company carefully monitors the quality of its loan portfolio and the factors
that affect it, including regional economic conditions, employment stability,
and real estate values. The accrual of interest on loans is discontinued when
the payment of principal or interest is considered to be in doubt, or when a
loan becomes contractually past due by 90 days or more with respect to principal
or interest, except for loans that are well secured and in the process of
collection.
As of September 30, 2000, the Company had non-performing assets in the amount of
$215,000 of which $185,000 were loan guarantees by the Small Business
Administration. The Company had no loans 90 days or more past due and still
accruing at September 30, 2000. The following table sets forth the balance of
non-performing assets as of the dates indicated (dollar amounts in thousands):
September 30, 2000 December 31, 1999
Nonaccrual loans $ 215 $ 61
Loans 90 days or more past due
and still accruing - - 215
------- ------
$ 215 $ 276
======= ======
As a percent of total loans 0.39% 0.52%
As a percent of total assets 0.23% 0.36%
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses ("ALL"), which is reduced by
credit losses and increased by credit recoveries, and provisions to the ALL
charged against operations. Provisions to the ALL and the total of the ALL are
based, among other factors, upon the Company's credit loss experience, current
and projected economic conditions, the performance of loans within the
portfolio, evaluation of loan collateral value, and the prospects or worth of
respective borrowers and guarantors.
In determining the adequacy of its ALL and after carefully analyzing each loan
individually, the Company segments its loan portfolio into pools of homogeneous
loans that share similar risk factors. Each pool is given a risk assessment
factor that largely reflects the expected future losses from each category.
These risk assessment factors change as economic conditions shift and actual
loan losses are recorded. As of September 30, 2000, the ALL of $867,000, or
1.57% of total loans was determined by management to be adequate against
foreseeable future losses. No assurance can be given that non-performing loans
will not increase or that future losses will not exceed the amount of the ALL.
-10-
<PAGE>
ALLOWANCE FOR LOAN LOSSES (Continued)
The following table summarizes, for the periods indicated, loan balances at the
end of each period and average balances during the period, changes in the ALL
arising from credit losses, recoveries of credit losses previously incurred,
additions to the ALL charged to operating expense, and certain ratios relating
to the ALL (dollar amounts in thousands):
<TABLE>
<CAPTION>
At and for the
Nine Months At and for the
Ended Year Ended
September 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
BALANCES:
Average loans during the period $ 55,559 $ 46,978
Loans at end of period 55,192 53,186
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period 581 433
-------- --------
Actual credit losses:
Commercial (294) (13)
Consumer (9) (83)
-------- --------
Total (303) (96)
-------- --------
Actual credit recoveries:
Commercial -- 14
Consumer 9 5
-------- --------
Total 9 19
-------- --------
Net credit (losses) recoveries (294) (77)
Provision charged to expense 580 225
-------- --------
Balance at end of period $ 867 $ 581
======== ========
RATIOS:
Net credit losses (recoveries) to average loans 0.53% 0.16%
Allowance for loan losses to loans at end of period 1.57% 1.09%
Net credit losses (recoveries) to beginning of
period allowance for loan losses 50.60% 17.78%
</TABLE>
The Company provided no additions to the allowance for loan losses during the
third quarter of 2000 as compared to $75,000 made during the third quarter of
1999. For the nine months ended September 30, 2000, the allowance for loan
losses was $580,000 as compared to $165,000 during the same period of 1999. The
provisions during the nine months ended September 30, 2000 were recorded as a
prudent measure, based upon growth in the loan portfolio, as well as, an
atypical credit loss experienced by the Company involving one loan.
