<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-25135
REDDING BANCORP
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2823865
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1951 CHURN CREEK ROAD
REDDING, CALIFORNIA 96002
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (530) 224-3333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date. September 30, 1999: 2,639,872
1
<PAGE> 2
REDDING BANCORP & SUBSIDIARIES
INDEX TO FORM 10-Q
================================================================================
<TABLE>
<CAPTION>
PART I. Financial Information Page:
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 ...................................................3
Consolidated Statements of Income
Three and nine months ended September 30. 1999 and 1998.....................................4
Consolidated Statements of Cash Flows
Six months ended September 30, 1999 and 1998.................................................5
Notes to Consolidated Financial Statements ..................................................6
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations.................................8
Item 3. Quantitative and Qualitative Disclosure about Market Risk...........................18
PART II. Other Information
Item 1. Legal proceedings...................................................................20
Item 2. Changes in Securities and use of proceeds...........................................20
Item 3. Defaults Upon Senior Securities.....................................................20
Item 4. Submission of Matters to a Vote of Security Holders.................................20
Item 5. Other Information...................................................................21
Item 6. Exhibits and Report on Form 8-K.....................................................21
SIGNATURES...........................................................................................21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REDDING BANCORP & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets:
Cash & Due From Banks $ 11,422 $ 10,010
Federal Funds Sold 10,220 16,790
---------- ----------
Cash and cash equivalents 21,642 26,800
Investment Securities:
Available for sale (amortized cost $36,232 and $45,721) 35,935 24,519
Held to maturity (market value of $6,073 and $8,207) 6,033 8,038
---------- ----------
41,968 32,557
Portfolio Loans:
Real Estate - Construction 33,413 29,470
Real Estate - Commercial 81,295 69,742
Commercial & Financial 51,992 46,890
Installment Loans 291 298
Other Loans 1,627 2,225
---------- ----------
Total Gross Loans 168,618 148,625
Deferred loan fees (353) (423)
Less allowance for loan losses (3,253) (3,235)
---------- ----------
Net Loans 165,012 144,967
Premise & Equipment 5,527 5,604
Other Assets 5,657 6,157
---------- ----------
Total Assets $ 239,806 $ 216,085
========== ==========
Liabilities:
Demand Accounts $ 45,110 $ 39,709
NOW & Money Market 27,771 42,810
Savings Accounts 25,373 13,083
Time Accounts 107,083 93,019
---------- ----------
Total Deposits 205,337 188,621
Borrowed Funds $ 4,800 $ 0
Other Liabilities 4,757 2,810
---------- ----------
Total Liabilities $ 214,894 $ 191,431
Shareholders Equity:
Common Stock $ 3,687 $ 4,714
Retained Earnings 21,415 19,818
Accumulated other comprehensive income (190) 122
---------- ----------
$ 24,912 $ 24,654
---------- ----------
Total Liabilities & Equity $ 239,806 $ 216,085
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
REDDING BANCORP & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest & Fees on Loans $ 3,734 $ 3,315 $ 10,641 $ 9,399
Interest on Investments $ 551 $ 709 $ 1,588 $ 2,338
Interest on Federal Funds Sold $ 117 $ 87 $ 428 $ 304
---------- ---------- ---------- ----------
Total Interest income $ 4,402 $ 4,111 $ 12,657 $ 12,041
---------- ---------- ---------- ----------
Interest Expense:
Interest on Checking $ 180 $ 200 $ 525 $ 590
Interest on Savings $ 82 $ 83 $ 263 $ 259
Interest on Time Deposits $ 1,391 $ 1,149 $ 3,810 $ 3,472
Interest on Borrowed Funds $ 47 $ 0 $ 47 $ 0
---------- ---------- ---------- ----------
Total Interest Expense $ 1,700 $ 1,432 $ 4,645 $ 4,321
---------- ---------- ---------- ----------
Net Interest Income: $ 2,702 $ 2,679 $ 8,012 $ 7,720
Provision for Loan Loss: $ 10 $ 105 $ 50 $ 250
---------- ---------- ---------- ----------
Net Interest Income After Provisions
$ 2,692 $ 2,574 $ 7,962 $ 7,470
---------- ---------- ---------- ----------
Noninterest Income:
Service Charges $ 55 $ 54 $ 200 $ 160
Credit Card Income, net $ 510 $ 446 $ 1,396 $ 1,335
Other Income $ 132 $ 168 $ 550 $ 398
---------- ---------- ---------- ----------
Total Other Income: $ 697 $ 668 $ 2,146 $ 1,893
---------- ---------- ---------- ----------
Noninterest Expense:
Salaries & Benefits $ 1,030 $ 864 $ 2,885 $ 2,512
Occupancy & Equipment $ 238 $ 208 $ 686 $ 623
DP & Other Professional $ 127 $ 86 $ 286 $ 262
Other Expense $ 99 $ 330 $ 1,063 $ 978
---------- ---------- ---------- ----------
Total Other Expense $ 1,494 $ 1,488 $ 4,920 $ 4,375
---------- ---------- ---------- ----------
Income before Income Taxes $ 1,895 $ 1,754 $ 5,188 $ 4,988
Provision for Income Tax $ 738 $ 632 $ 1,998 $ 1,826
---------- ---------- ---------- ----------
Net Income $ 1,157 $ 1,122 $ 3,190 $ 3,162
========== ========== ========== ==========
Basic Earnings per share $ 0.44 $ 0.42 $ 1.19 $ 1.18
Weighted Average shares 2,649 2,690 2,671 2,690
Diluted Earnings per share $ 0.40 $ 0.40 $ 1.10 $ 1.15
Weighted Average shares 2,886 2,815 2,890 2,759
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
REDDING BANCORP & SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,190 $ 3,162
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 10 250
Provision for depreciation 347 325
Compensation associated with stock options 50 -
Amortization of investment premiums and
Accretion of discounts, net (30) (43)
Gain on sale of loans (120) (23)
Proceeds from sales of loans 4,017 2,007
Loans originated for sale (4,137) (2,030)
Decrease in other assets 714 525
Increase (Decrease) in deferred loan fees (69) 168
Increase in other liabilities 6,747 161
---------- ----------
Net cash provided by operating activities 7,529 1,340
---------- ----------
Cash flows from investing activities:
