<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
</TABLE>
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 2-76555
------------------------
ELDORADO BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0720548
(State or other jurisdiction of (I.R.S. Employer or Identification No.)
incorporation or organization)
24012 CALLE DE LA PLATA, SUITE 340,
LAGUNA HILLS, CALIFORNIA 92653
(Address of principal executive offices) (Zip Code)
</TABLE>
(949) 699-4344
(Issuer's telephone number)
------------------------
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 14,141,227 shares outstanding on November 13,
2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ELDORADO BANCSHARES, INC.
U.S. SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Part I--Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Condition--............. 3
September 30, 2000 and December 31, 1999
Condensed Consolidated Statement of Operations--............ 4
For the three months and nine months ended September 30,
2000 and 1999
Condensed Consolidated Statement of Comprehensive
Income--.................................................. 5
For the three months and nine months ended September 30,
2000 and 1999
Condensed Consolidated Statement of Cash Flows--............ 6
For the nine months ended September 30, 2000 and 1999
Notes to the Condensed Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8
Item 3. Qualitative and Quantitative Disclosures about Market
Risk...................................................... 21
Part II--Other Financial Information
Item 5. Other Information........................................... 23
Item 6. Exhibits and Reports on Form 8-K............................ 24
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 82,882 $ 122,839
Federal funds sold.......................................... -- --
Securities.................................................. 357,457 325,066
Loans, net.................................................. 685,312 662,764
Premises and equipment, net................................. 10,263 10,423
Foreclosed real estate...................................... 578 563
Intangibles arising from acquisitions....................... 55,950 58,830
Net assets of discontinued operations....................... 26,043 140,719
Accrued interest receivable and other assets................ 43,906 45,036
---------- ----------
Total assets................................................ $1,262,391 $1,366,240
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits................................ $ 299,551 $ 261,121
Interest-bearing deposits................................... 731,478 797,335
---------- ----------
Total deposits.............................................. 1,031,029 1,058,456
Borrowings.................................................. 64,272 149,640
Subordinated debentures..................................... 24,857 27,657
Accrued expenses and other liabilities...................... 16,954 12,869
---------- ----------
Total liabilities........................................... 1,137,112 1,248,622
---------- ----------
Shareholders' equity:
Common stock and additional paid in capital $.01 par value,
35,000,000 shares authorized 14,391,227 issued as of
September 30, 2000 and December 31, 1999.................. 109,443 109,443
Retained earnings........................................... 22,875 16,525
Unearned compensation....................................... (341) (1,360)
Accumulated other comprehensive income...................... (4,885) (6,990)
Common stock in treasury, at cost, 250,000 shares........... (1,813) --
---------- ----------
Total shareholders' equity.................................. 125,279 117,618
---------- ----------
Total liabilities and shareholders' equity.................. $1,262,391 $1,366,240
========== ==========
</TABLE>
See condensed consolidated notes to financial statements
3
<PAGE>
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest and fees on loans.............................. $17,172 $16,135 $49,827 $47,285
Interest and dividends on securities.................... 5,907 5,273 17,568 12,257
Interest on Federal funds sold.......................... 196 185 1,099 987
Interest on funds allocated to discontinued
operations............................................ 346 1,726 2,293 5,885
------- ------- ------- -------
Total interest income................................. 23,623 23,319 70,787 66,414
------- ------- ------- -------
Interest on deposits.................................... 6,735 6,955 21,087 21,527
Interest on debentures.................................. 830 830 2,481 1,521
Interest on borrowings.................................. 1,545 1,086 5,454 2,473
------- ------- ------- -------
Total interest expense................................ 9,110 8,871 29,022 25,521
------- ------- ------- -------
Net interest income..................................... 14,513 14,448 41,765 40,893
Provision for credit losses............................. 1,500 1,300 4,949 3,182
------- ------- ------- -------
Net interest income after provision for credit losses... 13,013 13,148 36,816 37,711
------- ------- ------- -------
Service charges on deposit accounts..................... 1,609 1,565 4,647 4,822
Other income............................................ 3,045 1,948 9,009 6,194
------- ------- ------- -------
Total noninterest income.............................. 4,654 3,513 13,656 11,016
------- ------- ------- -------
Salaries and employee benefits.......................... 5,504 5,616 16,893 16,671
Premises and equipment.................................. 1,581 1,668 4,693 5,033
Amortization of intangibles............................. 957 1,024 2,881 3,072
Other expense........................................... 5,299 3,492 14,724 12,620
------- ------- ------- -------
Total noninterest expense............................. 13,341 11,800 39,191 37,396
------- ------- ------- -------
Income from continuing operations before income taxes... 4,326 4,861 11,281 11,331
Income taxes............................................ 1,813 2,395 4,930 5,809
------- ------- ------- -------
Income from continuing operations....................... 2,513 2,466 6,351 5,522
Loss from discontinued operations....................... -- (1,335) -- (1,462)
------- ------- ------- -------
Net income.............................................. $ 2,513 $ 1,131 $ 6,351 $ 4,060
======= ======= ======= =======
Basic earnings per common share:
Income from continuing operations..................... $ 0.18 $ 0.17 $ 0.45 $ 0.36
Loss from discontinued operations..................... -- (0.09) -- (0.11)
------- ------- ------- -------
Net income............................................ $ 0.18 $ 0.08 $ 0.45 $ 0.25
======= ======= ======= =======
Diluted earnings per common share:
Income from continuing operations..................... $ 0.18 $ 0.17 $ 0.45 $ 0.35
Loss from discontinued operations..................... -- (0.09) -- (0.11)
------- ------- ------- -------
Net income............................................ $ 0.18 $ 0.08 $ 0.45 $ 0.24
======= ======= ======= =======
</TABLE>
See condensed consolidated notes to financial statements
4
<PAGE>
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................................. $2,513 $ 1,131 $6,353 $ 4,060
Other comprehensive income (loss) net of tax:
Unrealized holding gains (losses) arising during
period................................................. 2,210 (5,599) 2,105 (5,963)
Less: reclassification adjustment for gains included in
net income............................................. 225 589
------ ------- ------ -------
Total other comprehensive income (loss).................. 2,210 (5,374) 2,105 (5,374)
------ ------- ------ -------
Comprehensive income (loss)................................ $4,723 $(4,243) $8,458 $(1,314)
====== ======= ====== =======
</TABLE>
See condensed consolidated notes to financial statements
5
<PAGE>
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 6,351 $ 4,060
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses............................... 4,949 3,182
Depreciation and amortization............................. 3,040 4,967
Net effect of change in:
Unearned compensation..................................... 1,019 (672)
Accrued interest and other assets......................... 1,148 (4,186)
Accrued expenses and other liabilities.................... 4,085 (9,597)
--------- ---------
Net cash provided by (used in) operating activities......... 20,592 (2,246)
--------- ---------
INVESTING ACTIVITIES:
Loans originated, net of principal repayments............... (27,497) (25,553)
Purchase of premises and equipment.......................... (1,505) (2,627)
