<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996. Commission File Number 0-15814
VENTURA COUNTY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
California 77-0038387
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Esplanade Drive, Oxnard, California 93030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 981-2600
</TABLE>
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. [__]
There were 9,228,723 shares of common stock for the registrant issued and
outstanding as of May 10, 1996.
Total number of pages: 22
Exhibit index on page: 2
1
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
FORM 10-Q
INDEX
PAGES
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
A. Consolidated Balance Sheets 3
B. Consolidated Statements of Operations 4
C. Consolidated Statements of Cash Flows 5
D. Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION 21
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
SELECTED FINANCIAL DATA 22
</TABLE>
2
<PAGE>
Part I.
Item 1. Financial Statements
VENTURA COUNTY NATIONAL BANCORP
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,662 $ 19,920
Federal funds sold 39,350 47,450
Interest-bearing deposits - 100
Securities held-to-maturity, at amortized cost:
fair value 1996 - $10,854; 1995 - nil 10,918 -
Securities available-for-sale, at fair value 35,633 36,588
Loans, net of unearned income 162,434 157,765
Allowance for loan losses (5,335) (5,401)
- ---------------------------------------------------------------------------------------------------------
Loans, net 157,099 152,364
- ---------------------------------------------------------------------------------------------------------
Premises and equipment, net 2,350 2,371
Other assets 8,560 8,963
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $267,572 $267,756
=========================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 64,150 $ 68,074
Interest-bearing demand and savings 78,476 77,085
Time certificates of deposit 93,194 90,913
- ---------------------------------------------------------------------------------------------------------
Total deposits 235,820 236,072
- ---------------------------------------------------------------------------------------------------------
Borrowed funds and other interest-bearing liabilities - -
Accrued interest payable and other liabilities 2,287 2,225
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 238,107 238,297
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value: 20,000,000
shares authorized; 9,228,723 shares issued and
outstanding in 1996 and 1995 37,029 37,025
Retained earnings (6,625) (6,951)
Unrealized loss on available-for-sale securities, net of taxes (939) (615)
- ---------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 29,465 29,459
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES and SHAREHOLDERS' EQUITY $267,572 $267,756
=========================================================================================================
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarters ended March 31, 1996 1995
- -------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
INTEREST INCOME
Loans and leases $4,048 $4,149
Deposits with financial institutions 1 8
Investment securities 737 671
Federal funds sold 407 360
- -------------------------------------------------------------------------------------------------
Total interest income 5,193 5,188
- -------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits and other borrowings 1,636 1,545
- -------------------------------------------------------------------------------------------------
Total interest expense 1,636 1,545
- -------------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,557 3,643
Provision for loan losses - 355
- -------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,557 3,288
Noninterest income:
Service charges on deposit accounts 275 235
Loan servicing fees 30 41
Other fees and charges 72 71
(Loss) on sales of investment securities (68) -
Gain on sales of SBA loans 180 255
Other income - 4
- -------------------------------------------------------------------------------------------------
Total noninterest income 489 606
- -------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 1,561 1,638
Occupancy, net 394 458
Equipment 166 192
Professional fees 376 272
Data processing 155 158
Other real estate owned 32 37
Courier services 61 69
Office supplies and office expense 122 124
FDIC/OCC assessments 100 206
Advertising and promotion 162 115
Other 355 352
- -------------------------------------------------------------------------------------------------
Total noninterest expense 3,484 3,621
- -------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for income taxes 562 273
Provision (benefit) for income taxes 236 -
- -------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 326 $ 273
=================================================================================================
Weighted average number of shares outstanding 9,288 6,361
======= =======
Earnings per share $ 0.04 $ 0.04
======= =======
Earnings per share, fully-diluted $ 0.04 $ 0.04
======= =======
- -------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Quarters ended March 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 326 $ 273
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses - 355
(Gain) on sale of fixed assets - (2)
(Gain) on sale of SBA loans (180) (255)
Loss on sale of available-for-sale investment securities 68 -
Net amortization of premiums (accretion of discount) on investment securities 125 (80)
Net change in deferred loan fees (4) 37
Depreciation and amortization 141 147
Provision for deferred income taxes 55 -
Decrease in accrued interest receivable and other assets (2) (110)
Decrease in accrued interest payable and other liabilities (64) (812)
-------- --------
Net cash provided by (used in) operating activities 465 (447)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale investment securities 9,984 277
Proceeds from maturities of available-for-sale investment securities 6,244 9,304
Proceeds from maturities of held-to-maturity investment securities 362 691
Purchase of investment securities, available-for-sale (15,498) (4,858)
Purchase of investment securities, held-to-maturity (11,213) (3,997)
Change in Federal funds sold 8,100 2,000
Change in deposits with financial institutions 100 99
Proceeds from sale of SBA loans 1,983 1,032
Loans funded, net of payments received (6,649) 4,158
Proceeds from sale of fixed assets and other assets - 2
Purchase of fixed assets (120) (72)
Proceeds from sale of other real estate owned 232 50
-------- --------
Net cash provided by (used in) investing activities (6,475) 8,686
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in demand deposits, NOW accounts and savings accounts (2,533) 2,055
Increase/(decrease) in time certificates of deposit 2,281 (6,117)
Issuance of common stock 4 -
-------- --------
Net cash used in financing activities (248) (4,062)
-------- --------
Increase/(decrease) in cash and cash equivalents (6,258) 4,177
Cash and cash equivalents, beginning of period 19,920 11,442
-------- --------
Cash and cash equivalents, end of period $ 13,662 $ 15,619
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Interest payments $1,620 $1,544
Income tax payments 1 -
OREO foreclosure 266 67
</TABLE>
5
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
Notes to Consolidated Financial Statements
(Unaudited, except for information as of and for the year ended
December 31, 1995)
NOTE 1 - BASIS OF PRESENTATION
The Company's accounting and reporting policies conform to generally accepted
accounting principles prescribed for bank holding companies and banks, and
predominant banking industry practice. The interim period financial statements
are unaudited. It is the opinion of Company management that all adjustments
consisting of normal, recurring accruals necessary for a fair presentation of
the results of operations have been reflected therein. Results for the period
ending March 31, 1996, are not necessarily indicative of results that may be
expected for any other interim periods or for the year as a whole. For further
information, refer to the Consolidated Financial Statements and footnotes
included in the Company's Annual Report for the year ended December 31, 1995.