Proceeds from maturities of available for sale securities 18,623 24,024
Proceeds from sale of available for sale securities 4,516 8,029
Purchases of available for sale securities (33,046) (5,741)
Loan origination's, net of principal repayments (19,745) (31,198)
Purchases of premises and equipment (287) (79)
Proceeds from sale of equipment 16 -
---------- ----------
Net cash (used)
by investing activities (29,923) (4,965)
---------- ----------
Cash flows from financing activities:
Net Increase (Decrease) in demand deposits and savings 2,652 (3,926)
Net Increase (Decrease) in certificates of deposit 14,065 (94)
Cash dividends (1,593) (1,345)
Common stock repurchase transactions (1,081) -
Common stock options exercised 3 -
---------- ----------
Net cash provided (used)
by financing activities 14,046 (5,365)
---------- ----------
Net decrease in cash and cash equivalents (5,158) (5,828)
Cash and cash equivalents at beginning of year 26,800 18,331
---------- ----------
Cash and cash equivalents at end of year $ 21,642 $ 12,503
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes 2,498 1,798
Interest 4,551 4,328
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
REDDING BANCORP & SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements should be read in
conjunction with the financial statements and related notes contained in Redding
Bancorp's 1998 Annual Report to Shareholders. The statements include the
accounts of Redding Bancorp ("the Company"), and its wholly owned subsidiary,
Redding Bank of Commerce ("RBC"). All significant inter-company balances and
transactions have been eliminated. The financial information contained in this
report reflects all adjustments that in the opinion of management are necessary
for a fair presentation of the results of the interim periods. All such
adjustments are of a normal recurring nature. The results of operations and cash
flows for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold and repurchase agreements.
Federal funds sold and repurchase agreements are generally for one day periods.
2. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. The following table displays the
computation of earnings per share for the three and nine months ended September
30, 1999 and 1998.
(Dollars in thousands, except earnings per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, Sept. 30,
- ----------------------------------------------------------------------------------------------------------------
Basic EPS Calculation: 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator (net income) $ 1,157 $ 1,122 $ 3,190 $ 3,162
Denominator (average common 2,649 2,690 2,671 2,690
Shares outstanding)
Basic Earnings per share $ 0.44 $ 0.42 $ 1.19 $ 1.18
Diluted EPS Calculation:
Numerator (net income) $ 1,157 $ 1,122 $ 3,190 $ 3,162
Denominator:
Average common shares outstanding 2,649 2,690 2,671 2,684
Options 237 125 219 75
---------- ---------- ---------- ----------
2,886 2,815 2,890 2,759
Diluted Earnings per share $ 0.40 $ 0.40 $ 1.10 $ 1.15
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
3. COMPREHENSIVE INCOME
The Company's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income as reported $ 1,157 $ 1,122 $ 3,190 $ 3,162
Other comprehensive income
(net of tax):
Change in unrealized holding
gain (loss) on available for sale (118) 61 (419) 53
securities
Reclassification adjustment - (18) (18)
---------- ---------- ---------- ----------
Total comprehensive income $ 1,039 $ 1,165 $ 2,771 $ 3,197
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. COMMON STOCK DIVIDEND
On September 21, 1999, the Board of Directors declared a cash dividend of 60
cents per share on the Company's Common Stock paid to shareholders of record as
of October 1, 1999.
5. SEGMENT REPORTING
The Company has two reportable segments: commercial banking and credit card
services. The Company conducts a general commercial banking business in the
counties of Butte, El Dorado, Placer, Shasta, and Sacramento, California. The
principal commercial banking activities include a full-array of deposit accounts
and related services and commercial lending for businesses and their interests.
Credit card services are limited to those revenues and data processing costs
associated with its agreement with an ISO, pursuant to which the Bank provides
credit and debit card processing services for merchants solicited by the ISO or
the Bank who accept credit and debit cards as payments for goods and services.
The following table presents financial information about the Company's
reportable segments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------------------
Net income before taxes allocated to: 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial Banking $ 647 $ 676 $ 1,794 $ 1,827
Credit card services 510 446 1,396 1,335
---------- ---------- ---------- ----------
$ 1,157 $ 1,122 $ 3,190 $ 3,162
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and hedging activities. The statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. The effective date for the statement has been postponed
until the year 2001. The Company is in the process of determining the impact of
SFAS No. 133 on the Company's financial statements.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR
STATEMENT.
This quarterly report on Form 10-Q includes forward-looking information, which
is subject to the "safe harbor" created by the Securities Act of 1933, and
Securities Act of 1934. These forward-looking statements (which involve the
Company's plans, beliefs and goals, refer to estimates or use similar terms)
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
- - Competitive pressure in the banking industry and changes in the regulatory
environment.
- - Changes in the interest rate environment and volatility of rate sensitive
deposits.
- - The health of the economy declines nationally or regionally which could
reduce the demand for loans or reduce the value of real estate collateral
securing most of the Company's loans.
- - Credit quality deteriorates which could cause an increase in the provision
for loan losses.
- - Losses in the Company's merchant credit card processing business.
- - Asset/Liability matching risks and liquidity risks.
- - Changes in the securities markets.
