<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-22732
PACIFIC CREST CAPITAL, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4437818
- - --------------------------------------- ---------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30343 Canwood Street
Agoura Hills, California 91301
- - ---------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 865-3300
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 11, 1995.
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
Common Stock, $.01 par value 2,959,698
<PAGE>
PACIFIC CREST CAPITAL, INC.
FORM 10-Q
INDEX
Page No.
Part I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . 1
Item I: Financial Statements . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets. . . . . . . . . . . . . . . 1
Consolidated Statements of Operations. . . . . . . . . . 2
Consolidated Statements of Shareholders' Equity. . . . . 3
Consolidated Statements of Cash Flows. . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . 5
Item 2: Management's Discussion and Analysis of Financial
Condition
and Results of Operations. . . . . . . . . . . . . . . . 7
Part II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
<TABLE>
<CAPTION>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
- - -------------------------------------------------------------------------------------
MARCH 31, 1996 DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995
- - -------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Cash $ 1,582 $ 2,118
Certificates of deposit 300 300
Securities purchased under resale agreements 86,274 53,749
- - -------------------------------------------------------------------------------------
Cash and cash equivalents 88,156 56,167
- - -------------------------------------------------------------------------------------
Investment securities at adjusted cost 3,000 -
Loans
Commercial mortgage 185,019 191,481
Residential mortgage 2,572 3,142
Installment and other 1,996 2,155
- - -------------------------------------------------------------------------------------
Total loans 189,587 196,778
Allowance for loan losses 4,850 4,500
- - -------------------------------------------------------------------------------------
Net loans 184,737 192,278
Accrued interest receivable 1,482 1,547
Prepaid expenses and other assets 663 219
Deferred income taxes 3,910 3,979
Other real estate owned 4,466 4,355
Premises and equipment 512 564
- - -------------------------------------------------------------------------------------
Total assets $ 286,926 $ 259,109
- - -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings accounts $ 186,311 $ 173,725
Certificates of deposit 61,435 60,785
Money market checking 13,931 -
- - -------------------------------------------------------------------------------------
Total deposits 261,677 234,510
- - -------------------------------------------------------------------------------------
Accrued interest and other liabilities 2,561 2,647
Total liabilities 264,238 237,157
- - -------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.01 par value, 10,000,000
shares authorized, 2,959,698 shares issued
and outstanding at March 31, 1996, 2,953,748
shares issued and outstanding at December 31, 1995 27,838 27,813
Accumulated deficit (5,150) (5,861)
- - -------------------------------------------------------------------------------------
Total shareholders' equity 22,688 21,952
- - -------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 286,926 $ 259,109
- - -------------------------------------------------------------------------------------
Book value per common share (Note 3) $ 7.67 $ 7.43
- - -------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
1
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED MARCH 31
- - -------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
- - -------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Interest Income:
Interest on loans, including fees $ 5,682 $ 4,935
Securities purchased under resale agreements 947 104
Certificates of deposit 4 4
U.S. government sponsored agency securities 34 821
- - -------------------------------------------------------------------------------------
Total interest income 6,667 5,864
Interest expense:
Savings accounts 2,464 1,868
Certificates of deposit 830 1,108
Money market checking 63 -
Reverse repurchase agreements - 7
- - -------------------------------------------------------------------------------------
Total interest expense 3,357 2,983
- - -------------------------------------------------------------------------------------
Net interest income 3,310 2,881
Provision for loan losses 525 171
- - -------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,785 2,710
Noninterest income:
Gain on investment securities - 21
Other noninterest income 163 104
- - -------------------------------------------------------------------------------------
Total noninterest income 163 125
Noninterest expense:
Valuation adjustments to other real estate owned 65 26
Other real estate owned expenses 8 45
Salaries and employee benefits 1,063 1,164
Net occupancy expenses 351 390
FDIC insurance premiums 16 150
Credit and collection expenses 12 15
Communication and data processing 119 125
Other expenses 153 331
- - -------------------------------------------------------------------------------------
Total noninterest expense 1,787 2,246
- - -------------------------------------------------------------------------------------
Income before income taxes 1,161 589
Income tax provision 450 1
- - -------------------------------------------------------------------------------------
Net income 711 588
- - -------------------------------------------------------------------------------------
Preferred dividends declared - (307)
Net income applicable to common stock $ 711 $ 281
- - -------------------------------------------------------------------------------------
Per share data (note 3):
Primary earnings per common share $ 0.24 $ 0.25
- - -------------------------------------------------------------------------------------