The Consolidated Financial Statements include the accounts of the Company and
the following subsidiaries: Ventura County National Bank, ("Ventura") and
Frontier Bank, N.A., ("Frontier"), (jointly, "the Banks"), and Ventura County
Management Services Company, Inc, the last company is currently inactive. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
Securities:
The Company's securities portfolio includes U.S. Treasury and U.S. federal
agency securities, most of which are mortgage-backed securities. The Company has
classified its investment securities as held-to-maturity or as available-for-
sale; the Company has no trading account assets.
Securities are classified as available-for-sale when the Company intends to hold
the securities for an indefinite period of time but not necessarily to maturity.
Any decision to sell a security classified as available-for-sale would be based
on various factors, including significant movements in interest rates, changes
in the maturity mix of the Company's assets and liabilities, liquidity demands,
regulatory capital considerations, and other similar factors. Securities
classified as available-for-sale are reported at their fair values. Unrealized
holding gains and losses on securities available-for-sale are reported, net of
tax, as a separate component of shareholders' equity. Realized gains and losses
from the sales of available-for-sale securities are reported separately in the
statements of operations. The cost basis of available-for-sale securities is
recorded using the specific identification method.
Securities are classified as held-to-maturity when the Company has both the
intent and ability to hold the securities to maturity on a long-term basis.
Securities held-to-maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts to maturity or, in the case of mortgage-
backed securities, over the estimated life of the securities.
Ordinarily, transfers of securities from held-to-maturity to available-for-sale
are not permitted. However, under a special one-time exemption authorized by the
Financial Accounting Standards Board that allowed companies to reclassify their
investment securities portfolio categories, the Company reclassified its entire
held-to-maturity investment portfolio to the available-for-sale category in
December 1995. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, held-to-maturity investment securities were transferred to
available-for-sale at their fair market values. The net result of the transfer
was an aggregate unrealized net gain of $186 thousand at December 31, 1995.
SBA Loans and Servicing Income:
The portion of loans guaranteed by the SBA, which are originated and are
intended for sale in the secondary market, is carried at the lower of cost or
estimated market value. Funding for SBA programs depends on annual
appropriations by the U.S. Congress, and accordingly, the sale of loans under
this program is dependent on the continuation of such programs.
Gains on sale of the guaranteed portion of SBA loans are recognized to the
extent sales proceeds less amounts necessary to provide required yield
enhancement to the Company for retaining the unguaranteed portion of the loan
exceed the carrying value of the guaranteed portion sold. Gains or losses are
determined using the specific identification method for loans sold and are
recorded as noninterest income as of the date of sale.
6
<PAGE>
NOTE 1 - BASIS OF PRESENTATION - CON'T
The Company sells SBA loans and retains servicing. At the time of sale, an
evaluation is made of the contractual servicing fee, which is represented by the
differential between the contractual interest rate of the loan and the interest
rate payable to the investor. The present value of the amount by which the
contractual servicing fee exceeds a normal servicing fee, or the Company's cost
of servicing such loans plus a normal profit, whichever is greater, after
evaluation of estimated prepayments on such loans, is considered to be an
adjustment of the sales proceeds, which in turn increases the gain recognized at
the time of the sale. Such gains are only recognized to the extent they do not
exceed the amount deferred as yield enhancement on the unguaranteed portion of
the SBA loan sold. The resultant amount of deferred loan sales proceeds is
amortized using a method which approximates a level yield over the estimated
remaining lives of such loans. The contractual servicing fee is recognized as
income over the lives of the related loans, net of the estimated normal
amortization of the deferred loan sales proceeds. Loan servicing costs are
charged to expense as incurred. When actual loan repayment experience differs
from original estimates, amortization is adjusted accordingly through
operations.
Accounting for Stock Based Compensation:
The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation", which encourages companies to account for stock
compensation awards based on their fair value at the date the awards are
granted. This statement does not require the application of fair value method
and allows the continuance of the current accounting method, which requires
accounting for stock compensation awards based on their intrinsic value as of
the grant date. However, SFAS No. 123 requires proforma disclosure of net income
and, if presented, earnings per share, as if the fair value based method of
accounting defined in this Statement had been applied. The accounting and
disclosure requirements are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company has elected not to adopt the fair
value provisions of this Statement.
NOTE 2 - INVESTMENT SECURITIES
As a result of a temporary decline in the market value of securities-available-
for-sale, the Company recorded unrealized losses totaling $939,000 and $615,000,
which are included in shareholders' equity on the consolidated balances sheets
at March 31, 1996, and December 31, 1995, respectively. The decline in the
market value of the portfolio reflects the current interest rate environment;
such decline is deemed temporary in nature. Several mortgage-backed securities
with a market value of $16,724,000 and an amortized cost of $17,196,000, at the
time of transfer, were transferred from the available-for-sale to the held-to-
maturity category during 1994. The unrealized losses recorded at the transfer
are included in shareholders' equity and are being amortized over the
securities' remaining lives; the unamortized balances were $274,000 and $297,000
at March 31, 1996, and December 31, 1995, respectively.
