[PERIOD] 12/31/96
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
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 33-40799
TIMBERLINE BANCSHARES, INC.
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 68-0269988
(State of Incorporation) (I.R.S. Employer
Identification Number)
123 North Main St.
Yreka, California 96097
(Address of Principal executive offices and zip code)
(916) 842-6191
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year. $6,498,000.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. At the average bid and asked prices of stock as of December 31,1996 of
$9.75 the aggregate market value of voting stock held by non-affiliates is
$5,793,820.50.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Not applicable
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of December 31, 1996 there were
954,484 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
PART II, Item 7. - Annual report to security holders for fiscal year
ended December 31, 1996.
PART III - Registrant's definitive Proxy Statement
PART I
ITEM 1.
Business
Timberline Bancshares, Inc. ("Corporation") was incorporated as a
California Corporation on July 1, 1991 for the purpose of becoming a bank
holding company of the Bank. The Corporation's executive offices are at
123 North Main St., Yreka, California and its telephone number is (916)
842-6191.
The Corporation's sole subsidiary is the Bank and its sole activities are
the commercial banking activities engaged in through the Bank. As a bank
holding company, the Corporation may in the future invest in additional
banking subsidiaries or in those non-banking subsidiaries which are
permissible for a bank holding company, subject to the required approvals
of the Federal Reserve Board.
Business of the Bank
General.
The Bank was organized as a state chartered banking corporation on June
6, 1979 and commenced operations on June 23, 1980. It currently has eight
banking offices, two ATM locations, and one loan production office. The
banking offices consist of the main office located at 123 North Main
Street, Yreka, California, a branch office located at 6701 N. Hiway 3,
Greenview, California, a branch office located at 150 Alamo Ave., Weed,
California, a branch office located at 328 Main Street, McCloud,
California, a branch office located at 5800 Dunsmuir Ave., Dunsmuir,
California, a branch office located at 3rd & California Streets, Dorris,
California, a branch office located at 398 Main Street, Tulelake,
California, and a branch office located at 309 N. Mt. Shasta Blvd., Mt.
Shasta, California. The bank's ATMs are located in a twenty-four hour
grocery store in Yreka, California, and a through-the-wall unit at the
Tulelake Branch. All eight banking offices and the two ATMs are located
in the County of Siskiyou. The loan production office is located at 1237
N. Riverside, Suite 25, Medford, Oregon.
Description of Business.
The Bank engages in the general commercial banking business. It accepts
checking and savings deposits, offers money market deposit accounts and
certificates of deposit, makes secured and unsecured commercial,
installment, mortgage and other term loans, and offers other customary
banking services. The Bank does not offer trust services and does not
presently intend to do so.
Market Area.
The Bank's primary market area and the source of most of its loans and
deposits encompasses the County of Siskiyou, California. Additional
lending, through the loan production office, encompass the southern
sections of Jackson, Josephine and Klamath Counties in the State of
Oregon.
Competition.
The banking business generally, and specifically in the market area served
by the Bank, is highly competitive with respect to both loans and
deposits. The Bank competes for loans and deposits with three major
banks, as well as an independent
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bank, a regional bank, a savings bank, a credit union, mortgage companies,
insurance companies and investment brokers. The Bank also competes with
money market funds, which have provided significant competition for banks
with respect to deposits. Other competition for deposits in today's low
yield investment atmosphere are government issues. And while the Bank has
maintained a steady increase in market share over the past ten years,
further constraints to deposit and loan growth in the future will be the
risked based capital and the loan to value guidelines imposed by the
regulatory bodies.
At present in Siskiyou County, there are seven branches of major banks,
two branches of a credit union, one branch of a regional bank, two
branches of a savings bank and five branches of another independent bank.
The Bank attempts to compete by offering personalized and specialized
services to its customers. The Bank's promotional activities emphasize
the advantages of doing business with a locally owned, independent
institution attuned to the particular needs of the community. The Bank
further promotes its image by being very involved in local organizations
and charities.
Employees.
At December 31, 1996, the Bank had 62 full-time and 8 part-time employees.
Supervision and Regulation of the Corporation.
The Corporation is a bank holding company registered under the Bank
Holding Company Act of 1956 and is subject to the supervision of the Board
of Governors of the Federal Reserve System ("Board"). As a bank holding
company, the Corporation must obtain the approval of the Board before it
may acquire all or substantially all of the assets of any bank, or
ownership or control of the voting shares of any bank if, after giving
effect to such acquisition of shares, the Corporation would own or control
more than 5% of he voting shares of such bank. With certain limited
exceptions, the Corporation is prohibited from engaging in or acquiring
direct or indirect ownership or control of more than 5% of the voting
shares of any company engaged in non-banking activities, unless the
Federal Reserve Board determines that such activities are so closely
related to banking as to be a proper incident thereof.
