UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 33-40799
TIMBERLINE BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
California 68-0269988
(State or other jurisdiction of (IRS Employer Identification No.)
of incorporation or organization)
123 N. Main Street, P. O. Box 1087, Yreka, Ca 96097
(Address of principal executive offices)
( 530 ) 842-6191
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
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 .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and report required to be filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,006,726
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
TIMBERLINE BANCSHARES, INC.
CONSOLIDATED INCOME STATEMENT
Periods Indicated
(Amounts stated in thousands)
Quarter Year Prior Prior Year
Ended to Date Quarter End to Date
09/30/98 09/30/98 09/30/97 09/30/97
1. Interest and Fees on Loans $1,240 $3,693 $1,180 $3,355
2. Interest On Securities
Available for Sale 201 569 216 499
Held to Maturity 102 321 113 367
3. Trading Account interest -0- -0- -0- -0-
4. Other interest 184 507 146 458
5. Total Interest Income 1,727 5,090 1,655 4,679
6. Interest on Deposits 617 1,806 539 1,542
7. Interest on short term
borrowing -0- -0- -0- -0-
8. Interest on long term debt -0- -0- -0- -0-
9. Total Interest Expense 617 1,806 539 1,542
10. Net Interest Income 1,110 3,284 1,116 3,137
11. Provision for Loan Losses 22 60 -0- -0-
12. Net Interest Income after
Provision for loan losse 1,088 3,224 1,116 3,137
13. Other Income 106 320 108 331
14. Other Expenses 842 2,639 826 2,517
15. Income before Tax 352 905 398 951
16. Income Tax Expense 98 226 123 245
17. Income before extraordinary
item 254 679 275 706
18. Cumulative effect of accounting
changes -0- -0- -0- -0-
19. Net Income $ 254 $ 679 $ 275 $ 706
20. Earnings per share $ .25 $ .67 $ .27 $ .70
Note 1: The financial statements included in this report are unaudited
but, in the opinion of management of the Corporation, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position, results of operations, and changes in
financial position for the periods presented.
TIMBERLINE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
09/30/98
(Amounts stated in thousands)
ASSETS
1. Cash and Due from Banks $ 4,886
2. Interest Bearing Deposits other banks -0-
3. Federal Funds sold and securities
purchased under resale agreement 16,100
4. Trading Account Assets -0-
5. Other short-term investments 1,346
6. Investment securities
Held for Sale 11,898
Held to Maturity 6,603
7. Loans, Total 45,796
Allowance for loan losses (372)
Unearned Income (88)
8. Premises and Equipment 2,491
9. Due from customers on acceptances -0-
10. Other assets 1.092
11. Total Assets
LIABILITIES
12. Deposits, non-interest bearing $15,026
Interest bearing 66,148
13. Short-term borrowing -0-
14. Bank Acceptances outstanding -0-
15. Other liabilities 661
16. Long-term debt -0-
17. Commitments and contingent liabilities -0-
18. Minority Interests -0-
SHAREHOLDERS EQUITY
19 & 20. Preferred stock -0-
21. Common Stock 2,992
22. Other Shareholders equity 4,925
23. Total Liabilities and Shareholders Equity $89,752
Note: Held for Sale amount stated net of unrealized gain of $30.
TIMBERLINE BANCSHARES, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
For Periods Indicated
(Amounts stated in thousands)
Year Year
to Date to date
09/30/98 09/30/97
Cash Flow from Operating Activities
Net Income $ 679 $ 706
Non-cash items included in income
Depreciation 160 194
Net change in Bad Debt Provision (29) (21)
Cumulative effect of accounting
change
(Increase)Decrease in:
Other Assets 489 205
Increase(Decrease) in:
Other Liabilities 120 65
Net cash provided by operations 1,419 1,149
Cash Flow from Investing Activities
Increase(Decrease) in:
Deposits 3,616 6,841
(Increase)Decrease in:
Short Term Investments (43) (40)
Securities: Held for Sale 1,246 (8,408)
Held to Maturity 602 2,359
Federal Funds Sold (9,100) 2,500
Loans 2,793 (3,544)
(Purchase)Sale of Fixed assets (619) (238)
Net cash (used for) provided by
investing activities (1,505) (530)
Cash Flow from Financing Activities
Dividends (Paid) (252) (251)
Additional Paid in Capital -0- 166
Net cash (applied to)provided by
financing activities (252) (85)
Net cash increase(decrease) in cash
and due from banks (338) 534
Cash and Due from Banks at
beginning of year 5,224 5,202
Cash and Due from Banks at
end of period $4,886 $5,736
Item 2. Management's Discussion and Analysis or Plan of Operation.
(a) Plan of Operation
It is the intention of management that its wholly-owned subsidiary, Timberline
Community Bank, shall continue to function much as it has in the past. When
formed in June 1980, it was the intent of the Bank to serve the needs of the
communities of the County. This intention has not changed.
The Bank has enjoyed sustained growth since it was opened and has established
a solid deposit base and profitability that has enabled it to maintain the cash
requirements for operation. Management can foresee nothing that would indicate
that this condition will change in the future.