Change in foreclosed real estate............................ (15) 1,195
Change in net assets of discontinued operations............. 114,675 136,789
Change in securities, net................................... (28,799) (96,717)
Change in federal funds sold................................ -- 16,030
--------- ---------
Net cash provided by investing activities................... 56,859 29,117
--------- ---------
FINANCING ACTIVITIES:
Change in deposits.......................................... (27,427) (155,195)
Change in borrowings........................................ (85,368) 110,829
Repurchase of subordinated debentures....................... (2,800) --
Payment of preferred dividends.............................. -- (705)
Purchase of common stock.................................... (1,813) --
Redemption of preferred stock............................... -- (11,659)
Issuance of common stock.................................... -- 22,700
--------- ---------
Net cash (used in) financing activities..................... (117,408) (34,030)
--------- ---------
(Decrease) increase in cash and due from banks.............. (39,957) (7,159)
Cash and due from banks, beginning of year.................. 122,839 124,403
--------- ---------
Cash and due from banks, end of year........................ $ 82,882 $ 117,244
========= =========
Cash paid during the period for:
Interest.................................................. $ 29,022 $ 25,521
Income taxes.............................................. $ 4,230 $ 3,825
</TABLE>
See condensed consolidated notes to financial statements
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Eldorado Bancshares, Inc. (the "Company"), through its two operating
subsidiaries, Eldorado Bank and Antelope Valley Bank, (collectively referred to
herein as the "Banks"), offers a broad range of commercial banking products and
services to small and medium-sized businesses and retail customers from 24 full
service offices located primarily in Southern California and the Sacramento area
of Northern California. The products offered by the Banks include commercial,
consumer and real estate loans, a broad range of deposit products and other
non-deposit banking services. In addition, the Banks augment their traditional
banking products and services with specialized products primarily consisting of
Small Business Administration ("SBA") loans, and loans to finance the
acquisition of new and used automobiles that are originated through automobile
dealers located in Southern California.
Eldorado Bank and Antelope Valley Bank are incorporated under the laws of
the State of California and are licensed by the California Department of
Financial Institutions ("DFI"). Eldorado Bank is a member of the Federal Reserve
System. Antelope Valley Bank is not a member, and therefore is regulated at the
federal level by the Federal Deposit Insurance Corporation ("FDIC"). The Banks'
deposits are insured up to applicable limits by the FDIC.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial information for the
Company has been prepared in accordance with the Securities and Exchange
Commission rules and regulations for quarterly reporting and therefore does not
necessarily include all information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States. All significant intercompany
transactions have been eliminated.
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Results for
the three-month period and the nine-month period ended September 30, 2000 are
not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole. The information contained in this
report should be read in conjunction with the Annual Report on Form 10-K for the
year ended December 31, 1999, and in particular the footnotes to the audited
financial statements included therewith. Certain amounts for prior periods have
been reclassified to conform to current financial statement presentation.
In October 1999, the Company adopted a plan to discontinue the operations of
its wholesale mortgage banking division. Accordingly, the operating results and
net assets of this division have been segregated retroactively from continuing
operations and reported separately in the condensed consolidated financial
statements.
3. RISKS AND UNCERTAINTIES
In the normal course of its business, the Company encounters two significant
types of risks: economic and regulatory. Economic risk is comprised of three
components--interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature and reprice at different speeds, or on a different basis,
than its interest-bearing assets. Credit risk is the risk of default on the
Company's loan portfolio that results from the borrower's
7
<PAGE>
inability or unwillingness to make contractually required payments. Market risk
results from changes in the value of assets and liabilities which may impact,
favorably or unfavorably, the realizability of those assets and liabilities.
The Company is subject to the regulations of various governmental agencies.
These regulations can and do change significantly from period to period. The
Company is also subject to periodic examinations by the regulatory agencies,
which may subject it to changes in asset valuations, in amounts of required loss
allowances and in operating restrictions resulting from judgments by the
regulators based on information available to them at the time of their
examination.
4. EARNINGS PER COMMON SHARE
The number of common shares outstanding at September 30, 2000 was
14,141,227. Basic earnings per share is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share gives effect to all
potential issuances of common stock that would have caused basic earnings per
share to be lower, as if the issuances had already occurred.
The weighted average number of common shares used to compute basic earnings
per share was 14,162,423 and 14,391,000 for the three months ended
September 30, 2000 and 1999, respectively. The average number of common shares
used to compute basic earnings per share was 14,281,555 and 13,482,000 for the
nine months ended September 30, 2000 and 1999, respectively. The weighted
average number of common shares used to compute diluted earnings per share was
14,162,423 and 14,634,000 for the three months ended September 30, 2000 and
1999, respectively. The weighted average number of common shares used to compute
diluted earning per share was 14,281,555 and 13,725,000 for the nine months
ended September 30, 2000 and 1999, respectively.
5. OPERATING SEGMENTS
Upon the discontinuance of the wholesale mortgage banking division, the
Company's business consists of one segment which includes accepting deposits and
providing loans and lines of credit to small and medium size businesses as well
as other retail customers. The Company does not have revenues derived from
foreign operations and is not reliant on revenues from a single major customer.
6. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting
For Derivative Instruments and Hedging Activities, was issued in September of
1998. SFAS 133 is effective for all fiscal years beginning after June 15, 2000.
The Company does not now hold nor expect to hold a significant number of
derivative instruments. As such, management does not believe that the adoption
of SFAS 133 will result in any material impact to the Company's financial
position or results of operations.
The Securities and Exchange Commission Staff Accounting Bulletin No. 101
(SAB 101) will become effective during the fourth quarter of 2000. The Company
believes its revenue recognition policies comply with the content of Topic 13:
Revenue Recognition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This information should be read in conjunction with the condensed
consolidated financial statements and the notes thereto of the Company included
in Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated
financial statements and notes thereto and Management's
8
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 1999 contained in the Company's 1999 Annual Report on
Form 10-K.
Except for the historical information contained herein, the following
discussion contains forward looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to, changes in regulatory climate,
shifts in interest rate environment, changes in economic conditions of various
markets the Company serves, as well as the other risks detailed in this section,
and in the sections entitled Results of Operations, Financial Condition,
Capital, Liquidity and Market Risk, and those discussed in the Annual Report on
Form 10-K for the year ended December 31, 1999, including without limitation
those sections entitled Risk Factors, Supervision and Regulation, Capital
Resources and Liquidity.
