<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-19231
REDWOOD EMPIRE BANCORP
(Exact name of Registrant as specified in its charter)
California 68-0166366
(State or other jurisdiction of (IRS Employer
Incorporated or organization) Identification No.)
111 Santa Rosa Avenue, Santa Rosa, California 95404-4905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (707) 545-9611
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. May 1, 1996: 2,711,114
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page is page 1 of 19 pages.
<PAGE>
REDWOOD EMPIRE BANCORP
AND
SUBSIDIARIES
INDEX
Page
----
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Statements of Operations
Three Months ended March 31, 1996 and 1995. . . . . 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995. . . . . . . . 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995. . . . . 5
Notes to Consolidated Financial Statements. . . . . 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 8
PART II. Other Information
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . .18
ITEM 2. Changes in Securities . . . . . . . . . . . . . . .18
ITEM 3. Defaults Upon Senior Securities . . . . . . . . . .18
ITEM 4. Submission of Matters to a Vote of
Securities Holders. . . . . . . . . . . . . . . . .18
ITEM 5. Other Information . . . . . . . . . . . . . . . . .18
ITEM 6. Exhibits and Reports on Item 8-K. . . . . . . . . .18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------ -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $10,398 $11,187
Interest on investment securities 718 522
Interest on federal funds sold 324 330
Interest on time deposits due from
financial institutions 53 35
Total interest income 11,493 12,074
------------ -----------
Interest expense:
Interest on deposits 5,343 5,527
Interest on subordinated notes 284 277
Interest on other borrowings 367 1,658
------------ -----------
Total interest expense 5,994 7,462
------------ -----------
Net interest income 5,499 4,612
------------ -----------
Provision for loan losses 1,515 300
------------ -----------
Net interest income
after loan loss provision 3,984 4,312
Other operating income:
Service charges on deposit accounts 300 286
Merchant draft processing, net 488 316
Loan servicing income 380 391
Net realized gains on sale of
investment securities available for sale 17 ---
Gain on sale of loans and loan servicing 3,536 2,956
Other income 864 484
------------ -----------
Total other operating income 5,585 4,433
Other operating expense:
Salaries and employee benefits 4,487 3,523
Occupancy and equipment expense 1,362 1,052
Restructuring charge --- ---
Other 2,242 2,622
------------ -----------
Total other operating expense 8,091 7,197
------------ -----------
Income before income taxes 1,478 1,548
Provision for income taxes 592 637
------------ -----------
Net income 886 911
Dividends on preferred stock 112 112
------------ -----------
Net income available for common shareholders $774 $799
------------ -----------
------------ -----------
Earnings per common and common equivalent share:
Primary net income per share $.29 $.30
Weighted average shares 2,706,000 2,667,000
Fully diluted net income per share $.27 $.29
Weighted average shares 3,244,000 3,166,000
Dividends per common share $ --- $ ---
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Cash and due from banks $26,147 $24,312
Federal funds sold 13,977 9,969
Due from broker --- 20,859
----------------- -----------------
Cash and cash equivalents 40,124 55,140
Interest bearing deposits due from financial institutions 321 417
Investment securities:
Held to maturity (market value of $6,795 and $6,528) 6,795 6,528
Available for sale, at market 39,246 37,436
----------------- -----------------
Total investment securities 46,041 43,964
Mortgage loans held for sale 110,978 62,620
Loans:
Residential real estate mortgage 121,636 168,022
Commercial real estate mortgage 71,862 65,655
Commercial 66,490 63,975
Real estate construction 75,040 69,504
Installment and other 3,749 4,103
Less deferred loan fees (3,145) (3,035)
----------------- -----------------
Total portfolio loans 335,632 368,224
Less allowance for loan losses (6,380) (5,037)
----------------- -----------------
Net loans 29,252 363,187
Premises and equipment, net 6,108 6,561
Purchased mortgage servicing rights 5,634 5,970
Other real estate owned 1,133 963
Cash surrender value of life insurance 4,412 4,363
Other assets and interest receivable 16,840 14,725
----------------- -----------------
Total assets $560,843 $557,910
----------------- -----------------