Weighted average common shares outstanding (in thousands) 3,000 1,102
- - -------------------------------------------------------------------------------------
Fully diluted earnings per common share $ 0.24 $ 0.22
- - -------------------------------------------------------------------------------------
Weighted average fully diluted common shares
outstanding (in thousands) 3,006 2,661
- - -------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
<TABLE>
<CAPTION>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PREFERRED STOCK COMMON STOCK
--------------- ------------
ACCUMULATED
(DOLLARS AND SHARES IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT DEFICIT
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 561 $ 12,843 1,102 $ 14,970 $ (8,185)
Dividends on preferred stock (Note 6) - - - - (920)
Conversion of preferred stock (561) (12,843) 1,852 12,843 -
Net income - - - - 3,244
- - -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 - $ - 2,954 $ 27,813 $ (5,861)
- - -----------------------------------------------------------------------------------------------------------------------------------
Purchase of stock under employee stock purchase plan - - 6 25 -
Net income (unaudited) - - - - 711
- - -----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1996 - $ - 2,960 $ 27,838 $ (5,150)
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
<TABLE>
<CAPTION>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ------------------------------------------------------------------------------------------------
QUARTER ENDED MARCH 31
(DOLLARS IN THOUSANDS) 1996 1995
- - ------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 711 $ 588
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 525 171
Valuation adjustments to other real estate owned 65 26
Depreciation and amortization 57 63
Amortization of deferred loan fees (411) (127)
Amortization of investment securities (11) (23)
Decrease (increase) in accrued interest receivable 65 (284)
(Increase) in prepaid expenses and other assets (444) (1,295)
Decrease in deferred income taxes 69 -
(Decrease) in accounts payable and accrued liabilities (86) (81)
- - ------------------------------------------------------------------------------------------------
Net cash used in operating activities 540 (962)
INVESTING ACTIVITIES
Proceeds from maturity of investment securities - 4,000
Purchase of U.S. government sponsored agency securities (3,000) -
Net decrease (increase) in loans 7,463 (518)
Purchases of equipment and leasehold improvements (5) (18)
Net decrease in other real estate owned (176) 797
- - ------------------------------------------------------------------------------------------------
Net cash provided by investing activities 4,282 4,261
FINANCING ACTIVITIES
Preferred stock cash dividends (Note 6) - (307)
Net increase in money market checking 13,931 -
Net increase in certificates of deposit 650 2,984
Net increase (decrease) in savings accounts 12,586 (3,069)
- - ------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 27,167 (392)
Net increase in cash and cash equivalents 31,989 2,907
Cash and cash equivalents at beginning of period 56,167 6,204
- - ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 88,156 $ 9,111
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
CASH PAID DURING THE PERIOD FOR:
Interest $ 3,362 $ 2,961
Income tax paid $ - $ 1
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
4
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
NOTE 1. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
Pacific Crest Capital, Inc. ("Registrant"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). The
Registrant together with its subsidiary is referred to as the "Company".
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such SEC rules and regulations;
nevertheless, the Company believes that the disclosures are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's latest Annual Report. In the opinion of
management, all adjustments, including normal recurring adjustments necessary to
present fairly the financial position of the Company with respect to the interim
financial statements, and the results of its operations for the interim period
ended March 31, 1996, have been included. Certain reclassifications have been
made to prior year amounts to conform to the 1996 presentation. The results of
operations for interim periods are not necessarily indicative of results for the
full year.
NOTE 2. INCOME TAXES
For the interim periods ended March 31, 1996 and 1995, the Company's
provision for income taxes was 38.8% and 0.2%, respectively. The difference
between the Company's statutory tax rate of 41.5% and its effective rate of
38.8% for the quarter ending March 31, 1996 is due to California tax deductions
(credits) generated by the Company on loans made in special tax zones within
California. For the quarter ended March 31, 1995 the tax provision at the
combined statutory tax rate of 42%, was approximately $250,000, which was offset
by a reduction of approximately $249,000 in the Company's tax valuation reserve.
NOTE 3. COMPUTATION OF BOOK VALUE AND EARNINGS PER COMMON SHARE
Book value per common share was calculated by dividing total shareholders'
equity by the number of common shares outstanding at March 31, 1996 and
December 31, 1995. The number of common shares outstanding was 2,959,698 at
March 31, 1996 and 2,953,748 at December 31, 1995.
The primary earnings and fully diluted earnings per common share for the
first quarter of 1996 were determined by dividing net income applicable to
common stock of $711,000, by the weighted average common shares outstanding of
3,000,000 and the weighted average fully diluted common shares outstanding of
3,006,000 for the three months ended March 31, 1996, respectively. The common
shares outstanding were adjusted to reflect the number of common stock
equivalents outstanding based on the number of outstanding stock options issued
by the Company utilizing the Treasury stock method.
