<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 JUNE 30, 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
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
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(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 AUGUST 8, 1996.
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. . . . . 8
Part II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 AND DECEMBER 31, 1995
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JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 1,280 $ 2,118
Certificates of deposit 300 300
Securities purchased under resale agreements 36,445 53,749
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Cash and cash equivalents 38,025 56,167
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U.S. government sponsored agency securities (Note 5):
Held to maturity, at amortized cost 25,900 -
Available for sale, at market 38,492 -
Loans
Commercial mortgage 177,132 191,481
Residential mortgage 1,981 3,142
Installment and other 2,231 2,155
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Total loans 181,344 196,778
Allowance for loan losses 3,292 4,500
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Net loans 178,052 192,278
Accrued interest receivable 1,794 1,547
Prepaid expenses and other assets 1,035 219
Deferred income taxes 3,572 3,979
Other real estate owned 3,044 4,355
Premises and equipment 529 564
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Total assets $ 290,443 $ 259,109
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LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings accounts $ 185,149 $ 173,725
Certificates of deposit 58,477 60,785
Money market checking 21,154 -
- ---------------------------------------------------------------------------------------------------------
Total deposits 264,780 234,510
Accrued interest and other liabilities 2,241 2,647
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Total liabilities 267,021 237,157
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Shareholders' equity (Notes 6 and 7):
Common stock, $.01 par value, 10,000,000 shares authorized,
2,959,698 shares issued and outstanding at June 30, 1996,
2,953,748 shares issued and outstanding at December 31, 1995 27,838 27,813
Accumulated deficit (4,404) (5,861)
Unrealized loss on securities available for sale, net of taxes (12) -
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,422 21,952
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Total liabilities and shareholders' equity $ 290,443 $ 259,109
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Book value per common share (Note 3) $ 7.91 $ 7.43
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</TABLE>
SEE ACCOMPANYING NOTES.
1
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans, including fees $ 5,240 $ 4,950 $ 10,922 $ 9,885
Securities purchased under resale agreements 725 107 1,672 211
Certificates of deposit 4 4 8 8
U.S. government sponsored agency securities
Available for sale 301 - 301 -
Held to maturity 293 643 327 1,463
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Total interest income 6,563 5,704 13,230 11,567
Interest expense:
Savings accounts 2,343 1,801 4,807 3,669
Certificates of deposit 806 1,182 1,636 2,289
Money market checking accounts 227 - 290 -
Reverse repurchase agreements - 8 - 15
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Total interest expense 3,376 2,991 6,733 5,973
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Net interest income 3,187 2,713 6,497 5,594
Provision for loan losses 575 (64) 1,100 107
- ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,612 2,777 5,397 5,487
Noninterest income:
Recovery on investment securities 350 173 350 195
Other noninterest income 205 84 368 187
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Total noninterest income 555 257 718 382
Noninterest expense:
Valuation adjustments to
other real estate owned 29 140 94 166
Other real estate owned expenses 15 50 23 95
Salaries and employee benefits 1,042 1,005 2,105 2,170
Net occupancy expenses 431 396 782 785
FDIC insurance premiums 17 150 33 301
Credit and collection expenses 13 102 25 117
Communication and data processing 137 126 256 251
Other expenses 277 377 430 707
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Total noninterest expense 1,961 2,346 3,748 4,592
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Income before income taxes 1,206 688 2,367 1,277
Income tax provision 460 - 910 1
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Net income 746 688 1,457 1,276
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Preferred dividends declared - (307) - (614)
Net income applicable to common stock $ 746 $ 381 1,457 662
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Per share data (Note 3):
Primary earnings per common share $ 0.25 $ 0.35 $ 0.49 $ 0.60
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Weighted average common shares outstanding (in
thousands) 3005 1,102 3000 1,102
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Fully diluted earnings per common share $ 0.25 $ 0.26 $ 0.49 $ 0.48
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Weighted average fully diluted common shares
outstanding (in thousands) 3,024 2,661 3,015 2,661
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------
Unrealized Loss
on Securities
Available Accumulated
(DOLLARS AND SHARES IN THOUSANDS) Shares Amount Shares Amount for Sale Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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
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Balances at December 31, 1995 - $ - 2,954 $ 27,813 $ - $ (5,861)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase of stock under employee
stock purchase plan (unaudited) - - 6 25 - -
Unrealized loss on securities available
for sale, net of taxes (unaudited) - - - - (12) -
Net income (unaudited) - - - - - 1,457
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Balances at June 30, 1996 - $ - 2,960 $ 27,838 $ (12) $ (4,404)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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SIX MONTHS ENDED
JUNE 30,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 1,457 $ 1,276
Adjustments to reconcile net income
to net cash provided by operating
activities:
Recovery on investment securities -- --
Provision for loan losses 1,100 107
Valuation adjustments to other real 94 166
estate owned
Depreciation and amortization 115 125
Amortization of deferred loan fees (677) (426)
Amortization of premiums and discounts 47 (37)
on investment securities
Increase in accrued interest receivable (247) (151)
Increase in prepaid expenses and other (816) (65)
assets
Decrease in deferred income taxes 415 --
Decrease in accrued interest and other
liabilities (406) (245)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 1,082 750
INVESTING ACTIVITIES
Purchase of securities held to maturity (33,900) --
Purchase of securities available for sale (54,590) --
Proceeds from maturities of securities held to 8,000 19,000
maturity
Proceeds from maturities of securities available 16,031 --
for sale
Net decrease (increase) in loans 5,483 (7,091)
Proceeds from sale of loans 7,141 --
Purchases of equipment and leasehold improvements (80) (41)
Proceeds from sale of other real estate owned 2,396 6,801
- --------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (49,519) 18,669
FINANCING ACTIVITIES
Preferred stock cash dividends -- (614)
Proceeds from the issuance of common stock 25 --
Net decrease in certificates of deposit (2,308) (8,350)
Net increase in money market checking accounts 21,154 --
Net increase (decrease) in savings accounts 11,424 (9,761)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 30,295 (18,725)
Net (decrease) increase in cash and cash (18,142) 694
equivalents
Cash and cash equivalents at beginning of period 56,167 6,204
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 38,025 $ 6,898
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,745 $ 5,980
Income taxes $ 670 $ 1
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Transfers from loans to other real estate owned $ 1,179 $ 3,811
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
4
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
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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 June 30, 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.