----------------- -----------------
Deposits:
Noninterest bearing demand deposits $63,576 $65,602
Interest-bearing transaction accounts 149,282 129,436
Time deposits $100,000 and over 85,664 111,479
Other time deposits 176,170 151,876
----------------- -----------------
Total deposits 474,692 458,393
Other borrowings 31,129 47,871
Subordinated notes 12,000 12,000
Other liabilities and interest payable 10,918 8,061
----------------- -----------------
Total liabilities 528,739 526,325
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares;
issued and outstanding 575,000 shares 5,750 5,750
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding 2,687,407 and 2,679,227 shares 18,794 18,728
Retained earnings 7,741 6,967
Unrealized gain (loss) on investment securities available
for sale (181) 140
----------------- -----------------
Total shareholders' equity 32,104 31,585
----------------- -----------------
Total liabilities and shareholders' equity $560,843 $557,910
----------------- -----------------
----------------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $886 $911
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net 1,086 1,211
Net realized losses (gains) on securities available for sale (17) ---
Loans originated for sale (457,759) (68,564)
Proceeds from sale of loans held for sale 457,258 96,038
Gain on sale of loans and loan servicing (3,536) (2,956)
Provision for loan losses 1,515 300
Change in other assets and interest receivable (1,857) 3,585
Change in other liabilities and interest payable 2,857 (1,393)
Noncash restructuring charge --- ---
Other, net (187) 83
------------- -------------
Total adjustments (640) 28,304
------------- -------------
Net cash provided by operating activities 246 29,215
------------- -------------
Cash flows from investing activities:
Net change in loans (39,362) 8,710
Proceeds from sales of loans in portfolio 27,076 2,334
Purchases of investment securities available for sale (12,763) (2,918)
Purchases of investment securities held to maturity (200) ---
Sales of investment securities available for sale --- ---
Maturities of investment securities available for sale 10,500 6,000
Maturities of investment securities held to maturity --- 5,838
Premises and equipment, net (194) (266)
Purchase of mortgage servicing rights (231) ---
Change in interest bearing deposits due from financial institutions 96 99
Proceeds from sale of other real estate owned 309 151
------------- -------------
Net cash provided by (used in) investment activities (14,769) 19,948
------------- -------------
Cash flows from financing activities:
Change in noninterest bearing transaction accounts (2,026) (2,814)
Change in interest bearing transaction accounts 19,847 (3,539)
Change in time deposits (1,522) 62,819
Change in borrowings (16,742) (109,158)
Issuance of stock 62 ---
Dividends paid (112) (112)
------------- -------------
Net cash used in financing activities (493) (52,804)
------------- -------------
Net change in cash and cash equivalents (15,016) (3,641)
Cash and cash equivalents at beginning of period 55,140 33,354
------------- -------------
Cash and cash equivalents at end of period $40,124 $29,713
------------- -------------
------------- -------------
</TABLE>
(Continued)
5
<PAGE>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------- -------------
<S> <C> <C>
Supplemental Disclosures:
Cash paid during the period for:
Income taxes $267 $ ---
Interest expense 6,211 7,645
Noncash investing and financing activities:
Transfers from loans to other real estate owned 527 122
Transfer from loans to mortgage loans held for sale 50,000 ---
Transfer from mortgage loans held for sale to loans --- 15,000
</TABLE>
6
<PAGE>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements should be
read in conjunction with the financial statements and related notes contained in
Redwood Empire Bancorp's 1995 Annual Report to shareholders. The statements
include the accounts of Redwood Empire Bancorp and its wholly owned
subsidiaries, National Bank of the Redwoods ("NBR") and Allied Bank, F.S.B.
("Allied"). All significant intercompany balances and transactions have been
eliminated. The financial information contained in this report reflects all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods. All such adjustments are
of a normal recurring nature. The results of operations and cash flows for the
three months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
Certain reclassifications were made to prior period financial statements
to conform to current period presentations.