The Corporation and any subsidiary which it may acquire or organize in the
future are deemed to be affiliates of the Bank within the meaning set
forth
in the Federal Reserve Act. This means, for example, that there are
limitations on loans by the Bank to affiliates, on investments by the Bank
in any affiliate's stock and on the Bank's taking any affiliate's stock
as collateral for loans to any borrower. All affiliate transactions must
satisfy certain limitations and otherwise be on terms and conditions that
are consistent with safe and sound banking practices. In this regard, the
Bank generally may not purchase from any affiliate a low-quality asset (as
that term is defined in the Federal Reserve Act). Also, transactions by
the Bank with an affiliate must be on substantially the same terms as
would be available for non-affiliates.
The Corporation and the Bank are prohibited from engaging in certain tie-in
arrangements in connection with the extension of credit. For example,
the Bank generally may not extend credit on the condition that the
customer obtain some additional service from the Bank or the Corporation,
or refrain from obtaining such service from a competitor.
-3-
The Bank.
As a state chartered entity, the Bank is subject to supervision,
regulation and regular examination by the California State Banking
Department. The deposits of the Bank are insured up to the maximum legal
limits by the Bank Insurance Fund, which is managed by the Federal Deposit
Insurance Corporation ("FDIC"), and the Bank is therefore subject to
applicable provisions of the Federal Deposit Insurance Act and regulations
of the FDIC.
The statutes and regulations administered by these agencies govern all
aspects of the Bank's business, including required reserves against
deposits, loans, investments, dividends, internal controls, and the
establishment of new branches and other banking facilities.
Capital Regulations.
The regulatory authorities require banks and bank holding companies to
maintain adequate capital and have adopted capital leverage guidelines for
evaluating the capital adequacy of banks and bank holding companies. For
bank holding companies with consolidated assets of less than $150,000,000
the capital guidelines are considered on a bank-only basis unless (a) the
holding company is engaged in nonbank activity involving significant
leverage, or (b) the parent company has a significant amount of
outstanding debt that is held by the general public. With the enactment
of Section 38 of the FDI Act effective December 19, 1992 the guidelines
for a well capitalized institution are measured as follows:
(1) Total risk-based capital ratio of 10% or greater,
(2) Tier 1 risk-based capital ratio of 6% or greater, and
(3) leverage ratio of 5% or greater.
The capital requirement under California State Banking regulation for a
state-chartered bank is a leverage ratio of 6.5% or greater.
Tier 1 capital is defined to consist primarily of common equity, retained
earnings, and certain qualified perpetual preferred stock. Under risk-based
capital
guidelines assets are categorized according to risk and the
various categories are assigned risk weightings. Assets considered to
present less risk than others require allocation of less capital. In
addition, off-balance sheet and contingent liabilities and commitments
must be categorized and included as assets for this purpose.
The capital of the Bank as of year end 1996, 1995 and 1994 are as follows:
Capital Year End: 1996 1995 1994
Total Capital 13.67% 13.90% 12.24%
Tier One 13.31% 12.91% 11.28%
Leverage 8.63% 8.09% 7.47%
The risk-based guidelines and the leverage ratios may affect the
allocation of the Bank's assets between various types of loans and
investments, may affect the growth rate of the Bank, and may affect the
payment of dividends in the future. However, management does not believe
the affects will necessarily be adverse.
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Impact of Accounting Policies.
Accounting standards as implemented by the Financial Accounting Standard
Board can and do have an impact on the Bank's financial statements and,
consequently, on management decisions. A prime example is the adoption
of SFAS 115 "Accounting for certain investments in debt and equity
securities."
As implemented, SFAS 115 requires banks to place investments in three
categories; "Available for Sale", "Held to Maturity", and "Trading". Those
investments placed in the Available for Sale and Trading categories must
then be reported at market value. Unrealized holding gains and losses for
trading securities shall be included in earnings. Unrealized holding
gains and losses for available for sale securities shall be excluded from
earnings and reported as a net amount in a separate component of
Shareholders' Equity until realized. If an instrument in the Held to
Maturity category is subsequently sold, then the whole portfolio may be
reported at market value.
Historically, a bank's investment portfolio has been a very flexible tool
used to manage liquidity, enhance tax positions, increase earnings, and
as pledged to accept public fund deposits. Those funds placed in
investments are the funds not used for loans, cash reserves and fed funds.