Contained within this document are various measures of financial performance
that have been calculated excluding the amortization of intangibles arising from
acquisitions. These measures are identified as "excluding intangible
amortization" and have been provided to assist the reader in evaluating the
performance of the Company. This presentation is not defined by generally
accepted accounting principles; however, management believes it to be beneficial
to gaining an understanding of the Company's financial performance.
Prior to September 1995, the predecessor to the Company, SDN Bancorp, Inc.
("SDN"), owned a single bank, San Dieguito National Bank ("San Dieguito"), with
approximately $56 million in assets. At that time, San Dieguito was categorized
as "critically undercapitalized" by federal regulators. In September 1995, SDN
and San Dieguito were recapitalized by Dartmouth Capital Group, L.P. ("DCG"), a
bank holding company organized by Robert Keller, the Company's current President
and Chief Executive Officer. Following the recapitalization, Mr. Keller assumed
control of SDN and San Dieguito, installed new management and began implementing
policies to improve asset quality and operating performance.
Since September 1995, the Company has acquired four banks in California with
combined assets of approximately $1.0 billion. The following table summarizes
certain data regarding those acquisitions, including the asset size of the
acquired bank as of the end of the quarter immediately preceding the
acquisition.
<TABLE>
<CAPTION>
PRINCIPAL COUNTY ASSETS
ACQUIRED BANK ACQUISITION DATE OF ACQUIRED BANK ACQUIRED
------------- ------------------ ---------------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Liberty National Bank........................ March 31, 1996 Orange $146
Commerce Security Bank....................... September 30, 1996 Sacramento 229
Eldorado Bank................................ September 6, 1997 Orange 404
Antelope Valley Bank......................... January 22, 1999 Los Angeles 212
</TABLE>
With the exception of the acquisition of Antelope Valley Bank (which was
accounted for under the "Pooling of Interests' method of accounting for business
combinations) the Company recognized the excess of the purchase price over the
estimated fair value of the assets received and liabilities assumed as goodwill.
The goodwill is being amortized on the straight-line basis method over
20 years. The unamortized carrying amount of the goodwill recorded for the
acquisitions is periodically reviewed by management in order to determine if
facts and circumstances suggest that it is not recoverable and therefore should
be reduced. No such reduction in goodwill occurred during the nine-month period
ended September 30, 2000.
Effective June 30, 1997, the Company consolidated into Eldorado Bank the
respective operations of San Dieguito, Liberty National Bank and Commerce
Security Bank. Antelope Valley Bank continues to operate as a separate banking
subsidiary of the Company.
9
<PAGE>
Through its two operating subsidiaries, Eldorado Bank and Antelope Valley
Bank (collectively referred to as the "Banks"), the Company offers a broad range
of commercial banking products and services to small and medium-sized businesses
and retail customers from 24 full service offices located primarily in Southern
California and the Sacramento area of Northern California.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
OVERVIEW
Net income from continuing operations was $2.5 million for the third quarter
ended September 30, 2000, or $0.18 per diluted share. For the same period in the
prior year, net income from continuing operations was $2.5 million, or $0.17 per
diluted share. The related return on average assets for the third quarter of
2000 and the third quarter of 1999 was 1.11 percent and 1.06 percent,
respectively. The return on average common equity for the third quarter of 2000
was 11.47 percent. For the same period of the prior year, the return on average
common equity was 10.88 percent.
In the fourth quarter of 1999, the Company discontinued the operations of
its wholesale mortgage banking division. Accordingly, the operating results and
net assets of this division have been segregated retroactively from continuing
operations and reported separately. The net loss from discontinued operations
for the third quarter of 1999 was $1.3 million, or $0.09 per diluted share.
There has been no change in the estimate that was recorded during the fourth
quarter of 1999 for disposal costs and losses from discontinued operations.
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Income from continuing operations before income taxes
and amortization of intangibles....................... $5,283 $ 5,885
Income taxes............................................ 1,813 2,395
------ -------
Net operating income.................................... 3,470 3,490
Amortization of intangibles............................. 957 1,024
------ -------
Net income from continuing operations................... 2,513 2,466
Net loss from discontinued operations................... -- (1,355)
------ -------
Net income.............................................. $2,513 $ 1,111
====== =======
Earnings per share from net operating income
Basic................................................. $ .24 $ .24
Diluted............................................... $ .24 $ .24
</TABLE>
Net operating income, excluding amortization of intangibles and the effect
of discontinued operations, was $3.5 million for the third quarter of 2000, or
$0.24 per diluted share. For the same period of the prior year, net operating
income also was $3.5 million, or $0.24 per diluted share. Revenues increased
$1.2 million, however operating expenses and the provision for credit losses
also increased keeping operating income for the third quarter of 2000 at about
the same as last year.
NET INTEREST INCOME AND NET INTEREST MARGIN
For the third quarter of 2000, net interest income was $14.5 million. Net
interest income was $14.4 million for the third quarter of 1999.
The net interest margin for the third quarter of 2000 was 5.32 percent,
compared with 5.22 percent for the same period of the prior year. The increase
in the net interest margin is principally due to an increase in the rates earned
on interest-earning assets. The average yield on interest-earning assets
increased to 8.65 percent for the third quarter of 2000 from 8.33 percent for
the third quarter of 1999. The average cost of interest-bearing liabilities
increased to 4.39 percent for the third quarter of 2000 from 4.14 percent for
the third quarter of 1999.