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Federal funds sold
are generally for one day periods.
2. Net Income per Share
Net income per share is calculated based on the weighted average number
of shares of common stock outstanding and common stock equivalents outstanding
during the periods ended March 31, 1996 and 1995.
3. New Accounting Pronouncement
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation."
This statement requires expanded disclosures with respect to stock-based
compensation such as stock options. It also encourages, but does not require
recognition of compensation expense related to the fair value of such
stock-based compensation. The Company has decided not to record compensation
expense for its stock-based compensation which currently consists only of stock
options. No grants were made in the first quarter of 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Redwood Empire Bancorp ("Redwood," and with its subsidiaries the
"Company") is a financial institutions holding company headquartered in Santa
Rosa, California. Redwood has two principal subsidiaries, Allied Bank, F.S.B.,
a federal savings bank ("Allied"), and National Bank of the Redwoods, a national
bank ("NBR").
The following sections discuss significant changes and trends in
financial condition, capital resources and liquidity of the Company from
December 31, 1995 to March 31, 1996, and significant changes and trends in the
Company's results of operations for the three months ended March 31, 1996,
compared to the same period in 1995.
In an effort to increase shareholder value the Board of Directors is
currently evaluating strategic options relating to Allied. These options
include a sale or partial sale of Allied or a merger of Allied into NBR. The
ultimate resolution of this evaluation process and actions stemming therefrom,
if any, cannot currently be determined.
SUMMARY OF FINANCIAL RESULTS
The Company reported net income of $886,000 ($.27 per share, fully
diluted) for the three months ended March 31, 1996, compared to $911,000
($.29 per share, fully diluted) for the same period in 1995. The decrease in
net income in 1996 over 1995 is primarily due to non reoccurring income
recorded in the first quarter of 1995 of $1,500,000 related to an improvement
in the market value of loans held for sale at Allied. In addition, the first
quarter of 1996 saw increases in net interest income and other operating income
offset by an increase in the provision for loan losses and other operating
expense when compared to the same period in 1995. The increased loan loss
provision in 1996 relates primarily to one portfolio of purchased leases. See
"Nonperforming Assets".
NET INTEREST INCOME
Net interest income increased $887,000 for the first quarter of 1996
compared to the first quarter of 1995. The increase is primarily due to
decreased funding costs, especially other borrowings and time deposits,
partially offset by lower interest income related to decreased volumes of
portfolio loans and mortgage loans held for sale. The net interest margin
increased to 4.32% for the first quarter of 1996 from 3.11% a year ago primarily
due to increased yields on earning assets, especially loans and mortgage loans
held for sale.
8
<PAGE>
The following is an analysis of the net interest margin:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1996 March 31, 1995
Average % Average %
(dollars in thousands) Balance Interest Yield Balance Interest Yield
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets (1) $508,653 $11,493 9.04 $592,737 $12,074 8.15
Interest-bearing liabilities 442,690 5,994 5.42 546,218 7,462 5.46
----------- -----------
Net interest income $5,499 $4,612
----------- -----------
----------- -----------
Net interest income to
earning assets 4.32 3.11
</TABLE>
(1) Nonaccrual loans are included in the calculation of the average
balance of earning assets, and interest not accrued is excluded.
The following table sets forth changes in interest income and interest
expense for each major category of interest-earning asset and interest-bearing
liability, and the amount of change attributable to volume and rate changes for
the three months ended March 31, 1996 and 1995. Changes not solely attributable
to rate or volume have been allocated to rate.