In the past, a bank could, as loan demand rose, select an investment
instrument to sell taking into consideration a gain or loss, the tax
benefit, the reinvestment benefit, current market conditions, and the
maturity schedule of the portfolio. With SFAS 115, a bank must now decide
- - at time of purchase - which instruments it may sell in the future for
liquidity management.
Another example is SFAS No. 114 "Accounting by Creditors for Impairment
of a Loan" which became affective in 1995. SFAS 114 requires that the
impairment of a loan be measured by using the present value of expected
future cash flows, discounted at the loan's effective interest rate to
calculate "specific reserves" for loan loss as opposed to the Bank's
general reserve. The exception is that collateral value may be used in
place of cash flow.
As the greater portion of the Bank's loan portfolio is fully
collateralized, the full impact of this accounting standard may not be
deemed significant to the bank.
Impact of Monetary Policies.
Banking is a business in which profitability depends on rate
differentials. In general, the difference between the interest rate
received by the Bank on loans extended to its customers and securities
held in the Bank's investment portfolio and the interest rate paid by the
Bank on its deposits and its other borrowings comprise the major portion
of the Bank's earnings. To the extent that the Bank is not able to
compensate for the increases in the cost of deposits and other borrowings
with greater income from loans, securities and fees, the net earnings of
the Bank will be reduced. The interest rates paid and received by the
Bank are highly sensitive to many factors which are beyond the control of
the Bank, including the influence of domestic economic conditions.
The earnings and growth of the Bank are also affected by the monetary and
fiscal policy of the United States and its agencies. These agencies can
and do implement national monetary policy, which is used in part to curb
inflation and combat recession. Among the instruments of monetary policy
used by these agencies are open market transactions in U.S. Government
securities, changes in the discount rates of member bank borrowings and
changes in reserve requirements. The actions of these agencies have had
a significant effect on lending by banks, investments and deposits,
-5-
and such actions are expected to continue to have a substantial effect in
the future.
The nature and timing of any further changes in such policies and their
impact on the Bank cannot be predicted.
New and Pending Legislation.
Certain legislative and regulatory proposals which could affect the
Corporation, the Bank and the banking business in general are pending, or
may be introduced, before the United States Congress, the California State
Legislature, and Federal and state government agencies. It is not known
to what extent, if any, these proposals will be enacted and what effect
such legislation would have on the structure, regulation and competitive
relationship of financial institutions. It is likely, however, that many
of these proposals could subject the Corporation and the Bank to increased
regulation, disclosure and reporting requirements and would increase
competition to the Bank and increase its cost of doing business.
ITEM 2.
Properties
The Corporation properties do not exceed 10% of the total assets.
ITEM 3.
Legal Proceedings
Neither the Corporation nor the Bank is a party to any pending legal
proceedings, other than proceedings arising in the ordinary course of the
Bank's business. None of these are expected to have a material impact on
the financial position or results of operations of the Registrant.
ITEM 4.
Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders in the fourth quarter
of 1996.
The annual report for year ending December 31, 1996 and the proxy
statement for the annual meeting to be held on May 8, 1997 have been
incorporated by reference to this report and are enclosed.
-6-
PART II
ITEM 5.
Market for Registrant's Common Equity and Related Stockholder Matters
The Corporation has 954,484 shares of common stock outstanding, held by
approximately 1159 shareholders of record on December 31, 1996.
The directors and officers of the Corporation and the Bank hold 36.21% of
the outstanding shares. The directors and officers have the right to
acquire additional shares upon the exercise of options granted pursuant
to the Corporation's Stock Option Plan.
The firm of Hoefer and Arnett, located in San Francisco, and Paine Webber
of Chico are currently making a market in the stock. The stock is
currently listed on NASDAQ
as TBLC.
The following chart shows the high and low bid quotations and the volume
of transactions on Timberline Bancshares, Inc. stock for the periods
indicated, as reported by the market makers, and does not include
privately negotiated transactions that were not conducted through market
makers. This information has been provided to the Corporation by the
market makers. The prices indicated below do not necessarily represent
actual transactions and do not include retail mark-ups, mark-downs or
commissions.
Due to the lack of any significant trading and no established public
market, this information should not be considered an indication of the
market value of the shares. There is no assurance that any significant
trading market for the shares will develop in the future and there are no
assurances as to the price at which shares may be traded in the future.
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Dividends
It was the policy of management, during the initial years of the Bank's
operations, to retain earnings, if any, for the purpose of increasing the
capital resources of the Bank. Consequently, cash dividends were first
paid in 1987. For the past three years dividends have been based on
management's assessment of earnings after the external auditor had
completed the year end audit.