10
<PAGE>
The following table presents, for the periods indicated, the distribution of
average assets, liabilities, and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields, and the dollar amounts of interest expense from average
interest-bearing liabilities and the resultant rates paid. Nonaccrual loans are
included in the calculation of the average loans while nonaccrued interest
thereon is excluded from the computation of rates earned.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
---------- --------- -------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans.................................... $ 708,284 $17,172 9.81% $ 655,129 $16,135 9.85%
Securities............................... 357,587 5,909 6.57 315,164 5,273 6.69
Federal funds sold....................... 13,035 196 5.86 13,520 185 5.47
Funds allocated to discontinued
operations............................. 28,272 346 7.24 136,186 1,726 5.07
---------- ------- ----- ---------- ------- -----
Total interest-earning assets.......... 1,107,178 $23,623 8.65% 1,119,999 $23,319 8.33%
------- ----- ------- -----
Cash and due from banks.................. 57,938 64,311
Other assets............................. 81,919 104,239
---------- ----------
Total assets........................... $1,247,035 $1,288,549
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits................ $ 698,201 $ 6,735 3.84 $ 763,096 $ 6,955 3.65%
Borrowings............................... 99,948 1,545 6.16 69,313 1,086 6.27
Subordinated debt........................ 24,857 830 12.09 25,176 830 13.19
---------- ------- ----- ---------- ------- -----
Total interest-bearing liabilities..... 823,006 $ 9,110 4.39% 857,585 $ 8,871 4.14%
------- ----- ------- -----
Noninterest-bearing deposits............. 293,129 282,684
Other liabilities........................ 10,108 10,683
---------- ----------
Total liabilities...................... 1,126,243 1,150,952
Shareholders' equity..................... 120,793 127,241
---------- ----------
Total liabilities and shareholders'
equity............................... $1,247,035 $1,278,193
========== ==========
</TABLE>
The following table sets forth changes in interest income and interest
expense attributable to changes in rates and changes in volume of the various
components. Changes due to a combination of rate and volume are presented under
the column titled "Mix. " Nonaccrual loans are included in total loans
outstanding while nonaccrued interest thereon is excluded from the computation
of rates earned.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
2000 COMPARED TO 1999
-------------------------------------------
NET CHANGE RATE VOLUME MIX
---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans................................... $ 2,030 $ 656 $ 1,341 $ 33
Securities.............................. 634 (66) 689 10
Federal fund sold....................... 11 18 (7) --
Funds allocated to discontinued
operations............................ (1,380) 1,639 (1,299) (1,720)
------- ------ ------- -------
Total interest income................. 1,295 2,247 724 (1,676)
------- ------ ------- -------
Interest-bearing deposits............... (219) 400 (616) (4)
Borrowings.............................. 459 (24) 466 17
Subordinated debt....................... -- 12 (10) (1)
------- ------ ------- -------
Total interest expense................ 240 388 (160) 12
------- ------ ------- -------
Net interest income................... $ 1,055 $1,860 $ 884 $(1,689)
======= ====== ======= =======
</TABLE>
11
<PAGE>
PROVISION FOR CREDIT LOSSES
The Company maintains an allowance for credit losses. A provision for credit
losses is charged to operations for an amount sufficient to maintain the
allowance for credit losses at a level determined adequate for each Bank. The
provision for credit losses for the third quarter ended September 30, 2000 was
$1.5 million, compared with $1.3 million for the same period a year ago. The
increase in the provision primarily reflects the higher loss experienced on
equipment leases.
NONINTEREST INCOME
The following table presents the major categories of noninterest income for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts......... $1,609 $1,565
SBA servicing/sales......................... 396 502
Other service charges and fees.............. 2,649 1,446
------ ------
Noninterest income.......................... $4,654 $3,513
====== ======
</TABLE>
Noninterest income increased to $4.6 million for the third quarter of 2000
from $3.5 million for the third quarter of 1999. The increase in noninterest
income is primarily attributed to an increase in service charges on deposit
accounts and other customer transaction fees.
NONINTEREST EXPENSE
The following table presents the major categories of noninterest expense for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Salaries and benefits........................ $ 5,504 $ 5,616
Premises and equipment....................... 1,581 1,668
Other expenses............................... 5,299 3,492
------- -------
Total operating expenses..................... 12,384 10,776
Amortization of intangibles.................. 957 1,024
------- -------
Noninterest expense.......................... $13,341 $11,800
======= =======
</TABLE>
Operating expenses totaled $12.4 million for the third quarter of 2000,
compared $10.8 million for the third quarter of 1999. The efficiency ratio,
which is the relationship of operating expenses to revenues, was 64.6 percent
for the third quarter of 2000, compared with 60.0 percent for the same period a
year ago.
PROVISION FOR INCOME TAXES
The provision for income taxes for the third quarter ended September 30,
2000 was $1.8 million and represented an effective tax rate of 42 percent. For
the same period a year ago, the provision for income taxes was $2.4 million and
represented an effective tax rate of 49 percent. The lower effective tax rate
for the third quarter of 2000 compared to the third quarter of 1999 reflects an
increase in non-taxable income and a decrease in non-deductible expenses. Other
noninterest expense for the third quarter of 1999 includes reimburse of expenses
from insurance.
12
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
OVERVIEW
Net income from continuing operations was $6.4 million for the nine months
ended September 30, 2000, compared to $5.5 million for the same period of the
prior year. The increase over prior year was primarily the result of an increase
in revenues. The related return on average assets for the first nine months
ended September 30, 2000, was .81 percent, compared to a return of .58 percent
for the nine months ended September 30, 1999. The return on average common
equity was 6.90 percent for the nine months ended September 30, 2000, compared
to a return of 5.89 percent for the nine months ended September 30, 1999.
The net loss from discontinued operations for the nine months ended
September 30, 1999 was $1.5 million, or $.11 per diluted share.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Income from continuing operations before income taxes and
amortization of intangible................................ $14,162 $14,402
Income taxes................................................ 4,930 5,809
------- -------
Net operating income........................................ 9,232 8,593
Amortization of intangibles................................. 2,881 3,072
------- -------
Net income from continuing operations....................... 6,351 5,521
Net loss from discontinued operations....................... (1,461)
------- -------
Net income.................................................. $ 6,351 $ 4,060
======= =======
Earnings per share from net operating income
Basic..................................................... $ 0.65 $ 0.59
Diluted................................................... $ 0.65 $ 0.57
</TABLE>
Net operating income, excluding amortization of intangibles and the effect
of discontinued operations, was $9.2 million for the nine months ended
September 30, 2000, or $0.65 per diluted share. For the same period of the prior
year, net operating income was $8.6 million, or $0.57 per diluted share. Net
operating income increased 7 percent from the year ago period on higher levels
of revenues.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income totaled $41.8 million for the nine months ended
September 30, 2000. A year ago, net interest income was $40.9 million. The
increase primarily reflects an increase in rates earned on interest-earning
assets.
The net interest margin increased to 5.18 percent for the nine months ended
September 30, 2000, compared to a net interest margin of 5.13 percent for the
nine months ended September 30, 1999.
