<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 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
incorporation or organization) or Identification No.)
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 14,191,227 shares outstanding on August 10,
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--June 30, 2000
and December 31, 1999....................................... 3
Condensed Consolidated Statement of Operations--For the
three months and six months ended June 30, 2000 and 1999.... 4
Condensed Consolidated Statement of Comprehensive
Income--For the three months and six months ended June 30,
2000 and 1999............................................... 5
Condensed Consolidated Statement of Cash Flows--For the six
months ended June 30, 2000 and 1999......................... 6
Notes to the Condensed Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Qualitative and Quantitative Disclosures about Market
Risk........................................................ 22
PART II--OTHER FINANCIAL INFORMATION
Item 5. Other Information........................................... 25
Item 6. Exhibits and Reports on Form 8-K............................ 25
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 66,400 $ 122,839
Federal funds sold.......................................... 25,000 --
Securities.................................................. 359,432 325,066
Loans, net.................................................. 683,597 662,764
Premises and equipment, net................................. 10,211 10,423
Foreclosed real estate...................................... 847 563
Intangibles arising from acquisitions....................... 56,905 58,830
Net assets of discontinued operations....................... 31,360 140,719
Accrued interest receivable and other assets................ 40,821 45,036
---------- ----------
Total assets................................................ $1,274,573 $1,366,240
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits................................ $ 375,125 $ 261,121
Interest-bearing deposits................................... 635,153 797,335
---------- ----------
Total deposits.............................................. 1,010,278 1,058,456
Borrowings.................................................. 106,036 149,640
Subordinated debentures..................................... 27,657 27,657
Accrued expenses and other liabilities...................... 9,991 12,869
---------- ----------
Total liabilities........................................... 1,153,962 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 June
30, 2000 and December 31, 1999............................ 109,443 109,443
Retained earnings........................................... 20,363 16,525
Unearned compensation....................................... (680) (1,360)
Accumulated other comprehensive income...................... (7,065) (6,990)
Common stock in treasury, at cost, 200,000 shares........... (1,450) --
---------- ----------
Total shareholders' equity.................................. 120,611 117,618
---------- ----------
Total liabilities and shareholders' equity.................. $1,274,573 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest and fee income on loans........................ $17,274 $15,653 $33,779 $31,150
Interest and dividend income on securities.............. 6,141 3,605 11,659 6,984
Interest income on Federal funds sold................... 188 528 903 802
Interest on funds allocated to discontinued
operations............................................ 602 1,743 1,947 4,158
------- ------- ------- -------
Total interest income................................. 24,205 21,529 48,288 43,094
------- ------- ------- -------
Interest on deposits.................................... 6,801 7,037 14,352 14,572
Interest on debentures.................................. 830 830 1,651 1,643
Interest on borrowings.................................. 1,683 70 3,909 435
------- ------- ------- -------
Total interest expense................................ 9,314 7,937 19,912 16,650
------- ------- ------- -------
Net interest income..................................... 14,891 13,592 28,376 26,444
Provision for credit losses............................. 2,240 1,102 3,449 1,882
------- ------- ------- -------
Net interest income after provision for credit losses... 12,651 12,490 24,927 24,562
------- ------- ------- -------
Service charges on deposit accounts..................... 1,761 1,632 3,465 3,257
Other income............................................ 2,425 2,212 4,413 4,246
------- ------- ------- -------
Total noninterest income.............................. 4,186 3,844 7,878 7,503
------- ------- ------- -------
Salaries and employee benefits.......................... 5,599 5,450 11,389 11,054
Premises and equipment.................................. 1,576 1,592 3,112 4,249
Amortization of intangibles............................. 950 1,024 1,924 2,048
Other expense........................................... 4,756 4,986 9,425 8,244
------- ------- ------- -------
Total noninterest expense............................. 12,881 13,052 25,850 25,595
------- ------- ------- -------
Income from continuing operations before income taxes... 3,956 3,282 6,955 6,470
Income tax provision.................................... 1,560 1,683 3,117 3,414
------- ------- ------- -------