-11-
<PAGE>
ALLOWANCE FOR LOAN LOSSES (Continued)
The following table sets forth the allocation of the ALL as of the dates
indicated (dollar amounts in thousands):
September 30, 2000 December 31, 1999
% of Category % of Category
to Total to Total
ALL Loans ALL Loans
Commercial loans $ 325 37.52% $ 304 52.33%
Real estate loans 434 50.10% 204 35.11%
Consumer loans 65 7.59% 73 12.56%
Not allocated 43 4.79% - - 0.00%
------ ------ ----- ------
$ 867 100.00% $ 581 100.00%
====== ====== ===== ======
The ALL is available to absorb losses from all loans, although allocations have
been made for certain loans and loan categories. The allocation of the ALL as
shown above should not be interpreted as an indication that charge-offs in
future periods will occur in these amounts or proportions, or that the
allocation indicates future charge-off trends. In addition to the most recent
analysis of individual loans and pools of loans, management's methodology also
places emphasis on historical loss data, delinquency and non-accrual trends by
loan classification category and expected loan maturity. This analysis,
management believes, identifies potential losses within the loan portfolio and
therefore results in allocation of a large portion of the allowance to specific
loan categories.
INVESTMENTS
The following tables set forth the amortized cost and approximate market value
of investment securities as of the dates indicated (dollar amounts in
thousands):
<TABLE>
<CAPTION>
September 30, 2000
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities $ 3,217 $ -- $ 76 $ 3,141
Obligations of states and local governments 4,022 -- 140 3,882
U.S. Treasury Obligations 403 -- 4 399
Federal Home Loan Bank stock 52 -- -- 52
-------- ----- ----- -------
$ 7,694 $ -- $ 220 $ 7,474
======== ===== ===== =======
</TABLE>
-12-
<PAGE>
INVESTMENTS (Continued)
<TABLE>
<CAPTION>
December 31, 1999
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities $ 3,722 $ -- $ 81 $3,641
Obligations of states and local governments 4,011 -- 258 3,753
U.S. Treasury Obligations 405 -- 6 399
Federal Home Loan Bank stock 210 -- -- 210
-------- ----- ----- -------
$ 8,348 $ -- $ 345 $ 8,003
======== ===== ===== =======
</TABLE>
DEPOSITS/OTHER BORROWINGS
Total consolidated deposits increased by $16.4 million or 23.7% during the nine
months ended September 30, 2000.
Rates paid on deposits increased during the nine months ended September 30, 2000
contributing to the increase in the cost of funds of interest bearing deposits
to 3.84% during the nine months ended September 30, 2000 from 3.29% for the year
ended December 31, 1999. The following table summarizes the distribution of
average deposits and the average rates paid for the periods indicated (dollar
amount in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 2000 December 31, 1999
Average Average Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Interest Bearing Liabilities:
Demand deposits $ 18,377 -- $ 15,059 --
--------- ---------
Interest bearing demand deposits 10,185 1.17% 9,578 1.13%
Money market deposits 11,364 3.84% 6,375 2.76%
Savings deposits 9,836 2.52% 11,308 2.72%
Time deposits of $100,000 or more 12,461 5.44% 7,120 4.78%
Time deposits under $100,000 11,917 5.55% 11,621 4.99%
--------- ---------
Total interest-bearing deposits 55,763 3.84% 46,002 3.29%
--------- ---------
$ 74,140 2.89% $ 61,061 2.48%
========= =========
</TABLE>
-13-
<PAGE>
DEPOSITS/OTHER BORROWINGS (Continued)
The following table sets forth the time remaining to maturity of the Company's
time deposits in amounts of $100,000 or more (in thousands):
September 30, 2000 December 31, 1999
Three months or less $ 8,664 $ 3,183
After three months to six months 1,980 1,048
After six months to one year 3,715 5,904
After one year 1,221 100
-------- --------
Total $ 15,580 $ 10,235
======== ========
RESULTS OF OPERATIONS
NET INTEREST INCOME/NET INTEREST MARGIN
Net interest income for the quarter ended September 30, 2000 was $1,412,000, an
increase of 13.3% over the net interest income of $1,246,000 during the same
period of 1999. Net interest income for the nine months ended September 30, 2000
was $4,121,000, an increase of 27.2% over net income of $3,239,000 during the
same period of 1999. The increase was primarily due to the growth in average
loans, largely due to improved economic conditions in the Company's market
areas.
