<PAGE>
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UNITED STATES
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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 0-19231
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) 573-4800
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, 2000: 3,275,890
<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, 2000..............................3
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999...........................5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000..............................6
Notes to Consolidated Financial Statements.....................8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..............12
Item 3. Quantitative and Qualitative Disclosure
About Market Risk.............................................27
PART II. Other Information
Item 6. Exhibits and Reports on Item 8-K..............................28
SIGNATURES ..............................................................30
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars in thousands except per share data)
(unaudited)
Three Months Ended
March 31,
2000 1999
-----------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $6,766 $6,094
Interest on investment securities 1,250 956
Interest on federal funds sold 143 178
-----------------------------------
Total interest income 8,159 7,228
Interest expense:
Interest on deposits 3,171 2,327
Interest on subordinated notes --- 142
Interest on other borrowings 49 ---
-----------------------------------
Total interest expense 3,220 2,469
-----------------------------------
Net interest income 4,939 4,759
Provision for loan losses 100 300
-----------------------------------
Net interest income after loan loss provision 4,839 4,459
Noninterest income:
Service charges on deposit accounts 277 255
Merchant draft processing, net 897 779
Loan servicing income 40 16
Net realized (loss)/gain on sale of
investment securities available for sale (1) 14
Other income 198 261
-----------------------------------
Total noninterest income 1,411 1,325
Noninterest expense:
Salaries and employee benefits 2,150 2,158
Occupancy and equipment expense 501 532
Other 1,207 1,115
-----------------------------------
Total noninterest expense 3,858 3,805
-----------------------------------
Income from continuing operations before income taxes
and extraordinary item 2,392 1,979
Provision for income taxes 972 768
-----------------------------------
Income from continuing operations before extraordinary item 1,420 1,211
Discontinued Operations:
Income from discontinued operations
(less applicable income taxes of $41) --- 83
-----------------------------------
Income before extraordinary item 1,420 1,294
Extraordinary item --- 459
Income tax benefit --- (183)
-----------------------------------
Total extraordinary item, net of tax --- 276
-----------------------------------
Net income $1,420 $1,018
===================================
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars in thousands except per share data)
(unaudited)
(Continued)
Three Months Ended
March 31,
2000 1999
-----------------------------------
<S> <C> <C>
Basic earnings per common share:
Income from continuing operations before extraordinary item $0.44 $0.36
Income from discontinued operations 0.00 0.02
Income before extraordinary item 0.44 0.38
Net income 0.44 0.30
Weighted average shares 3,252,000 3,372,000
Diluted earnings per common share and common equivalent share:
Income from continuing operations before extraordinary item $0.43 $0.35
Income from discontinued operations 0.00 0.02
Income before extraordinary item 0.43 0.37
Net income 0.43 0.29
Weighted average shares 3,269,000 3,463,000
See Notes to Consolidated Financial Statements.
(Concluded)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
March 31, December 31,
2000 1999
------------------ -------------------
(unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $15,780 $19,058
Federal funds sold and repurchase agreements 6,545 1,497
------------------ -------------------
Cash and cash equivalents 22,325 20,555
Investment securities:
Held to maturity (market value of $32,321 and $31,923) 33,468 32,967
Available for sale, at market (amortized cost of $47,477 and $44,667) 46,361 43,738
------------------ -------------------
Total investment securities 79,829 76,705
Mortgage loans held for sale --- ---
Loans:
Residential real estate mortgage 132,047 130,504
Commercial real estate mortgage 85,143 79,476
Commercial 58,908 61,165
Real estate construction 42,435 40,059
Installment and other 4,416 4,624
Less deferred loan fees (1,358) (1,383)
------------------ -------------------
Total portfolio loans 321,591 314,445
Less allowance for loan losses (7,980) (7,931)
------------------ -------------------
Net loans 313,611 306,514
Premises and equipment, net 3,059 3,045
Mortgage servicing rights 30 32
Other real estate owned 2,041 2,363
Cash surrender value of life insurance 3,226 3,187
Other assets and interest receivable 11,009 10,645
------------------ -------------------
Total assets $435,130 $423,046
================== ===================
Liabilities and Shareholders' equity:
Deposits:
Noninterest bearing demand deposits $79,272 $77,753
Interest-bearing transaction accounts 129,474 124,357
Time deposits $100,000 and over 72,740 69,294
Other time deposits 102,152 98,105
------------------ -------------------
Total deposits 383,638 369,509
Other borrowings 845 4,695
Subordinated notes --- ---
Other liabilities and interest payable 11,522 11,398
------------------ -------------------
Total liabilities 396,005 385,602
Shareholders' equity:
Preferred stock, no par value; authorized 2,000,000 shares; issued and
outstanding: no shares --- ---
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding: 3,275,890 and 3,228,771 shares 22,732 22,033
Retained earnings 17,040 15,950
Accumulated other comprehensive loss, net (647) (539)
------------------ -------------------
Total shareholders' equity 39,125 37,444
------------------ -------------------
Total liabilities and shareholders' equity $435,130 $423,046
================== ===================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
2000 1999
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,420 $1,018
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net 254 349
Net realized loss (gains) on securities available for sale 1 (14)
Loans originated for sale --- (101,880)
Proceeds from sale of loans held for sale --- 108,230
Gain on sale of loans and loan servicing --- (704)
Provision for loan losses 100 300
Change in other assets and interest receivable (319) 3,255
Change in other liabilities and interest payable 125 7,371
Other, net 14 16
------------- --------------
Total adjustments 175 16,923
------------- --------------
Net cash provided by operating activities 1,595 17,941
------------- --------------
Cash flows from investing activities:
Net change in loans (7,665) (15,304)
Proceeds from sales of loans in portfolio --- ---
Purchases of investment securities available for sale (3,943) (5,017)
Purchases of investment securities held to maturity (801) (6,150)
Proceeds from sales of investment securities available for sale 1,000 ---
Maturities of investment securities available for sale 129 3,015
Maturities of investment securities held to maturity 334 647
Premises and equipment, net (268) (289)
Proceeds from sale of other real estate owned 992 786
------------- --------------
Net cash used in investment activities (10,222) (22,312)
------------- --------------
Cash flows from financing activities:
Change in noninterest bearing transaction accounts 1,519 11,787
Change in interest bearing transaction accounts 5,116 (2,976)
Change in subordinated debt --- (12,000)
Change in time deposits 7,494 423
Change in other borrowings (3,850) 8,476
Issuance of stock 448 59
Dividends paid (330) (135)
------------- --------------
Net cash provided by financing activities 10,397 5,634
------------- --------------
Net change in cash and cash equivalents 1,770 1,263
Cash and cash equivalents at beginning of period 20,555 42,187
------------- --------------
Cash and cash equivalents at end of period $22,325 $43,450
============= ==============
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
Three Months Ended
March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Supplemental Disclosures:
Cash paid during the period for:
Interest expense 3,054 2,910
Income taxes 1,084 ---
Noncash investing and financing activities:
Transfers from loans to other real estate owned 670 232
Dividend declared 330 135
See notes to Consolidated Financial Statements.