For additional information concerning risks and uncertainties related to the
Company and its operations please refer to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 under the heading "Risk factors that
may affect results". Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
The following sections discuss significant changes and trends in financial
condition, capital resources and liquidity of the Company from December 31, 1998
to September 30, 1999. Also discussed are significant trends and changes in the
Company's results of operations for the nine months ended September 30, 1999,
compared to the same period in 1998. The financial statements and related notes
appearing elsewhere in this report are condensed and unaudited.
GENERAL
The Company is a bank holding company with its principal offices in
Redding, California. The Company engages in a general commercial banking
business in Redding and the counties of Butte, El Dorado, Placer, Shasta, and
Sacramento, California. The Company considers Shasta County to be the Company's
major market area. The Company conducts its business through the Bank, its
principal subsidiary. The services offered by the Company include those
traditionally offered by commercial banks of similar size and character in
California, such as checking, interest-bearing checking ("NOW") and savings
accounts, money market deposit accounts, commercial, construction, real estate,
personal, home improvement, automobile and other installment and term loans,
travelers checks, safe deposit boxes, collection services, and telephone
transfers. The primary focus of the Company is to provide service to the
business and professional community of its major market area including Small
Business Administration ("SBA") loans, and payroll and accounting packages and
billing programs. The Company does not offer trust services or international
banking services and does not plan to do so in the near future.
The Company derives its income from two principal sources: (i) net
interest income, which is the difference between the interest income it receives
on interest-earning assets and the interest expense it pays on interest-bearing
liabilities, and (ii) fee income, which includes fees earned on deposit
services, income from SBA lending, electronic-based cash management services and
merchant credit card processing services.
8
<PAGE> 9
Management considers the business of the Company to be divided into two
segments: (i) commercial banking and (ii) credit card services. Credit card
services are limited to those revenues, net of related data processing costs,
associated with the Merchant Services Agreement and the Bank's agreement to
provide credit and debit card processing services for merchants solicited by the
Bank who accept credit and debit cards as payments for goods and services.
RESULTS OF OPERATIONS
The Company reported quarterly earnings of $1,157,000, for the quarter
ended September 30, 1999. The quarterly earnings represent a 3.1% increase over
the $1,122,000 reported for the same period of 1998. Diluted earnings per share
for the third quarter of 1999 were $0.40, compared to $0.40 for the same period
of 1998.
Earnings for the nine months ended September 30, 1999 were $3,190,000
versus a year ago results of $3,162,000. The diluted earnings per share were
$1.10 and $1.15 for the respective nine-month periods. Average diluted common
shares outstanding increased to 2,890,000 for the nine months ended September
30, 1999 versus a year ago at 2,759,000 as a result of stock options
outstanding.
Factors contributing to the moderate increase in operating results
include a decrease in net interest rate spread, and an increase in Salaries &
benefits representing additional staffing used to expand the Corporate
accounting department and the loan production office in Roseville, California.
NET INTEREST INCOME
Net interest income is the primary source of income for the Bank. Net
interest income represents the excess of interest and fees earned on
interest-earning assets (loans, investments and Federal Funds sold) over the
interest paid on deposits and borrowed funds. Net interest margin is net
interest income expressed as a percentage of average earning assets.
For the three months ended September 30, 1999, interest income increased
$291,000 (7.8%) over the same period in 1998. Interest expense on deposit
accounts and borrowings increased $268,000 (18.7%) over the same three-month
period in 1998. During this quarter, the Company used borrowing lines at the
Federal Home Loan Bank to offset fixed rate loan growth and maintain liquidity.
Interest expense attributed to the borrowing totaled $47,000 for the quarter.
For the nine months ended September 30, 1999, interest income increased
$616,000 (5.1%) over the same period in 1998. The average balance of total
earning assets increased by $22,811,000 (12.3%). Average loan balances were up
$32,053,000 (25.8%), while average balances of investments and Federal Funds
sold were down $9,242,000 (15.2%). The average yields on loans and federal funds
sold were lower by 100 and 32 basis points respectively, while the average yield
on government investments fell 72 basis points. The decrease in average yields
on loans is attributed to an increasingly competitive pricing market for loan
production. The overall yield on average earning assets fell 56 basis points to
8.12% from 8.68% for the same period a year ago.
For the nine months ended September 30, 1999, interest expense increased
$324,000 (7.5%) over the same period in 1998. Average balances of
interest-bearing liabilities were up $13,144,000 (9.3%). The average rate paid
on certificates of deposit dropped 23 basis points, while the overall average
rate paid on interest bearing deposits and borrowings decreased six basis points
to 4.01% from 4.07% for the same period a year ago.
The combined effect of the increase in volume of earning assets and
decrease in yield on earning assets, coupled with stable funding sources
resulted in an increase of $292,000 (3.8%) in net interest income for the nine
month period ended September 30, 1999 over the same period in 1998. Net interest
margin decreased 42 basis points to 5.14% from 5.56% for the same period a year
ago.
9
<PAGE> 10
The following table sets forth the Company's daily average balance
sheet, related interest income or expense and yield or rate paid for the periods
indicated. Tax-exempt investment yields have not been adjusted to a
tax-equivalent yield basis.
AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES PAID
(UNAUDITED, DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
9/30/99 9/30/98
- ----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Portfolio Loans $ 156,332 $ 10,641 9.08% $ 124,279 $ 9,399 10.08%
Tax Exempt Securities 5,704 184 4.30% 9,994 366 4.88%
US Government 30,942 1,309 5.64% 40,106 1,912 6.36%
Federal Funds Sold 12,553 428 4.55% 8,330 304 4.87%
Other Securities 2,308 95 5.49% 2,319 60 3.45%
--------- --------- --------- --------- --------- ---------
Average Earning Assets $ 207,839 $ 12,657 8.12% $ 185,028 $ 12,041 8.68%
--------- ---------
Cash & Due From Banks $ 10,249 $ 10,189
Bank Premises 5,625 5,715
Allowance for Loan Losses (3,248) (2,934)
Other Assets 4,864 4,946
--------- ---------
Average Total Assets $ 225,329 $ 202,944
========= =========
INTEREST BEARING LIABILITIES
Demand Interest Bearing $ 40,830 $ 525 1.71% $ 42,061 $ 590 1.87%
Savings Deposits 12,919 263 2.71% 12,586 259 2.74%
Certificates of Deposit 99,567 3,810 5.10% 86,843 3,472 5.33%
Borrowings 1,318 47 4.75% -
--------- --------- --------- --------- --------- ---------
154,634 $ 4,645 4.01% 141,490 4,321 4.07%
--------- ---------
Non interest Demand 43,540 36,725
Other Liabilities 2,188 2,340
Shareholder Equity 24,967 22,389
--------- ---------
Average Liabilities and
Shareholders Equity $ 225,329 $ 202,944
========= =========
Net Income and Net Interest Margin $ 8,012 5.14% $ 7,720 5.56%
========= ---------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
The following tables set forth changes in interest income and expense for each
major category of earning assets and interest-bearing liabilities, and the
amount of change attributable to volume and rate changes for the periods
indicated. Changes attributable to rate/volume have been allocated to volume
changes.
ANALYSIS OF CHANGES IN NET
INTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999 Over September 30, 1998
Volume Rate Total
------------------- ---------- ------------------
<S> <C> <C> <C>
Increase(Decrease) In
Interest Income
Portfolio loans $ 2,182 $ (940) $ 1,242
Tax exempt securities (138) (44) (182)
US Government securities (388) (215) (603)
Federal Funds Sold 144 (20) 124
Other Securities (0) 35 35
---------- ---------- ----------
Total Increase / (Decrease) $ 1,799 $ (1,183) $ 616
---------- ---------- ----------
Increase(Decrease) In
Interest Expense
Interest Bearing Demand $ (16) $ (49) $ (65)
Savings Deposits 7 (3) 4
Certificates of Deposit 487 (149) 338
Borrowings 47 0 47
---------- ---------- ----------
Total Increase / (Decrease) $ 525 $ (201) $ 324
---------- ---------- ----------
Net Increase/ (Decrease) $ 1,274 $ (982) $ 292
========== ========== ==========
</TABLE>
NONINTEREST INCOME
The Company's noninterest income consists of processing fees for
merchants who accept credit card payments for goods and services, service
charges on deposit accounts, and other service fees.
For the three months ended September 30, 1999, noninterest income
increased $29,000 (4.3%) over the same period in 1998. Credit card processing
income increased $64,000 (14.3%) while other service fee income declined $36,000
(27.2%) over the same period 1998. Contributing to the increase in credit card
processing income are changes in pricing and transactional volumes.
For the nine months ended September 30, 1999, noninterest income
increased $253,000 (13.3%) over the same period in 1998. Factors contributing to
the increase include pricing adjustments on overdraft processing services of
$40,000 (25%), moderate transaction volume increases in credit card processing,
and service fee increases attributed to additional offsite ATM installations,
transaction fee increases and gains on sales of loans totaling $152,000 (38.2%)
over the same period in 1998.
The following table sets forth a summary of noninterest income for the periods
indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
Noninterest Income 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Charges $ 55 $ 54 $ 200 $ 160
Credit Card Income, net 510 446 1,396 1,335
Other Income 132 168 550 398
---------- ---------- ---------- ----------
Total noninterest income $ 697 $ 668 $ 2,146 $ 1,893
- -----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
NONINTEREST EXPENSE
Noninterest expenses consist of salaries and related employee benefits,
occupancy and equipment expenses, data processing fees, professional fees,
directors' fees and other operating expenses.
For the three months ended September 30, 1999, noninterest expense
increased $6,000 over the same period in 1998. Salaries and benefits increased
$166,000 (19.2%) indicative of the additions to staff to expand the corporate
accounting department and the loan production office in Roseville, California.
Other operating expenses decreased $125,000 (49.8%) and professional fees
decreased $46,000 (57.5%) over the same period in 1998. The operating decreases
is attributed to a reduction in loan documentation expenses attributable to
volumes, increased management fee collection and reduced attorneys fees.
For the nine months ended September 30, 1999, noninterest expense
increased $545,000 (12.4%) over the same period in 1998. Salaries and benefits
increased $373,000 (14.8%) over the same period in 1998, also indicative of the
additions to staff to expand the corporate accounting department and the loan
production office in Roseville, California. Professional fees for the first nine
months of 1999 have increased $85,000 (31.9%) and are attributed to the
professional support in filing the company's registration statement.
The following table sets forth a summary of noninterest expense for the periods
indicated.
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended Nine Months Ended
September 30, September 30,
- ----------------------------------------------------------------------------------------------------
Noninterest Expense 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and Benefits $ 1,030 $ 864 $ 2,885 $ 2,512
Occupancy & Equipment 238 208 686 623
Data Processing Fees 22 34 75 67
Professional Fees 34 80 351 266
Directors Expenses 44 51 154 154
Other Expenses 126 251 769 753
---------- ---------- ---------- ----------
Total Noninterest expense $ 1,494 $ 1,488 $ 4,920 $ 4,375
- ----------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
The Company's provision for income taxes includes both federal and state
income taxes and reflects the application of federal and state statutory rates
to the Company's net income before taxes. The principal difference between
statutory tax rates and the Company's effective tax rate is the benefit derived
from investing in tax-exempt securities. Increases and decreases in the
provision for taxes reflect changes in the Company's net income before tax.