The following table sets forth average assets, liabilities, and shareholders'
equity; the amount of interest income or interest expense; and the average yield
or rate for each category of interest-bearing assets and interest-bearing
liabilities and the net interest margin (net interest income divided by average
earning assets) for the periods indicated (dollar amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ended September 30,
2000 1999
Interest Average Interest Average
Average Earned/ Interest Average Earned/ Interest
Balance Paid Rate Balance Paid Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $10,884 $ 171 6.28 $ 3,224 $ 38 4.71
Interest-bearing deposits in
financial institutions 3,149 46 5.84 3,818 58 6.08
Investment securities 7,640 105 5.50 8,538 117 5.48
------- ------- ------- -------
Total investments 21,673 322 5.94 15,580 213 5.47
Loans 54,536 1,715 12.58 49,616 1,436 11.58
------- ------- ------- -------
Total interest earning assets $76,209 $ 2,037 10.69 $65,196 $ 1,649 10.12
======= ======= ======= =======
</TABLE>
-14-
<PAGE>
NET INTEREST INCOME/NET INTEREST MARGIN (Continued)
<TABLE>
<CAPTION>
Quarter Ended June 30,
2000 1999
Interest Average Interest Average
Average Earned/ Interest Average Earned/ Interest
Balance Paid Rate Balance Paid Rate
<S> <C> <C> <C> <C>
Interest Bearing Liabilities:
Demand deposits $18,643 $ -- -- $17,725 $ -- --
------- ------- ------- -------
Interest bearing demand deposits 10,976 33 1.20 11,287 33 1.17
Money market deposits 14,094 165 4.68 7,664 53 2.77
Savings deposits 9,085 50 2.20 11,417 78 2.73
Time deposits of $100,000 or more 14,040 192 5.47 10,135 115 4.54
Time deposits under $100,000 11,945 185 6.20 10,074 124 4.92
------- ------- ------- -------
Total interest bearing deposits 60,140 625 4.16 50,577 403 3.19
------- ------- ------- -------
Other borrowings -- -- -- -- -- --
------- ------- ------- -------
Total deposits and other
borrowings $78,783 $ 625 3.17 $68,302 $ 403 2.36
======= ======= ======= =======
Net interest income $ 1,412 $ 1,246
======= =======
Net interest margin 7.52 7.76
==== ====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
Interest Average Interest Average
Average Earned/ Interest Average Earned/ Interest
Balance Paid Rate Balance Paid Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ 6,012 $ 278 6.17 $ 2,862 $ 95 4.43
Interest-bearing deposits in
financial institutions 3,329 149 5.97 3,967 182 6.12
Investment securities 7,771 320 5.49 9,368 382 5.44
------- ------- ------- -------
Total investments 17,112 747 5.82 16,197 659 5.42
Loans 55,559 5,026 12.06 45,556 3,744 10.96
------- ------- ------- -------
Total interest earning assets $72,671 $ 5,773 10.59 $61,753 $ 4,403 9.51
======= ======= ======= =======
</TABLE>
-15-
<PAGE>
NET INTEREST INCOME/NET INTEREST MARGIN (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
Interest Average Interest Average
Average Earned/ Interest Average Earned/ Interest
Balance Paid Rate Balance Paid Rate
<S> <C> <C> <C> <C>
Interest Bearing Liabilities:
Demand deposits $18,377 $ -- -- $16,323 $ -- --
------- ------- ------- -------
Interest bearing demand deposits 10,185 89 1.17 10,318 87 1.12
Money market deposits 11,364 327 3.84 7,092 147 2.76
Savings deposits 9,836 186 2.52 11,165 222 2.65
Time deposits of $100,000 or more 12,461 508 5.44 8,746 322 4.91
Time deposits under $100,000 11,917 496 5.55 10,828 386 4.75
------- ------- ------- -------
Total interest bearing deposits 55,763 1,606 3.84 48,149 1,164 3.22
------- ------- ------- -------
Other borrowings 1,013 46 6.05 -- -- --
------- ------- ------- -------
Total deposits and other
borrowings $75,153 $ 1,652 2.93 $64,472 $ 1,164 2.41
======= ======= ======= =======
Net interest income $ 4,121 $ 3,239
======= =======
Net interest margin 7.66 7.10
==== ====
</TABLE>
The net interest margin decreased to 7.52% during the third quarter of 2000 from
7.76% in the same quarter of 1999. The decrease is primarily as a result of an
increased cost of funds on a promotional money market account which the Company
began offering during the third quarter of 2000. For the nine months ended
September 30, 2000, the net interest margin increased to 7.66% from 7.10% during
the same period of 1999. The increase during the nine month period was primarily
attributable to growth in average loans as a percentage of earning assets. The
increase in average loans was largely due to the improved economic conditions in
the Company's market areas.