7
<PAGE>
NOTE 2 - INVESTMENT SECURITIES - CON'T
The amortized cost and estimated fair values of investment securities as of
March 31, 1996, and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1996 Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
US Treasury securities and obligations
of US government agencies $ 7,998 $132 $ - $ 8,130
Mortgage-backed securities 26,575 118 (566) 26,127
Federal Reserve Bank and FHLB Stock 1,376 - - 1,376
- ---------------------------------------------------------------------------------------------------
Total $35,949 $250 $ (566) $35,633
===================================================================================================
December 31, 1995
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
US Treasury securities and obligations
of US government agencies $13,491 $ 85 $ (1) $13,575
Mortgage-backed securities 21,882 230 (464) 21,648
Federal Reserve Bank and FHLB Stock 1,365 - - 1,365
- ---------------------------------------------------------------------------------------------------
Total $36,738 $315 $ (465) $36,588
===================================================================================================
SECURITIES HELD TO MATURITY
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1996 Cost Gains (Losses) Value
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
US Treasury securities and obligations
of US government agencies $ - $ - $ - $ -
Mortgage-backed securities 10,918 3 (67) 10,854
Federal Reserve Bank and FHLB Stock - - - -
- ---------------------------------------------------------------------------------------------------
Total $10,918 $ 3 $ (67) $10,854
===================================================================================================
December 31, 1995
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
US Treasury securities and obligations
of US government agencies $ - $ - $ - $ -
Mortgage-backed securities - - - -
Federal Reserve Bank and FHLB Stock - - - -
- ---------------------------------------------------------------------------------------------------
Total $ - $ - $ - $ -
===================================================================================================
</TABLE>
FHLB and Federal Reserve Bank stocks are not deemed marketable equity
securities, as they are not traded on a registered security exchange, and are
carried at cost. Securities with a fair value of $5,549,000 on March 31, 1996,
were pledged as required by law.
NOTE 3 - LOANS AND LOAN LOSS RESERVES
A certain degree of risk is inherent in the extension of credit. Credit losses
arise primarily from the loan portfolio, but may also be derived from other
credit-related sources, including commitments to extend credit, guarantees, and
standby letters of credit. Actual credit losses and other charges, net of
recoveries, are deducted from the allowance for possible loan losses. Other
charges to the allowance primarily include amounts related to loan foreclosures
at the time of transfer to other real estate owned. A provision for possible
loan losses, which is a charge against earnings, is added to the allowance based
on management's assessment of certain factors including, but not necessarily
limited to, estimated losses from loans and other credit arrangements; general
economic conditions; deterioration in pledged collateral; historical loss
experience; and trends in portfolio volume, maturity, composition,
delinquencies, and nonaccruals. While management has attributed reserves to
various portfolio segments, the allowance is general in nature and is available
for the credit portfolio in its entirety.
8
<PAGE>
NOTE 3 - LOANS AND LOAN LOSS RESERVES - CON'T
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures-An Amendment of FASB Statement No. 114,"
effective January 1, 1995. This statement prescribes that a loan is impaired
when it is probable that the creditor will be unable to collect all contractual
principal and interest payments under the terms of the loan agreement. This
statement generally requires impaired loans to be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or as an expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The Company has
determined that the combined effect of adoption of SFAS Nos. 114 and No. 118 was
immaterial to the consolidated financial statements.
Impaired loans include loans placed on nonaccrual status. Nonaccrual loans are
those which are past due 90 days as to either principal or interest, or earlier
when payment in full of principal or interest is not expected. When a loan is
placed on nonaccrual status, interest accrued but not received is reversed
against interest income. Thereafter, interest income is no longer recognized and
the full amount of all payments received, whether principal or interest, are
applied to the principal balance of the loan. A nonaccrual loan may be restored
to an accrual basis when principal and interest payments are current, and full
payment of principal and interest is expected.
Loans are generally carried at the principal amount outstanding, net of unearned
discounts and deferred fees. Purchased loans are generally carried at the
principal amount outstanding, net of any unamortized discounts or premiums.
Interest on loans, other than installment loans, is calculated using the simple
interest method. Interest income on discounted loans is generally recognized
over the estimated life of the loans based on methods that approximate the
interest method. Net deferred loan origination fees are amortized to interest
income over the contractual lives of the related loans using the interest
method.
9
<PAGE>
NOTE 3 - LOANS AND LOAN LOSS RESERVES - CON'T
The following table summarizes the balances and changes in the allowance for
loan losses:
<TABLE>
<CAPTION>
Quarter ended Year ended
March 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Average balance of gross loans outstanding $159,732 $159,899
======== ========
Gross loan balance at end of period $162,434 $157,765
======== ========
Allowance at beginning of period $5,401 $8,261
Charge-offs:
Commercial 70 3,661
Real estate -
Installment 48
Losses on loans sold 36
-------- --------
Total charge-offs 154 3,661
Recoveries:
Commercial 83 391
Real estate 2
Installment 3
Losses on loans sold -
-------- --------
Total recoveries 88 391
Net charge-offs 66 3,270
Provision charged to expense - 410
Allowance at end of period $ 5,335 $ 5,401
======== ========
Ratio of allowance for loan losses to loans
outstanding at end of period 3.28% 3.42%
Ratio of allowance for loan losses to
nonperforming assets at end of period 75.10% 68.19%
Ratio of annualized net charge-offs to
average loans 0.17% 2.05%
</TABLE>
Loans on nonaccrual status were approximately $3.5 million and $4.3 million at
March 31, 1996, and December 31, 1995, respectively. Interest income that would
have been collected on these loans had they performed in accordance with their
original terms was approximately $90 thousand and $467 thousand for the quarters
ended March 31, 1996, and 1995, respectively.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments to
extend credit which are not reflected in the accompanying consolidated financial
statements. The Company does not anticipate losses as a result of these
transactions. Commercial and standby letters of credit totaled approximately
$2,351,000 and $2,498,000 at March 31, 1996, and December 31, 1995,
respectively. In addition, the Banks had unfunded credit commitments of
$37,902,000 and $36,304,000 at March 31, 1996, and December 31, 1995,
respectively.