In 1996 a $.50 per share cash dividend was paid in April, a 100% stock
split was granted in June and a $.25 per share cash dividend was paid in
October. In 1995 a $.50 per share cash dividend was paid in April based
on the bank's performance in 1994, and a $.50 per share cash dividend was
paid in October based on the performance of the first eight months of the
year. In 1994 a 10% stock split was declared in March and issued in May
based on year end 1993 performance and in September a $0.50 per share of
stock cash dividend was declared and paid on October 1, 1994 based on the
Bank's performance through the first eight months of 1994. In 1993 a 10%
stock split was declared in April and issued in June based on year end
1992 performance. In 1992 a 10% stock split was declared in April and
issued in June based on year end 1991 performance. There is no assurance
that dividends will be paid again, or, if paid, what the amount of any
such dividends will be.
The future dividend policy of the Corporation is subject to the discretion
of the Board of Directors and will depend upon a number of factors,
including earnings, financial condition, cash needs, general business
conditions, and capital adequacy.
The Corporations's primary source of income is the receipt of dividends
from the Bank. The Bank's ability to pay dividends will depend on the
same general conditions as listed for the Corporation above.
ITEM 6.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Corporation's sole subsidiary is Timberline Community Bank ("Bank"),
and its sole activities are the commercial banking activities engaged in
through the Bank. The Bank commenced operations on June 23, 1980. It
engages in the general commercial banking business, with special emphasis
on the banking needs of the people in the communities it serves. The
Corporation assumed control of the Bank on June 8, 1992.
Plan of Operation
It is the intention of the Corporation and Bank to continue operation as
a full service bank to the communities in which it serves. As previously
mentioned, the Bank has facilities in eight locations throughout Siskiyou
County, California and a loan production office in Oregon.
Future plans are to increase market share in the areas served by the Bank,
enhance services to the Bank's customers and maintain the Bank in a
well-capitalized, well-run manner. In today's environment of electronic
banking, the bank may initiate many changes in the present services in
order to stay competitive. These decisions will be made as it is deemed
necessary.
-8-
Result of Operations
The Corporation ended the year with net income of $912,000, which, after
a 100% stock split in June of 1996, equates to $.97 earnings per share.
The net income for 1996 is slightly lower than 1995 as the Bank continues
to experience a softening of loan demand in the local area. This
softening reflects the economy of the area as Siskiyou County has
experienced downturn in the logging industry, and is historically slow to
recover from general recessions.
Net Interest Income
The primary source of the Bank's income is the difference between (1) the
interest earned on its loan and investment portfolio, occasionally
interest bearing deposits with other banks and federal funds sold, and (2)
the interest paid on deposits and other borrowed funds. This difference
is referred to as net interest income, and is the first consideration to
understand the factors that affect the Corporation's profitability.
Interest income earned on loans, which includes loan fee income, is
primarily a function of the amount of loans outstanding and the rates
prevailing on these loans. Interest paid on deposits depends on the
composition of the deposit base and the rates paid to attract deposits.
Interest income on loans includes loan fees which are a product of
origination and commitment fees and certain direct loan origination costs.
Portions of these fees are deferred and amortized over the life of the
loan as an adjustment of the loan's yield. The deferred fee balances, in
thousands, are as follows: December 1996 - $66; December 1995 - $123;
December 1994 - $174. These fees are netted out of total loans on the
Bank's balance sheets for these periods.
Overall loan portfolio yields are affected by deferred loan fees. As
stated above, these fees are amortized to income over the life of the loan
with which they are associated and serve to increase loan portfolio yield.
The allowance for loan losses has no direct effect on yield. Loans
carried as non-accrual serve to reduce the portfolio yield as the balance
of a non-accrual loan is maintained in the loan total but no interest is
accrued.
Net interest income, in addition to changes in interest rates, is also
affected by the general mix of interest bearing assets and interest
bearing liabilities. The differences in the earning assets from year to
year depend on such factors as loan demand in the different categories
such as more demand for commercial loans, less demand for installment
loans, or possibly less demand for loans overall.
In the past couple of years, the Bank has seen a steady decline in loan
demand as the general public reacted to the uncertain economic conditions,
changes in rates initiated by the Federal Reserve Bank, and competition
from other lending entities.
The Bank's excess funds are then invested in other instruments such as
securities and fed funds sold. This can result in a smaller point spread
between rates earned and rates paid, thus reducing net income. On the
deposit or rates paid mix, today's sophisticated depositor is continually
looking for the best rates available. This dictates, to a certain degree,
the rates a Bank pays on deposits in order to retain the depositor, which
in turn has a direct affect on net interest income.