<TABLE>
<CAPTION>
March 31, 1996 over
March 31, 1995
-----------------------------------------
Volume Rate Total
-----------------------------------------
(in thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income:
Portfolio loans $ (1,032) $ 281 $ (751)
Mortgage loans held for sale (609) 571 (38)
Investment securities 149 47 196
Interest-earning deposits with other institutions 7 11 18
Federal funds sold (14) 8 (6)
-----------------------------------------
Total increase (decrease) (1,499) 918 (581)
-----------------------------------------
Increase (decrease) in interest expense:
Interest-bearing transaction accounts 197 124 321
Time deposits (760) 255 (505)
Other borrowings (1,258) (26) (1,284)
-----------------------------------------
Total increase (decrease) (1,821) 353 (1,468)
-----------------------------------------
Increase in net interest income $322 $565 $887
-----------------------------------------
-----------------------------------------
</TABLE>
9
<PAGE>
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale increased $48,358,000 or 77% to
$110,978,000 at March 31, 1996 compared to $62,620,000 at December 31, 1995.
The increase was primarily due to a $50,000,000 transfer of loans from the
portfolio to held for sale. This transaction was made to accommodate an asset
reduction strategy at Allied Bank which is intended to increase the capital
ratios of Allied and the Company. The fair value of loans transferred
exceeded their carrying value.
LOANS
Total loans decreased $32,592,000 or 9% to $335,632,000 at March 31,
1996 compared to $368,224,000 at December 31, 1995. Residential real estate
mortgage loans decreased $46,386,000 or 28% to $121,636,000 due to a transfer of
loans to mortgage loans held for sale as part of an asset reduction strategy.
The following table summarizes the composition of the loan portfolio at
March 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
------------------------------ ------------------------------
(dollars in thousands) Amount % Amount %
<S> <C> <C> <C> <C>
Residential real estate mortgage $121,636 37% $168,022 46%
Commercial real estate mortgage 71,862 21 65,655 18
Commercial 66,490 20 63,975 17
Real estate construction 75,040 22 69,504 19
Installment and other 3,749 1 4,103 1
Less deferred fees (3,145) (1) (3,035) (1)
------------------------------ ------------------------------
Total loans 335,632 100% 368,224 100%
----------- -----------
----------- -----------
Less allowance for loan losses (6,380) (5,037)
--------------- ---------------
Net loans $329,252 $363,187
--------------- ---------------
--------------- ---------------
</TABLE>
PROVISION FOR LOAN LOSSES
The allowance for loan losses is established through charges to earnings
in the form of the provision for loan losses. Loan losses are charged to, and
recoveries are credited to, the allowance for loan losses. The provision for
loan losses is determined after considering various factors such as loan loss
experience, current economic conditions, maturity of the portfolio, size of the
portfolio, industry concentrations, borrower credit history, the existing
allowance for loan losses, independent loan reviews, current charges and
recoveries to the allowance for loan losses, and the overall quality of the
portfolio, as determined by management, regulatory agencies, and independent
credit review consultants retained by the Company.
10
<PAGE>
The adequacy of the Company's allowance for loan losses is based on
specific and formula allocations to the Company's loan portfolio. Specific
allocations of the allowance for loan losses are made to identified problem or
potential problem loans. The specific allocations are increased or decreased
through management's reevaluation of the status of the particular problem loans.
Loans which do not receive a specific allocation receive an allowance allocation
based on a formula, represented by a percentage factor based on underlying
collateral, type of loan, historical charge-offs and general economic
conditions, which is applied against the general portfolio segments.
The following table summarizes the Company's allowance for loan losses:
<TABLE>
<CAPTION>
Three months ended
March 31
-----------------------
(dollars in thousands) 1996 1995
--------- ---------
<S> <C> <C>
Beginning allowance for loan losses $5,037 $5,787
Provision for loan losses 1,515 300
Charge-offs (199) (150)
Recoveries 27 25
--------- ---------
Ending allowance for loan losses $6,380 $5,962
--------- ---------
--------- ---------
Net charge-offs to average
loans (annualized) .18% .12%
</TABLE>
The allowance for loan losses as a percentage of portfolio loans
increased from at 1.37% at December 31, 1995 to 1.90% at March 31, 1996. The
increase in the provision of $1,215,000 over the same period in 1995 is
primarily due to a lease portfolio of $1,412,000 purchased from a company
currently in bankruptcy proceedings who retained the servicing of such
portfolio. An additional provision was taken in response to higher levels of
nonperforming assets which include the aforementioned leases.