The Company uses the same credit policies in making commitments and conditional
obligations as it does in extending loan facilities to customers. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
10
<PAGE>
NOTE 5 - COMMON STOCK AND STOCK OPTIONS
During 1991, the Company's Board of Directors adopted the Ventura County
National Bancorp 1991 Stock Option Plan (1991 Plan). The 1991 Plan provides that
incentive stock options be granted to full-time salaried officers and management
level employees of the Company or its subsidiaries for a term of 10 years
exercisable at 20% annually at the fair market value at the date of the grant.
The 1991 Plan also provides that nonqualified stock options be granted to
directors, key full-time salaried officers and management level employees of the
Company or its subsidiaries for a term of 10 years, exercisable at 20% annually
at the fair market value at the date of grant.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; no dividend yield for either year;
expected volatility of 43 percent; risk-free interest rates of 6.6 percent; and
expected lives of 10 years. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans. Had compensation cost for
the Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, MARCH 31,
1996 1995
------------- -------------
<S> <C> <C> <C>
Net Income As reported $326,000 $273,000
Pro forma $306,000 $273,000
Primary Earnings Per Share As reported $ 0.04 $ 0.04
Pro forma $ 0.03 $ 0.04
Fully Diluted Earnings Per Share As reported $ 0.04 $ 0.04
Pro forma $ 0.03 $ 0.04
</TABLE>
11
<PAGE>
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion represents information about the results of operations,
financial condition, liquidity and capital resources of Ventura County National
Bancorp and its subsidiaries, Ventura County National Bank and Frontier Bank,
N.A. (together, the "Company"). This information should be read in conjunction
with the 1995 audited consolidated financial statements of the Company and the
notes thereto and the accompanying quarterly unaudited consolidated financial
statements and notes thereto.
OVERVIEW
The Company reported net income of $326 thousand for the first quarter of 1996
compared to $273 thousand for the first quarter of 1995. The increase continues
a trend of earnings growth and improving asset quality by the Company, and
largely resulted from no loan loss provision during the first quarter of 1996 as
a result of the improved asset quality.
Net interest income showed no change and was $3.6 million for the quarters ended
March 31, 1996, and 1995, respectively. Net interest margin decreased slightly
to 6.02% for the quarter ended March 31, 1996, compared to 6.17% for the prior
year. The decrease in the net interest margin can be attributed to higher
interest rates for time deposits and slightly lower average balances.
Noninterest income was $489 thousand and $606 thousand for the quarters ended
March 31, 1996, and 1995, respectively. The Company realized $75 thousand less
from the gain on the sale of SBA loans and a loss of $68 thousand on the sale of
investment securities, which are the principal causes for the decrease from the
prior period.
Operating expenses decreased from $3.6 million for the quarter ended March 31,
1995, to $3.5 million for the quarter ended March 31, 1996. The decrease in
operating expense largely occurred in the following categories: salaries and
benefits, occupancy, equipment, and FDIC and OCC assessments. These reductions
were partially offset by higher expenses for professional services.
Total assets were essentially unchanged at March 31, 1996, $267.6 million as
compared to $267.8 million at year-end 1995. Loans increased to $162.4 million
at March 31, 1996, from $157.8 million at December 31, 1995.
The following table summarizes key performance indicators pertaining to the
Company's operating results. Average balances are computed using daily averages.
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------
QUARTERS ENDED MARCH 31, 1996 1995
- ------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RETURN ON AVERAGE ASSETS (1) 0.50% 0.44%
RETURN ON AVERAGE SHAREHOLDERS' EQUITY (1) 5.43% 5.60%
NET INCOME $ 326 $ 273
EARNINGS PER SHARE $0.04 $0.04
TOTAL AVERAGE ASSETS $260,189 $254,198
</TABLE>
- ------------------------------------------------------------------------------
(1) ANNUALIZED
12
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the difference between interest earned on assets and
interest paid on liabilities. Net interest margin is net interest income
expressed as a percentage of average interest-earning assets. Interest income
and expense are affected by changes in the volume and mix of average interest
earning-assets and interest-bearing deposits and other liabilities, as well as
fluctuations in interest rates. The following tables set forth certain
information concerning average interest-earning assets and average interest-
bearing liabilities and the yields and rates thereon. The tables also set forth
a summary of the changes in interest income and interest expense resulting from
changes in average interest rates (rate) and changes in average asset and
liability balances (volume) for the periods indicated. Average balances are
average daily balances. Nonaccrual loans are included in total average loans
outstanding.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1996 QUARTER ENDED MARCH 31, 1995
---------------------------- ----------------------------
Yield/ Yield/
Avg. bal. Interest Rate(1) Avg. bal. Interest Rate(1) Rate Volume
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of deferred fees (2) $159,732 $4,048 10.19% $167,324 $4,149 10.06% $ 316 $(417)
Investment securities 46,505 737 6.37% 46,491 671 5.85% 66 -
Bank-owned TCD 56 1 7.18% 601 8 5.40% 14 (21)
Fed funds sold 31,365 407 5.22% 25,233 360 5.79% (191) 238
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/interest income 237,658 5,193 8.79% 239,649 5,188 8.78% 205 (200)
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets 22,531 14,549
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $260,189 $254,198
===================================================================================================================================
Deposits $166,711 $1,636 3.95% $171,023 $1,545 3.66% $ 308 $(217)
Other borrowed money - - 0.00% 125 - 0.00% - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense 166,711 1,636 3.95% 171,148 1,545 3.66% 308 (217)
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 61,301 61,522
Other liabilities 8,015 1,760
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 236,027 234,430
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 24,162 19,768
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $260,189 $254,198
===================================================================================================================================
NET INTEREST INCOME/NET INTEREST MARGIN $3,557 6.02% $3,643 6.17% $(104) $18
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) Includes loans on nonaccrual status of approximately $3.5 million and $10.3
million at March 31, 1996 and 1995, respectively. The amounts of interest
income foregone on loans that were on nonaccrual status were approximately
$90 thousand and $467 thousand for the quarters ended March 31, 1996 and
1995, respectively. Interest income on loans includes amortization of net
loan (costs) or fees of approximately $(4) thousand and $37 thousand for
the quarters ended March 31, 1996, and 1995, respectively.