The following table presents, for the periods indicated, the distribution of
average assets, liabilities, and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields, and the dollar amounts of interest expense from average
interest-bearing liabilities and the resultant rates paid. Nonaccrual loans are
included in the calculation
13
<PAGE>
of the average loans while nonaccrued interest thereon is excluded from the
computation of rates earned.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
---------- --------- -------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans.................................... $ 697,947 $49,827 9.66% $ 646,500 $47,285 9.75%
Securities............................... 361,623 17,568 6.49 275,785 12,257 5.93%
Federal funds sold....................... 28,094 1,099 5.37 27,318 987 4.82%
Funds allocated to discontinued
operations............................. 61,698 2,293 4.93 156,511 5,885 5.01%
---------- ------- ----- ---------- ------- -----
Total interest-earning assets.......... 1,149,362 $70,787 8.78% $1,106,114 $66,414 12.01%
------- ----- ------- -----
Cash and due from banks.................. 67,808
Other assets............................. 105,327
---------- ----------
Total assets........................... $1,149,362 $1,279,249
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits................ $ 735,913 $21,087 3.82% $ 792,415 $21,527 5.43%
Borrowings............................... 119,319 5,454 6.09 37,306 1,521 8.15
Subordinated debt........................ 28,424 2,481 11.64 27,657 2,473 17.88
---------- ------- ----- ---------- ------- -----
Total interest-bearing liabilities..... 883,656 $29,022 4.38% 857,378 $25,521 5.95%
------- ----- ------- -----
Noninterest-bearing deposits............. 289,276 281,745
Other liabilities........................ 12,061 14,702
---------- ----------
Total liabilities...................... 1,184,993 1,153,825
Shareholders' equity..................... 97,821 125,434
---------- ----------
Total liabilities and shareholders'
equity............................... $1,282,814 $1,279,259
========== ==========
</TABLE>
The following table sets forth changes in interest income and interest
expense attributable to changes in rates and changes in the volume of various
components. Changes due to a combination of rate and volume are presented under
the column titled "Mix." Nonaccrual loans are included in total loans
outstanding while nonaccrued interest thereon is excluded from the computation
of rates earned.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO 1999
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans.................................................... $ 2,544 $(1,110) $ 2,409 $ 1,246
Securities............................................... 5,309 1,121 2,734 1,454
Federal funds sold....................................... 112 80 20 12
Funds allocated to discountinued operations.............. (3,592) (67) (2,311) (1,214)
------- ------- ------- -------
Total interest income.................................. 4,373 24 2,852 1,498
------- ------- ------- -------
Interest-bearing deposits................................ (441) 745 (1,062) (124)
Borrowing................................................ 2,981 (1,580) 2,458 2,103
Subordinated debt........................................ 960 586 44 330
------- ------- ------- -------
Total interest expense................................. 3,500 (249) 1,441 2,309
------- ------- ------- -------
Net interest income.................................... $ 873 $ 273 $ 1,411 $ (811)
======= ======= ======= =======
</TABLE>
14
<PAGE>
PROVISION FOR CREDIT LOSSES
The Company maintains an allowance for credit losses. A provision for credit
losses is charged to operations for an amount sufficient to maintain the
allowance for credit losses at a level determined adequate for each Bank. The
provision for credit losses was $4.9 million for the nine months ended
September 30, 2000, compared with $3.2 million for the same period a year ago.
The increase in the provision primarily reflects the higher losses experienced
on equipment leases.
NONINTEREST INCOME
Noninterest income totaled $13.7 million for the nine months ended
September 30, 2000. This represents an increase of $2.7 million, to
$13.7 million, from noninterest income of $11.0 million for the nine months
ended September 30, 1999. The increase in noninterest income is primarily
attributed to an increase in service charges and fees related to customer
transactions.
The following table presents the major categories of noninterest income for
the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------------
2000 1999
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts............... $ 4,647 $ 4,822
SBA servicing/sales............................... 2,577 1,636
Other service charges and fees.................... 6,432 4,558
------- -------
Noninterest income................................ $13,656 $11,016
======= =======
</TABLE>
NONINTEREST EXPENSE
Operating expenses for the first nine months of 2000 totaled $36.3 million
compared with $34.3 million a year ago. The Company's efficiency ratio, which is
the relationship of operating expenses to revenues, was 65.5 percent for the
nine months ended September 30, 2000, compared with 66.1 percent for the nine
months ended September 30, 1999.
The following table presents the major categories of noninterest expense for
the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Salaries and benefits........................ $16,893 $16,671
Premises and equipment....................... 4,693 5,033
Other expenses............................... 14,724 12,620
------- -------
Total operating expenses..................... 36,310 34,324
Amortization of intangibles.................. 2,881 3,072
------- -------
Noninterest expense.......................... $39,191 $37,396
======= =======
</TABLE>
PROVISION FOR INCOME TAXES
For the nine months ended September 30, 2000, the Company recorded a
provision for income taxes of $4.9 million, which represented an effective tax
rate of 44 percent. For the same period a year ago, the provision was
$5.8 million and represented an effective tax rate of 51 percent. The lower
effective tax rate for the first nine months of 2000 compared the first nine
months of 1999 reflects an increase in non-taxable income and a decrease in
non-deductible expenses.
15
<PAGE>
FINANCIAL CONDITION AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
At September 30, 2000 and December 31, 1999, the Company had total assets of
approximately $1.3 billion and $1.4 billion, respectively. Loans, excluding
equipment leases, increased $51 million, or 9 percent, since year-end. Net
assets of discontinued operations fell $115 million in the first nine months of
the year and equipment leases continued to run-off, dropping $28 million since
the end of the year.
LOANS
The following table presents the major categories of loans for the periods
indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Commercial.......................................... $135,067 $125,862
Commercial real estate.............................. 233,399 208,596
Residential mortgage................................ 10,866 24,809
Construction........................................ 70,342 62,823
Home equity loans................................... 24,345 14,131
Installment and credit cards........................ 169,612 156,356
Equipment leases.................................... 51,958 80,472
-------- --------
Total loans......................................... 695,589 673,049
Allowance for credit losses......................... (10,277) (10,285)
-------- --------
Loans, net.......................................... $685,312 $662,764
======== ========
</TABLE>
For regulatory and financial reporting purposes, the Company categorizes
commercial loans that are secured in whole or part by real estate as commercial
real estate loans. The Company believes such categorization overstates the
Company's emphasis on real estate lending, because, for example, a majority of
SBA loans are secured by real estate and are thus categorized as commercial real
estate loans. As of September 30, 2000, SBA loans totaled $84.3 million.
The following table shows the gross amounts of certain categories of loans
outstanding as of September 30, 2000, which, based on remaining scheduled
repayments of principal, were due in three months or less, over three months
through 12 months, over one year through five years, and over five years. Demand
or other loans having no stated maturity and no stated schedule of repayments
are reported as due in three months or less.