</TABLE>
(Concluded)
<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 1999 Annual Report to Shareholders. The statements
include the accounts of Redwood Empire Bancorp ("Redwood"), and its wholly owned
subsidiary, National Bank of the Redwoods ("NBR"). All significant inter-company
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, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
In September 1999 the Company successfully completed the divestiture of its
mortgage brokerage and mortgage banking units, Valley Financial and Allied
Diversified Credit. The Company has disclosed the operations of these units as
well as the after tax loss on disposition as discontinued operations.
Accordingly, historical financial information has been recast to present the
operating results of Valley Financial and Allied Diversified Credit as
discontinued operations.
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, federal funds sold and repurchase
agreements with original maturities of 90 days or less. Federal funds sold and
repurchase agreements are generally for one day periods.
2. Earnings per Share
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
<PAGE>
The Company's pertinent earnings per share data is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
----------------------- -----------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings per common share:
Income from continuing operations before extraordinary item $1,420 $1,420 $1,211 $1,211
Earnings per share from income from continuing operations before
extraordinary item $0.44 $0.43 $0.36 $0.35
Income from discontinued operations, net of tax $--- $--- $83 $83
Earnings per share from income from discontinued operations $0.00 $0.00 $0.02 $0.02
Income before extraordinary item $1,420 $1,420 $1,294 $1,294
Earnings per share before extraordinary item $0.44 $0.43 $0.38 $0.37
Net income $1,420 $1,420 $1,018 $1,018
Net income per share $0.44 $0.43 $0.30 $0.29
Weighted average common shares outstanding 3,252 3,269 (1) 3,372 3,463 (1)
========== ========== ========== ==========
</TABLE>
(1) The weighted average common shares outstanding include the dilutive effects
of common stock options.
3. Comprehensive Income
The Company's total comprehensive earnings presentation is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Net income $1,420 $1,018
Other comprehensive income (net of tax):
Change in unrealized holding losses
on available for sale securities (108)
(182)
Reclassification adjustment
- - (8)
-------------- --------------
Total comprehensive income $1,312 $828
============== ==============
</TABLE>
4. Common Stock Dividend
On February 15, 2000 the Board of Directors declared a quarterly cash
dividend of 10 cents per share on the Company's Common Stock. The dividend was
paid on April 14, 2000 to shareholders of record on March 31, 2000.
<PAGE>
5. Divestiture of Mortgage Banking and Mortgage Brokerage Units
On September 10, 1999 the Company divested itself of its subprime mortgage
brokerage and mortgage banking units, Allied Diversified Credit and Valley
Financial. The divestiture took the form of an asset sale and employee transfer
to Valley Financial Funding, Inc., whose shareholders include senior management
of Valley Financial and Allied Diversified Credit. As a result of the
divestiture, the Company lost ninety-five employees of which sixty-three were
transferred to Valley Financial Funding, Inc, while thirty-two were terminated
by the Company. As a result of its divestiture the Company recorded an after-tax
loss of $167,000 which is primarily comprised of termination benefits. The
Company has disclosed the operations of these units as well as the after tax
loss on disposition as discontinued operations. Accordingly, historical
financial information regarding changes due to overhead and interest allocation
for all segments has been recast to present the operating results of Valley
Financial and Allied Diversified Credit as discontinued operations. Revenue from
discontinued operations was $2,128,000 for the three months ended March 31,
1999. There was no such revenue recognized in 2000. As of March 31, 2000 there
are no assets and $42,000 in liabilities on the Company's consolidated balance
sheet related to the divested operations. The liability balance is related to
potential repurchases of previously sold mortgage loans.
6. Extraordinary Item
In the first quarter of 1999 the Company recorded an extraordinary charge
of $276,000, net of tax. Such charge is comprised of the unamortized debt
issuance costs associated with the Company's $12,000,000 subordinated debt,
which was early redeemed in the first quarter of 1999. In the first quarter of
1999 Redwood obtained funding for the early redemption through an $8.0 million
dividend from NBR, the redemption of a $3.0 million note from NBR and $1.0
million from Redwood's general corporate funds.
7. Business Segments
Through September 10, 1999, the Company operated in four principal industry
segments: core community banking, merchant card services, sub prime lending, and
residential mortgage banking and brokerage. The Company's core community banking
segment includes commercial, commercial real estate, construction, and permanent
residential lending along with all depository activities. The Company's merchant
card services industry group provides credit card settlement services for 93,000
merchants throughout the United States. The Company's sub prime lending unit,
known as Allied Diversified Credit and the Company's residential mortgage
banking and brokerage arm, known as Valley Financial were divested on September
10, 1999. The divestiture took the form of an asset sale and employee transfer.