The primary earnings per common share for the first quarter of 1995 was
determined by decreasing the net income of $588,000 for the three months ending
March 31, 1995 by the amount of preferred dividends declared for the first
quarter of 1995 of $307,000, resulting in net income applicable to common stock
of $281,000 for the three months ending March 31, 1995. This amount was then
divided by the weighted average common shares outstanding of 1,102,000 for the
three months ended March 31, 1995. The fully diluted earnings per common share
for the first quarter of 1995 was determined by dividing net income applicable
to common stock of $588,000 for the three months ending March 31, 1995 by the
weighted average fully diluted common shares outstanding of 2,661,000 for the
three months ended March 31, 1995.
5
<PAGE>
NOTE 4. CONTINGENCIES
LITIGATION
There are several lawsuits and claims pending against the Company which
management considers incident to normal operations, some of which seek
substantial monetary damages. Management, after review, including consultation
with counsel, believes that any ultimate liability which could arise from these
lawsuits and claims would not materially affect the consolidated financial
position of the Company.
REGULATORY MATTERS
On January 27, 1995, the Board of Directors of the Company's subsidiary,
Pacific Crest Investment and Loan (Pacific Crest Investment) entered into a
revised memorandum of understanding ("Memorandum") with the Federal Deposit
Insurance Corporation ("FDIC") and the California Department of Corporations.
The provisions of the Memorandum are effective until such time as the FDIC
modifies, terminates or suspends the Memorandum. Under the provisions of the
Memorandum, Pacific Crest Investment agreed to maintain its leverage capital
ratio to at least 7% of total assets. Pacific Crest Investment's leverage
capital ratio was 7.29% as of March 31, 1996. In addition, Pacific Crest
Investment agreed to reduce the level of assets classified as "substandard" by
the FDIC. Management believes Pacific Crest Investment is in compliance with
the Memorandum at March 31, 1996. Under the terms of the Memorandum, cash
dividend payments by Pacific Crest Investment must also be approved in writing
by the FDIC and are subject to maintenance of the aforementioned leverage
capital ratios.
NOTE 5. INVESTMENT SECURITIES
Investment securities, at March 31, 1996, consist of U.S. government
sponsored agency issued securities as follows:
<TABLE>
<CAPTION>
Maturity Date Current Fair Market Unrealized
Yeild Book Value Value Gain/(Loss)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government sponsored agency
issued securities: April 1, 1996 5.2% $ 3,000 $ 3,000 $ -
</TABLE>
Included in the financial statements for the quarter ending March 31, 1995,
are gross realized gains of $21,000 resulting from cash receipts of $21,000 from
a collateralized mortgage obligation residual, (CMO Residual).
NOTE 6. DIVIDENDS
As a Delaware corporation, Pacific Crest Capital, Inc., (the parent), may
pay common dividends out of surplus or, if there is no surplus, from net profits
for the current and preceding fiscal year. The parent has approximately
$689,000 in cash plus investments less current liabilities at March 31, 1996.
Due to the financial circumstances affecting the payment of dividends from
Pacific Crest Investment to the parent (as described in the next paragraph),
Pacific Crest Investment currently does not have the ability, under California
state law, to pay dividends to the parent and it is highly unlikely that it will
have such dividend paying ability in the foreseeable future. Without dividends
from Pacific Crest Investment, the parent must rely solely on existing cash and
investments which total $790,000 at March 31, 1996. This amount is also
necessary to pay future operating expenses and existing current liabilities of
the parent and for the future possible infusion of capital into Pacific Crest
Investment.
Pacific Crest Investment's ability to pay dividends to the parent is
restricted by California state law, which requires that retained earnings are
available to pay such dividends. At March 31, 1996, Pacific Crest Investment
and Loan had deficit retained earnings of $2.8 million. Under California state
law, this deficit would have to be turned into a positive figure before
dividends could be paid from Pacific Crest Investment to the parent. Therefore,
it is unlikely Pacific Crest Investment will be able to pay dividends to its
parent in 1996. Further, Pacific Crest Investment, under the terms of the
Memorandum, as described above, must receive regulatory approval to pay a
dividend to its parent.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the major factors
that influenced the financial performance of Pacific Crest Capital, Inc., and
its wholly owned subsidiary, Pacific Crest Investment and Loan ("Pacific Crest
Investment") for the quarter ended at March 31, 1996. This analysis should be
read in conjunction with the Company's 1995 Annual Report and with the unaudited
financial statements and notes as set forth on pages 1 through 6 of this report.