Income from continuing operations....................... 2,396 1,599 3,838 3,056
Loss from discontinued operations....................... -- (61) -- (126)
------- ------- ------- -------
Net income.............................................. $ 2,396 $ 1,538 $ 3,838 $ 2,930
======= ======= ======= =======
Basic earnings per common share:
Income from continuing operations..................... $ 0.17 $ 0.08 $ 0.27 $ 0.18
Loss from discontinued operations..................... -- 0.00 -- (0.01)
------- ------- ------- -------
Net income............................................ $ 0.17 $ 0.08 $ 0.27 $ 0.17
======= ======= ======= =======
Diluted earnings per common share:
Income from continuing operations..................... $ 0.17 $ 0.08 $ 0.27 $ 0.18
Loss from discontinued operations..................... -- 0.00 -- (0.01)
------- ------- ------- -------
Net income............................................ $ 0.17 $ 0.08 $ 0.27 $ 0.17
======= ======= ======= =======
</TABLE>
See condensed consolidated notes to financial statements
4
<PAGE>
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................................. $2,396 $ 1,538 $3,838 $ 2,930
Other comprehensive income (loss) net of tax:
Unrealized holding gains (losses) arising during
period................................................. 662 (3,895) (75) (4,159)
Less: reclassification adjustment for gains included in
net income............................................. -- 100 -- 364
------ ------- ------ -------
Total other comprehensive income (loss).................. 662 (3,795) (75) (3,795)
------ ------- ------ -------
Comprehensive income (loss)................................ $3,058 $(2,257) $3,763 $ (865)
====== ======= ====== =======
</TABLE>
See condensed consolidated notes to financial statements
5
<PAGE>
ELDORADO BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
--------------------
2000 1999
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 3,838 $ 2,930
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses............................... 3,449 1,882
Depreciation and amortization............................. 2,137 3,015
Change in unearned compensation........................... 680 (2,789)
Change in accrued interest and other assets............... 4,215 6,979
Change in accrued expenses and other liabilities.......... (2,878) 54,533
-------- ---------
Net cash provided by operating activities................... 11,441 66,550
-------- ---------
INVESTING ACTIVITIES:
Loans originated, net of principal repayments............... (24,282) (11,615)
Purchase of premises and equipment.......................... -- (328)
Change in foreclosed real estate............................ (284) 1,243
Change in net assets of discontinued operations............. 109,359 131,021
Change in securities, net................................... (34,441) (88,836)
Change in federal funds sold................................ (25,000) 14,280
-------- ---------
Net cash provided by investing activities................... 25,352 45,765
-------- ---------
FINANCING ACTIVITIES:
Change in deposits.......................................... (48,178) (85,584)
Change in borrowings........................................ (43,604) 18
Retirement of subordinated debentures....................... -- (27,657)
Payment of dividends........................................ -- (706)
Payment to acquire treasury stock........................... (1,450) --
Redemption of preferred stock............................... -- (11,659)
Issuance of common stock.................................... -- 22,701
-------- ---------
Net cash used in financing activities....................... (93,232) (102,887)
-------- ---------
(Decrease) increase in cash and due from banks.............. (56,439) 9,428
Cash and due from banks, beginning of period................ 122,839 124,403
-------- ---------
Cash and due from banks, end of period...................... $ 66,400 $ 133,831
======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 19,255 $ 16,650
Cash paid for income taxes................................ $ 3,470 $ 3,400
</TABLE>
See condensed consolidated notes to financial statements
6
<PAGE>
ELDORADO BANCSHARES, INC.
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 six-month period ended June 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 risk: 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 inability or
unwillingness to make contractually required payments. Market risk results from
changes in
7
<PAGE>
ELDORADO BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RISKS AND UNCERTAINTIES (CONTINUED)
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 June 30, 2000 was 14,191,227.
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 14,292,326 and 14,014,000 for the quarter ended June 30, 2000 and
1999, respectively. The average number of common shares used to compute basic
earnings per share was 14,431,776 and 13,020,000 for the six months ended
June 30, 2000 and 1999, respectively. The weighted average number of common
shares used to compute diluted earnings per share was 14,292,326 and 14,330,000
for the quarter ended June 30, 2000 and 1999, respectively. The weighted average
number of common shares used to compute diluted earning per share was 14,341,868
and 13,339,000 for the six months ended June 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 June 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.