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Non-Interest Income
Non-interest income is derived primarily from service charges on deposit
accounts, fees for processing collections for customers, fees for services
provided to customers such as notary, use of copy machine, use of fax,
legal process fees, charges for safe deposit box rental, sale of travelers
checks, check cashing fees for non-bank customers, and other charges of
a similar nature. Other non-interest income can be from gain on sales of
investments and assets. Non-interest income can fluctuate from year to
year because of many factors, including volume of accounts being service
charged, amount of legal research done from year to year, or investments
held or sold from year to year.
Non-Interest Expense
Non-interest expenses include salaries and employee benefits, occupancy
expense, equipment expense, legal fees, assessment fees, supplies, and the
general expenses required for the operation of the Corporation and the
Bank.
Significant Element of Loss
None.
Future Trends
The Bank has experienced the steady decline in lending due to competition
from credit unions, auto companies financing their own products, people
shifting small credits to credit cards and greater competition for lending
dollars from sources other than banks entering the real estate and
commercial lending markets.
The Bank makes commercial loans primarily to small and medium sized
businesses and to professionals. While the Bank emphasizes commercial
lending, management does not believe that there is any significant
concentration of commercial loans to any specific type of business or
industry. Since the Bank lends commercially in California and Southern
Oregon, management also believes that the commercial lending is not
concentrated in any one economic area and therefore is not subject to
economic swings in any one given area.
It is the Bank's policy to collateralize all loans unless, in management's
estimation, the credit worthiness, cash flow and character of the borrower
justify extension of credit on an unsecured basis. Management recognizes
the inherent risk in making unsecured loans but, in management's
judgement, such unsecured loans are justified based on the credit
worthiness and financial strength of the borrowers. So called "character"
loans comprise a very small percentage of the Bank's commercial portfolio,
however, as the Bank prefers to follow the loan-to-value ratio guidelines
as set by the regulatory authorities.
Management believes that its secured loans are adequately collateralized
to minimize loss in the event of default in payment of interest or
principal.
Interest Rate Sensitivity
The Bank attempts to lend at competitive interest rates and to reduce
exposure to interest rate fluctuations by making most of its loans at
adjustable interest rates and limiting the maturity of most loans, or
establishing a short call period on a longer maturity.
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The Bank makes daily estimates of cash funding requirements and attempts
to maintain adequate cash reserves to cover foreseeable liquidity demands.
Interest rate risk can be reduced through the practice of making variable
interest rate loans which are tied to some outside rate index. These
loans "float", or adjust their rate as the interest rate environment
changes. Approximately 75.0% of the Bank's portfolio are comprised of
loans with adjustable rates.
Deposits
The Bank relies primarily on deposits to fund borrowers' needs. The
deregulation of interest rates on deposit accounts has resulted in a
continuing shift from non-interest bearing to interest bearing accounts.
This shift of funds has increased and will continue to increase the cost
of deposits to banks generally as well as this Bank.
The Bank obtains deposits primarily from local businesses, loan customers,
senior citizens, general customers that enjoy banking with a community
bank, and personal contacts by directors, officers and the Bank's
involvement in community organizations. The Bank does not have any
brokered deposits.
Liquidity
Liquidity is a bank's ability to meet possible deposit withdrawals, to
meet loan commitments and increased loan demand, and to take advantage of other
investment opportunities as they arise.
The Bank's liquidity is monitored on a daily basis. At December 31, 1996,
cash and due from banks, and federal funds sold constituted 23.11% of
total assets. Add the funds in investments and the total is 43.75% of
total assets. In addition, the Bank has an unused federal funds line of
credit for $2,000,000 with a correspondent institution. At year end 1996
the Bank's loan to deposit ratio was 55.7%.
Inflation
Inflation affects the Bank and the banking business generally because of
its effect on interest rates and loan demand. To offset inflation and the
resulting changes in interest rates and market demands, the Bank attempts
to maintain liquid interest bearing assets and to manage its assets and
liabilities such that they can be repriced within a short period of time.
In addition to its effect on market conditions and interest rates,
inflation affects the Corporation by increasing the cost of operations.
Effects of Economic Changes
The client base of the bank, management feels, is broad enough to minimize
the effects economic changes may have on the area. The economy of the
area encompasses ranching, farming, the timber industry, tourism, and a
large base of governmental agencies.
ITEM 7.
Financial Statements
Incorporated by reference to the Annual Shareholders Report enclosed.