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NOTE 2. INCOME TAXES
- --------------------------------------------------------------------------------
For the interim periods ended June 30, 1996 and 1995, the Company's
provision for income taxes was $910,000 and $1,000 or 38.4% and 42.4%,
respectively. The difference between the Company's statutory tax rate of
41.5% and its effective rate of 38.4% for the six months ending June 30, 1996
is due to California tax deductions (credits) generated by the Company on
loans made in special tax zones within California. For the quarter and six
months ended June 30, 1995 the tax provision at the combined statutory tax
rate of 42.4%, was approximately $292,000, and $542,000 respectively, which
was offset by a reduction of approximately $292,000 and $541,000,
respectively in the Company's tax valuation reserve.
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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 June 30,
1996 and December 31, 1995. The number of common shares outstanding was
2,959,698 at June 30, 1996 and 2,953,748 at December 31, 1995.
The primary earnings per common share for the second quarter and six
months ending June 30, 1996 were determined by dividing net income applicable
to common stock of $746,000 and $1,457,000, respectively by the weighted
average common shares outstanding of 3,005,000 and 3,000,000, respectively.
The fully diluted earnings per common share for the second quarter and six
months ending June 30, 1996, was determined by dividing net income applicable
to common stock of $746,000 and $1,457,000, respectively by the weighted
average fully diluted common shares outstanding of 3,024,000 and 3,015,000,
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 second quarter and six
months ending June 30, 1995 was determined by decreasing the net income of
$688,000 and $1,276,000, respectively by the amount of preferred dividends
declared of $307,000 and $614,000, respectively, resulting in net income
applicable to common stock of $381,000 for the quarter and $662,000 for the
six months ending June 30, 1995. This amount was then divided by the
weighted average common shares outstanding of 1,102,000 for the quarter and
six months ending June 30, 1995. The fully diluted earnings per common
share for the second quarter and six months ending June 30, 1995 was
determined by dividing net income applicable to common stock of $688,000 and
$1,276,000, respectively by the weighted average fully diluted common shares
outstanding of 2,661,000 for the quarter and six months ending June 30, 1995.
5
<PAGE>
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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 7.87% as of June 30, 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 June 30, 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.
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NOTE 5. INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
Investment securities, at June 30, 1996, consist of U.S. government
sponsored agency issued securities as follows:
<TABLE>
<CAPTION>
Weighted Current Amortized Fair Market Unrealized
(DOLLARS IN THOUSANDS) Average Life Yield Book Value Value Gain/(Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government sponsored agency
issued securities, held to maturity: 7.0 years 7.59% $25,900 $25,855 $ (45)
U.S. government sponsored agency
issued securities, available for sale: 3.2 years 6.87% 38,511 38,492 (19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities 7.16% $64,411 $64,347 $ (64)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has an interest in a corporate debt security that was written
off during 1994. The Company recorded a recovery on this security of $350,000
during the second quarter of 1996. The Company had recorded a recovery of
$656,000 on this same security during the third and fourth quarters of 1995.
Included in the financial statements for the quarter and six months ending
June 30, 1995, are gross realized gains of $173,000 and $195,000 respectively,
resulting from cash receipts of $195,000 from a collateralized mortgage
obligation residual, (CMO Residual).
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL
- --------------------------------------------------------------------------------
The Company purchased 30,000 shares of its common stock in the open market
on July 29, 1996 at a purchase price of $8.50 per share. The purchase of these
shares are to be held by the Company as treasury stock. The 30,000 shares were
purchased using excess cash of the Parent Company.