7. SUBSEQUENT EVENT
On July 12, 2000, the Company allowed participants (other than the Company's
directors, chief executive officer, and non-employee 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.
8
<PAGE>
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 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 OF
ACQUIRED BANK ACQUISITION DATE ACQUIRED BANK ASSETS 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 June 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
9
<PAGE>
therefore should be reduced. No such reduction in goodwill occurred during the
six-month period ended June 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.
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 JUNE 30, 2000 AND 1999
OVERVIEW
Net income from continuing operations was $2.4 million for the second
quarter ended June 30, 2000, or $0.17 per diluted share. For the same period in
the prior year, net income from continuing operations was $1.6 million, or
$0.08 per diluted share. The related return on average assets for the second
quarter of 2000 and the second quarter of 1999 was 0.75 percent and 0.49
percent, respectively. The return on average common equity for the second
quarter of 2000 was 8.01 percent. For the same period of the prior year, the
return on average common equity was 4.79 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 second quarter of 1999 was $61,000, or less than $0.01 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 of discontinued operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Income from continuing operations before income taxes and
amortization of intangibles............................... $4,906 $4,306
Income taxes................................................ 1,560 1,683
------ ------
Net operating income........................................ 3,346 2,623
Amortization of intangibles................................. 950 1,024
------ ------
Net income from continuing operations....................... 2,396 1,599
Net loss from discontinued operations....................... -- (61)
------ ------
Net income.................................................. $2,396 $1,538
====== ======
Earnings per share from net operating income
Basic..................................................... $ 0.23 $ 0.19
Diluted................................................... $ 0.23 $ 0.18
</TABLE>
Net operating income, excluding amortization of intangibles and the effect
of discontinued operations, was $3.3 million for the second quarter of 2000, or
$0.23 per diluted share. For the same period of the prior year, net operating
income was $2.6 million, or $0.18 per diluted share. Net operating income
increased 28 percent from the year ago period on higher levels of net interest
income.
10
<PAGE>
NET INTEREST INCOME AND NET INTEREST MARGIN
For the second quarter of 2000, net interest income was $14.9 million, up
10 percent from the same period last year. Net interest income was
$13.6 million for the second quarter of 1999.
The net interest margin for the second quarter of 2000 was 5.35 percent,
compared with 5.04 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 8.70 percent for the second quarter of 2000 from 7.98 percent for
the second quarter of 1999. The average cost of interest-bearing liabilities
increased to 4.54 percent for the second quarter of 2000 from 3.85 percent for
the second quarter of 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 of the average loans while nonaccrued interest
thereon is excluded from the computation of rates earned.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 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................................... $ 681,953 $17,274 10.13% $ 696,661 $15,653 8.99%
Securities.............................. 366,138 6,141 6.71% 253,774 3,605 5.68%
Federal funds sold...................... 15,891 188 4.73% 43,873 528 4.81%
Funds allocated to discontinued
operations............................ 48,820 602 4.93% 84,857 1,743 8.22%
---------- ------- ----- ---------- ------- -----
Total interest-earning assets......... 1,112,802 24,205 8.70% 1,079,165 21,529 7.98%
---------- ------- ----- ---------- ------- -----
Cash and due from banks................. 91,722 68,146
Other assets............................ 63,314 106,255
---------- ----------
Total assets........................ 1,267,838 1,253,566
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits............... 676,755 6,801 4.02% 791,298 7,037 3.56%
Borrowings.............................. 116,097 1,683 5.80% 6,444 70 4.35%
Subordinated debt....................... 27,657 830 12.00% 27,657 830 12.00%
---------- ------- ----- ---------- ------- -----
Total interest-bearing liabilities.... 820,509 9,314 4.54% 825,399 7,937 3.85%
---------- ------- ----- ---------- ------- -----
Noninterest-bearing deposits............ 309,694 282,542
Other liabilities....................... 11,163 16,875
---------- ----------
Total liabilities..................... 1,141,366 1,124,816
========== ==========
Shareholders' equity.................... 126,472 128,750
---------- ----------
Total liabilities and shareholders'
equity.............................. $1,267,838 $1,253,566
========== ==========
Net interest income..................... $14,891 $13,592
Net interest margin..................... 5.35% 5.04%
</TABLE>
11
<PAGE>
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 JUNE 30,
2000 COMPARED TO 1999
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans...................................................... $1,621 $4,075 $(2,481) $ 27