The Company has disclosed the operations of these units as well as the after tax
loss on disposition as discontinued operations. Accordingly, historical
financial information regarding segments has been restated to reflect only those
segments associated with continuing operations.
<PAGE>
The condensed income statements and average assets of the individual
segments are set forth in the table below. The information in this table is
derived from the internal management reporting system used by management to
measure the performance of the segments and the Company. The management
reporting system assigns balance sheet and income statement items to each
segment based on internal management accounting policies. Net interest income is
determined by the Company's internal funds transfer pricing system, which
assigns a cost of funds or credit for funds to assets or liabilities based on
their type, maturity or repricing characteristics. Noninterest income and
expense directly attributable to a segment are assigned to that business. Total
other operating expense including indirect costs, such as overhead, operations
and technology expense are allocated to the segments based on an evaluation of
costs for product or data processing. All amounts other than allocations of
interest and indirect costs are derived from third parties. The provision for
credit losses is allocated based on the required reserves and the net
charge-offs for each respective segment. The Company allocates depreciation
expense without allocating the related depreciable asset to that segment.
Information related to the internal allocation of interest expense and
overhead to segments presented in previous periods has been restated to present
such amounts consistent with standards for accounting for discontinued
operations. These standards do not allow the allocation of general corporate
overhead to discontinued operations and generally require that the allocation of
interest to discontinued operations be based on the marginal interest expense
that would not have been incurred were it not for the discontinued operations.
Summary financial data by industry segment follows:
<TABLE>
<CAPTION>
For the quarter ended March 31, 2000
---------------------------------------
Community Total
Banking Bankcard Company
---------------------------------------
(in thousands)
<S> <C> <C> <C>
Total Interest Income $8,159 $ --- $8,159
Total Interest Expense 3,220 --- 3,220
Interest income/(expense) allocation (295) 295 ---
---------------------------------------
Net Interest Income 4,644 295 4,939
Provision for Loan Losses 100 --- 100
Total other Operating Income 514 897 1,411
Total other Operating Expense 3,409 449 3,858
---------------------------------------
Income from continuing operations before income taxes
and extraordinary item 1,649 743 2,392
Provision for income taxes 670 302 972
---------------------------------------
Income from continuing operations before extraordinary item $979 $441 $1,420
=======================================
Total Average Assets $405,445 $23,939 $429,384
=======================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the quarter ended March 31, 1999
---------------------------------------
Community Total
Banking Bankcard Company
---------------------------------------
(in thousands)
<S> <C> <C> <C>
Total Interest Income $7,228 $ --- $7,228
Total Interest Expense 2,466 3 2,469
Interest income/(expense) allocation (137) 137 ---
---------------------------------------
Net Interest Income 4,625 134 4,759
Provision for Loan Losses 300 --- 300
Total other Operating Income 546 779 1,325
Total other Operating Expense 3,482 323 3,805
---------------------------------------
Income from continuing operations before income taxes
and extraordinary item 1,389 590 1,979
Provision for income taxes 542 226 768
---------------------------------------
Income from continuing operations before $847 $364 $1,211
extraordinary item
=======================================
Total Average Assets $339,825 $10,147 $349,972
=======================================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Information
This Quarterly Report on Form 10-Q includes forward-looking information
which is subject to the "safe harbor" created by the Securities Act of 1933 and
Securities Act of 1934. These forward-looking statements (which involve the
Company's plans, beliefs and goals, refer to estimates or use similar terms)
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
- - Competitive pressure in the banking industry and changes in the regulatory
environment.
- - Changes in the interest rate environment and volatility of rate sensitive
loans and deposits.
- - The health of the economy declines nationally or regionally which could
reduce the demand for loans or reduce the value of real estate collateral
securing most of the Company's loans.
- - Credit quality deterioration which could cause an increase in the provision
for loan losses.
- - Dividend restrictions.
<PAGE>
- - Regulatory discretion.
- - Material losses in the Company's merchant credit card processing business
from card holder fraud or merchant business failure.
- - Asset/liability repricing risks and liquidity risks.
- - Changes in the securities markets.
The Company undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements. For additional
information concerning risks and uncertainties related to the Company and its
operations please refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and Certain Important Considerations for Investors.
The following sections discuss significant changes and trends in financial
condition, capital resources and liquidity of the Company from December 31, 1999
to March 31, 2000. Significant changes and trends in the Company's results of
operations for the three months ended March 31, 2000, compared to the same
period in 1999 are also discussed.
Summary of Financial Results
On September 10, 1999 the Company divested itself of its mortgage brokerage
and mortgage banking units, Valley Financial and Allied Diversified Credit. The
divestiture took the form of an asset sale and employee transfer to Valley
Financial Funding, Inc., whose shareholders include senior management of Valley
Financial and Allied Diversified Credit. As a result of the divestiture, the
Company lost ninety-five employees of which sixty-three were transferred to
Valley Financial Funding, Inc, while thirty-two were terminated by the Company.
The Company has disclosed the operations of these units as well as the after tax
loss on disposition as discontinued operations. Accordingly, historical
financial information has been recast to present the operating results of Valley
Financial and Allied Diversified Credit as discontinued operations. Revenue from
discontinued operations was $2,128,000 for the three months ended March 31,
1999. There was no revenue recognized for the three months ended March 31, 2000.
<PAGE>
The Company reported income from continuing operations of $1,420,000 ($.43
per diluted share) for the three months ended March 31, 2000 and $1,211,000
($.35 per diluted share) for the same period in 1999. The Company did not
recognize any income or loss associated with its discontinued operations during
the first quarter of 2000, as compared to income of $83,000 ($.02 per diluted
share) during the first quarter of 1999. Net income was $1,420,000 ($.43 per
diluted share) for the quarter ended March 31, 2000 and $1,018,000 ($.29 per
diluted share) for the same period one year ago. Net income from continuing
operations for the first three months of 2000 increased $209,000, or 17%, as
compared to the same period in 1999. This increase is due to an increase of
$180,000 in net interest income, an increase of $86,000 in noninterest income,
and a decrease in the provision for loan losses of $200,000 offset by an
increase of $53,000 in noninterest expense.