The following table reflects the Company's tax provision and the related
effective tax rate for the periods indicated.
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------------
Income Taxes 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax provision $ 738 $ 632 $ 1,998 $ 1,826
Effective tax rate 38.9% 36.0% 38.5% 36.6%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
The Company's effective tax rate varies with changes in the relative
amounts of its non-taxable income and non-deductible expenses. The increase in
the Company's tax provision is attributable to increases in the Company's net
income, the non-deductibility of certain professional fees and a 42% reduction
in average investments held in the tax-exempt portfolio.
ASSET QUALITY
The Company concentrates its lending activities primarily within Shasta
County, California, and the location of the Bank's two full service branches.
The Company also makes loans to borrowers in Butte, El Dorado, Placer,
Sacramento and Tehama counties through its loan production offices.
Net portfolio loans have increased $20,045,000 or 13.8% since December
31, 1998. The strategic plan adopted in 1998 provided for significant increases
in loan growth (10%), offset by decreasing investment securities and wholesale
borrowing arrangements from the Federal Home Loan Bank, designed to improve
yields over investment activities. The current 9.08% yield on portfolio loans
has decreased over the 10.08% yield of a year ago; however, is significantly
improved over the 6.46% average yield on investments of a year ago. Commercial
and financial loans have increased $5,102,000 (10.8%), real estate construction
projects have increased $3,943,000 (13.4%) and Commercial real estate has
increased $11,553,000 (16.6%) over a year ago.
The increases are primarily in the commercial & financial and commercial real
estate segments.
The following table sets forth the amounts of loans outstanding by
category as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------
Portfolio Loans
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial & Financial $ 51,992 $ 46,890
Real Estate-Construction 33,413 29,470
Real Estate-Commercial 81,295 69,742
Installment 291 298
Other Loans 1,627 2,225
Less:
Deferred Loan Fees and Costs (353) (423)
Allowance for Loan Losses (3,253) (3,235)
---------- ----------
Total Net Loans $ 165,012 $ 144,967
- --------------------------------------------------------------------------------------------
</TABLE>
The Company's practice is to place an asset on nonaccrual status when
one of the following events occurs: (i) any installment of principal or interest
is 90 days or more past due (unless in management's opinion the loan is well
secured and in the process of collection). (ii) Management determines the
ultimate collection of principal or interest to be unlikely or (iii) the terms
of the loan have been renegotiated due to a serious weakening of the borrower's
financial condition. Nonperforming loans are loans that are on nonaccrual, are
90 days past due and still accruing or have been restructured.
The following table sets forth a summary of the Company's nonperforming
assets as of the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------
Non performing assets
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 872 $ 942
90 days and still accruing 0 46
Restructured loans in compliance
with modified terms - -
Other Real Estate Owned 40 66
- --------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
The Company's nonaccrual loans decreased from $942,000 to $872,000 in
the first nine months of 1999. OREO properties decreased from $66,000 to $40,000
during the same period.
ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
The Company makes provisions to the ALLL on a regular basis through
charges to operations that are reflected in the Company's statements of income
as a provision for loan losses. When a loan is deemed uncollectible, it is
charged against the allowance. Any recoveries of previously charged-off loans
are credited back to the allowance. There is no precise method of predicting
specific losses or amounts that ultimately may be charged-off on particular
categories of the loan portfolio.
Similarly, the adequacy of the ALLL and the level of the related
provision for possible loan losses is determined on a judgment basis by
management based on consideration of (i) economic conditions, (ii) borrowers'
financial condition, (iii) loan impairment, (iv) evaluation of industry trends,
(v) industry and other concentrations, (vi) loans which are contractually
current as to payment terms but demonstrate a higher degree of risk as
identified by management, (vii) continuing evaluation of the performing loan
portfolio, (viii) monthly review and evaluation of problem loans identified as
having loss potential, (ix) quarterly review by the Board of Directors, (x) off
balance sheet risks and (xi) assessments by regulators and other third parties.
Management and the Board of Directors evaluate the allowance and determine its
desired level considering objective and subjective measures, such as knowledge
of the borrowers' business, valuation of collateral, the determination of
impaired loans and exposure to potential losses.
The ALLL is a general reserve available against the total loan portfolio
and off balance sheet credit exposure. It is maintained without any
interallocation to the categories of the loan portfolio, and the entire
allowance is available to cover loan losses. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's ALLL. Such agencies may require the Bank to
provide additions to the allowance based on their judgment of information
available to them at the time of their examination. There is uncertainty
concerning future economic trends. Accordingly, it is not possible to predict
the effect future economic trends may have on the level of the provision for
possible loan losses in future periods.
The ALLL should not be interpreted as an indication that charge-offs in
future periods will occur in the stated amounts or proportions.
The adequacy of the ALLL is calculated upon three components. First is
the dollar weighted risk rating of the loan portfolio, including all outstanding
loans and leases, off balance sheet items, and commitments to lend. Every
extension of credit has assigned a risk rating based upon a comprehensive
definition intended to measure the inherent risk of lending money. Each rating
has an assigned a risk factor expressed as a reserve percentage. Central to this
assigned risk (reserve) factor is the five-year historical loss record of the
bank.
Secondly, established specific reserves are available for individual
loans currently on management watch and high-grade loan lists. These are the
estimated potential losses associated with specific borrowers based upon the
collateral and event(s) causing the risk rating.
The third component is unallocated. This reserve is for quantitative
factors that may effect the portfolio as a whole, such as those factors
described above.
Management believes the assigned risk grades and our methods for
managing changes are satisfactory. Management believes the loan portfolio
performance has improved as reflected by the stable and low delinquency ratio.
Watch list and high-grade loans have increased somewhat o ver the past year,
primarily due to a greater acceptance to move more susceptible although
performing accounts to attention. This minimal increase does not suggest a
trend.