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
Aggregate maturities of loans and leases which are due:
Three months or less........................................ $220,591
Over three months through 12 months......................... 116,983
Over one year through three years........................... 106,713
Over three years through five years......................... 146,615
Over five years............................................. 104,687
--------
$695,589
========
</TABLE>
16
<PAGE>
NONPERFORMING ASSETS
The following table shows the total aggregate principal amount of nonaccrual
loans, accruing loans on which interest or principal is past due 90 days or
more, and foreclosed real estate.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans.................................... $9,413 $9,135
90 days or more past due and accruing............... 546 50
Foreclosed real estate.............................. 578 563
Selected ratios:
Nonaccrual loans to loans........................... 1.35% 1.21%
Nonaccrual loans and foreclosed real estate to
assets............................................ 0.79% 0.63%
</TABLE>
Nonaccrual loans totaled $9.4 million at September 30, 2000, up slightly
from $9.1 million at year-end, but down from $12.0 million at the end of the
first quarter of 2000. Nonaccrual loans initially increased during 2000 due to a
real estate secured loan added during the first quarter and an increase in
equipment leases. Nonaccrual loans have subsequently declined due principally to
a reduction in nonaccrual equipment leases. Nonaccrual equipment leases totaled
$2.3 million at the end of the first quarter and totaled $1.2 million at
September 30, 2000.
Loans 90 days past due and accruing included a loan of $450 thousand which
had matured and was subsequently paid in full in October, 2000.
Management is not aware of any loan that had not been placed on nonaccrual
status as of September 30, 2000, for which there was a serious doubt as to the
ability of the borrower to comply with present loan repayment terms.
At September 30, 2000, the Company had foreclosed real estate with an
aggregate carrying value of $578 thousand compared with $563 thousand at
December 31, 1999. Foreclosed real estate principally consists of single family
residences.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses was $10.3 million at September 30, 2000
compared with $10.3 million at December 31, 1999. Net charge-offs for the first,
second and third quarters of 2000 were $1.3 million, $2.4 million and
$1.3 million, respectively, up from $.8 million, $.9 million, and $1.4 million
respectively, for the same periods in 1999. The increase in net charge-offs was
due primarily to higher charge-offs of equipment leases.
The table below summarizes changes in the allowance for credit losses and
additions to the allowance from provisions charged to operating expenses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period............ $10,083 $ 9,374 $10,285 $ 9,160
Loans charged-off....................... (2,358) (2,035) (7,207) (5,330)
Recoveries.............................. 1,052 606 2,251 2,233
Provision for credit losses............. 1,500 1,300 4,948 3,182
------- ------- ------- -------
Balance, end of period.................. $10,277 $ 9,245 $10,277 $ 9,245
======= ======= ======= =======
Selected ratios:
Net charge-offs (annualized) to average
loans................................. 0.74% 1.61% 1.36% 1.17%
Provision for credit losses (annualized)
to average loans...................... 0.85% 0.79% 2.84% 1.97%
Allowance at end of period to loans
outstanding at end of period.......... 1.45% 1.45% 1.45% 1.45%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Allowance as percentage of nonaccrual
loans................................. 109.18% 140.73% 109.18% 140.37%
</TABLE>
17
<PAGE>
The following table indicates management's allocation of the allowance for
credit losses as of the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial financial and agriculture...... $ 5,753 55.98% $ 6,960 67.67%
Real estate and construction.............. 2,384 23.20 1,611 15.66
Consumer.................................. 1,958 19.05 941 9.15
Unallocated............................... 182 1.77% 773 7.52%
------- ------ ------- ------
Total................................... $10,277 100.00% $10,285 100.00%
======= ====== ======= ======
</TABLE>
In allocating the Company's allowance for possible credit losses, management
has considered the credit risk in the various loan categories in its portfolio.
While the Company has made a reasonable effort to allocate the allowance to
specific categories of loans, management believes that any allocation of the
allowance for possible credit losses into loan categories lends an appearance of
exactness which does not exist. Actual losses in loan categories may vary from
the amounts allocated to such categories.
SECURITIES
Securities available for sale totaled $357.5 million at September 30, 2000
compared with $325.1 million at the end of 1999. This represents a
$32.4 million, or 9.9 percent increase. The securities portfolio primarily
consists of bonds, notes and mortgaged-backed securities issued by U.S.
Government agencies. The amortized cost and estimated market value of the
securities as of September 30, 2000 are as follows.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury....................... $ 2,000 $ (10) $ 1,990
U.S. Government Agencies............ 108,706 (2,733) 105,973
State and Municipal Securities...... 48,981 $36 (1,077) 47,940
Mortgage-backed Securities.......... 184,866 (3,894) 180,972
Corporate Bonds and Equities........ 15,575 (774) 14,800
Federal Reserve Bank and Federal
Home Loan Bank stock.............. 5,782 5,782
-------- --- ------- --------
$365,910 $36 $(8,488) $357,457
======== === ======= ========
</TABLE>
The following table shows the maturities of securities at September 30,
2000:
<TABLE>
<CAPTION>
AT ESTIMATED AT AMORTIZED
FAIR VALUE COST
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of securities available for
sale which are due:
Within one year................................... $ 24,113 $ 24,222
After one year but within three................... 53,040 54,113
After three years but within 15 years............. 106,872 109,949
After 15 years.................................... 167,650 171,844
No maturities..................................... 5,782 5,782
-------- --------
$357,457 $365,910
======== ========
</TABLE>
18
<PAGE>
DEPOSITS
Deposits were $1.03 billion at September 30, 2000, compared with
$1.06 billion at December 31, 1999. Core deposits increased $33 million, or
4 percent, to $843 million at the end of the third quarter from $809 million at
year-end. Core deposits include checking accounts, savings accounts and time
deposits less than $100,000 from individuals and small to mid-sized businesses,
but exclude deposits from title and escrow businesses and large time deposits of
$100,000 or more. Large time deposits of $100,000 or more increased to
$149 million at September 30, 2000 from $91 million at the end of 1999.
Borrowings, however, decreased to $64 million at the end of the third quarter
from $150 million at year-end. As borrowings matured during the first nine
months of the year, they were replaced with large time deposits under a program
with the State of California and lower-costing core deposits.
The following table presents the average balances and weighted average rates
paid on deposits:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
2000 1999
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing.................. $ 289,276 -- $ 282,684 --
Interest-bearing..................... 735,913 3.82% 763,096 3.65%
---------- ----------
Total.............................. $1,025,189 $1,045,780
========== ==========
</TABLE>
The following table shows the maturities of time certificates of deposits of
$100,000 or more at September 30, 2000:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------
(IN THOUSANDS)
<S> <C>
Maturities of time certificates of $100,000 or more:
Due in three months......................................... $ 92,278
Due in three months through 12 months....................... 52,062
Due in over 12 months....................................... 5,144
--------
Total..................................................... $149,484
========
</TABLE>
BORROWINGS
Borrowings totaled $64.3 million at September 30, 2000, compared with
$149.6 million at December 31, 1999. As borrowings matured during the first nine
months of the year, they were replaced with core and large time deposits. The
following table presents the categories of borrowings for the periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased............................. $ 4,272 $ 35,140
Securities sold under agreement to repurchase....... 20,000 74,500
Federal Home Loan Bank advances..................... 40,000 40,000
------- --------
$64,272 $149,640
======= ========
</TABLE>
19
<PAGE>
CAPITAL RESOURCES
The Company had equity capital of $125.3 million at September 30, 2000 and
an equity to asset ratio of 9.92 percent. Book value and tangible book value per
diluted common share was $8.86 and $4.90, respectively. At the end of 1999,
equity capital totaled $117.6 million and the equity to asset ratio was 9.43
percent. Book value and tangible book value per diluted common share at year-end
1999 was $8.04 and $4.02 respectively.