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Other Selected Financial Data
I. Distribution of Assets, Liabilities and Stockholders' Equity;
interest rates and interest differential
A. AVERAGE BALANCE SHEETS
(in thousands)
1996 1995
ASSETS
Cash and Due from Banks
(Non-interest bearing) $ 5,241 $ 4,356
Taxable Investment Securities
Available for Sale 6,249 6,931
Held to Maturity 4,544 6,853
Non-taxable Investment Securities
Available for Sale 770 415
Held to Maturity 5,856 5,482
Fed Funds Sold 13,025 4,371
Cash Value Life Insurance 1,228 1,167
Loans - Net of unearned
loan fees 38,700 42,321
Allowance for Loan Losses (484) (495)
Fixed Assets net of
accumulated depreciation 2,158 2,709
Other Assets 1,266 906
TOTAL ASSETS $78,553 $75,016
LIABILITIES
Demand Deposits $13,412 $13,130
Interest Bearing
Demand Deposits 10,599 10,047
Savings Deposits 35,192 36,490
Time Deposits 12,369 9,598
Non Interest Bearing -0- -0-
Other liabilities 432 362
TOTAL LIABILITIES 72,004 69,627
CAPITAL
Contributed Capital 2,294 2,294
Additional Paid in Capital 510 329
Retained Earnings 3,745 2,766
TOTAL CAPITAL 6,549 5,389
TOTAL LIABILITIES
AND CAPITAL $78,553 $75,016
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B. ANALYSIS OF INTEREST EARNINGS
($ amounts in thousands)
INTEREST EARNED AND AVERAGE YIELD
1996 1995
$ % $ %
Taxable Investment Securities
Available for Sale 365 384
Yield 5.69 5.54
Held to Maturity 305 469
Yield 6.43 6.84
Non Taxable Securities
Available for Sale 42 23
Yield 5.33 5.54
Held to Maturity 292 278
Yield 5.05 5.07
Fed Funds Sold 691 250
Yield 5.10 5.72
Cash Value Life Insurance 69 69
Yield 5.54 5.91
Loans 4,091 4,861
Yield (after allowance) 10.45 12.11
AVERAGE YIELD
ALL Interest Earning Assets 8.94 9.34
INTEREST PAID AND AVERAGE RATE
Demand Deposits 182 219
Rate 1.75 2.18
Savings Deposits 1,237 1,546
Rate 3.50 4.24
Time Deposits 592 467
Rate 4.29 4.87
AVERAGE RATE PAID 3.86 3.98
Average Including Non Interest Deposits 2.79 3.22
NET YIELD ON INTEREST EARNING ASSETS 5.08 5.36
NOTE: For the purpose of the above analysis, non-accruing loans are
included within the loans total unless written off. Non-accruing loans
are discussed in C - Risk Elements.
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C. ANALYSIS OF ACTUAL CHANGES IN INTEREST
Income and Expense and allocation between volume and rate
Allocation Allocation
to change to change
in Volume in Rate
1996 1995
Income
Taxable Investment Securities
Available for Sale (19) 14
Held to Maturity (164) (22)
Non-Taxable Investment Securities
Available for Sale 19 11
Held to Maturity 14 53
Fed Funds Sold 440 70
Cash Value Life Insurance -0- 21
Loans (After Allowance) (770) (55)
Expense
Demand Deposits (37) (24)
Savings Deposits (309) 50
Time Deposits 125 46
Income 1995 1994
Taxable Investment Securities
Available for Sale 14 (58)
Held to Maturity (22) 313
Non-Taxable Investment Securities
Available for Sale 70 -0-
Held to Maturity 11 126
Fed Funds Sold 53 29
Cash Value Life Insurance 21 24
Loans (After Allowance) (55) (58)
Expense
Demand Deposits (24) 1
Savings Deposits 50 190
Time Deposits 46 (69)
NOTE: Variances attributable to simultaneous rate and volume changes are
allocated equally.
The above analysis does not include any out of period items or
adjustments. Loan fees are not included in interest income. Return on
tax exempt income is actual and has not been adjusted to a tax equivalent
basis.
-14-
II. INVESTMENT PORTFOLIO
A. The Book value of each category of investment security for the two
years is shown in "Note - 3 - Investment Securities" in the audited
financial statements incorporated by reference in the annual report.