FINANCIAL CONDITION
SUMMARY OF CHANGES IN BALANCE SHEET
MARCH 31, 1996 COMPARED TO DECEMBER 31, 1995
Total assets of the Company increased to $286.9 million at March 31, 1996,
from $259.1 million at December 31, 1995, a $27.8 million increase. During the
first quarter the Company increased its cash and cash equivalents by $32.0
million to $88.2 million at March 31, 1996, from $56.2 million at December 31,
1995. The increase was largely the result of an increase in deposits of $27.2
million during the quarter. The increase in deposits was attributable to the
introduction of a money market checking product during the quarter as well as an
increase in the Company's high rate savings product. Total loans, net of
deferred fees, decreased to $189.6 million at March 31, 1996, from $196.8
million at December 31, 1995, a $7.2 million decline. The Company originated
$2.8 million in new commercial real estate loans, and experienced $8.5 million
in loan payoffs during the quarter.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased $350,000 during the first quarter
of 1996 and represents 2.56% of outstanding loans at March 31, 1996. This
compares with 2.29% of outstanding loans at December 31, 1995. The Company
charged-off $175,000 in loan balances during the first quarter of 1996, compared
to $1.9 million in the same period of 1995. The 1995 charge-offs were largely
against loan loss reserves that had been established for specific accounts
identified in 1994. Management and the Board of Directors regularly review loan
performance and the adequacy of the allowance for loan losses.
The following table sets forth certain information with respect to the
Company's allowance for loan losses and valuation adjustment to other real
estate owned ("OREO") as of the dates or for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE QUARTER ENDED MARCH 31
(DOLLARS IN THOUSANDS) 1996 1995
- - ---------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses
Balance at beginning of period: $ 4,500 $ 8,075
Chargeoffs:
Commercial real estate mortgages: (175) (1,900)
Recoveries:
Commercial real estate mortgages: - -
Provision for loan losses: 525 171
- - ---------------------------------------------------------------------------
Balance at end of period: $ 4,850 $ 6,346
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
Allowance for loan losses as a % of loans 2.56% 3.50%
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
Net loan chargeoffs 175 1,900
Valuation adjustment to OREO: 65 26
- - ---------------------------------------------------------------------------
Total net loan chargeoffs & OREO valuation adjustments: 240 1,926
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
</TABLE>
<PAGE>
NONPERFORMING AND RESTRUCTURED ASSETS
The following table sets forth loans accounted for on a nonaccrual basis,
OREO and loans that were "troubled debt restructurings" at the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans-Commercial real estate loans $ 6,894 $ 4,985
Other real estate owned 4,466 4,355
- - -------------------------------------------------------------------------------
Total nonaccrual loans and OREO $ 11,360 $ 9,340
- - -------------------------------------------------------------------------------
Total nonperforming assets to total assets 3.96% 3.60%
Troubled debt restructurings $ 7,248 $ 8,757
</TABLE>
The following tables represent the major components of the changes in the
nonaccrual loans and OREO assets for the quarters ending March 31, 1996 and
1995:
<TABLE>
<CAPTION>
NONACCRUAL LOAN ACTIVITY
(DOLLARS IN THOUSANDS) MARCH 31, 1996 MARCH 31, 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans at the beginning of the quarter $ 4,985 $ 9,779
Nonaccrual loan additions 2,107 1,960
Loans returned to accrual status - (2,628)
Loans transferred to OREO (176) (2,227)
Loan provision - (350)
Net loan chargeoffs - (1,233)
Loan payments (22) (61)
- - -------------------------------------------------------------------------------
Nonaccrual loans at the end of the quarter 6,894 5,240
- - -------------------------------------------------------------------------------
Net change/activity $ 1,909 $ (4,539)
- - -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER REAL ESTATE OWNED ACTIVITY
(DOLLARS IN THOUSANDS) MARCH 31, 1996 MARCH 31, 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
OREO at the beginning of the quarter $ 4,355 $ 5,724
Transfers from loans 176 2,227
OREO write downs (65) (26)
Payments/other - 209
Sales of OREO properties - (3,233)
- - -------------------------------------------------------------------------------
OREO balance at the end of the quarter 4,466 4,901
- - -------------------------------------------------------------------------------
Net change/activity $ 111 $ (823)
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
NONACCRUAL LOANS
Nonaccrual loans are loans, not classified as "troubled debt
restructurings" or OREO, that show little or no current payment ability. These
loans are supported, however, by collateral or cash flow that support the
collectibility of the Company's remaining book balance, after consideration of
the allowance for loan losses. The Company had twelve nonaccrual loans at
March 31, 1996, totaling $6.9 million which compares to 10 loans, totaling $5.0
million at December 31. 1995. The Company has three loans, each exceeding
$800,000 in outstanding principal balances which comprised $3.2 million or
45.8% of the nonaccrual loan balances. The remaining $3.7 million consists of
nine loans. Nonaccrual loan balances are net of any prior write-offs, but any
specifically assigned general allowance for loan losses are not deducted from
the nonaccrual loan balances above.