Net interest income remained unchanged at $3.6 million for the quarters ended
March 31, 1996, and 1995, respectively, despite a slight decrease in the net
interest margin from 6.17% at March 31, 1995 to 6.02% at March 31, 1996. Average
yields on earning assets for the first quarter of 1996 increased by 1 basis
point to 8.79% from 8.78% for the first quarter of 1995. Average funding costs
for the first quarter of 1996 increased by 29 basis points to 3.95% from 3.66%
for the first quarter of 1995.
Average yields on loans increased 13 basis points as a result of improvements in
loan quality and a decrease in nonaccrual loans from 1995. However, these
positive factors were partially offset by a decrease in average loan balances.
13
<PAGE>
PROVISION FOR LOAN LOSSES
During the first quarter of 1996, the Company recorded no provision for loan
losses. Management believes that current reserve levels are adequate.
The Company's provision for loan losses was $355 thousand for the first quarter
of 1995. Gross loan charge-offs totaled $398 thousand and recoveries totaled $96
thousand during this period, as compared to gross loan charge-offs of $154
thousand and recoveries of $88 thousand during the first quarter of 1996.
Nonaccrual loans decreased from $4.3 million at year-end 1995 to $3.5 million at
March 31, 1996. (Please refer to NOTE 3 - LOANS.)
NONINTEREST INCOME
Noninterest income decreased $117 thousand to $489 thousand for the quarter
ended March 31, 1996, from $606 thousand for the quarter ended March 31, 1995.
Most of the decrease is in gains on sales of SBA loans and nonrecurring loss on
sales of investment securities, which decreased by $75 thousand and $68
thousand, respectively. Service charges on deposit accounts increased $39
thousand for the quarter ended March 31, 1996, as the Company increased its core
deposit base. Loan servicing fees were slightly lower from 1995 levels
reflecting shrinkage in the Company's pool of serviced loans.
NONINTEREST EXPENSE
The following table sets forth information by category on the Company's
noninterest expense for the periods indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Quarters ended March 31, 1996 1995
---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Salaries and employee benefits $1,561 $1,638
Occupancy, net 394 458
Equipment 166 192
Professional fees 376 272
Data processing 155 158
Other real estate owned 32 37
Courier services 61 69
Office supplies and office expense 122 124
FDIC/OCC assessments 100 206
Advertising and promotion 162 115
Other 355 352
---------------------------------------------------------------------------
Total noninterest expense $3,484 $3,621
===========================================================================
Annualized noninterest expense as a %
of average earning assets 5.90% 6.13%
Efficiency ratio 86.11% 85.22%
</TABLE>
The Company reported noninterest expense of $3.5 million for the first quarter
of 1996 as compared to approximately $3.6 million for the first quarter of 1995.
The net decrease reflects decreases in salaries and benefits, occupancy,
equipment, and FDIC and OCC assessments, offset by increases in professional
fees, and advertising and promotion.
The Company has improved its operating efficiencies and achieved lower
noninterest expense, on a relatively stable average earning assets base.
Noninterest expense as a percentage of average earning assets has decreased
0.23% for the quarter ended March 31, 1996, respectively, from the prior year's
period. The Company's efficiency ratio, which is noninterest expense divided by
the sum of net interest income plus noninterest income, increased during the
quarter ended March 31, 1996, mainly as a result of losses on sales on
investment securities. If the efficiency ratio calculation is adjusted for the
securities losses, the ratio improved by 0.53%.
The decrease in salaries for the quarter ended March 31, 1996, compared to the
previous year is due to staff reductions as the number of full-time equivalent
staff decreased from 140 at March 31, 1995, to 131 at March 31, 1996.
14
<PAGE>
Occupancy expense decreased $64 thousand, or 14.0%, for the first quarter of
1996 from $458 thousand for the first quarter of 1995. Most of the decrease
resulted from decreased amortization on leasehold improvements, lower rent
expenses and an increase in sublease income. The Company sublet or terminated
leases for office space formerly housing its administration department and
Wilmington branch location; the Company also negotiated a favorable renewal of
the lease for its Central Operations office.
Equipment expense decreased $26 thousand primarily due to a significant decrease
in depreciation and in computer maintenance expense associated with the
outsourcing of data processing operations.
Professional fees increased $104 thousand due to higher legal and consulting
expenses, increased outside audit fees and increased property management fees.
FDIC and OCC assessments decreased $106 thousand as a result of lower premium
rates by the FDIC. The FDIC lowered its deposit insurance rates from $.23 per
thousand to $.04 per thousand during the second half of 1995.