The Bank will continue to operate as a full service banking organization,
continually enhancing the service to its depositors, stay abreast of the
changing environment of banking, always monitoring operational costs,
maintaining a respectable return to the shareholders, providing the best service
possible to its customer base, and increasing income to full potential.
(b) Management's Discussion and Analysis of Financial condition and Results of
Operations
In 1996 the Bank entered into a credit card participation agreement with
Humboldt Bank for the California State Employees Association that did not meet
expectations either in volume or profitability. The operating expenses and
ratio of credit losses that occurred were unsatisfactory to management and
the Bank subsequently pulled out of the program at the end of the third quarter
of the year. However, the losses and operating expenses are reflected in the
provision for loan losses and the increase in other operating expenses.
The financials also reflect a decline in net interest margin from 1997 due in
part to the loan demand in the local area (which is experiencing an 11.4%
unemployment rate) that has steadily declined for the past two to three years,
a greater growth in deposits than in loans, and the changes in interest rates
that have recently occurred.
Because of the decreasing loan demand and the simultaneous increase in deposit
growth, the Bank is in a highly liquid ratio with Federal Funds sold and
investments in securities. The interest margin between investments and deposits
is not as great as the interest margin between loans and deposits, thereby
narrowing the net interest margin. In addition, with the rate changes that have
occurred in the past three months, investments are being called and repurchased
at a lower interest rate, contributing more to the narrowing of the net
interest margin.
Consequently, the Bank has begun an aggressive loan participation program with
banks out of the normal lending area - principally with banks in Oregon through
it's Loan Production Office in Medford. The subsequent increase in loan volume
will largely compensate for the decrease in net interest margins in today's
market and should enable the Bank to end the year with no material change in per
share earnings over last year.
The Bank has also been actively involved in the Year 2000 (Y2K) issues. The
Bank has assessed its state of readiness by evaluating its information
technology (IT) and non-IT systems. The IT systems consist of a Data Processing
Service owned by a service provider, an administrative network, various
non-network computers and calculators, typewriters, etc.
The service provider has developed a project time line to ensure it meets all
deadlines as proscribed by the FDIC. They keep the bank updated on their
progress in meeting those goals. To date, they are ahead of the FDIC Guidelines.
The administrative network has been fully tested, the equipment and software
updated or replaced and is fully Y2K ready. All non-networked computers have
been tested, the equipment and software updated or replaced and are fully Y2K
ready. Other various office equipment has been tested and appears to be Y2K
ready.
The Bank does not have any non-IT systems with embedded technology that would
be adversely effected by Y2K.
The Bank has made the following determinations in regard to Y2K issues relating
to third parties:
Regulatory agencies, Federal and State, all purport to be in compliance or on
schedule with Y2K issues. The bank has not independently verified this.
Federal Reserve Bank - purports to be on schedule. The bank has tested direct
applications used on premises and the service provider has tested the
applications used on the Bank's behalf and they appear to be on schedule.
Vendors - the Bank's vendors are mainly fungible and any with Y2K problems can
easily be replaced.
Customers:
Depositors: the Bank has provided public forums to discuss Y2K issues.
The Bank does not anticipate any significant Y2K issues with our deposit base.
Borrowers: Each loan made since June 1, 1998 has been evaluated as to its
Y2K issues. The Bank's allowance for loan losses will reflect any potential Y2K
related losses.
Costs - The Bank has been able to handle hardware and software costs through
normal budgeted expenditures and did not accelerate any replacement periods.
All labor costs were incurred using existing staff without overtime.
Risk - The Bank anticipates that the most likely worst case scenario will be a
combination of several borrowers experiencing short term Y2K cash flow problems
and a pre Y2K increased cash demand by our customers. The bank does not
consider a computer system failure as likely because of the extensive pre Y2K
preparation. The other failure commonly discussed by the general public is a
failure of the power grid. From reports made by the various power companies in
the newspapers on their Y2K readiness, the Bank does not consider that likely.
Contingency Plan - If the Bank has borrowers that experience Y2K cash flow
problems, they will be dealt with in the same routine manner that normal cash
flow interruptions experienced by borrowers are dealt with. The Bank does not
anticipate any material failure of borrowers because of the Bank's ongoing
review process. Any increase in cash demand will be funded by the Bank's normal
currency ordering procedures.
Independent Verification - Verification will be completed during our annual
audit to the extend required by GAAP and GAAS. In addition, the Bank is a
highly regulated industry and are examined by Federal and State regulatory
agencies.
In addition to the extensive Y2K activities, the Bank has installed a 24 hour
banking system and a debit card program for the convenience of the customers.
All these activities were budgeted as anticipated banking expenses for the year.
The Bank paid a $.25 dividend in the spring and has declared an additional $.25
dividend for the first month of the fourth quarter.
PART 11 - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending other than those in the normal course of
doing business that may have a material impact on the bank.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TIMBERLINE BANCSHARES, INC.
Date 10/27/98 /s/ Robert J. Youngs
Robert J. Youngs, President & CEO
Date 10/27/98 /s/ Helen L. Gaulden
Helen L. Gaulden, Vice President & Treasurer
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