Currently, no information has been made available or communicated to
the Company by the Bankruptcy court concerning NBR's security in such
purchased equipment leases, although all cash receipts have been frozen by
the bankruptcy trustee until a formal accounting of all assets and
liabilities can be completed. Consistent with Company policy, these leases
have been classified as nonperforming and placed on nonaccrual status.
Management expects further information to become available in the second or
third quarter of 1996 with regards to specific borrower information and
collateral values. Management also believes certain legal remedies may exist
and is currently evaluating its options under the terms of the lease
agreements.
11
<PAGE>
NONPERFORMING ASSETS
The following table summarizes the Company's nonperforming assets.
<TABLE>
<CAPTION>
March 31, December, 31
(dollars in thousands) 1996 1995
--------- ------------
<S> <C> <C>
Nonaccrual loans $6,563 $4,201
Accruing loans past due 90 days or more 56 92
Restructured loans 598 651
------- ------
Total nonperforming loans 7,217 4,944
Other real estate owned 1,133 963
Other assets owned 1,214 1,249
------- ------
Total nonperforming assets $9,564 $7,156
------- ------
------- ------
Nonperforming assets to total assets 1.71% 1.28%
</TABLE>
Although the volume of nonperforming assets will depend on future economic
environment, there are also loans totaling $2,288,000 about which management has
serious doubts as to the ability of the borrowers to comply with the present
repayment terms and which may become nonperforming assets based on the
information presently known about possible credit problems of the borrower.
Nonperforming loans consist of loans to 354 borrowers, 18 of which have
balances in excess of $100,000. The two largest have recorded balances of
$837,000 secured by general business assets and $390,000 secured by residential
real estate. Approximately 310 of the nonperforming loans are related to a
purchased portfolio of leases from a servicer who is now in bankruptcy
proceedings. Based on information currently available, management believes that
adequate reserves are included in the allowance for loan losses to cover any
loss exposure that may result from these loans.
Other real estate owned consists of eight properties. Six properties are
residential and two are commercial buildings. Other assets owned included
contract receivable rights and repossessed personal property valued at
$1,214,000.
At March 31, 1996 the Company's total recorded investment in impaired loans
(as defined by SFAS 114 and 118) was $7,475,000 of which $3,374,000 relates to
the recorded investment for which there is a related allowance for credit losses
of $1,235,000 determined in accordance with these statements and $4,101,000
relates to the amount of that recorded investment for which there is no related
allowance for credit losses determined in accordance with these standards.
12
<PAGE>
The average recorded investment in the impaired loans during the three
months ended March 31, 1996 and March 31, 1995 was $7,690,000 and $8,972,000;
the related amount of interest income recognized during the periods that such
loans were impaired was $54,000 for 1996 and $105,000. No interest income was
recognized using a cash-basis method of accounting during the period that the
loans were impaired.
OTHER OPERATING INCOME AND EXPENSE AND INCOME TAXES
Other Operating Income
The following table sets forth the components of the Company's other
operating income for the three months ended March 31, 1996, as compared to the
same periods in 1995.
<TABLE>
<CAPTION>
Three Months Ended
March 31 %
------------------
(dollars in thousands) 1996 1995 Change
------ ----------------
<S> <C> <C> <C>
Service charges on deposit accounts 300 286 5
Merchant draft processing, net 488 316 54
Loan servicing income 380 391 (3)
Gains on securities 17 --- ---
Gain on sale of loans and servicing 3,536 2,956 20
Other income 864 484 79
------ ------
Total other operating income $5,585 $4,433 26
------ ------
------ ------
</TABLE>
Other operating income increased $1,152,000 or 26% to $5,585,000 for the
first quarter of 1996 compared to $4,433,000 for the same period in 1995, due
primarily to higher gains on sales of loans. Total mortgage origination volume
in the first quarter of 1996 was $483 million compared to $84 million in 1995.