Net Interest Income
Net interest income from continuing operations increased from $4,759,000
during the first quarter of 1999 to $4,939,000 in the first quarter of 2000,
which represents an increase of $180,000 or 4%. While the Company's net interest
margin decreased to 4.96% for the three months ended March 31, 2000 from 5.51%
for the three months ended March 31, 1999, it was the Company's growth in
earning assets that fueled the increase in net interest income. Average earning
assets from continuing operations, which excludes mortgage loans held for sale,
increased $50,752,000 from $349,972,000 for the quarter ended March 31, 1999 to
$400,724,000 for the quarter ended March 31, 2000. Factors that will affect the
Company's interest margin include the earning asset mix, competitive factors
affecting loan and deposit pricing and retention and the general interest rate
environment.
For the first three months of 2000, the yield on earning assets decreased
from 8.38% to 8.19% primarily due to a change in the mix of the Company's
earning assets. Average commercial and residential real estate loans, which bear
a yield lower than other portfolio loan types, increased $45,537,000. Yield paid
on interest bearing liabilities increased as such yield was 4.28% for the three
months ended March 31, 2000 as compared to 4.00% in the same period in 1999.
Average earning assets from continuing operations, which excludes mortgage
loans held for sale, increased in the first quarter of 2000 to $400,724,000 as
compared to $349,972,000 for the three months ended March 31, 1999. The increase
during the first three months of 2000 when compared to 1999 is primarily due to
an increase in average portfolio loans of $41,129,000 and investment securities
of $14,197,000 partially offset by a decline in federal funds sold of
$4,574,000.
<PAGE>
Further contributing to the decline in the Company's net interest margin
was a change in the Company's funding mix. Total average interest bearing
liabilities increased from $250,634,000 in the first quarter of 1999 to
$302,437,000 for the same period in 2000, which represents an increase of
$51,803,000. This increase was coupled with a decrease in average noninterest
bearing transaction accounts of $11,993,000. This decrease in noninterest
bearing transaction accounts is a result of a decrease in balances deposited by
one of the Company's large customers.
The following is an analysis of the net interest margin:
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
---------------------------------------- ----------------------------------------
Average % Average %
(dollars in thousands) Balance Interest Yield Balance Interest Yield
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets (1) $400,724 $8,159 8.19 $349,972 $7,228 8.38
Interest-bearing liabilities 302,437 3,220 4.28 250,634 2,469 4.00
------------- --------------
Net interest income $4,939 $4,759
============= ==============
Net interest income to
earning assets 4.96 5.51
</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, 2000 and 1999. Changes not solely attributable
to rate or volume have been allocated to rate.
<TABLE>
<CAPTION>
Three months ended March 31, 2000
over March 31, 1999
--------------------------------------------------
Volume Rate Total
--------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income:
Portfolio loans $933 ($261) $672
Investment securities 218 76 294
Federal funds sold (57) 22 (35)
--------------------------------------------------
Total increase (decrease) 1,094 (163) 931
--------------------------------------------------
Increase (decrease) in interest expense:
Interest-bearing transaction accounts (60) 38 (22)
Time deposits 780 86 866
Other borrowings (27) (66) (93)
--------------------------------------------------
Total increase (decrease) 693 58 751
--------------------------------------------------
Increase in net interest income $401 ($221) $180
==================================================
</TABLE>
<PAGE>
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2000 was
$100,000 as compared to $300,000 in the same quarter in the previous year. For
further discussion see Allowance for Loan Losses and Nonperforming Loans.
Noninterest Income and Expense and Income Taxes
Noninterest Income
The following table sets forth the components of the Company's noninterest
income from continuing operations for the three months ended March 31, 2000, as
compared to the same period in 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------- $ %
2000 1999 Change Change
----------- ---------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Service charges on deposit accounts $277 $255 $22 9
Merchant draft processing, net 897 779 118 15
Loan servicing income 40 16 24 150
Gain (loss) on securities (1) 14 (15) (107)
Other income 198 261 (63) (24)
----------- ---------- ------------
Total noninterest income $1,411 $1,325 $86 6
=========== ========== ============
</TABLE>
Noninterest income from continuing operations increased $86,000 or 6% to
$1,411,000 for the first quarter of 2000 when compared to $1,325,000 for the
same period in 1999. Such increase is primarily due to an increase in merchant
card net revenue of $118,000, an increase in loan servicing income of $24,000
and an increase of $22,000 in service charges on deposit accounts. These
increases were partially offset by a decline of $63,000 in other income.
<PAGE>
Noninterest Expense
Noninterest expense from continuing operations increased by $53,000 or 1%
to $3,858,000 during the first quarter of 2000 compared to $3,805,000 for the
first quarter of 1999. The following table sets forth the components of the
Company's noninterest expense during the three months ended March 31, 2000, as
compared to the same period in 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31, $ %
---------------------------
2000 1999 Change Change
------------- ------------ ---------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits $2,150 $2,158 ($8) (0)
Occupancy and equipment expense 501 532 (31) (6)
Other 1,207 1,115 92 8
------------- ------------ ----------
Total noninterest expense $3,858 $3,805 $53 1
============= ============ ==========
</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 tax
rate was 40.6% for the three months ended March 31, 2000, compared to 38.5% for
the same period in 1999.