Securities................................................. 2,536 641 1,854 41
Federal fund sold.......................................... (340) (9) (326) (5)
Funds allocated to discontinued operations................. (1,141) 1,029 (437) (1,733)
------ ------ ------- -------
Total interest income.................................... 2,676 5,736 (1,390) (1,670)
------ ------ ------- -------
Interest-bearing deposits.................................. (236) 357 (1,132) 539
Borrowings................................................. 1,613 21 1,564 28
Subordinated debt.......................................... -- -- -- --
------ ------ ------- -------
Total interest expense................................... 1,377 378 432 567
------ ------ ------- -------
Net interest income...................................... $1,299 $5,358 $(1,822) $(2,237)
------ ------ ------- -------
</TABLE>
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 second quarter ended June 30, 2000 was $2.2
million, compared with $1.1 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 JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts......................... $1,761 $1,632
SBA servicing............................................... 624 538
Other service charges and fees.............................. 1,801 1,674
------ ------
Noninterest income.......................................... $4,186 $3,844
------ ------
</TABLE>
Service charges and fees received increased 8 percent to $4.2 million for
the second quarter of 2000 from $3.8 million for the second quarter of 1999. The
increase in noninterest income is primarily attributed to an increase in service
charges and fees related to customer transactions.
12
<PAGE>
NONINTEREST EXPENSE
The following table presents the major categories of noninterest expense for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and benefits..................................... $ 5,599 $ 5,450
Premises and equipment.................................... 1,576 1,592
Other expenses............................................ 4,756 4,986
------- -------
Total operating expenses.................................. 11,931 12,028
Amortization of intangibles............................... 950 1,024
------- -------
Noninterest expense....................................... $12,881 $13,052
------- -------
</TABLE>
Operating expenses decreased to $11.9 million for the second quarter of 2000
from $12.0 million for the second quarter of 1999. The efficiency ratio, which
is the relationship of operating expenses to revenues, was 62.54 percent for the
second quarter of 2000, down from 68.98 percent for the same period a year ago.
PROVISION FOR INCOME TAXES
The provision for income taxes for the second quarter ended June 30, 2000
was $1.6 million and represented an effective tax rate of 39.4 percent. For the
same period a year ago, the provision for income taxes was $1.7 million and
represented an effective tax rate of 51.3 percent. The lower effective tax rate
for the second quarter of 2000 compared to the second quarter of 1999 reflects
an increase in non-taxable income and a decrease in non-deductible expenses.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
OVERVIEW
Net income from continuing operations was $3.8 million for the six months
ended June 30, 2000, compared to $3.1 million for the same period of the prior
year. The increase over prior year was primarily the result of an increase in
net interest income. The related return on average assets for the first six
months ended June 30, 2000, was 0.60 percent, compared to a return of
0.44 percent for the six months ended June 30, 1999. The return on average
common equity was 6.42 percent for the six months ended June 30, 2000, compared
to a return of 4.60 percent for the six months ended June 30, 1999.
13
<PAGE>
The net loss from discontinued operations for the six months ended June 30,
1999 was $126,000, or $0.01 per diluted share.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
-------- --------
(IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
Income from continuing operations before income taxes and
amortization of intangible............................. $8,879 $8,518
Income taxes............................................. 3,117 3,414
------ ------
Net operating income..................................... 5,762 5,104
Amortization of intangibles.............................. 1,924 2,048
------ ------
Net income from continuing operations.................... 3,838 3,056
Net loss from discontinued operations.................... -- (126)
------ ------
Net income............................................... $3,838 $2,930
====== ======
Earnings per share from net operating income
Basic.................................................. $ 0.27 $ 0.17
Diluted................................................ $ 0.27 $ 0.17
</TABLE>
Net operating income, excluding amortization of intangibles and the effect
of discontinued operations, was $5.8 million for the six months ended June 30,
2000, or $0.27 per diluted share. For the same period of the prior year, net
operating income was $5.1 million, or $0.17 per diluted share. Net operating
income increased 13 percent from the year ago period on higher levels of net
interest income.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income totaled $28.4 million for the six months ended June 30,
2000. This represented an increase of $1.9 million, or 7 percent, from net
interest income for the six months ended June 30, 1999. The increase primarily
reflects an increase in rates earned on interest-earning assets.