FINANCIAL CONDITION
The following table provides a summary comparison of the assets and liabilities
in the Company's consolidated balance sheets as of the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, AMOUNT PERCENT
1996 1995 CHANGE CHANGE
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 13,662 $ 19,920 $ (6,258) -31.42%
Federal funds sold 39,350 47,450 (8,100) -17.07%
Interest-bearing deposits - 100 (100) -
Investment securities 46,551 36,588 9,963 27.23%
Loans, net 157,099 152,364 4,735 3.11%
Premises and equipment, net 2,350 2,371 (21) -0.89%
Other assets 8,560 8,963 (403) -4.50%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 267,572 $ 267,756 $ (184) -0.07%
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 64,150 $ 68,074 $ (3,924) -5.76%
Interest-bearing demand & savings deposits 78,476 77,085 1,391 1.80%
Time certificates of deposit 93,194 90,913 2,281 2.51%
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 235,820 236,072 (252) -0.11%
- -----------------------------------------------------------------------------------------------------------------------
Borrowed funds and other
interest-bearing liabilities - - - N/A
Accrued interest payable and other liabilities 2,287 2,225 62 2.79%
Total Shareholders' Equity 29,465 29,459 6 0.02%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 267,572 $ 267,756 $ (184) -0.07%
=======================================================================================================================
</TABLE>
15
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and deposits at correspondent
banks. The Company maintains balances at correspondent banks adequate to cover
daily inclearings and other charges. In accordance with Federal regulations,
reserve balances of $1.9 million were maintained in the form of deposits with
the Federal Reserve Bank at March 31, 1996.
Cash and cash equivalents decreased $6.3 million from $19.9 million at year end
1995 to $13.7 million at March 31, 1996. Most of the decrease was used to fund
increases in loans, as well as a slight decrease in demand deposits.
FEDERAL FUNDS SOLD
The Company invests or sells its excess cash balances in overnight federal
funds. Federal funds sold decreased $8.1 million as the Company increased its
investments securities portfolio.
LOANS
The Company makes loans to small to medium-sized businesses in its service
areas. The Company also originates and sells Small Business administration
("SBA") loans. The interest rates charged for the loans made by the Company vary
with the degree of risk, the size and maturity of the loans, whether the loan
has a fixed or variable rate, the borrowers' depository relationship with the
Company, and prevailing market interest rates. The Company is primarily a
commercial lender, and most of its loans are floating rate loans tied to prime.
Loans increased $4.7 million during the first quarter of 1996 as a result of the
Company's increased marketing efforts at small and mid-sized businesses. The new
originations were principally commercial lines of credit and commercial real
estate loans.
The following tables set forth the maturity distribution of the Company's loan
portfolio (excluding nonaccrual loans) at March 31, 1996, based on remaining
scheduled principal repayments; and the sensitivity of the amounts due to
changes in interest rates for the Company's loan portfolio (excluding nonaccrual
loans):
<TABLE>
<CAPTION>
Maturing in
-----------------------------------------
Over one
(Gross loans, in thousands) One year year through Over
or less five years five years Total
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Real estate $ 197 $ 1,662 $ 4,148 $ 6,007
Commercial 46,395 51,591 46,526 144,512
Construction 701 381 - 1,082
Installment 4,025 3,112 172 7,309
--------- ---------- --------- ---------
Total $ 51,318 $ 56,746 $ 50,846 $158,910
========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Repricing in
----------------------------------------
Over one
(Gross loans, in thousands) One year year through Over
or less five years five years Total
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fixed interest rates $ 15,534 $ 22,738 $ 10,087 $ 48,359
Variable interest rates 35,784 34,008 40,759 110,551
-------- --------- -------- --------
Total $ 51,318 $ 56,746 $ 50,846 $158,910
========= ========== ========= =========
</TABLE>
The amounts reported in the categories in the tables do not reflect loan
prepayments or other factors which may cause the loans to react in different
degrees and at different times to changes in market interest rates.
16
<PAGE>
ASSET QUALITY
NONACCRUAL, PAST DUE AND MODIFIED LOANS
A certain degree of risk is inherent in the extension of credit. Management has
adopted a policy to maintain the allowance for possible loan and lease losses at
a level considered by management to be adequate to absorb estimated known and
inherent risks in the existing portfolio. The charge to expense is based on
management's evaluation of the quality of the loan and lease portfolio, the
level of classified loans and leases, total outstanding loans and leases, losses
previously charged against the reserve, and current and anticipated economic
conditions. Although management believes the level of the loan loss reserve as
of March 31, 1996, is adequate to absorb losses inherent in the loan portfolio,
additional declines in the local economy may result in increased losses than
cannot be reasonably predicted at this time.
At March 31, 1996, the loan loss reserve was $5.3 million as compared to $5.4
million at December 31, 1995. The ratio of the loan loss reserve to total
outstanding loans and leases was 3.28% at March 31, 1996, and 3.42% at December
31, 1995. The coverage ratio, or the ratio of loan loss reserves to
nonperforming assets was 75.10% at March 31, 1996, and 68.19% at December 31,
1995, respectively. Nonperforming assets consist of nonperforming loans plus
other real estate owned ("OREO") and other foreclosed personalty. The Company's
nonperforming loans fall within two categories: loans past due greater than 90
days and still accruing interest, and loans on nonaccrual status. The level of
loan loss reserves reflects management's assessment of the inherent risk
associated with the Company's classified assets and ongoing economic weakness
within the Banks' service areas.
In determining income from loans, the Company generally adheres to a policy of
not accruing interest on loans on which a default of principal or interest has
existed for a period of 90 days or more. The Company's policy is to assign
nonaccrual status to a loan if either (i) principal or interest payments are
past due in excess of 90 days, unless the loan is both well secured and in the
process of collection; or (ii) the full collection of interest or principal
becomes uncertain, regardless of the length of past due status, or (iii) unless
the loan is an SBA guaranteed loan and a deferral period has been negotiated..
When a loan reaches "nonaccrual" status, any interest accrued on such a loan is
reversed and charged against current income. At March 31, 1996, and December 31,
1995, the Company had $546 thousand and $101 thousand of loans past due more
than 90 days and still accruing interest and nonaccrual loans of $3.5 million
and $4.3 million, respectively.