Business Segments
Through September 10, 1999, the Company operated in four principal product
and service lines: core community banking, merchant card services, sub prime
lending, and residential mortgage banking and brokerage. The Company's core
community banking segment includes commercial, commercial real estate,
construction, and permanent residential lending along with all depository
activities. The Company's merchant card services industry group provides credit
card settlement services for 93,000 merchants throughout the United States. The
Company's sub prime lending unit, known as Allied Diversified Credit and the
Company's residential mortgage banking and brokerage arm, known as Valley
Financial were divested on September 10, 1999. The divestiture took the form of
an asset sale and employee transfer. The Company has disclosed the operations of
these units as discontinued operations. Accordingly, historical financial
information regarding segments has been restated to reflect only those segments
associated with continuing operations.
<PAGE>
Summary financial data by industry segment as follows:
<TABLE>
<CAPTION>
For the quarter ended March 31, 2000
---------------------------------------
Community Total
Banking Bankcard Company
---------------------------------------
(in thousands)
<S> <C> <C> <C>
Total Interest Income $8,159 $ --- $8,159
Total Interest Expense 3,220 --- 3,220
Interest income/(expense) allocation (295) 295 ---
---------------------------------------
Net Interest Income 4,644 295 4,939
Provision for Loan Losses 100 --- 100
Total other Operating Income 514 897 1,411
Total other Operating Expense 3,409 449 3,858
---------------------------------------
Income from continuing operations before income taxes
and extraordinary item 1,649 743 2,392
Provision for income taxes 670 302 972
---------------------------------------
Income from continuing operations before $979 $441 $1,420
extraordinary item
=======================================
Total Average Assets $405,445 $23,939 $429,384
=======================================
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended March 31, 1999
---------------------------------------
Community Total
Banking Bankcard Company
---------------------------------------
(in thousands)
<S> <C> <C> <C>
Total Interest Income $7,228 $ --- $7,228
Total Interest Expense 2,466 3 2,469
Interest income/(expense) allocation (137) 137 ---
---------------------------------------
Net Interest Income 4,625 134 4,759
Provision for Loan Losses 300 --- 300
Total other Operating Income 546 779 1,325
Total other Operating Expense 3,482 323 3,805
---------------------------------------
Income from continuing operations before income taxes
and extraordinary item 1,389 590 1,979
Provision for income taxes 542 226 768
---------------------------------------
Income from continuing operations before $847 $364 $1,211
extraordinary item
=======================================
Total Average Assets $339,825 $10,147 $349,972
=======================================
</TABLE>
<PAGE>
Community Banking
The Community Banking segment's income from continuing operations before
income tax and extraordinary item increased for the quarter ended March 31, 2000
when compared to the same period in the prior year. The increase is due to
reduced operating expenses, a lower provision for loan losses and growth in
earning assets. In the first quarter of 2000, segment expenses declined
primarily due to reduced overhead and administrative expenses. Additionally, the
Company increased its permanent loan portfolio through renewed marketing
efforts. Total average portfolio loans amounted to $313,405,000 in the first
quarter of 2000 and $272,276,000 in the first quarter of 1999, which reflects a
15% increase.
Bankcard
The Merchant Card segment provides Visa and Mastercard credit card
processing and settlement services for roughly 93,000 merchants located
throughout the United States. Yearly processing volume is in excess of $1.6
billion. The Company's merchant card services customer base is made up of
merchants located in its primary market area and merchants who have been
acquired by the Company through the use of independent sales organizations, or
ISO's.
The Merchant Card processing segment has experienced three successive years
of revenue and earnings growth due to an increase in the number of merchants it
services and an increase of independent sales organizations (ISO's) to market
its services. In December 1998 the Company renegotiated the terms of a
processing contract with an ISO who represented $1,736,000 or 66% of the
Company's 1998 merchant draft net processing revenue and $1,412,000 or 45% of
such revenue in 1999. As a result of the renegotiation the ISO bought down its
processing rate in consideration for a payment of $2,600,000 to the Company. The
term of the renegotiated contract is for two years and requires the Company to
continue to process merchant card transaction volume from this ISO's customers.
The Company has amortized such payment over the life of the renegotiated
contract into income. During the first quarter of 2000 and 1999, $480,000 and
$410,000 of this payment was recognized as revenue. The amount of unearned
processing revenue was $960,000 as of March 31, 2000. The balance of this
account will be amortized into income in 2000.
The Company expects to build its overall merchant card processing business
through direct marketing efforts and new ISO's in an effort to offset any
potential decline in future revenues that may result in periods following the
term of the buydown.
<PAGE>
The Company bears certain risks associated with its merchant credit card
processing business. Due to a contractual obligation between NBR and Visa and
MasterCard, NBR stands in the place of the merchant in the event that a merchant
is unable to pay charge-backs from cardholders. As a result of this obligation,
NBR may incur losses associated with its merchant credit card processing
business. Accordingly, NBR has established a reserve to provide for losses
associated with charge-back losses. Such reserve, which totaled $1,044,000 and
$606,000 as of March 31, 2000 and 1999, was estimated based upon industry loss
data as a percentage of transaction volume throughout each year, historical
losses incurred by the Company, and management's assumptions regarding merchant
and ISO risk. The provision for charge-back losses, which is included in the
financial statements as a reduction in merchant draft processing income, was
$136,000 and $147,000 for the quarters ended March 31, 2000 and 1999,
respectively. While charge offs were minimal, the increase in the reserve
reflects the growth in transaction volume, increased exposures to internet
merchants, and a new ISO relationship in which the Company assumes fraud risk
directly rather than looking first to the ISO. For further discussion see
"Certain Important Considerations for Investors".