B. Maturity and Yield Characteristics
1996 1995
Average Average
Cost Yield Cost Yield
Taxable Investment Securities
Available for Sale
US Treasury's
Maturing in one year or less 1,000 5.23 1,998 5.58
Maturing in one to five years -0- -0- -0- -0-
US Agencies & Corporations
Maturing in one year or less 250 5.99 3,583 4.97
Maturing in one to five years 4,500 5.98 1,250 5.41
Held to Maturity
US Agencies & Corporations
Maturing in one year or less 750 5.97 750 6.36
Maturing in one to five years 2,631 6.86 2,807 5.92
Maturing in five to ten years -0- -0- 1,732 7.49
State and Political Subdivisions
Maturing in one year or less -0- -0- 200 5.05
Corporate Bonds
Maturing in over ten years -0- -0- 48 9.24
Non-Taxable Securities
Available for Sale
State and Political Subdivisions
Maturing in one year or less 65 7.75 250 7.25
Maturing in one to five years 548 6.25 165 6.25
Maturing in five to ten years 93 4.30 -0- -0-
Held to Maturity
State and Political Subdivisions
Maturing in one year or less 570 5.33 304 5.17
Maturing in one to five years 5,118 4.65 3,165 4.99
Maturing in five to ten years 505 5.51 1,923 5.23
Maturing in over ten years -0- -0- 90 6.17
Tax exempt income is actual and has not been adjusted to a tax equivalent
basis.
C. No investment at December 31, 1996, in the aggregate, in any one issue
exceeds 10% of stockholders' equity. The term "issuer" does not include
the US Government or its political subdivisions and agencies as defined
in the instructions.
-15-
III. LOAN PORTFOLIO
A. LOAN TYPES
December 31,
1996 1995
Commercial, Financial and Agricultural $34,188 $32,032
Real Estate Construction 567 1,566
Real Estate Mortgage 3,025 3,566
Installment Loans to Individuals
(Including overdraft lines) 1,484 2,484
TOTAL $39,264 $39,648
B. MATURITIES AND SENSITIVITIES OF
LOANS TO CHANGES IN INTEREST RATES
FOR SELECTED LOAN TYPES
December 31,
LOAN TYPES 1996 1995
Commercial, Financial and Agricultural
Due within one year $26,293 $ 5,829
Due one to five years 7,795 24,483
Due over five years 667 1,720
Total $34,755 $32,032
Interest rate
Fixed rate $ 8,736 $11,438
Floating rate 26,019 20,594
Total $34,755 $32,032
Real Estate Construction
Due within one year $ 2,481 $ 1,566
Due one to five years -0- -0-
Due over five years -0- -0-
Total $ 2,481 $ 1,566
Interest Rate
Fixed rate $ -0- $ -0-
Floating Rate 2,481 1,566
Total $ 2,481 $ 1,566
-16-
C. RISK ELEMENTS
1. NONACCRUAL, PAST DUE AND RESTRICTED LOANS
1996 1995
a. Loans accounted for on a
nonaccrual basis -0- 334
b. Accruing loans past due 90
days or more 296 -0-
c. Troubled Debt restructured -0- -0-
Gross income that would have occurred
if the above notes were paid according
to note terms
a. Nonaccrual -0- 27
b. Troubled Debt -0- -0-
Income accrued and included in net
income
a. Nonaccrual -0- -0-
b. Troubled debt -0- -0-
NON ACCRUAL LOAN POLICY - Management's policy on placing loans on
nonaccrual status is discussed in the audited financial statements, "Note
1 - Summary of Significant Accounting Policies."
2. POTENTIAL PROBLEM LOANS
At the end of the current period the Bank has a potential problem loan
for $118 that is collateralized by accounts reveivables and inventory.
The bank anticipates a net loss potential of $8. All other loans with
known problems are disclosed above.
3. FOREIGN LOANS
The Bank never has had and does not anticipate ever having foreign
loans, so this section does not apply.
4. LOAN CONCENTRATIONS
All loan concentrations are shown in IIIA of this report.
D. OTHER INTEREST BEARING ASSETS
None.
-17-
IV. SUMMARY OF LOAN LOSS EXPERIENCE
1996 1995
A. Balance at January 1 $ 475 $ 473
Loans Charged Off
Commercial, Financial and
Agricultural (37)
Installment loans to Individuals (4) (10)
Real Estate - Mortgage -0- -0-
Recoveries
Commercial 1 7
Installment 4 1
Net Charge Offs 1 (39)
Additional Charges to Operations 15 41
Balance at December 31 $ 491 $ 475
Ratio of Net charge offs to
loans outstanding 0.02% 0.100%
For a discussion of the factors that describe managements determination
of the addition to the allowance for loan losses see the notes to the
Audited Financial Statements, "Note - 1 - Summary of Significant
Accounting Policies."
B. The following table sets forth the allocation for loan losses for the
years ended. It should not be construed that the amount allocated to a
particular segment is the only amount available against the loan
portfolio. In addition, the amounts allocated by segment may not be
indicative of future charge off trends.