The following table presents the dollar amount of changes in interest earned and
interest paid for each major category of interest-earning asset and
interest-bearing liability and the amount of change attributable to average
balance (volume) fluctuations and average rate fluctuations. The variance
attributable to both balance and rate fluctuations is allocated to a combined
rate/volume variance (dollar amounts in thousands):
-16-
<PAGE>
NET INTEREST INCOME/NET INTEREST MARGIN (Continued)
<TABLE>
<CAPTION>
Quarter Ended September 30, 2000 Compared to
Quarter Ended September 30, 1999
Increase (decrease) due to change in:
Average Average Average Rate/
Volume Rate Volume Total
<S> <C> <C> <C> <C>
Increase (decrease) in interest income
Federal funds sold $ 166 $ 5 $ (38) 133
Interest-bearing deposits in
financial institutions 6 2 (20) (12)
Investment securities 71 20 (103) (12)
Loans (196) 52 423 279
----- ----- ----- -----
Total 47 79 262 388
----- ----- ----- -----
Increase (decrease) in interest expense
Interest bearing demand deposits 191 169 (360) --
Money market deposits 30 4 78 112
Savings deposits (38) (73) 83 (28)
Time deposits of $100,000 or more 39 121 (83) 77
Time deposits under $100,000 (188) 94 155 61
Other borrowings -- -- -- --
----- ----- ----- -----
Total 34 315 (127) 222
----- ----- ----- -----
Total change in net interest income $ 13 $(236) $ 389 $ 166
===== ===== ===== =====
</TABLE>
-17-
<PAGE>
NET INTEREST INCOME/NET INTEREST MARGIN (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000 Compared to
Nine Months Ended September 30, 1999
Increase (decrease) due to change in:
Average Average Average Rate/
Volume Rate Volume Total
<S> <C> <C> <C> <C>
Increase (decrease) in interest income
Federal funds sold $ 433 $ 62 $ (312) $ 183
Interest-bearing deposits in
financial institutions (38) (6) 11 (33)
Investment securities (41) 39 (60) (62)
Loans 669 537 76 1,282
------- ------- ------- -------
Total 1,023 632 (285) 1,370
------- ------- ------- -------
Increase (decrease) in interest expense
Interest bearing demand deposits 27 4 (29) 2
Money market deposits 299 89 (208) 180
Savings deposits (52) (17) 33 (36)
Time deposits of $100,000 or more 125 61 -- 186
Time deposits under $100,000 63 82 (35) 110
Other borrowings -- -- 46 46
------- ------- ------- -------
Total 462 219 (193) 488
------- ------- ------- -------
Total change in net interest income $ 561 $ 413 $ (92) $ 882
======= ======= ======= =======
</TABLE>
NONINTEREST INCOME
The following table summarizes non-interest income for the periods indicated and
expresses the amounts as a percentage of average assets (dollar amounts in
thousands):
Quarter Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Components of Noninterest Income
Gain on sale of loans $ 60 $129 $241 $197
Service fees on deposit accounts 125 115 399 279
Loan Servicing fees 16 43 55 75
Gain on Sale of BancData Solutions 0 0 906 0
Other 53 11 162 156
---- ---- ---- ----
$254 $298 $ 1763 $707
==== ==== ==== ====
-18-
<PAGE>
NONINTEREST INCOME (Continued)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
As a percent of average assets (annualized)
Gain on sale of loans .29% .73% .39% .37%
Service fees on deposit accounts .60% .65% .65% .52%
Loan servicing fees .08% .24% .09% .14%
Gain on Sale of BancData Solutions 0% 0% 1.46% 0%
Other .26% .06% .26% .29%
---- ---- ---- ----
1.23% 1.68% 2.85% 1.32%
==== ==== ==== ====
</TABLE>
NONINTEREST EXPENSES
The following table summarizes non-interest expenses and the associated ratios
to average assets for the periods indicated (dollar amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Components of noninterest expense
Salaries $ 592 $ 463 $ 1,592 $ 1,267
Employee benefits 108 138 562 377
Occupancy expense 63 51 150 140
Furniture and equipment expense 64 42 165 122
Professional services 173 217 860 466