14
<PAGE> 15
The following table summarizes the activity in the ALLL reserves for the
periods indicated.
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------
Allowance for Loan & Lease Losses 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance for Loan Losses $ 3,276 $ 2,958 $ 3,235 $ 2,819
Provision for Loan Losses 10 105 50 250
Charge offs:
Commercial (0) (78) (0) (118)
Real Estate (50) (14) (83) (32)
Other (1) (8) (23) (27)
---------- ---------- ---------- ----------
Total Charge offs (51) (100) (106) (177)
Recoveries:
Commercial 7 42 12 95
Real Estate 0 8 40 13
Other 11 6 22 19
---------- ---------- ---------- ----------
Total Recoveries 18 56 74 127
Ending Balance $ 3,253 $ 3,019 $ 3,253 $ 3,019
ALLL to total loans 1.97% 2.09% 1.97% 2.09%
Net Charge offs to average loans 0.08% 0.13% 0.02% 0.04%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT PORTFOLIO
Total investment securities increased $9,518,000 in the first nine
months of 1999 or 29.2%. The increase is primarily in US Government securities
and short-term commercial paper. Earlier maturing and called US Agency bonds
were reinvested in the Treasury market for the specific purpose of utilizing the
Treasuries as collateral for potential borrowings through the Federal Home Loan
Bank and Federal Reserve Bank. Investments during the current period are in
shorter-term commercial paper to enhance year-end liquidity.
LIQUIDITY
With respect to assets, liquidity is provided by cash and money market
investments such as interest-bearing time deposits, federal-funds sold,
investment securities available-for-sale and principal and interest payments on
loans. With respect to liabilities, the Company's core deposits, shareholders'
equity and the ability of the Bank to borrow funds and to generate deposits,
provide asset funding.
Because estimates of the liquidity need of the Bank may vary from actual
needs, the Bank maintains a substantial amount of liquid assets to absorb short
term increases in loans or reductions in deposits.
The Company's liquid assets (cash and due from banks, federal funds sold
and available-for-sale investment securities) totaled $57,684,000, or 25.1% of
total assets, at September 30, 1999 compared to $51,319,000 or 23.8% of total
assets at December 31, 1998.
During the current period, the bank drew on borrowing lines at the
Federal Home Loan Bank. The borrowing totaled $4,800,000 and consists of the
following: $1,800,000 at 5.83% due on September 1, 2000; $2,000,000 at 6.05% due
on April 1, 2001 and $1,000,000 at 6.13% due on September 1, 2001. These
established borrowing lines are for the specific purpose of funding asset
growth.
15
<PAGE> 16
CAPITAL ADEQUACY
Overall capital adequacy is monitored on a day-to-day basis by the
Company's management and reported to the Company's Board of Directors on a
monthly basis. The Bank's regulators measure capital adequacy by using a
risk-based capital framework and by monitoring compliance with minimum leverage
ratio guidelines. Under the risk-based capital standard, assets reported on the
Company's balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which is assigned a risk weight.
This standard characterizes an institution's capital as being "Tier 1" capital
(defined as principally comprising shareholders' equity) and "Tier 2" capital
(defined as principally comprising the qualifying portion of the ALLL).
The minimum ratio of total risk-based capital to risk-adjusted assets,
including certain off-balance sheet items, is 8%. At least one-half (4%) of the
total risk-based capital (Tier 1) is to be comprised of common equity; the
balance may consist of debt securities and a limited portion of the ALLL.
The following table sets forth the Company's capital ratio as of the
dates indicated.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Capital Ratio's Bank Company Bank Company
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Risk-Based Capital 13.68% 14.35% 15.58% 16.42%
Tier 1 Capital to Risk-Based Assets 12.42% 13.10% 14.33% 15.17%
Tier 1 Capital to Average Assets 10.49% 10.87% 10.95% 11.52%
(Leverage ratio)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
On September 21, 1999, the Board of Directors declared a cash dividend
of 60 cents per share on the Company's Common Stock paid to shareholders of
record as of October 1, 1999. This dividend coupled with the significant growth
in the loan portfolio has decreased the Tier 1 Capital ratio to 10.87% from
11.52% at December 31, 1998. Under the risk-based capital standard, assets
reported on the Company's balance sheet and certain off-balance sheet items are
assigned to risk categories, each of which is assigned a risk weight. While US
government investments may have a zero weight attached, portfolio loans have a
100 percent weight attached. This reclassification of earning assets attributes
to the decline in total risk-based capital ratio to 14.35% from 16.42% at
December 31, 1999. During the second quarter of 1999, the Board of Director's of
Redding Bancorp approved a repurchase program for Redding Bancorp stock. The
purpose of the Treasury Stock Repurchase program is to provide greater liquidity
for investor's and to mitigate the dilution effects of the Redding Bancorp 1998
Stock Option Plan. The program establishes a systematic buyback approach using a
seven-year ramp. The program authorized the buyback of up to 411,000 shares of
Treasury stock over the next seven years. At September 30, 1999, the Company has
repurchased 50,571 shares. These shares have been retired.
THE YEAR 2000 PROJECT
The following is a Year 2000 readiness disclosure.
GENERAL
Because computers frequently use only two-digits to recognize years, on
January 1, 2000, many computer systems as well as equipment that uses imbedded
computer chips, may be unable to distinguish between 1900 and 2000. If not
corrected, this problem could create system errors and failures resulting in the
disruption of normal business operations.
16
<PAGE> 17
The Bank recognized the critical importance of Year 2000 system
compliance and began addressing this issue early in 1996. A Y2K Contingency team
comprised of senior management, operating officers and selected representatives
from business segments is the formal sponsor of the Year 2000 project. This
sponsor makes regular presentations to the Company's Board of Directors.