The net interest margin increased to 4.94 percent for the six months ended
June 30, 2000, compared to a net interest margin of 4.85 percent for the six
months ended June 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
14
<PAGE>
of the average loans while nonaccrued interest thereon is excluded from the
computation of rates earned.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------
2000 1999
---------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
---------- --------- --------- ----------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans........................... $ 674,898 $33,779 10.01% $ 725,226 $31,150 8.59%
Securities...................... 363,123 11,659 6.42% 246,841 6,984 5.66%
Federal funds sold.............. 33,837 903 5.34% 33,774 802 4.75%
Funds allocated to discontinued
operations.................... 77,727 1,947 5.01% 84,857 4,158 9.80%
---------- ------- ------ ---------- ------- ------
Total interest-earnings
assets...................... 1,149,585 48,288 8.40% $1,090,698 43,094 7.90%
---------- ------- ------ ---------- ------- ------
Cash and due from banks......... 93,660 69,585
Other assets.................... 64,765 109,448
---------- ----------
Total assets.................. 1,308,010 1,269,731
========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits....... 714,685 14,352 4.02% 796,600 14,572 3.66%
Borrowings...................... 129,111 3,909 6.06% 18,264 435 4.76%
Subordinated debt............... 27,657 1,651 11.94% 27,657 1,643 11.88%
---------- ------- ------ ---------- ------- ------
Total interest-bearing
liabilities................. 871,453 19,912 4.57% 842,521 16,650 3.95%
---------- ------- ------ ---------- ------- ------
Noninterest-bearing deposits.... 297,863 281,268
Other liabilities............... 13,551 21,439
---------- ----------
Total liabilities............. 1,182,867 1,145,228
---------- ----------
Shareholders' equity............ 125,143 124,503
---------- ----------
Total liabilities and
shareholders' equity........ $1,308,010 $1,269,731
========== ==========
Net interest income............. 28,376 $26,444
Net interest margin............. 4.94% 4.85%
</TABLE>
15
<PAGE>
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>
SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO 1999
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans and leases......................................... $ 2,629 $ 9,241 $(6,655) $ 43
Securities............................................... 4,675 926 3,672 77
Fed funds sold........................................... 101 98 2 1
Funds allocated to discontinued operations............... (2,211) (1,999) (176) (36)
------- ------- ------- -------
Total interest income.................................... 5,194 8,266 (3,157) 85
------- ------- ------- -------
Interest-bearing deposits................................ (220) 553 (1,618) 845
Borrowing................................................ 3,474 38 3,301 135
Subordinated debt........................................ 8 8 -- --
------- ------- ------- -------
Total interest expense................................... 3,262 599 1,683 980
------- ------- ------- -------
Net interest income...................................... $ 1,932 $ 7,667 $(4,840) $ (895)
======= ======= ======= =======
</TABLE>
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 $3.4 million for the six months ended June 30,
2000 compared with $1.9 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 $7.9 million for the six months ended June 30,
2000. This represents an increase of $400,000, or 5 percent, from noninterest
income of $7.5 million for the six months ended June 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>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit accounts......................... $3,465 $3,257
SBA servicing............................................... 1,143 1,134
Other service charges and fees.............................. 3,270 3,112
------ ------
Noninterest income.......................................... $7,878 $7,503
------ ------
</TABLE>
NONINTEREST EXPENSE
Operating expenses for the first six months of 2000 totaled $23.9 million
compared with $23.5 million a year ago. The Company's efficiency ratio, which is
the relationship of operating
16
<PAGE>
expenses to revenues, was 66 percent for the six months ended June 30, 2000,
down from 69.36 percent for the six months ended June 30, 1999.