8
<PAGE>
OTHER REAL ESTATE OWNED
Assets classified as OREO represent foreclosed real estate owned by the
Company. The Company had seven properties in this category at March 31, 1996,
totaling $4.5 million. The Company had two properties each exceeding $1.0
million in net book value, which comprised $2.9 million or 65.6% of the
Company's OREO balance. The remaining $1.6 million in OREO balances consisted
of five properties.
OREO increased to $4.5 million at March 31, 1996, from $4.4 million at
December 31, 1995, an increase of $111,000, due to the addition of one
additional property during the first quarter of 1996. The Company is currently
in sales negotiations on several of its OREO properties and expects that these
properties could be sold within the next 90 to 120 days.
TROUBLED DEBT RESTRUCTURINGS (TDR'S)
A TDR is a loan in which the Company, for reasons related to the
borrower's financial difficulties, grants a permanent concession to the
borrower, such as a reduction in the loan's fully-indexed interest rate, a
reduction in the face amount of the debt, or an extension of the maturity date
of the loan, that the Company would not otherwise consider. At March 31, 1996,
the Company had six loans totaling $7.2 million that were categorized as TDR's.
The Company had three loans each exceeding $1.0 million in principal balance
which make up a total of $5.3 million or 73.3% of the aggregate TDR loan
balance. TDR balances are net of any prior write-offs, but any specifically
assigned general allowances for loan losses are not deducted from the above
TDR loan balances. All six TDR loans were on an accrual basis at March 31,
1996.
CAPITAL
Shareholders' equity increased by $736,000 to $22.7 million at March 31,
1996. This increase reflects the increase to shareholders' equity of $711,000
from first quarter 1996 earnings and a $25,000 increase from the issuance of
common stock through the employee stock purchase plan.
The Company's subsidiary, Pacific Crest Investment is required to maintain
certain minimum capital levels. In addition, Pacific Crest Investment must
maintain certain capital ratios to be considered "well capitalized" under the
prompt corrective action provisions of the FDIC Improvement Act.
In addition to these minimums, Pacific Crest Investment is subject to the
MOU that requires it to maintain a leverage capital ratio of 7.0% until the
MOU is canceled by regulatory agencies.
The following table sets forth Pacific Crest Investment's regulatory
capital ratios at March 31, 1996, and December 31, 1995.
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS AT MARCH 31, 1996 AT DECEMBER 31, 1995
-------------------------------------- --------------------------------------
Minimum Minimum
Required Actual Excess Required Actual Excess
---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.29% 3.29% 4.00% 7.82% 3.82%
Tier 1 risk-based capital ratio 4.00% 9.80% 5.80% 4.00% 9.48% 5.48%
Total risk-based capital ratio 8.00% 11.06% 3.06% 8.00% 10.74% 2.74%
Memorandum leverage capital ratio 7.00% 7.29% 0.29% 7.00% 7.82% 0.82%
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
The following table, for the quarters ending March 31, 1996 and 1995,
presents the distribution of average assets, liabilities and shareholders'
equity, the total dollar amount of interest income from average interest-
earning assets, the resultant yields and the interest expense on average
interest-bearing liabilities, expressed in both dollars and rates. All average
balances are daily average balances. Nonaccrual loans and nonperforming assets
have been included in the table as loans and investments, respectively, having
a zero yield.
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, YIELDS AND RATES
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------------
Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 195,016 $ 5,682 11.69 % $ 184,225 $ 4,935 10.86 %
Repurchase agreements 71,588 947 5.31 % 7,182 104 5.87 %
Interest-earning deposits 300 4 5.16 % 395 4 4.28 %
U.S. government sponsored
agency securities 2,600 34 5.20 % 52,259 821 6.37 %
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 269,504 6,667 9.92 % 244,061 5,864 9.74 %
Other real estate owned 4,370 6,016
Other noninterest earning
assets 7,791 7,521
Less allowance for loan
losses 4,883 8,025
- - ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 276,782 $ 249,573
- - ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts $ 186,821 2,464 5.29 % $ 137,877 1,868 5.49 %
Certificates of deposit 59,982 830 5.55 % 88,897 1,108 5.05 %
Money market checking 5,172 63 4.90 % - - -
Reverse repurchase agreements - - - 478 7 5.94 %
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 251,975 3,357 5.34 % 227,252 2,983 5.32 %
Non interest-bearing
liabilities 2,635 2,756
Shareholders' equity 22,172 19,565
- - ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 276,782 $ 249,573
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 3,310 $ 2,881
Net interest rate spread 4.58 % 4.42 %
Net interest-earning assets $ 17,529 $ 16,809
Net interest margin 4.93 % 4.79 %
Average interest-earning
assets to average
interest-bearing liabilities 107.0% 107.0%
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
.