Investment Securities
Total investment securities increased $3,124,000 or 4% to $79,829,000 as of
March 31, 2000 when compared to $76,705,000 as of December 31, 1999. Such
increase is due to an effort to increase the overall yield in earning assets of
the Company by decreasing its overnight federal fund investment position and
redirect such amounts into the higher yielding investment portfolio. The
Company's average federal fund position was $10,014,000 for the first three
months of 2000 as compared to $14,588,000 in 1999.
Loans
Total loans increased $7,146,000 or 2% to $321,591,000 at March 31, 2000
compared to $314,445,000 at December 31, 1998. The increase in portfolio loans
is primarily attributable to the Company's marketing efforts and a general
expansion of businesses within the Company's market area. Real estate
construction loans have increased $2,376,000 to $42,435,000 at March 31, 2000 as
compared to $40,059,000 at December 31, 1999. In addition, the Company has
emphasized the funding of permanent residential real estate loans and commercial
real estate loans in the first three months of 2000. Residential real estate
loans increased $1,543,000 to $132,047,000 at March 31, 2000, as compared to
$130,504,000 at December 31, 1999, and commercial real estate has grown
$5,667,000 to $85,143,000 compared to $79,476,000.
<PAGE>
The following table summarizes the composition of the loan portfolio at
March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------------------ ------------------------------------
Amount % Amount %
------------------------------------ ------------------------------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Residential real estate mortgage $132,047 42 $130,504 42
Commercial real estate mortgage 85,143 26 79,476 25
Commercial 58,908 18 61,165 19
Real estate construction 42,435 13 40,059 13
Installment and other 4,416 1 4,624 1
Less deferred loan fees (1,358) 0 (1,383) 0
------------------------------------ ------------------------------------
Total portfolio loans 321,591 100 314,445 100
================== ==================
Less allowance for loan losses (7,980) (7,931)
------------------ ------------------
Net loans $313,611 $306,514
================== ==================
</TABLE>
Allowance 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.
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
and other qualitative factors.
<PAGE>
The following table summarizes the Company's allowance for loan losses:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
2000 1999
------------ -------------
(dollars in thousands)
<S> <C> <C>
Beginning allowance for loan losses $7,931 $8,041
Provision for loan losses 100 300
Charge-offs (67) (257)
Recoveries 16 158
------------ -------------
Ending allowance for loan losses $7,980 $8,242
============ =============
Net charge-offs to average
loans (annualized) .07% .15%
</TABLE>
The allowance for loan losses as a percentage of portfolio loans decreased
from 2.62% at December 31, 1999 to 2.48% at March 31, 2000. This decrease is due
to several factors which include an improvement in the overall credit quality of
the Company's loan portfolio, as evidence by the reduction of nonperforming
loans presented below, growth in the Company's loan portfolio and a reduction in
loan charge-offs. The growth in the Company's loan portfolio is primarily
comprised of commercial and residential real estate loans that generally bear a
lower credit risk than construction or commercial loans. Accordingly, under the
Company's loan loss reserve methodology, such loans generally receive a lower
loan loss reserve allocation as compared to commercial or construction loans.
Nonperforming Assets
The following table summarizes the Company's nonperforming assets.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- --------------
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans $2,534 $3,063
Restructured loans 307 1,018
-------------- --------------
Total nonperforming loans 2,841 4,081
Other real estate owned 2,041 2,363
-------------- --------------
Total nonperforming assets $4,882 $6,444
============== ==============
Nonperforming assets to total assets 1.12% 1.52%
</TABLE>
<PAGE>
Nonperforming assets have decreased from $6,444,000 as of December 31, 1999
to $4,882,000 as of March 31, 2000. The decrease is attributable to a decrease
in restructured loans of $711,000, nonaccrual loans of $529,000 and a decline in
other real estate owned of $322,000.
Nonperforming loans consist of loans to 32 borrowers, 11 of which have
balances in excess of $100,000. The two largest have recorded balances of
$472,000 and $313,000. Both properties are secured by real estate. 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 7 properties. Four properties are
residential, two are commercial buildings and the remaining is a motel. Based on
information currently available, management believes that reserves are not
required to cover any loss exposure that may result from these loans.
Although the volume of nonperforming assets will depend in part on the
future economic environment, there is one additional loan relationship which
totals approximately $1,044,000 about which management has serious doubts as to
the ability of the borrower to comply with the present repayment terms. This
loan may become a nonperforming asset based on the information presently known
about possible credit problems of the borrower.
At March 31, 2000, the Company's total recorded investment in impaired
loans (as defined by SFAS 114 and 118) was $3,189,000 of which $2,878,000
relates to the recorded investment for which there is a related allowance for
loan losses of $548,000 determined in accordance with these statements and
$311,000 relates to the amount of that recorded investment for which there is no
related allowance for loan losses determined in accordance with these standards.
The average recorded investment in the impaired loans during the three
months ended March 31, 2000 and 1999 was $3,356,000 and $10,029,000. The decline
in the average recorded investment of impaired loans of $6,673,000 at March 31,
2000 compared to March 31, 1999 is a direct result of the Company's decline in
nonperforming loans of $5,186,000. The related amount of interest income
recognized during the periods that such loans were impaired was $39,000 and
$123,000 for the three month periods ended March 31, 2000 and 1999.
From time to time the Company may be required to repurchase mortgage loans
from mortgage loan investors depending upon representations and warranties of
the purchase agreement between the investor and the Company. Such
representations and warranties include valid appraisal, status of borrower or
fraud. In the first three months of 2000 the Company was not required to
repurchase any such loans. The Company expects that it may be required to
repurchase loans in the future. The Company maintains a reserve for its estimate
of potential losses associated with the repurchase of previously sold mortgage
loans. Such reserve amounts to $42,000 as of March 31, 2000 and $142,000 as of
December 31, 1999. The decrease in the reserve of $100,000 relates to a
charge-off taken on one loan in the first quarter of 2000.