Other operating income, excluding gains on sales of loans and loan
servicing, increased 39%, or $572,000, between the three-month periods ended
March 31, 1996 and 1995. This increase was primarily attributable to an
increase of $172,000 in merchant draft processing fees associated with NBR's
Principal Bank status with Visa/MasterCard and the receipt of $190,000 from a
legal settlement which occurred in the first quarter of 1996.
Other Operating Expense
Other operating expense increased to $8,091,000 during the first quarter of
1996 compared to $7,197,000 for the first quarter of 1995, primarily due to
increased salaries and benefits expense caused by increased loan volumes at
Allied.
13
<PAGE>
The following table sets forth the components of the Company's other
operating expense during the three months ended March 31, 1996, as compared to
the same period in 1995.
<TABLE>
<CAPTION>
Three Months Ended
March 31 %
-----------------
(dollars in thousands) 1996 1995 Change
------ -----------------
<S> <C> <C> <C>
Salaries and employee benefits $4,487 $3,523 27
Occupancy and equipment expense 1,362 1,052 29
Restructuring charge --- --- ---
Other 2,242 2,622 (14)
------ ------
Total other operating expense $8,091 $7,197 12
------ ------
------ ------
</TABLE>
Income Taxes
The Company's effective tax rate varies with changes in the relative
amounts of its non-taxable income and nondeductible expenses. The effective
rate was 40.1% for the three-months ended March 31, 1996, compared to 41.1% for
the same period in 1995.
LIQUIDITY
Liquidity management is monitored by Redwood, as well as by Allied and NBR.
Redwood's operations generate debt service costs and administrative costs
associated with regulatory reporting and overall planning, which may include
acquisition or merger costs. Aside from accessing the capital markets,
Redwood's primary source of liquidity is dividends from its financial
institution subsidiaries. It is Redwood's general policy to retain excess
capital at its subsidiaries, maintaining Redwood's available capital at a level
which Redwood's management believes to be consistent with the safety and
soundness of the Company as a whole. As of March 31, 1996, Redwood held
$694,000 in interest-bearing deposits at its subsidiaries and a $3,000,000
subordinated note issued by NBR.
Beginning with the fourth quarter of 1992, Redwood has paid a quarterly
dividend of $.03 per share of Common Stock. In the fourth quarter of 1993, this
dividend was increased to $0.035 per share. This dividend was suspended in the
fourth quarter of 1994. In addition, Redwood pays quarterly dividends of 7.8%
on its preferred stock of $5,750,000 and interest at 8.5% on $12,000,000 of
subordinated debentures issued in 1993. Payment of these obligations is
dependent on dividends from NBR and Allied. Federal regulatory agencies have
the authority to prohibit the payment of dividends by NBR and Allied to Redwood
if a finding is made that such payment would constitute an unsafe or unsound
practice, or if NBR or Allied became undercapitalized. If NBR or Allied are
restricted from paying dividends, Redwood could be unable to pay the above
obligations. No assurance can be given as to the ability of Redwood's
subsidiaries to pay dividends to Redwood.
14
<PAGE>
In the fourth quarter of 1994, Redwood received a dividend of $200,000 from
NBR and $400,000 from Allied. During 1995, NBR and Allied declared dividends of
$860,000 and $227,000 respectively. During the first quarter of 1996, NBR and
Allied declared dividends of $215,000 and $727,000 respectively. Subsequent to
March 31, 1996 Allied declared an additional dividend of $500,000. Management
believes that at March 31, 1996, the Company's liquidity position was adequate
for the operations of Redwood and its subsidiaries for the foreseeable future.