Stationary and supplies 36 24 100 69
Promotional expenses 25 15 65 47
Data processing fees 102 84 332 301
Regulatory assessments 7 6 22 16
Other 151 100 516 298
------- ------- -------- -------
Total other expenses $ 1,321 $ 1,140 $ 4,364 $ 3,103
======= ======= ======== =======
As a percent of average assets (annualized)
Salaries 2.87% 2.61% 2.57% 2.38%
Employee benefits .52% .78% .91% .71%
Occupancy expense .31% .29% .24% .26%
Furniture and equipment expense .31% .24% .27% .23%
Professional services .84% 1.22% 1.39% .88%
Stationary and supplies .18% .14% .16% .13%
Promotional expenses .12% .08% .11% .09%
Data processing fees .50% .47% .54% .56%
Regulatory assessments .03% .03% .04% .03%
Other .73% .56% .83% .56%
------ ------ ------- ------
6.41% 6.42% 7.06% 5.83%
====== ====== ======= ======
</TABLE>
-19-
<PAGE>
LIQUIDITY
Liquidity is the Company's ability to absorb fluctuations in deposits while
simultaneously providing for the credit needs of its borrowers. The objective in
liquidity management is to balance the sources and uses of funds. Primary
sources of liquidity for the Company include payments of principal and interest
on loans and investments, proceeds from the sale or maturity of loans and
investments, growth in deposits, and other borrowings. The Company holds
overnight federal funds as a cushion for temporary liquidity needs. During the
nine months ended September 30, 2000 federal funds sold averaged $6.0 million,
or 7.3% of total average assets. In addition to its federal funds, the Company
maintains various lines of credit with correspondent banks, and the Federal Home
Loan Bank of San Francisco.
At September 30, 2000, the Company had cash, time deposits with banks, federal
funds sold, and un-pledged investment securities of approximately $31.0 million,
or 33.3% of total assets. This represented all available liquid assets.
Several methods are used to measure liquidity. One method is to measure the
balance between loans and deposits (gross loans divided by total deposits). In
general, the closer this ratio is to 100%, the more reliant an institution
becomes on its illiquid loan portfolio to absorb temporary fluctuations in
deposit levels. At September 30, 2000, the loan-to-deposit ratio was 63.1% as
compared to 75.7% at December 31, 1999.
As of September 30, 2000, the Company had no material commitments that were
expected to adversely impact liquidity.
ASSET/LIABILITY MANAGEMENT
The purpose for asset/liability management is to provide stable net interest
income growth by protecting the Bank's earnings from undue interest rate risk.
The Bank expects to generate earnings from increasing loan volume, appropriate
loan pricing and expense control and not from trying to accurately forecast
interest rates. Another important function of asset/liability management is
managing the risk/return relationships between interest rate risk, liquidity,
market risk and capital adequacy. The Bank gives priority to liquidity concerns
followed by capital adequacy, then interest rate risk and market risk in the
investment portfolio. The policy of the Bank will be to control the exposure of
the Bank's earnings to changing interest rates by generally maintaining a
position within a narrow range around an "earnings neutral position." An
earnings neutral position is defined as the mix of assets and liabilities that
generate a net interest margin that is not affected by interest rate changes.
However, Management does not believe that the Bank can maintain a totally
earnings neutral position. Further, the actual timing of repricing of assets and
liabilities does not always correspond to the timing assumed by the Bank for
analytical purposes. Therefore, changes in market rates of interest will
generally impact on the Bank's net interest income and net interest margin for
long or short periods of time.