<PAGE>
Liquidity
Redwood's primary source of liquidity is dividends from its financial
institution subsidiary. Redwood's primary uses of liquidity has historically
been associated with cash payments made to the subordinated debt holders,
dividend payments made to the preferred stock holders, and operating expenses of
the parent. It is Redwood's general policy to retain liquidity at Redwood at a
level which management believes to be consistent with the safety and soundness
of the Company as a whole. As of March 31, 2000, Redwood held $721,000 in
deposits at NBR.
In 1998, Redwood reinstated a cash dividend to its common stock holders at
a quarterly rate of $.04 per share. In 1999 Redwood increased this dividend 50%
to $.06 per share. In the fourth quarter of 1999, the dividend increased again
to $.10 per share. Prior to March 1999 Redwood was required to make monthly
payments of interest at 8.5% on $12,000,000 of subordinated debentures issued in
1993. The subordinated debentures were early redeemed in the first quarter of
1999. Payment of these obligations is ultimately dependent on dividends from NBR
to Redwood. Federal regulatory agencies have the authority to prohibit the
payment of dividends by NBR to Redwood if a finding is made that such payment
would constitute an unsafe or unsound practice, or if NBR became
undercapitalized. If NBR is restricted from paying dividends, Redwood could be
unable to pay dividends to its common shareholders. No assurance can be given as
to the ability of NBR to pay dividends to Redwood.
During the first three months of 2000, NBR declared a dividend of
$1,500,000. Management believes that as of March 31, 2000, the Company's
liquidity position was adequate for the operations of Redwood and its subsidiary
for the foreseeable future.
Although each entity within the consolidated Company manages its own
liquidity, the Company's consolidated cash flow can be divided into three
distinct areas: operating, investing and financing. For the three months ended
March 31, 2000 the Company received cash of $175,000 from operating activities
and $10,397,000 in financing activities while using $10,222,000 in investing
activities.
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 NBR are required to maintain minimum capital ratios defined
by various federal government regulatory agencies. The FRB and the OCC 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.
<PAGE>
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 leverage ratio for the Company and NBR is based
on average assets for the quarter.
The following table summarizes the consolidated capital ratios and the
capital ratios of the principal subsidiaries at March 31, 2000 and December 31,
1999.
<TABLE>
<CAPTION>
Company NBR
-------------- -------------
<S> <C> <C>
March 31, 2000
Total capital to risk based assets 13.44% 13.08%
Tier 1 capital to risk based assets 12.17 11.82
Leverage ratio 9.04 8.76
December 31, 1999
Total capital to risk based assets 13.01 13.20
Tier 1 capital to risk based assets 11.74 11.94
Leverage ratio 8.66 8.86
</TABLE>
NBR's capital ratios declined in the first quarter of 1999 due to an $8.0
million dividend to Redwood and the early payoff of a $3.0 million note due
Redwood. Such payments were necessary to provide funding of Redwood's early
redemption of its $12.0 million subordinated debt.
In the fourth quarter of 1999, the Company announced the completion of its
initial stock repurchase program authorized on October 27, 1998. Total shares
repurchased under this authorization were 171,000 at an average price of $20.97
per share. In a separate action the Board of Directors authorized the repurchase
of an additional 150,000 outstanding shares. This stock repurchase program was
completed the first week of May 2000, at an average price of $18.38. Under the
repurchase program, the Company purchases shares from time to time on the open
market or through privately negotiated transactions.
Year 2000
The Company's mission critical systems successfully responded to the
century date change. Accordingly, the Company's core banking systems, including
the applications software for its deposit, loan and merchant card processing
computer systems, as well as the electronic funds transfers system with the
Federal Reserve, are fully operational and accurately processing customer
information and transactions. The Company will continue to monitor its systems
and those of its vendors and suppliers over the coming months.
<PAGE>
Certain Important Considerations for Investors
Merchant Credit Card Processing. The Company's profitability can be
negatively impacted should one of the Company's merchant credit card customers
be unable to pay on charge-backs from cardholders. Due to a contractual
obligation between the Company and Visa and Mastercard, NBR stands in the place
of the merchant in the event that a merchant is unable to pay on charge-backs
from cardholders. Management has taken certain actions to decrease the risk of
merchant bankruptcy with its merchant bankcard business. These steps include the
discontinuance of high-risk accounts. The Company utilizes ISO's to acquire
merchant credit card customers. The Company's ability to maintain and grow net
revenue from its merchant credit card processing operation is dependent upon
maintaining and adding to these ISO relationships.
Merchant bankcard processing services are highly regulated by credit card
associations such as VISA. In order to participate in the credit card programs,
the Company must comply with the credit card association's rules and regulations
that may change from time to time. During November 1999, VISA adopted several
rule changes to reduce risks in high-risk merchant bankcard programs and these
rule changes affect the Company's Merchant Bankcard business. The rule changes
go into effect on March 31, 2001. These changes include a requirement that a
processor's reported fraud ratios be no greater than three times the national
average. At December 31, 1999 (the most recent period available from VISA) the
Company's overall fraud ratio was below the VISA requirement. Other VISA changes
include the requirement that total processing volume in certain high-risk
categories (as defined by VISA) be less than 20% of total processing volume. At
December 31, 1999 (the most recent information available from VISA) the
Company's total VISA transactions within these certain high-risk categories were
10.4% of VISA total processing volume. Other changes VISA announced include a
requirement that weekly VISA volumes be less than 20% of an institutions
tangible equity capital, and a requirement that aggregate charge-backs for the
previous six months be less than 5% of the institution's tangible equity
capital. At December 31, 1999, (the most recent information available from VISA)
the Company's weekly VISA volume was 54.4% of tangible equity capital, and
aggregate charge-backs for the previous six months were 11.1% of tangible equity
capital. Merchant Bankcard participants, such as the Company, must comply with
these new VISA rules by filing a compliance plan with VISA. Such plan has been
filed by the Company and accepted by VISA. At this time the Company believes
that it will be in compliance with all rule changes when they go into effect on
March 31, 2001. Should the Company be unable to comply with these rule changes,
the Company would seek a waiver from VISA. However, should VISA not grant the
Company a waiver, the Company would need to restructure the merchant bankcard
unit, which could adversely affect merchant bankcard revenue.