CAPITAL RESOURCES
A strong capital base is essential to the Company's continued ability to
service the needs of its customers. Capital protects depositors and the deposit
insurance fund from potential losses and is a source of funds for the
substantial investments necessary for the Company to remain competitive. In
addition, adequate capital and earnings enable the Company to gain access to the
capital markets to supplement its internal growth of capital. Capital is
generated internally primarily through earnings retention.
The Company and each of its subsidiaries are required to maintain minimum
capital ratios defined by various federal government regulatory agencies. The
FRB, the OCC and the OTS have each established capital guidelines, which include
minimum capital requirements. The regulations impose three sets of standards: a
"risk-based", "leverage" and "tangible" capital standard.
Under the risk-based capital standard, assets reported on an institution's
balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which is assigned a risk weight. This standard
characterizes an institution's capital as being "Tier 1" capital (defined as
principally comprising shareholders' equity and noncumulative preferred stock)
and "Tier 2" capital (defined as principally comprising the allowance for loan
losses and subordinated debt).
Under the leverage capital standard, an institution must maintain a
specified minimum ratio of Tier 1 capital to total assets, with the minimum
ratio ranging from 4% to 6%. The core capital ratio for Allied is based on
period end assets while the leverage ratio for the Company and NBR is based on
average assets for the quarter.
15
<PAGE>
Allied is subject to a minimum tangible capital ratio of 1.5% of adjusted
total assets. It is anticipated that Allied will be subject to an OTS
regulation issued in August, 1993 that added an interest rate risk component to
the risk-based capital requirements of thrifts. The original effective date was
to be December 31, 1993 and the regulation has been postponed several times.
The effective date has now been postponed indefinitely until the OTS evaluates
the effectiveness of its appeals process. Under the proposed regulation,
those thrifts that have an above normal interest rate risk exposure must take a
deduction from the total capital available to meet their risk-based capital
requirement. This deduction will be equal to one-half of the difference between
the thrift's actual measured exposure and the normal level of exposure. The
actual deduction taken at any quarter end is equal to the lowest amount
calculated for the three quarters prior to the reporting date. A thrift's
actual measured interest risk is expressed as the change that occurs in its net
portfolio value ("NPV") as a result of an immediate 200 basis point increase or
decrease in interest rates (whichever results in the lower NPV) divided by the
estimated economic value of its assets, as calculated in accordance with OTS
instructions. An above normal decline in NPV is one that exceeds 2% of the
estimated economic value of its assets. Under this regulation, Allied
currently would not be required to take a deduction from capital.
The following table summarizes the consolidated capital ratios and the
capital ratios of the principal subsidiaries at December 31, 1995 and March 31,
1996.
16
<PAGE>
<TABLE>
<CAPTION>
Actual Required
Amount Amount Excess Actual %
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
At March 31, 1996:
COMPANY
Leverage (to Average Assets) $30,705 $21,753 $8,952 5.65%
Tier 1 Capital (to Risk-weighted Assets) 28,090 15,469 12,621 7.26
Total Capital (to Risk-weighted Assets) 44,911 30,939 13,972 11.61
NBR
Leverage Capital (to Average Assets) 17,335 9,510 7,825 7.29
Tier 1 Capital (to Risk-weighted Assets) 17,335 7,719 9,616 8.98
Total Capital (to Risk-weighted Assets) 22,758 15,438 7,320 11.79
ALLIED