ANALYSIS OF CHANGES IN NET INTEREST INCOME AND EXPENSE
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities due to changes in outstanding balances and changes
in interest rates. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to: (i)
changes on volume (i.e. changes in volume multiplied by old rate) and (ii)
changes in rate (i.e. changes in rate multiplied by old volume). For purposes
of this table, changes attributable to both rate and volume which cannot be
segregated have been allocated proportionately to changes due to volume and
changes due to rate.
<TABLE>
<CAPTION>
-------------------------------
For the Quarter Ending
March 31, 1996
-------------------------------
1996 compared to 1995
Increase (decrease) due to
-------------------------------
(DOLLARS IN THOUSANDS) Volume Rate (Net
Change)
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
CHANGES IN INTEREST INCOME
Loans $ 292 $ 455 $ 747
Repurchase agreements 943 (100) 843
U.S. government sponsored
agency securities (779) (8) (787)
- - ------------------------------------------------------------------------------
Total change in interest income 456 347 803
- - ------------------------------------------------------------------------------
CHANGES IN INTEREST EXPENSE
Savings accounts 670 (74) 596
Certificates of deposit (364) 86 (278)
Money market checking deposits 63 - 63
Reverse repurchase agreements (7) - (7)
- - ------------------------------------------------------------------------------
Total change in interest expense 362 12 374
- - ------------------------------------------------------------------------------
Changes in net interest income $ 94 $ 335 $ 429
- - ------------------------------------------------------------------------------
</TABLE>
DETAIL COMPARISONS OF FINANCIAL RESULTS
EARNINGS PERFORMANCE
Net income was $711,000 (or $0.24 per common share on a fully diluted
basis) for the quarter ended March 31, 1996, compared to $588,000 (or $0.22 per
common share on a fully diluted basis) for the corresponding period in 1995.
Net income in the first quarter of 1996 was positively affected by an increase
in net interest income as well as a reduction in general and administrative
expenses compared to the first quarter of 1995. Net income was negatively
impacted by an increase in the provision loan losses, as well as the increase in
the provision for income taxes.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1996 was $3.31 million,
an increase of $429,000 or 14.9% over the same period of 1995. This increase
resulted from an increase in the net interest rate spread to 4.58% for the
quarter ended March 31, 1996 from 4.42% for the quarter ended March 31, 1995. In
addition, the Company's interest earning assets increased by $25.4 million to
$269.5 million in the first quarter of 1996.
11
<PAGE>
TOTAL INTEREST INCOME
Total interest income increased 803,000 or 13.7% to $6.67 million for the
quarter ended March 31, 1996, compared to the quarter ended March 31, 1995.
This increase was primarily due to a $456,000 increase in total interest income
as a result of an increase of $25.4 million in average interest-earning assets
for the period ended March 31, 1996. In addition, an increase of $347,000 in
total interest income resulted from an overall increase in the yield on the
average interest-earning assets from 9.74% for the quarter ended March 31, 1995
to 9.92% for the quarter ended March 31, 1996.
Interest on loans increased $747,000 to $5.68 million, a 15.1% increase for
the quarter ended March 31, 1996, compared to 1995. This increase was
attributable to a 83 basis point increase in the yield on the Company's
commercial real estate loans from 10.86% for the first quarter of 1995 to 11.69%
for the quarter ended March 31, 1996. The increase in the yield was positively
impacted by approximately $260,000 in deferred loan income (interest and fees)
on loans restructured and liquidated during the first quarter of 1996. The
overall increase in loan interest income was also benefited by an increase of
$10.8 million in average loans outstanding during the first quarter of 1996
compared to 1995.