<PAGE>
Concentration of Lending Activities. Concentration of the Company's lending
activities in the real estate sector, including construction loans, could have
the effect of intensifying the impact on the Company of adverse changes in the
real estate market in the Company's lending areas. At March 31, 2000,
approximately 81% of the Company's loans were secured by real estate, of which
33% were secured by commercial real estate, including small office buildings,
owner-user office/warehouses, mixed use residential and commercial properties
and retail properties. Substantially all of the properties that secure the
Company's present loans are located within Northern and Central California. The
ability of the Company to continue to originate mortgage or construction loans
may be impaired by adverse changes in local or regional economic conditions,
adverse changes in the real estate market, increasing interest rates, or acts of
nature (including earthquakes, which may cause uninsured damage and other loss
of value to real estate that secures the Company's loans). Due to the
concentration of the Company's real estate collateral, such events could have a
significant adverse impact on the value of such collateral or the Company's
earnings.
Government Regulation. Redwood and its subsidiaries are subject to
extensive federal and state governmental supervision, regulation and control,
and future legislation and government policy could adversely affect the
financial industry. Although the full impact of such legislation and regulation
cannot be predicted, future changes may alter the structure of and competitive
relationship among financial institutions.
Competition from Other Financial Institutions. The Company competes for
deposits and loans principally with major commercial banks, other independent
banks, savings and loan associations, savings banks, thrift and loan
associations, credit unions, mortgage companies, insurance companies and other
lending institutions. With respect to deposits, additional significant
competition arises from corporate and governmental debt securities, as well as
money market mutual funds. The Company also depends for its origination of
mortgage loans on independent mortgage brokers who are not contractually
obligated to do business with the Company and are regularly solicited by the
Company's competitors. Aggressive policies of such competitors have in the past
resulted, and may in the future result, in a decrease in the Company's volume of
mortgage loan originations and/or a decrease in the profitability of such
originations, especially during periods of declining mortgage loan origination
volumes. Several of the nation's largest savings and loan associations and
commercial banks have a significant number of branch offices in the areas in
which the Company conducts operations. Among the advantages possessed by the
larger of these institutions are their ability to make larger loans, finance
extensive advertising campaigns, access international money markets and
generally allocate their investment assets to regions of highest yield and
demand.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There were no significant changes to the Company's market risk from
December 31, 1999 to March 31, 2000.
<PAGE>
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits.
The following documents are included or incorporated by reference in
Form 10-Q.
Exhibit Number Description
-------------- -----------
3. Amended and restated By-Laws of the Registrant, filed
as Exhibit 3 to the Registrant's 1994 Annual Report
on Form 10-K and by this reference incorporated
herein.
3.1 Articles of Incorporation of the Registrant.
10. Executive Salary Continuation Agreement between
Patrick W. Kilkenny and Redwood Empire Bancorp.
10.1 Executive Severance Agreement between Patrick W.
Kilkenny and Redwood Empire Bancorp.
10.2 Executive Salary Continuation Agreement between
James E. Beckwith and Redwood Empire Bancorp.
10.3 Executive Severance Agreement between James E.
Beckwith and Redwood Empire Bancorp.
10.4 The Registrant's 401 (k) Profit Sharing Plan, filed
as Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8 dated June 12, 1990
(Registration No. 33-35377), and by this reference
incorporated herein.
10.5 The Registrant's Amended and Restated 1991 Stock
Option Plan, filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 filed on July 8,
1992 (Registration No. 33-49372), and by this
reference incorporated herein.
10.6 The Registrant's Executive Salary Continuation Plan,
filed as Exhibit 10.9 to the Registrant's
Registration Statement on Form S-2 dated December
13, 1993 (Registration No. 33-71324), and by this
reference incorporated herein.
10.7 Dividend Reinvestment and Stock Purchase Plan on Form
S-3 dated April 28, 1993 (Registration No. 3361750),
and by this reference incorporated herein.
<PAGE>
10.8 Lease, Dated June 1, 1999, between National Bank of
the Redwoods and Advanced Development & Investments.
10.9 Asset Sale Agreement dated September 10, 1999 between
National Bank of the Redwoods and Valley Financial
Acquisition, Inc.
2. Reports on Form 8-K
There were no events requiring a Form 8-K filing during the first
quarter ended March 31, 2000.
<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: 5/12/00 BY: /s/ James E. Beckwith
James E. Beckwith
Executive Vice President,
Chief Operating Officer,
Principal Financial Officer, and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN
THE COMPANY'S FORM 10-K FOR THE YEAR ENDED 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,325
<SECURITIES> 79,829
<RECEIVABLES> 0
<ALLOWANCES> 7,980
<INVENTORY> 0
<CURRENT-ASSETS> 337,897
<PP&E> 13,011
<DEPRECIATION> 9,952
<TOTAL-ASSETS> 435,130
<CURRENT-LIABILITIES> 396,005
<BONDS> 0
0
0
<COMMON> 22,732
<OTHER-SE> 16,393 <F1>
<TOTAL-LIABILITY-AND-EQUITY> 435,130
<SALES> 0
<TOTAL-REVENUES> 9,570
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,858
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 3,220
<INCOME-PRETAX> 2,392
<INCOME-TAX> 972
<INCOME-CONTINUING> 1,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,420
<EPS-BASIC> .44
<EPS-DILUTED> .43
<FN>
<F1> INCLUDES UNREALIZED LOSS ON SECURITIES AFS OF (647).
</FN>
</TABLE>