STATE OF READINESS
The Company's Year 2000 effort includes phases for analysis,
remediation, testing and compliance.
- - Analysis - in the analysis phase, the Company identifies systems, projects
and infrastructure that have Year 2000 issues and determines the steps
necessary to remediate these issues.
- - Remediation - in the remediation phase, the Company replaces, modifies or
retires systems, projects or infrastructure, as necessary.
- - Validation - during the testing or validation phase, the Company performs
testing to determine whether the remedied systems, projects and
infrastructure accurately process and identify dates.
- - Compliance - in the compliance phase, the Company internally certifies the
systems, projects and infrastructure that are Year 2000 ready and implements
processes to enable these systems, projects, and infrastructure to continue
to identify and process dates accurately through the Year 2000 and
thereafter.
As of June 30, 1999, the analysis, remediation, testing and compliance phases
were all substantially complete. As of June 30, 1999, the Company substantially
completed all phases, in accordance with guidelines established by the Federal
Financial Institutions Examination Council (FFIEC). As of June 30, 1999,
systems, projects and infrastructure designated as "mission critical" (i.e. if
not made ready for Year 2000, these systems, projects or infrastructure items
would substantially impact the normal conduct of business), the analysis,
remediation, testing and compliance phases were all substantially complete. The
Company is also performing additional "time machine testing" (emulating Year
2000 conditions in dedicated environments) on selected mission critical systems.
Costs - as of December 31, 1998, the Company had incurred approximately $200,000
in Year 2000 costs, which have been expensed as incurred. The Company estimates
that it will spend an additional $50,000 to address the Year 2000 issue. As of
September 30, 1999, approximately $16,000 has been spent. This estimate includes
the cost of the time of internal staff and the costs of consultants. This
estimate does not include the time internal staff is devoting to testing program
changes. Testing is not expected to add significant incremental costs.
Ultimately, the potential impact of Year 2000 issues will depend not only on
corrective measures taken by the Company, but also on the way in which Year 2000
issues are addressed by governmental agencies, businesses and other entities
which provide data to, or receive data from the Company. Additionally, the
financial condition or operational capabilities of borrowers, vendors, and
customers will have an important impact on the Company.
BUSINESS RESUMPTION CONTINGENCY PLANS
Attaining Year 2000 readiness is one of the most complex and challenging issues
facing financial institutions. Substantial resources and time were expended to
renovate or replace mission-critical systems, yet despite this effort and
commitment, the risk of disruption to business processes remains. A Business
Resumption Plan is needed to provide assurance that the mission critical
functions will continue if one or more systems fail.
The Company has already established a Y2K Action Team comprised of an Executive
Division that includes directors and senior management as well as management
representatives from all major business. This team has and will continue to
discuss issues, which might influence the Company's' ability to conduct business
in a convenient fashion, because of a Y2K failure. The Y2K Action Team has
identified the Company's core business processes as follows:
A. Accepting deposits and paying withdrawals
B. Purchasing and selling securities and Federal Funds
C. Making, selling and administering loans
D. Conducting in-house data processing
E. Conducting item processing
17
<PAGE> 18
F. Sending and receiving wire transfers and ACH transactions
G. Maintaining liquidity and cash availability
H. Clearing check items for customers and paying "on-us" checks
I. Providing customer service, including account information
J. Providing payroll services and merchant bankcard services
The Company has identified ten MISSION CRITICAL vendors. They are Pacific Bell
Telephone Company (Pacific Bell), City of Redding Electric Utilities, the
Federal Reserve Bank, Peerless Group Inc., Document Solutions Inc. (DSI), Deluxe
Data (Deluxe), CFI Pro Services (CFI), ACCPAC International (payroll services),
First Data Resources (FDR) and Cardservice International (merchant bankcard
services).
The Company has successfully tested Federal Reserve applications on-line with
the Federal Reserve Bank of San Francisco while also testing Peerless/DSI
applications in-house. Deluxe, CFI and ACCPAC have all been tested successfully
in-house. FDR (our Visa/MasterCard processor) has successfully done end testing
directly with Visa and MasterCard. No testing is available for Pacific Bell or
City of Redding Utilities. The Company is totally dependent upon public
announcements made by Pacific Bell and City of Redding Utilities as to their
respective Y2K readiness.
The Company has determined that credit card process balancing, including ACH
origination, wire transfer, settlement and balancing can be processed manually.
The Company has established the Y2K Action Team to implement the required Y2K
actions. The Y2K Team is responsible for developing and monitoring the
implementation and testing of the Y2K Contingency Plan. Management is
responsible for directing the activities of the Committee and reporting to the
Board of Directors on the progress in the development and implementation of the
Y2K Contingency Plan.
The Company's Y2K Contingency Plan validated on a continuous basis by the Y2K
Action Team.
Manual testing of each core business process is complete.
A successful test was executed with Peerless Recovery on May 26, 1999. This was
to test the re-routing of the ACH and MICR files from San Francisco Federal
Reserve to the Dallas Fed Peerless Recovery was able to pick up the files and
turn a complete cycle of all of Redding Bank of Commerce's applications.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary component of market risk is interest rate
volatility. Fluctuation in interest rates will ultimately impact both the level
of interest income and interest expense recorded on a large portion of the
Company's assets and liabilities, and the fair market value of interest earning
assets and interest-bearing liabilities, other than those which possess a short
term to maturity. Because the Company's interest-bearing liabilities and
interest-earning assets are with the Bank, the Company's interest rate risk
exposure is in connection with the operations of the Bank. Consequently, all
significant interest rate risk management procedures are performed at the Bank
level.
Based upon the nature of its operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The fundamental objective of
the Company's management of its assets and liabilities is to enhance the
economic value of the Company while maintaining adequate liquidity and an
exposure to interest rate risk deemed acceptable by the Company's management.