Interest earned on the Company's securities purchased under resale
agreements increased $843,000 for the quarter ended March 31, 1996, compared to
the same period of 1995. This increase was attributable to an increase of $64.4
million in the average balance during the quarter ended March 31, 1996. The
increase in the average outstanding balances in this portfolio is the result of
the liquidation of the Company's investment securities portfolio, as well as an
increase in the Company's interest bearing deposits. This increase was
partially offset by an decrease in the yield of 56 basis points to 5.31% for the
quarter ended March 31, 1996 compared to 5.87% for the same period in 1995. The
yield on these securities reflect the difference in market interest rates
between these periods.
The Company posted $34,000 in U.S. government sponsored agency securities
income during the first quarter of 1996, compared to $821,000 in 1995. The
Company purchased this portfolio during 1994, with the majority of these
securities maturing or being called in the second and third quarters of 1995.
The liquidation proceeds of these securities were reinvested in short term
repurchase agreements.
TOTAL INTEREST EXPENSE
Total interest expense for the quarter ended March 31, 1996, increased
$374,000, or 12.5% compared to the first quarter of 1995. The increase in
interest cost resulted from an increase in the average interest bearing
liabilities of $24.7 million during the first quarter of 1996 compared to 1995.
The increase in the average outstanding deposits resulted in a $362,000 increase
to the interest expense for the first quarter of 1996.
Interest on savings accounts increased $596,000 to $2.46 million for the
quarter ended March 31, 1996, when compared to the same period in 1995, due to
an increase of $48.9 million in average savings deposits for the quarter ended
March 31, 1996 compared to the same period in 1995. Savings deposit rates
decreased 20 basis points from 5.49% for the quarter ended March 31, 1995 to
5.29% for the quarter ended March 31, 1996. The decrease in the rates between
these periods reflects the overall decline in the market interest rates between
these respective periods.
Interest on certificates of deposit decreased $278,000 or 25.1% for the
quarter ended March 31, 1996, compared to the same period in 1995, due to a
decrease of $28.9 million in average certificate deposits for the quarter ended
March 31, 1996, compared to the same period in 1995. Partially offsetting this
was a 50 basis point increase on rates paid on certificates of deposit from
5.05% for the quarter ended March 31, 1995 to 5.55% for the quarter ended March
31, 1996.
The Company introduced a money market checking product during the first
quarter of 1996. The introduction of this product resulted in attracting $13.9
million in deposits by March 31, 1996 with average outstanding deposits for the
quarter of $5.2 million. The effective rate on this product averaged 4.9% for
the quarter.
12
<PAGE>
PROVISION FOR LOAN LOSSES
During the quarter ended March 31, 1996, the Company increased its
provision for loan losses to $525,000 from $171,000 for the same period last
year. The increase in the provision reflects additional reserves established on
various nonaccrual loans. The allowance for loan losses as a percentage of
loans stood at 2.56% at March 31, 1996, compared to 2.29% at December 31, 1995.
The calculation of the adequacy of the allowance for loan losses is based on a
variety of factors, including underlying loan collateral values, delinquency
trends and historical loan loss experience. Although the Company maintains its
allowance for loan losses at a level which it considers to be adequate to
provide for potential losses, there can be no assurance that such losses will
not exceed the estimated amounts, thereby adversely affecting future results of
operations. The ratio of nonaccrual loans to total loans was 2.53% at December
31, 1995 and 3.64% at March 31, 1996. The ratio of the allowance for loan
losses to nonaccrual loans was 90.3% at December 31, 1995 and 70.4% at March 31,
1996.
NONINTEREST INCOME
Noninterest income for the quarter ended March 31, 1996 increased $38,000
over the same period in 1995. The major components of noninterest income for
1996 included late fees and loan prepayment fees.
The major components of noninterest income for 1995 included late fees,
loan prepayment fees and a gain from the receipt of payments on a
collateralized mortgage obligation residual.
NONINTEREST EXPENSE
Noninterest expense for the quarter ended March 31, 1996 decreased $459,000
over the same period in 1995. This decrease is primarily attributable to a
decrease to the Company's salaries and employee benefits cost, a reduction in
FDIC insurance premiums, and a decline in the other expense category.
The valuation adjustment to other real estate owned and the associated
collection expenses on the OREO accounts remained relatively unchanged during
the first quarter of 1996 compared to 1995.
Salaries and employee benefits decreased $101,000 for the first quarter of
1996 over 1995. This decrease resulted from a decrease in Company staffing, as
the company liquidated its residential real estate lending department during the
first quarter of 1995. The first quarter of 1995 included severance packages
paid to employees of the Company's residential real estate lending department.
Net occupancy decreased $39,000 for the quarter ended March 31, 1996 over
the same period in 1995, due to the closure of the Company's residential real
estate lending department.