The Company's OREO balances remained consistent at $2.7 million from December
31, 1995, to March 31, 1996. The Company did sell three OREO properties and
foreclosed on three OREO properties for nearly equivalent amounts, resulting in
no change in the OREO balance since year end. At March 31, 1996, the Company's
OREO consisted of nine commercial properties with carrying values totaling $2.1
million and two parcels of land zoned for residential purposes valued at $628
thousand. OREO is carried at the lower of cost or current fair market value less
estimated selling costs in the consolidated balance sheets as a component of
other assets. During the quarters ended March 31, 1996, and 1995, the Company
incurred net property maintenance expenses of $32 thousand and $37 thousand,
respectively.
TDRs are loans on which the borrower has failed to perform under the original
terms of the obligation. As of March 31, 1996, and December 31, 1995, the
Company had TDRs totaling $3.6 million and $3.3 million of such loans that have
been performing in accordance with their restructured terms for some minimum
period of time, typically at least six months.
17
<PAGE>
DEPOSITS
Total deposits at March 31, 1996, decreased slightly $252 thousand from $236.1
million at December 31, 1995. Average deposits increased slightly for the first
quarter of 1996 due to the Company's TCD promotion at year end and offset by
slight declines in average demand and savings deposits.
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
March 31, 1996 December 31, 1995
---------------------------------- ----------------------------------
Avg. bal. Rate (1) % of total Avg. bal. Rate(1) % of total
- -----------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 61,301 26.89% $ 62,980 27.63%
NOW/MMDA 49,466 2.28% 21.69% 52,895 2.63% 23.21%
Savings 25,542 1.98% 11.20% 27,707 2.36% 12.16%
TCDs 91,703 5.40% 40.22% 84,337 5.12% 37.00%
- -----------------------------------------------------------------------------------------------------
Deposits $ 228,012 100.00% $ 227,919 100.00%
=====================================================================================================
</TABLE>
(1) Annualized.
The following table sets forth the maturities of the Company's time certificates
of deposit outstanding at the dates indicated:
<TABLE>
<CAPTION>
March 31, 1996
Maturing in
- ---------------------------------------------------------------------------------------------------------
Over three Over six
Three months months through months through Over
or less six months twelve months twelve months Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Under $100,000 $25,724 $12,540 $17,938 $5,098 $61,300
$100,000 and over 12,138 4,577 14,468 711 31,894
- ---------------------------------------------------------------------------------------------------------
Total $37,862 $17,117 $32,406 $5,809 $93,194
=========================================================================================================
</TABLE>
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity management for banks requires that funds be available to pay all
deposit withdrawals and maturing financial obligations and meet credit funding
requirements promptly and fully in accordance with their terms. Over a very
short time frame, for most banks, including the Banks, maturing assets provide
only a limited portion of the funds required to pay maturing liabilities. The
balance of the funds required is provided by liquid assets and the acquisition
of additional liabilities, making liability management important to liquidity
management in the short-term.
The Banks maintain a level of liquidity that they consider adequate to meet
their current needs. The Banks' principal sources of cash include incoming
deposits, repayment of loans and conversion of investment securities. When cash
requirements increase faster than cash is generated, either through increased
loan demand or withdrawal of deposited funds, the Banks can arrange the sale of
loans and investments and access their Federal funds lines of credit with
correspondent banks or lines of credit with federal agencies.
Management of the Company has set a minimum liquidity level of 20% as a target.
The Company's average liquid assets (cash and cash equivalents, federal funds
sold, interest-bearing deposits with other financial institutions and investment
securities, less investment securities held to maturity, pledged securities, and
outgoing cash letters) as a percentage of average assets of the Company during
the quarter ended March 31, 1996, was 24.2% as compared to 24.0% for the
corresponding period in 1995. The average loan to deposit ratios for the Company
at March 31, 1996, and December 31, 1995, were 66.6% and 64.5%, respectively.
The following table sets forth information concerning the Company's rate
sensitive assets and rate sensitive liabilities as of March 31, 1996. Such
assets and liabilities are classified by the earlier of maturity or repricing
date in accordance with their contractual terms.
18
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
following table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
and at different times to changes in market interest rates. Also, loan
prepayments and early withdrawals of certificates of deposit could cause the
interest sensitivities to vary from those which appear in the table.
<TABLE>
<CAPTION>
Three months One year
Three months through through Over
(In thousands) or less twelve months five years five years Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Federal funds sold $ 39,350 $ - $ - $ - $ 39,350
Investment securities (1) 5,998 2,955 37,945 46,898
Loans (2) 112,905 13,180 22,738 10,087 158,910
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $152,255 $ 19,178 $ 25,693 $ 48,032 $245,158
- -------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing demand and
savings deposits $ 78,476 $ - $ - $ - $ 78,476
Time certificates of deposit 37,862 49,523 5,809 - 93,194
Other borrowings and interest-
bearing liabilities - - - - -
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $116,338 $ 49,523 $ 5,809 $ - $171,670
- -------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 35,917 $(30,345) $ 19,884 $ 48,032
Cumulative interest rate sensitivity gap 35,917 5,572 25,456 73,488
Cumulative interest rate sensitivity gap
as a percentage of total interest-
earning assets 14.65% 2.27% 10.38% 29.98%
</TABLE>
- ----------------------------------------------------
(1) excludes unrealized loss
(2) Loans exclude nonaccrual loans of $ 3,524
At March 31, 1996, the Company's rate sensitive balance sheet was shown to be in
a positive gap position. The gap between assets and liabilities that reprice
within 3 months was $35.9 million or 14.65% of assets. The cumulative positive
gap decreases to $5.6 million or 2.27% of total assets that mature or reprice
within one year. After one year, the cumulative positive gap increases. A
positive gap implies that the Company is asset sensitive, and therefore subject
to a decline in net interest income as interest rates decline. In a relatively
stable interest rate environment that follows a rise in interest rates, variable
rate liabilities will continue to reprice upward while variable rate assets,
particularly those indexed to prime rate, remain relatively constant, thereby
narrowing the net interest margin. As interest rates decline, variable rate
assets reprice at lower rates immediately, while the variable rate liabilities
reprice gradually, resulting in a narrowing of the net interest margin. The
Banks have established floors on 37% of the variable rate loans to mitigate the
effect on net interest margin if interest rates decline. The Company's held-to-
maturity investment portfolio consists primarily of fixed-rate mortgage-backed
securities with final maturities principally of over ten years.