Core Capital (to Total Assets) 20,387 12,507 7,880 6.52
Tier 1 Capital (to Risk-weighted Assets) 17,772 7,589 10,183 9.37
Total Capital (to Risk-weighted Assets) 20,149 15,177 4,972 10.62
Tangible Capital (to Total Assets) 20,387 4,690 15,697 6.52
At December 31, 1995:
COMPANY
Tier 1 Capital (to Average Assets) 29,723 23,134 6,589 5.14
Tier 1 Capital (to Risk-weighted Assets) 27,123 14,991 12,132 7.24
Total Capital (to Risk-weighted Assets) 43,780 29,981 13,799 11.68
NBR
Tier 1 Capital (to Average Assets) 17,283 9,258 8,025 7.47
Tier 1 Capital (to Risk-weighted Assets) 17,283 7,349 9,934 9.41
Total Capital (to Risk-weighted Assets) 22,395 14,698 7,697 12.19
ALLIED
Tier 1 Capital (to Total Assets) 19,955 12,752 7,203 6.26
Tier 1 Capital (to Risk-weighted Assets) 17,355 7,528 9,827 9.22
Total Capital (to Risk-weighted Assets) 19,713 15,056 4,657 10.47
Tangible Capital (to Total Assets) 19,955 4,782 15,173 6.26
</TABLE>
17
<PAGE>
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - NONE
Item 2. CHANGES IN SECURITIES - NONE
Item 3. DEFAULTS UPON SENIOR SECURITIES - NONE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
Item 5. OTHER INFORMATION - NONE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 11
Weighted average shares, used in the computation of per share
earnings, include the common stock equivalents impact of common
stock options outstanding. Primary earnings per share includes
the reduction of net income by the declared Preferred Stock
dividend. The impact on earnings per share assuming conversion
of the Preferred Stock was reflected in the fully-dilutive
computation. The computation of per share earnings is
incorporated by reference in the Consolidated Statement of
Operations on page 3 herein.
(b) REPORTS ON FORM 8-K
Form 8-K dated February 1, 1996 reporting fourth quarter earnings
and year end results.
Form 8-K dated February 12, 1996 declaring the dividend on
preferred stock payable on February 14, 1996.
Form 8-K dated April 9, 1996 announcing a management change at
Allied Bank, F.S.B. - resignation of Terance O'Mahoney.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
REDWOOD EMPIRE BANCORP
----------------------
(Registrant)
DATE: 5-01-96 BY: /s/ Patrick W. Kilkenny
-------------------------------------
Patrick W. Kilkenny
President and Chief Executive Officer
DATE: 5-01-96 BY: /s/ James E. Beckwith
-------------------------------------
James E. Beckwith
Senior Vice President and Chief Financial Officer
DATE: 5-01-96 BY: /s/ Gale D. Bridgeman
-------------------------------------
Gale D. Bridgeman
Vice President and Controller
(Principal Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 26,147
<INT-BEARING-DEPOSITS> 321
<FED-FUNDS-SOLD> 13,977
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,246
<INVESTMENTS-CARRYING> 6,795
<INVESTMENTS-MARKET> 6,795
<LOANS> 335,632<F1>
<ALLOWANCE> 6,380
<TOTAL-ASSETS> 560,843
<DEPOSITS> 474,692
<SHORT-TERM> 31,129
<LIABILITIES-OTHER> 10,918
<LONG-TERM> 12,000
0
5,750
<COMMON> 18,794
<OTHER-SE> 7,560<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 560,843
<INTEREST-LOAN> 10,398
<INTEREST-INVEST> 718
<INTEREST-OTHER> 377
<INTEREST-TOTAL> 11,493
<INTEREST-DEPOSIT> 5,343
<INTEREST-EXPENSE> 5,994
<INTEREST-INCOME-NET> 5,499
<LOAN-LOSSES> 1,515
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 8,091
<INCOME-PRETAX> 1,478
<INCOME-PRE-EXTRAORDINARY> 1,478
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 886
<EPS-PRIMARY> .29
<EPS-DILUTED> .27
<YIELD-ACTUAL> 4.32
<LOANS-NON> 6,563
<LOANS-PAST> 56
<LOANS-TROUBLED> 598
<LOANS-PROBLEM> 2,288
<ALLOWANCE-OPEN> 5,037
<CHARGE-OFFS> 199
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 6,380
<ALLOWANCE-DOMESTIC> 5,961
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 419
<FN>
<F1>EXCLUDES MORTGAGE LOANS HELD FOR SALE OF 110,978
<F2>INCLUDES UNREALIZED LOSS ON INVESTMENT SECURITIES AVAILABLE FOR SALE OF 181
</FN>
</TABLE>