In the third quarter of 2000, the company repurchased $2.8 million of the
11 3/4 percent Series A Capital Securities (i.e., subordinated debt) at a small
premium of $14,000. Annual savings in interest expense on these capital
securities will be approximately $334,000.
Current regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of Tier 1 capital (consisting principally
of common equity) to adjusted total assets ("Leverage Ratio") of at least
3 percent; a ratio of Tier 1 Capital to risk-weighted assets of at least
4 percent ("Tier 1 Capital Ratio"); and a ratio of total capital (which includes
Tier 1 capital plus certain forms of subordinated debt, a portion of the
allowance for credit losses and preferred stock) to risk-weighted assets ("Total
Capital Ratio") of at least 8 percent. Risk-weighted assets are calculated by
multiplying the balance in each category of assets according to a risk factor
(as stipulated by regulation) which ranges from zero for cash assets and certain
government obligations to 100 percent for some types of loans and adding the
products together.
The Company and its subsidiary banks were well capitalized at September 30,
2000 for federal regulatory purposes. At September 30, 2000, the Company and its
subsidiary banks had a leverage ratio, Tier 1 capital ratio and total capital
ratio as follows:
<TABLE>
<CAPTION>
ANTELOPE
ELDORADO BANK VALLEY BANK COMPANY
------------- ----------- --------
<S> <C> <C> <C>
Leverage ratio............................. 7.79% 9.68% 9.17%
Tier 1--capital ratio...................... 11.42% 12.54% 11.13%
Total capital ratio........................ 12.67% 13.42% 12.28%
</TABLE>
LIQUIDITY
The Company relies on deposits as its principal source of funds and,
therefore, must be in a position to meet depositors' needs as they arise.
Management attempts to maintain a loan-to-deposit ratio of not greater than
80 percent and a liquidity ratio of not less than 20 percent of total assets.
The average loan-to-deposit ratio was 67% percent for the quarter ended
September 30, 2000. The liquidity ratio was 35% percent for the quarter ended
September 30, 2000. At year-end 1999, the loan-to-deposit ratio was 66 percent
and the liquidity ratio was 30 percent. While fluctuations in the balances of a
few large depositors cause temporary increases and decreases in liquidity from
time to time, the Company has not experienced difficulty in dealing with such
fluctuations from existing liquidity sources.
Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of the Company, other available sources of liquid assets (secondary
liquidity) exist, including the purchase of Federal funds, sale of securities
under agreements to repurchase, sale of loans, window borrowing from the Federal
Reserve Bank and borrowings from the Federal Home Loan Bank ("FHLB"). The
Company has relied primarily upon the purchase of Federal funds and the sale of
securities under agreements to repurchase for secondary sources of liquidity. At
September 30, 2000, the Company had $41.3 million of unused borrowing capacity
under FHLB advances. In order to borrow from the Federal Reserve, the Company
would be required to physically deliver to the Federal Reserve collateral
consisting of marketable Government securities. At September 30, 2000, the
Company had no such collateral at the Federal Reserve.
20
<PAGE>
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
In management's opinion there has not been a material change in the
Company's market risk profile during the quarter ended September 30, 2000.
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market prices and rates, foreign currency exchange rates, commodity
prices and equity prices. The Company's market risk arises primarily from
interest rate risk inherent in its lending and deposit taking activities. To
that end, management actively monitors and manages its interest rate risk
exposure. The Company does not have any market risk sensitive instruments
acquired for trading purposes. The Company manages its interest rate sensitivity
by matching the repricing opportunities on its earning assets to those on its
funding liabilities. Management uses various asset/liability strategies to
manage the repricing characteristics of its assets and liabilities to ensure
that exposure to interest rate fluctuations is managed within the Company's
guidelines of acceptable risk-taking levels. Hedging strategies, including the
terms and pricing of loans and deposits, and managing the deployment of its
securities, are used to reduce mismatches in interest rate repricing
opportunities of portfolio assets and their funding sources.
When appropriate, management may utilize instruments such as interest rate
floors, caps and swaps to hedge its interest rate position. A Board of Directors
approved hedging policy statement governs use of these instruments. As of
September 30, 2000, the Company had not utilized any interest rate swap or other
such financial derivative to alter its interest rate risk profile.
One way to measure the impact that future changes in interest rates will
have on net interest income is through a cumulative gap measure. The gap
represents the net position of assets and liabilities subject to repricing
within specified time periods. Generally, a liability sensitive gap position
indicates that there would be a net positive impact on the net interest income
of the Company for the period measured in a declining interest rate environment
since the Company's liabilities would reprice to lower market rates before its
assets would. A net negative impact would result from an increasing interest
rate environment. Conversely, an asset sensitive gap indicates that there would
be a net positive impact on the net interest income in a rising interest rate
environment since the Company's assets would reprice to higher market interest
rates before its liabilities would, while a net negative impact would result
from a declining rate environment.
The following table sets forth the time periods during which the Company's
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms, the period interest rate
sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), the cumulative interest rate sensitivity gap, the ratio
of cumulative interest-earning assets to cumulative interest-bearing
liabilities, and the cumulative gap as a percentage of total assets and total
interest-earning assets as of September 30, 2000. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of customers in response to changes in interest rates. This table should,
21
<PAGE>
therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net interest income of the Company.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------------------------------------------------------
3 MONTHS OVER 3 OVER 1 YEAR OVER NON-
OR LESS MONTHS TO 12 TO 5 YEARS 5 YEARS SENSITIVE TOTAL
--------- ------------ ----------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks.......... $ -- $ -- $ -- $ -- $ 82,882 $ 82,882
Federal funds sold............... -- -- -- -- -- --
Securities, at amortized cost.... -- 24,113 74,378 253,184 5,782 357,457
Loans............................ 227,912 120,866 261,736 85,075 (10,277) 685,312
Other assets..................... -- -- -- -- 136,740 136,740
--------- --------- -------- -------- --------- ----------
Total assets................... 227,912 144,979 336,114 338,259 215,127 1,262,391
========= ========= ======== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Noninterest-bearing deposits....... -- -- -- -- 299,800 299,800
Interest-bearing deposits.......... 582,783 135,076 13,620 -- -- 731,479
Borrowings......................... 4,272 -- 60,000 -- -- 64,272
Subordinated debentures............ -- -- -- 24,857 -- 24,857
Other liabilities.................. -- -- -- -- 18,389 18,389
Shareholders' equity............... -- -- -- -- 123,594 123,594
--------- --------- -------- -------- --------- ----------
Total liabilities and
shareholders' equity......... $ 587,055 $ 135,076 $ 73,620 $ 24,857 $ 441,783 $1,262,391
========= ========= ======== ======== ========= ==========
Period gap......................... $(359,143) $ 9,903 $262,494 $337,271 $(250,525)
Cumulative gap..................... $(359,143) $(349,240) $(86,746) $250,525 $ --
Cumulative interest-earning assets
to cumulative interest-bearing
liabilities...................... 0.39% 0.89% 3.56% 4.38%
Cumulative gap as a percent of:
Total assets................... -28.45% -27.66% -6.87% 19.85%
Interest-earning assets........ -45.34% -44.09% -10.95% 31.63%
</TABLE>
At September 30, 2000, the Company had $349.2 million more in interest rate
sensitive liabilities than interest rate sensitive assets repricing within one
year. If rates were to fall during this period, interest expense could decline
by a greater amount than interest income and net income could increase.