The Company manages its exposure to interest rate risk through adherence
to maturity, pricing and asset mix policies and procedures designed to mitigate
the impact of changes in market interest rates. The Bank's profitability is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and securities, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings.
18
<PAGE> 19
The formal policies and practices adopted by the Bank to monitor and
manage interest rate risk exposure measure risk in two ways: (i) repricing
opportunities for earning assets and interest-bearing liabilities and (ii)
changes in net interest income for declining interest rate shocks of 100 and 200
basis points.
Because of the Bank's capital position and noninterest-bearing demand
deposit accounts, the Bank is asset sensitive. As a result, management
anticipates that, in a declining interest rate environment, the Company's net
interest income and margin would be expected to decline, and, in an increasing
interest rate environment, the Company's net interest income and margin would be
expected to increase. However, no assurance can be given that under such
circumstances the Company would experience the described relationships to
declining or increasing interest rates.
Because the Bank is asset sensitive, the Company is adversely affected
by declining rates rather than rising rates. This effect is partially offset in
the short-term by the fact that the Company is liability sensitive through the
cumulative GAP period of one year or less. During a period of declining rates,
such liabilities may be repriced to provide a short-term advantage to the
Company; however, this benefit may not be sustainable over the long-term.
To estimate the effect of interest rate shocks on the Company's net
interest income, management uses a model to prepare an analysis of interest rate
risk. Such analysis calculates the change in net interest income given a change
in the federal funds rate of 100 basis points up or down. All changes are
measured in dollars and are compared to projected net interest income. At
September 30, 1999, the estimated annualized reduction in net interest income
attributable to a 100 basis point decline in the federal funds rate was
$394,000. A similar and opposite result attributable to a 100 basis point
increase in the federal funds rate. At December 31, 1998, the estimated
annualized reduction in net interest income attributable to a 100 basis point
decline in the federal funds rate was $543,000 with a similar and opposite
result attributable to a 100 basis point increase in the federal funds rate.
Management does not believe that the change from in the first quarter is
significant or represents a known trend toward more interest rate risk
sensitivity in the Company's financial position.
The model utilized by management to create the analysis described in the
preceding paragraph uses balance sheet simulation to estimate the impact of
changing rates on the annual net interest income of the Bank. The model
considers a number of factors, including (i) change in customer and management
behavior in response to the assumed rate shock, (ii) the ratio of the amount of
rate change for each interest-bearing asset or liability to assumed changes in
the federal funds rate based on local market conditions for loans and core
deposits and national market conditions for other assets and liabilities and
(iii) timing factors related to the lag between the rate shock and its effect on
other interest-bearing assets and liabilities. Actual results will differ when
actual customer and management behavior and ratios differ from the assumptions
utilized by management in its model. In addition, the model has limited
usefulness for the measurement of the effect on annual net interest income
resulting from rate changes other than 100 basis points. Management believes
that the short duration of its rate-sensitive assets and liabilities contributes
to its ability to reprice a significant amount of its rate-sensitive assets and
liabilities and mitigates the impact of rate changes more than 100 basis points.
The model's primary benefit to management is its assistance in evaluating the
impact that future strategies with respect to the Bank's mix and level of
rate-sensitive assets and liabilities will have on the Company's net interest
income.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various legal actions arising
in the ordinary course of business. The Company believes that the ultimate
disposition of all currently pending matters will not have a material adverse
effect on the Company's financial condition or results of operations.
ITEM #2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the second quarter of 1999, the Board of Director's of Redding Bancorp
approved a repurchase program for Redding Bancorp stock. The purpose of the
Treasury Stock Repurchase program is to provide greater liquidity for investor's
and to mitigate the dilution effects of the Redding Bancorp 1998 Stock Option
Plan. The program establishes a systematic buyback approach using a seven-year
ramp. The program authorized the buyback of up to 411,000 shares of Treasury
stock over the next seven years. At September 30, 1999, the Company has
repurchased 50,571 shares. These shares have been retired. The authorized Common
Stock of the Company consists of 10,000,000 shares no par value. At September
30, 1999, there were issued and outstanding 2,654,872 shares of Common Stock.
ITEM #3. DEFAULTS UPON SENIOR SECURITIES
N/A.
ITEM #4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A.
ITEM #5. OTHER INFORMATION
N/A.
ITEM #6A. EXHIBITS
Ex-27.1. Financial Data table for the periods ended September 30, 1999 and
September 30, 1998.
ITEM #6B. REPORTS ON FORM 8-K
Form 8-K dated October 14, 1999 announcing third quarter 1999 earnings.
SIGNATURES
Following the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REDDING BANCORP
(Registrant)
Date: November 9, 1999 /s/ Linda J. Miles
Linda J. Miles
Executive Vice President &
Chief Financial Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Index
Number Description
- ------ -----------
<S> <C>
27.1. Financial Data table for the periods ended September 30, 1999 and
September 30, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGES 3, 4 AND 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE OF
EACH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,642
<SECURITIES> 41,968
<RECEIVABLES> 0
<ALLOWANCES> 3,253
<INVENTORY> 0
<CURRENT-ASSETS> 228,622
<PP&E> 5,527
<DEPRECIATION> 0
<TOTAL-ASSETS> 239,806
<CURRENT-LIABILITIES> 205,337
<BONDS> 0
3,687
0
<COMMON> 0
<OTHER-SE> 21,415
<TOTAL-LIABILITY-AND-EQUITY> 239,806
<SALES> 0
<TOTAL-REVENUES> 14,803
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,920
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 4,645
<INCOME-PRETAX> 5,188
<INCOME-TAX> 1,998
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,190
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.10
</TABLE>