The following table presents the major categories of noninterest expense for
the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and benefits..................................... $11,389 $11,054
Premises and equipment.................................... 3,112 4,249
Other expenses............................................ 9,425 8,244
------- -------
Total operating expenses.................................. 23,926 23,547
Amortization of intangibles............................... 1,924 2,048
------- -------
Noninterest expense....................................... $25,850 $25,595
------- -------
</TABLE>
PROVISION FOR INCOME TAXES
For the six months ended June 30, 2000, the Company recorded a provision for
income taxes of $3.1 million, which represented an effective tax rate of 44.8
percent. For the same period a year ago, the provision was $3.4 million and
represented an effective tax rate of 52.8 percent. The lower effective tax rate
for the first six months of 2000 compared the first six months of 1999 reflects
an increase in non-taxable income and a decrease in non-deductible expenses. The
effective tax rate is higher than the combined federal and state statutory tax
rate of 42 percent principally because the amortization of intangibles is not
deductible for income tax purposes.
FINANCIAL CONDITION AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
At June 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 $41.2 million, or 7.0 percent, since year-end. Net
assets of discontinued operations fell $109 million in the first half of the
year and equipment leases continued to run-off, dropping $20.3 million since the
end of the year.
LOANS
The following table presents the major categories of loans for the periods
indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Commercial............................................ $129,788 $125,862
Commercial real estate................................ 223,160 208,596
Residential mortgage.................................. 23,695 24,809
Construction.......................................... 73,551 62,823
Home equity loans..................................... 19,688 14,131
Installment and credit cards.......................... 163,660 156,356
Equipment leases...................................... 60,138 80,472
-------- --------
Total loans........................................... 693,680 673,049
Allowance for credit losses........................... (10,083) (10,285)
-------- --------
Loans, net............................................ $683,597 $662,764
-------- --------
</TABLE>
17
<PAGE>
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 June 30, 2000, SBA loans totaled $77 million.
The following table shows the gross amounts of certain categories of loans
outstanding as of June 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 though 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>
JUNE 30, 2000
--------------
(IN THOUSANDS)
<S> <C>
Aggregate maturities of loans and leases which are due:
Three months or less........................................ $305,358
Over three months through 12 months......................... 42,912
Over one year through five years............................ 200,361
Over five years............................................. 145,049
--------
$693,680
========
</TABLE>
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>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans....................................... $10,107 $7,984
90 days or more past due and accruing.................. $ 19 $ 50
Foreclosed real estate................................. $ 847 $ 563
Selected ratios:
Nonaccrual loans to loans............................ 1.48% 1.21%
Nonaccrual loans and foreclosed real estate to
assets............................................. 0.86% 0.63%
</TABLE>
Nonaccrual loans totaled $10.1 million at June 30, 2000, up from $8.0
million at year-end, due principally to a real estate secured loan added during
the first quarter of 2000.
Management is not aware of any loan that had not been placed on nonaccrual
status as of June 30, 2000 for which there was a serious doubt as to the ability
of the borrower to comply with present loan repayment terms.
At June 30, 2000, the Company had foreclosed real estate with an aggregate
carrying value of $847 thousand compared with $563 thousand at December 31,
1999. Foreclosed real estate consists of single family residences.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses was $10.1 million at June 30, 2000 compared
with $10.3 million at December 31, 1999. Net charge-offs for the first and
second quarters of 2000 were $1.3 million and $2.4 million, respectively, up
from $756,000 and $912,000, respectively, for the same period in 1999. The
increase in net charge-offs was due primarily to higher charge-offs of equipment
leases.