-20-
<PAGE>
ASSET/LIABILITY MANAGEMENT (Continued)
The Bank monitors its interest rate risk on a monthly basis through the use of a
model, which calculates the effect on earnings of changes in the prevailing
market interest rate. The model converts a prevailing market interest rate
change into rate changes for each major class of asset and liability, then
simulates the bank's net interest margin based on the bank's actual repricing
over a one year period, assuming that maturities are reinvested in instruments
identical to those maturing during the period. At September 30, 2000, assuming
the effect of a 2% increase or decrease in prevailing market interest rates, the
increase in economic value of equity was approximately $6,261,000 and
$8,464,000, respectively. This represents a net economic value ratio of 12.59%
and 14.40%, respectively, as compared to the Bank's net economic value ratio of
6.76% at September 30, 2000. The net portfolio value ratio represents the effect
of a 2% increase or decrease in prevailing market interest rates of total
stockholders equity divided by total assets. These forecasted results fall
within the Bank's asset/liability policy guidelines of 7% to 20%.
The Company has no sources of revenues or liquidity other than dividends, tax
equalization payments or management fees from the Bank. The ability of the Bank
to pay such items to the Company is subject to limitations under state and
Federal law.
CAPITAL RESOURCES
The principal source of capital for the Company is and will continue to be the
retention of operating profits. The ratios of average equity to average assets
for the periods indicated are set forth below.
Nine Months Ended Year Ended
September 30, 2000 December 31, 1999
7.44% 8.48%
Regulatory authorities have issued guidelines to implement risk-based capital
requirements. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Total capital is classified into two
components: Tier 1 (primarily shareholder's equity) and Tier 2 (supplementary
capital including allowance for possible credit losses, certain preferred stock,
eligible subordinated debt, and other qualifying instruments). The guidelines
require that total capital be 8% of risk-based assets, of which at least 4% must
be Tier 1 capital. As of September 30, 2000, the Company's total capital ratio
was 11.38% and its Tier 1 capital ratio was 10.27%. In addition, the Company,
under the guidelines established for adequately capitalized institutions, must
also maintain a minimum leverage ratio (Tier 1 capital divided by total assets)
of 4%. As of September 30, 2000, the Company's leverage ratio was 7.44%. It is
the Company's intention to maintain risk-based capital ratios at levels
characterized as "well-capitalized" for banking organizations: Tier 1 risk-based
capital of 6 percent or above and total risk-based capital at 10 percent or
above.
-21-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Item Description
2 Plan of Reorganization and Agreement of Merger
Dated December 1, 1999
Filed as exhibit to Form S-4 dated October 20, 1999
3(i) Articles of Incorporation
Filed as exhibit to Form S-4 dated October 20, 1999
3(ii) Bylaws
Filed as exhibit to Form S-4 dated October 20, 1999
10(i) Plan document for the Redlands Centennial Bank Employee Stock
Ownership Plan
10(ii)(A) 1. Employment Contract of Douglas C. Spencer, dated September 10,
1997 Filed as exhibit to Form S-4 dated October 20, 1999
2. Salary Continuation Agreement of Douglas C. Spencer, dated March
17, 1998
Filed as exhibit to Form S-4 dated October 20, 1999
3. Employment Agreement of Roy D. Lewis, dated March 20, 1998 Filed
as exhibit to Form S-4 dated October 20, 1999
4. Employment Agreement of Anne E. Sanders, dated March 20, 1998
Filed as exhibit to Form S-4 dated October 20, 1999
5. Redlands Centennial Bank 1990 Stock Option Plan and Addendums
Filed as exhibit to Form S-4 dated October 20, 1999
10(I) Redlands Centennial Bank Employee Stock Ownership Plan, dated
February 1, 2000
Filed as exhibit to Form 10-QSB dated May 12, 2000
27 Financial Data Schedule
-22-
<PAGE>
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the third quarter of 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTENNIAL FIRST FINANCIAL SERVICES
(REGISTRANT)
Date: November 14, 2000 /s/ Beth Sanders
---------------------------------------
Beth Sanders
Chief Financial Officer
(Principal Accounting Officer and officer
authorized to sign on behalf of the registrant)
-23-