CAPITAL RESOURCES
The Company and its bank subsidiaries are subject to risk-based capital
regulations adopted by the federal banking regulators in January 1990. These
guidelines are used to evaluate capital adequacy, and are based on an
institution's asset risk profile and off balance sheet exposures, such as unused
loan commitments and standby letters of credit. The regulations require that a
portion of total capital be core, or Tier 1, capital consisting of common
stockholders' equity and perpetual preferred stock, less goodwill and certain
other deductions, with the remaining, or Tier 2, capital consisting of other
elements, primarily subordinated debt, mandatory convertible debts, and
grandfathered senior debt, plus the allowance for loan losses, subject to
certain limitations. As of December 1992, the risk-based capital rules were
further supplemented by a leverage ratio, defined as Tier 1 capital divided by
quarterly average assets after certain adjustments. The minimum leverage ratio
is 3 percent for banking organizations that do not anticipate significant
19
<PAGE>
growth and have well-diversified risk (including no undue interest rate
exposure), excellent asset quality, high liquidity, and good earnings. Other
banking organizations not in this category are expected to have ratios of at
least 4 to 5 percent, depending on their particular condition and growth plans.
Higher capital ratios can be mandated by the regulators if warranted by the
particular circumstances or risk profile of a banking organization. In the
current regulatory environment, banking companies must stay "well capitalized",
as defined in the banking regulations, in order to receive favorable regulatory
treatment on acquisitions and favorable risk-based deposits insurance
assessments. Management seeks to maintain capital ratios in excess of the
regulatory minimums. Under the terms of a Consent Order entered into between
Frontier and the OCC on March 29, 1993, Frontier must maintain a Tier 1 risk
based capital ratio of 9.50% and a leverage capital ratio of 7.0%. As of March
31, 1996, the capital ratios of the Company and the Banks exceeded the "well
capitalized" thresholds prescribed in the rules, as reported in the following
table:
<TABLE>
<CAPTION>
COMPANY VENTURA COUNTY NATIONAL BANK FRONTIER BANK, N.A.
------------------------ ---------------------------- ---------------------------
(In thousands) Amount % Amount % Amount %
----------- -------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Leverage ratio $30,890 11.80% $18,229 10.52% $ 8,570 10.08%
Regulatory minimum 10,467 4.00% 6,930 4.00% 3,401 4.00%
Excess 20,423 7.80% 11,299 6.52% 5,169 6.08%
Risk-based ratios
Tier 1 capital $30,890(a) 18.35%(b) $18,229(a) 17.05%(b) $ 8,570(a) 13.91%(b)
Tier 1 minimum 6,734 4.00%(c) 4,275 4.00%(c) 2,465 4.00%(c)
Excess 24,156 14.35% 13,594 13.05% 6,015 9.91%
Total capital $33,034(d) 19.62%(b) $19,596(d) 18.33%(b) $ 9,350(d) 15.17%(b)
Total capital minimum 13,468 8.00% 8,550 8.00% 4,930 8.00%
Excess 19,566 11.62% 11,080 10.33% 4,442 7.17%
</TABLE>
- -------------------------------------------------------------------------------
(a) Includes common shareholders' equity (excluding unrealized losses on
available-for-sale securities) less goodwill. The Tier 1 capital ratio is
adjusted for the disallowed portion of deferred tax assets, if applicable.
(b) Risk-weighted assets of $168.4 million, $106.9 million, and $61.6 million
were used to compute these percentages.
(c) Insured institutions, such as the Bank, must maintain a Tier 1 capital
ratio of at least 4% or 6%, and a Total capital ratio of at least 8% or 10%
in order to be categorized "adequately capitalized" or "well capitalized",
respectively.
(d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of
total risk-weighted assets.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: 13 May, 1996 VENTURA COUNTY NATIONAL BANCORP
(Registrant)
By: /S/ Simone Lagomarsino
------------------------------
Simone Lagomarsino
Senior Vice President, C.F.O.
(Principal Financial and
Accounting Officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements of the registrant for the three
months ended March 31, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,662
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,633
<INVESTMENTS-CARRYING> 10,918
<INVESTMENTS-MARKET> 10,854
<LOANS> 162,434
<ALLOWANCE> (5,335)
<TOTAL-ASSETS> 267,572
<DEPOSITS> 235,820
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,287
<LONG-TERM> 0
37,029
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 267,572
<INTEREST-LOAN> 4,048
<INTEREST-INVEST> 737
<INTEREST-OTHER> 408
<INTEREST-TOTAL> 5,193
<INTEREST-DEPOSIT> 1,636
<INTEREST-EXPENSE> 1,636
<INTEREST-INCOME-NET> 1,557
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (68)
<EXPENSE-OTHER> 3,484
<INCOME-PRETAX> 562
<INCOME-PRE-EXTRAORDINARY> 562
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
<YIELD-ACTUAL> 6.02
<LOANS-NON> 3,524
<LOANS-PAST> 546
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,384
<ALLOWANCE-OPEN> 5,401
<CHARGE-OFFS> 154
<RECOVERIES> 88
<ALLOWANCE-CLOSE> (5,335)
<ALLOWANCE-DOMESTIC> (5,335)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