18
<PAGE>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period........................ $10,208 $ 9,184 $10,285 $ 9,160
Loans charged-off................................. (3,001) (1,618) (4,849) (3,295)
Recoveries........................................ 636 706 1,198 1,627
Provision for credit losses....................... 2,240 1,102 3,449 1,882
------- ------- ------- -------
Balance, end of period.............................. $10,083 $ 9,374 $10,083 $ 9,374
======= ======= ======= =======
Selected ratios:
Net charge-offs (annualized) to average loans....... 1.39% 1.33% 0.90% 0.68%
Provision for credit losses (annualized) to average
loans............................................. 1.31% 0.63% 2.04% 1.04%
Allowance at end of period to loans outstanding at
end of period..................................... 1.45% 1.45% 1.45% 1.45%
Allowance as percentage of nonaccrual loans......... 99.76% 105.66% 99.76% 105.66%
</TABLE>
The following table indicates management's allocation of the allowance for
credit losses as of the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
---------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial financial and agriculture................. $ 5,577 55.32% $ 6,960 67.67%
Real estate and construction......................... 1,538 15.25% 1,611 15.66%
Consumer............................................. 1,048 10.39% 941 9.15%
Unallocated.......................................... 1,920 19.04% 773 7.52%
------- ------ ------- ------
Total.............................................. $10,083 100.00% $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 $359.4 million at June 30, 2000
compared with $325.1 million at the end of 1999. This represents a $34.3
million, or 10.6 percent increase. The securities portfolio primarily consists
of bonds, notes and mortgaged-backed securities issued by U.S. Government
19
<PAGE>
agencies. The amortized costs and estimated market values of the securities as
of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury...................................... $ 4,499 $ -- $ (18) $ 4,481
U.S. Government agencies........................... 112,080 47 (3,887) 108,240
State and municipal securities..................... 48,990 107 (1,854) 47,243
Mortgage-backed securities......................... 184,775 -- (5,644) 179,131
Corporate bonds and equities....................... 15,598 -- (923) 14,675
Federal Reserve Bank and Federal Home Loan
Bank stock....................................... 5,662 -- -- 5,662
-------- ------ -------- ---------
$371,604 $ 154 $(12,326) $ 359,432
-------- ------ -------- ---------
</TABLE>
The following table shows the maturities of securities at June 30, 2000:
<TABLE>
<CAPTION>
AT AT
ESTIMATED AMORTIZED
FAIR VALUE COST
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of securities available for sale which
are due:
Within one year......................................... $ 22,139 $ 21,463
After one year but within three......................... 55,968 58,250
After three years but within 15 years................... 113,191 110,863
After 15 years.......................................... 162,472 175,341
No maturities........................................... 5,662 5,687
-------- --------
$359,432 $371,604
-------- --------
</TABLE>
DEPOSITS
Deposits were $1.01 billion at June 30, 2000, compared with $1.06 billion at
December 31, 1999. The continued reduction in amounts from the discontinued
mortgage operations has permitted a similar reduction in interest-bearing
deposits. Noninterest-bearing deposits represented 37 percent of total deposits
at the end of the second quarter of 2000. At the end of 1999,
noninterest-bearing deposits represented 25 percent of total deposits. Time
deposits of $100,000 or more continue to represent a small proportion of total
deposits. At June 30, 2000, time deposits of $100,000 or more represented
approximately 9 percent of total deposits. Time deposits also represented
approximately 9 percent of total deposits at the end of 1999.
The following table presents the average balances and weighted average rates
paid on deposits:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------
2000 1999
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing.................. $ 342,190 -- $ 282,542 --
Interest-bearing..................... 674,988 4.03% 791,298 3.56%
---------- ----------
Total.............................. $1,017,178 $1,073,840
========== ==========
</TABLE>
20
<PAGE>
The following table shows the maturities of time certificates of deposits of
$100,000 or more at June 30, 2000:
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------
(IN THOUSANDS)
<S> <C>
Maturities of time certificiates of $100,000 or more:
Due in three months......................................... $49,006
Due in three months through 12 months....................... 33,369
Due in over 12 months....................................... 3,828
-------
Total..................................................... $86,203
=======
</TABLE>
BORROWINGS
Borrowings totaled $106.0 million at June 30, 2000, compared with
$149.6 million at December 31, 1999. The following table presents the categories
of borrowings for the periods indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased............................... $ 1,036 $ 35,140
Securities sold under agreement to repurchase......... 55,000 74,500
Federal Home Loan Bank Advances....................... 50,000 40,000
-------- --------
$106,036 $149,640
======== ========
</TABLE>
CAPITAL RESOURCES
Current regulatory capital standards generally require banks and 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 June 30, 2000
for federal regulatory purposes. At June 30, 2000, the Company and its
subsidiary banks had a leverage ratio, Tier 1 capital ratio and total capital
ratio as follows:
<TABLE>
<CAPTION>
ELDORADO ANTELOPE
BANK VALLEY BANK COMPANY
-------- ------------ --------
<S> <C> <C> <C>
Leverage ratio................................. 6.70% 9.02% 8.08%
Tier 1--capital ratio.......................... 10.93% 12.03% 11.15%
Total capital ratio............................ 12.17% 13.17% 12.29%
</TABLE>
21
<PAGE>
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 69 percent for the quarter ended June 30,
2000. The liquidity ratio was 35 percent for the quarter ended June 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
June 30, 2000, the Company had $100.0 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 June 30, 2000, the Company had no such
collateral at the Federal Reserve.