FDIC insurance premiums declined by $134,000 as a result of the FDIC
reducing deposit insurance premium rates during the third quarter of 1995.
Credit and collections cost remained relatively unchanged during these two
periods.
Communication and data processing cost decreased by $6,000 to $119,000 for
the quarter ending March 31, 1996 compared to the same period in 1995, due to
the closure of the Company's residential real estate lending department.
Other expenses decreased by $178,000 to $153,000 for the first quarter of
1996. This decrease is primarily the result of a $100,000 reduction in the
accrual for Delaware franchise taxes.
INCOME TAX PROVISION
For the quarter ended March 31, 1996, the Company estimated its provision
for income taxes at 38.8%. The difference between the Company's statutory tax
rate of 41.5% and its effective rate of 38.8% for the quarter ending March 31,
1996 is due to California tax deductions (credits) generated by the Company on
loans made in special tax zones within California. For the quarter ended March
31, 1995 the tax provision at the combined statutory tax rate of 42%, was
approximately $250.000, which was offset by a reduction of approximately
$249,000 in the Company's tax valuation reserve.
13
<PAGE>
LIQUIDITY
The Company's primary sources of funds are deposits and payments of
principal and interest on loans. While maturities and scheduled principal
amortization on loans are a reasonable predictable source of funds, deposit
flows and mortgage loan prepayments are greatly influenced by the level of
interest rates, economic conditions, and competition.
There has been a significant increase in the Company's holdings of cash and
cash equivalents during the three months ending March 31, 1996. Cash and cash
equivalents increased $32.0 million to $88.2 million at March 31, 1996 from
December 31, 1995. The Company experienced an increase in savings accounts of
$12.6 million, an increase in money market checking accounts of $13.9 million
and an increase in certificates of deposits of $650,000 during the first three
months of 1996. While the Company originated $2.8 million in new commercial
real estate loans during the quarter ending March 31, 1996, the Company
experienced $8.5 million in loan payoffs.
The Company took advantage of the rise in long term interest rates that
occurred during April 1996 by purchasing approximately $33.9 million of U.S.
governmental agency callable securities at par.
The Parent Company has approximately $689,000 in cash plus investments less
current liabilities at March 31, 1996 which is necessary to pay future operating
expenses of the parent and for the future possibly infusions of capital into
Pacific Crest Investment.
Pacific Crest Investment's ability to pay dividends to the parent is
restricted by California state law, which requires that sufficient retained
earnings are available to pay such dividends. At March 31, 1996, Pacific Crest
Investment had deficit retained earnings of $2.8 million. Under California
state law, this deficit would have to be turned into a positive figure before
dividends could be paid from Pacific Crest Investment to the parent. Therefore
it is unlikely Pacific Crest Investment will be able to pay dividends to its
parent in 1996. Further, Pacific Crest Investment, under the terms of the
Memorandum, must receive regulatory approval to pay a dividend to its parent.
14
<PAGE>
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2 . CHANGES IN SECURITIES
Not applicable.
ITEM 3 . DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 . SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
(b) REPORTS ON FORM 8-K:
The Company filed one report on Form-8K during the quarter ended March 31,
1996.
Item 4, Changes in registrant's certifying accountants
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC CREST CAPITAL, INC.
Date: May 14, 1996 /s/Gary Wehrle
------------------- --------------------------------------------
Gary Wehrle
President and Chief Executive Officer
Date: May 14, 1996 /s/Robert J. Dennen
-------------------- --------------------------------------------
Robert J. Dennen
Chief Financial Officer/Corporate Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,582
<INT-BEARING-DEPOSITS> 300
<FED-FUNDS-SOLD> 86,274
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 3,000
<INVESTMENTS-MARKET> 0
<LOANS> 189,587
<ALLOWANCE> 4,850
<TOTAL-ASSETS> 286,926
<DEPOSITS> 261,677
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,561
<LONG-TERM> 0
0
0
<COMMON> 22,688
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 286,926
<INTEREST-LOAN> 5,682
<INTEREST-INVEST> 34
<INTEREST-OTHER> 951
<INTEREST-TOTAL> 6,667
<INTEREST-DEPOSIT> 3,357
<INTEREST-EXPENSE> 3,357
<INTEREST-INCOME-NET> 3,310
<LOAN-LOSSES> 525
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,787
<INCOME-PRETAX> 1,161
<INCOME-PRE-EXTRAORDINARY> 711
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 0
<LOANS-NON> 6,894
<LOANS-PAST> 4,821
<LOANS-TROUBLED> 7,248
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,500
<CHARGE-OFFS> 175
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 4,850
<ALLOWANCE-DOMESTIC> 4,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