Conversely, if rates were to rise, the reverse could apply, and the Company's
net income could decrease.
Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate the Company's interest rate sensitivity position. To supplement
traditional gap analysis, the Company performs simulation modeling to estimate
the potential effects of changing interest rates. The process allows the Company
to explore the complex relationships within the gap over time and various
interest rate environments. Based upon the Company's interest rate shock
simulations, net interest income is expected to decrease approximately
1.5 percent with a 200 basis point instantaneous increase to interest rates and
increase approximately 1.3 percent with a 200 basis point instantaneous decrease
in rates. Management has a target of minimizing the decline in net interest
income to no more than 4.0 percent given a 200 basis point instantaneous
decrease in rates.
The preceding sensitivity analysis does not represent a forecast and should
not be relied upon as being indicative of expected operating results. These
hypothetical estimates are based upon numerous assumptions, including the nature
and timing of interest rate levels including the shape of the yield
22
<PAGE>
curve, prepayments on loans and securities, changes in deposit levels, pricing
decisions on loans and deposits, reinvestment and replacement of asset and
liability cashflows and others. While assumptions are developed based upon
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ because of prepayment and refinancing
levels likely deviating from those assumed, the varying impact of interest rate
change caps or floors on adjustable rate loans, depositor withdrawals and
product preference changes, and other internal and external variables.
Furthermore, the sensitivity analysis does not reflect actions that management
might take in responding to or anticipating changes in interest rates.
PART II--OTHER FINANCIAL INFORMATION
ITEM 5.
On May 1, 2000 the Company's Board of Directors authorized the Company to
repurchase up to 1,000,000 shares of its common stock. As of September 30 2000,
the Company had repurchased 250,000 shares for $1.8 million in cash. The shares
are reflected as common stock in treasury, at cost, in the consolidated
statement of condition as of September 30, 2000. The purpose of the common stock
repurchase was to redeploy a portion of the Company's capital that was formerly
used to support the wholesale mortgage lending business.
On July 12, 2000, the Company allowed participants (other than the Company's
directors, chief executive officer, and nonemployee directors of the Banks) in
its stock based compensation plan to cancel their existing options for $0.01 per
share. Substantially all eligible participants chose to cancel their options at
a total cost to the Company of $1,621.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.3 to the Company's Registration Statement on
Form S-1 (file no. 333-61589) and incorporated by
reference herein)
3.2 By-laws of the Company (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1996 and incorporated by reference
herein)
4.1 Form of Specimen Stock Certificate (incorporated by
reference to the Company's Form 8-A filed with the
Commission on January 29, 1999)
10.3 Indenture between the Company and Wilmington Trust Company,
dated as of July 15, 1998 (incorporated by reference to
the Company's Current Report on Form 8-K filed with the
Commission on August 7, 1998)
10.4 Form of Junior Subordinated Debenture (incorporated by
reference to the Company's Registration Statement on Form
S-4 (File no. 333-51179))
10.5 Form of Series A Capital Securities Guarantee (incorporated
by reference to the Company's Registration Statement on
Form S-4 (File no. 333-51179))
10.6 Form of Subordinated Capital Income Security, Series A
(incorporated by reference to the Company's Registration
Statement on Form S-4 (File no. 333- 51179))
10.7 Employment Agreement by and between the Company and Robert
P. Keller (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1997)
10.8 Employment Agreement by and between Eldorado Bank and
Catherine C. Jooyan (f/k/a Catherine C. Clampitt)
(incorporated by reference to the Company's Registration
Statement on Form S-1 (File no. 333-61589))
10.9 Employment Agreement by and between Eldorado Bank and
Richard Korsgaard (incorporated by reference to the
Company's Registration Statement on Form S-1
(File no. 333-61589))
10.10 Amendment Number One to Employment Agreement by and between
Eldorado Bank and Richard Korsgaard (incorporated by
reference to the Company's Registration Statement on Form
S-1 (File no. 333-61589))
10.11 Form of Severance Agreement between the Company and certain
executive officers (incorporated by reference to the
Company's Registration Statement on Form S-1
(File no. 333-61589))
10.12 Form of Amended and Restated Series B Warrant held by
Madison Dearborn and Olympus (incorporated by reference to
the Company's Registration Statement on Form S-1 (File no.
333-61589))
10.13 Amended and Restated Shareholder Agreement by and among
Eldorado Bancshares, Inc., Madison Dearborn Capital
Partners II, L.P., Olympus Growth Fund II, L.P., Olympus
Executive Fund, L.P., Dartmouth Capital Group, L.P.,
Dartmouth Capital Group, Inc. and Robert P. Keller
(Incorporated by reference to the Company's Registration
Statement on Form S-1 (File no. 333-61589))
27 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K:
REPORT ON FORM 8-K DATED APRIL 17, 2000: this filing provided notice of the
Company's Annual Meeting of Shareholders to be held on Tuesday, May 16, 2000.
24
<PAGE>
ELDORADO BANCSHARES, INC. AND SUBSIDIARIES
U.S. SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
SIGNATURES
Pursuant to the requirements of the U.S. Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
ELDORADO BANCSHARES, INC.
DATE: November 13, 2000 By: /s/ ROBERT P. KELLER
-----------------------------------------
Robert P. Keller
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: November 13, 2000 By: /s/ ROMOLO C. SANTAROSA
-----------------------------------------
Romolo C. Santarosa
CHIEF FINANCIAL OFFICER AND TREASURER
</TABLE>
25