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 June 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
June 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.
22
<PAGE>
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 June 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,
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 JUNE 30, 2000
--------------------------------------------------------------------------
3 MONTHS OVER 3 OVER 1 YEAR OVER 5 NON-
OR LESS MONTHS TO 12 TO 5 YEARS YEARS SENSITIVE TOTAL
--------- ------------ ----------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks..... $ -- $ -- $ -- $ -- $ 66,400 $ 66,400
Federal funds sold.......... 25,000 -- -- -- -- 25,000
Securities, at amortized
cost...................... 2,500 18,963 82,387 262,067 5,687 371,604
Loans....................... 305,358 42,912 200,361 145,049 -- 693,680
Other assets................ -- -- -- -- 117,889 117,889
--------- --------- -------- -------- --------- ----------
Total assets.............. 332,858 61,875 282,748 407,116 189,976 1,274,573
========= ========= ======== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Checking.................... -- -- -- -- 375,125 375,125
Interest checking........... 106,183 -- -- -- -- 106,183
Savings..................... 176,228 -- -- -- -- 176,228
Money market................ 124,942 -- -- -- -- 124,942
Time certificates........... 103,599 110,196 13,960 45 -- 227,800
Borrowings.................. 46,036 30,000 30,000 -- -- 106,036
Subordinated debentures..... -- -- -- 27,657 -- 27,657
Other liabilities........... -- -- -- -- 9,991 9,991
Shareholders' equity........ -- -- -- -- 120,611 120,611
--------- --------- -------- -------- --------- ----------
Total liabilities and
shareholders' equity.... $ 556,988 $ 140,196 $ 43,960 $ 27,702 $ 505,727 $1,274,573
========= ========= ======== ======== ========= ==========
Period gap.................... $(224,130) $ (78,321) $238,788 $379,414 $(315,751)
Cumulative gap................ $(224,130) $(302,451) $(63,663) $315,751 $ --
Cumulative interest-earning
assets to cumulative
interest-bearing
liabilities................. 59.76% 56.62% 91.41% 141.07%
Cumulative gap as a percent
of:
Total assets................ (17.58)% (23.73)% (4.99)% 24.77%
Interest-earning assets..... (28.55)% (38.52)% (8.11)% 40.22%
</TABLE>
At June 30, 2000, the Company had $302.5 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.
23
<PAGE>
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 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.
24
<PAGE>
PART II--OTHER FINANCIAL INFORMATION
ITEM 5. OTHER INFORMATION
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 June 30 2000, the
Company had repurchased 200,000 shares for $1.45 million in cash. The shares are
reflected as common stock in treasury, at cost, in the consolidated statement of
condition as of June 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
--------------------- -------
<S> <C>
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))
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
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 current report
on Form 8-K filed with the Commission on April 21, 1999)
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.
26
<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: August 10, 2000 By: /s/ ROBERT P. KELLER
-----------------------------------------
Robert P. Keller
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: August 10, 2000 By: /s/ ROMOLO C. SANTAROSA
-----------------------------------------
Romolo C. Santarosa
CHIEF FINANCIAL OFFICER AND TREASURER
</TABLE>
27