1996 1995
Percent Percent
Amount of Total Amount of Total
Commercial, Financial
and Agricultural $ 31,258 79.74% $ 32,032 80.79%
Real Estate Construction 2,481 6.33 1,566 3.95
Real Estate Mortgage 3,140 8.01 3,566 8.99
Installment loans to
individuals 2,319 5.92 2,484 6.27
TOTAL $ 39,198 100.00 $ 39,648 100.00
V. DEPOSITS
1996 1995
Average Average Average Average
Balance Rate Paid Balance Rate Paid
Noninterest Bearing
Demand Deposits 13,412 -0- 13,130 -0-
Interest Bearing
Demand Deposits 10,599 1.75% 10,047 2.18%
Savings Deposits 35,192 3.50% 36,490 4.24%
Time Deposits 12,369 4.29% 9,598 4.53%
-18-
MATURITY OF TIME DEPOSITS OVER $100,000
1996 1995
Three months or less $ 359 $ 221
Over three under six months 1,697 1,032
Over six under twelve months 241 183
Over twelve 111 365
VI. RETURN ON EQUITY AND ASSETS
1. Return on Average Assets 1.16% 1.25%
2. Return on Equity 16.62% 17.40%
3. Dividend Payout Ratio 52.08% 47.84%
4. Equity to Asset Ratio 8.55% 7.18%
VII. SHORT TERM BORROWING
1. Amounts outstanding
at year end -0- -0-
2. Maximum at any month end -0- -0-
3. Average amount outstanding
for year -0- 8
Average interest paid -0- 3.15%
ITEM 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
PART III
ITEM 9.
Directors of the Registrant
Incorporated by reference to the enclosed Proxy Statement for annual
meeting to be held May 8, 1997.
Each director is elected by Shareholder vote to a term of one year.
No director has been involved in material legal proceedings in the last
five years.
-19-
Executive Officers
Robert J. Youngs 62 President and Chief Executive Officer
President, Chief Executive and Director of the Bank since June
Officer of the Bank and 1, 1983.
the Corporation, Director
of the Bank and Corporation
Roger B. Ebert 62 Senior Vice President and Loan Admin-
Senior Vice President istrator of the Bank since February
and Loan Administrator of 1983.
of the Bank
Helen L. Gaulden 56 Senior Vice President/Cashier of the
Senior Vice President Bank since January 1985. Joined the and
Cashier of the Bank Bank at its inception in June 1980.
Vice President and Treasurer
of the Corporation
Each executive officer is appointed to a one year term at the annual
organizational meeting by the board of directors.
No executive officer has been involved in material legal proceedings for
the last five years.
ITEM 10.
Executive Compensation
Incorporated by reference to the enclosed Proxy Statement for the annual
meeting to be held May 8, 1997.
ITEM 11.
Security Ownership of Certain Beneficial Owners and Management
The Corporation knows of no person who is the beneficial owner of more
than 5% of the Corporation's outstanding shares who is not a director or
management.
Ownership of directors and management is incorporated by reference to the
enclosed Proxy Statement for the annual meeting to be held May 8, 1997.
ITEM 13.
Certain Relationships and Related Transactions
The Bank has had in the ordinary course of business, and expects to have
in the future, banking transactions with its directors, officers and their
associates, including transactions with corporations of which such persons
are directors, officers or controlling shareholders. The transactions
involving loans have been
-20-
and will be entered into with such persons in the ordinary course of
business, on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
persons, and on terms not involving more than the normal risk of
collectibility or presenting other unfavorable features. In addition,
loans to insiders, such as officers, directors, and certain other persons
are subject to limitations and requirements as set by the regulatory
agencies that oversee the Corporation and the Bank.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TIMBERLINE BANCSHARES, INC.
By /S/ Robert J. Youngs
Robert J. Youngs, President &
CEO and Director of the Corporation
and the Bank
3/25/97
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in capacities on the dates indicated.
/s/ Robert E. Banning Date 3/25/97
Robert E. Banning,
Board of Directors
/s/ Richard S. Day Date 3/25/97
Richard S. Day, Secretary
Board of Directors
/s/ Charles J. Cooley Date 3/25/97
Charles J. Cooley,
Board of Directors
/s/ Gareld J. Collins Date 3/25/97
Gareld J. Collins
Board of Directors
/s/ Norman E. Fiock Date 3/25/97
Norman E. Fiock, Chairman of the
Board of Directors
/s/ Don L. Hilton Date 3/25/97
Don L. Hilton
Board of Directors
/s/ Elmo M. Smith Date 3/25/97
Elmo M. Smith
Board of Directors
/s/ Helen L. Gaulden Date 3/25/97
Helen L. Gaulden, Treasurer
Sr. Vice President of Corporation
Sr. Vice President/Cashier of Bank
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