- --------------------------------------------------------------------------------
NOTE 7. 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
$556,000 in cash plus investments less current liabilities at June 30, 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 until sometime in
6
<PAGE>
1997 or later. Without dividends from Pacific Crest Investment, the parent must
rely solely on existing cash and investments which total $689,000 at June 30,
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. The Company's cash plus investments
less current liabilities of $556,000 at June 30, 1996 was reduced by $255,000 to
$301,000 as a result of the purchase of the Company's Common Stock on July 29,
1996.
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 June 30, 1996, Pacific Crest Investment and
Loan had deficit retained earnings of $1.98 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.
7
<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 June 30, 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 7 of this report.
FINANCIAL CONDITION
SUMMARY OF CHANGES IN BALANCE SHEET
JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995
Total assets of the Company increased to $290.4 million at June 30, 1996,
from $259.1 million at December 31, 1995, a $31.3 million increase. This
increase reflects the purchase of approximately $64.4 million of investment
securities, net of maturities, during the first six months of 1996 offset by a
decline of $17.3 million in Repurchase Agreements and a $14.2 million decline in
net loans. The Company funded the purchase of these investment securities by
increasing its interest bearing liabilities by $30.3 million to $264.8 million
at June 30, 1995 from $234.5 million at December 31, 1995. The Company
increased its savings accounts by $11.4 million, while increasing its newly
introduced money market checking account balances by $21.2 million.
Net loans, net of deferred fees and the allowance for loan losses,
decreased by $14.2 million to $178.1 million at June 30, 1996, from $192.3
million at December 31, 1995. The Company originated $13.1 million in new real
estate loans during the six months ending June 30, 1996. Off-setting these
originations, the Company experienced $23.9 million in loan payoffs and loan
sales, and $1.2 million in loan transfers to other real estate owned, ("OREO")
during the six months ending June 30, 1996. Included in the $23.9 million loan
reduction was a bulk loan sale of $9.5 million of nonaccrual and troubled debt
restructured loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 1996, decreased by $1.2 million
from the level at December 31, 1995, and represents 1.82% of outstanding loans
at June 30, 1996. This compares with 2.29% of outstanding loans at December 31,
1995. The Company charged-off approximately $175,000 and $2.29 million,
respectively in loan balances during the first and second quarters of 1996. The
overall reduction in the general loan loss reserve from $4.5 million to $3.3
million during the six months ending June 30, 1996 reflects net charge-offs of
$2.3 million partially offset by the addition of $1.1 million in loan loss
provision. 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 OREO as of the
dates or for the periods indicated:
ALLOWANCE FOR LOAN LOSSES AT OR FOR THE PERIOD ENDED JUNE 30,
(DOLLARS IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
Balance at beginning of period: $ 4,500 $ 8,075
Chargeoffs: (2,466) (4,310)
Commercial real estate mortgages:
Recoveries:
Commercial real estate mortgages: 158 --
Provision for loan losses: 1,100 107
- --------------------------------------------------------------------------------
Balance at end of period: $ 3,292 $ 3,872
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Allowance for loan losses as a % of loans 1.82% 2.13%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net loan Charge-offs $ 2,308 $ 4,310
Valuation adjustment to OREO: 94 166
- --------------------------------------------------------------------------------
Total net loan Charge-offs & OREO valuation adjustment: $ 2,402 $ 4,476
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8
<PAGE>
NON-PERFORMING 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:
June 30, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
Nonaccrual loans/Commercial real estate loans $4,244 $4,985
Other real estate owned 3,044 4,355
- --------------------------------------------------------------------------------
Total nonaccrual loans and OREO $7,288 $9,340
- --------------------------------------------------------------------------------
Total nonperforming assets to total assets 2.51% 3.60%
Troubled debt restructurings 719 8,757
- --------------------------------------------------------------------------------
The following tables represent the major components of the changes in the
nonaccrual loans and OREO assets for the six months ending June 30, 1996 and
1995:
NONACCRUAL LOAN ACTIVITY
(DOLLARS IN THOUSANDS) June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------
Nonaccrual loans at the beginning of the period $ 4,985 $ 9,779
Nonaccrual loan additions 3,668 7,360
Loans returned to accrual status - (3,654)
Loans transferred to OREO (1,179) (3,811)
Loan Provision - (648)
Net loan charge-offs (958) (1,940)
Loan payments and loan sale (2,272) (195)
- --------------------------------------------------------------------------------
Nonaccrual loans at the end of the period 4,244 6,891
- --------------------------------------------------------------------------------
Net change/activity $ (741) $ (2,888)
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED ACTIVITY
(DOLLARS IN THOUSANDS) June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------
OREO at the beginning of the period $ 4,355 $ 5,724
Transfers from loans 1,179 3,811
OREO valuation adjustments (94) (166)
Payments/other - 509
Sales of OREO properties (2,396) (7,201)
- --------------------------------------------------------------------------------
OREO balance at the end of the period 3,044 2,677
- --------------------------------------------------------------------------------
Net change/activity $ (1,311) $ 3,047
- --------------------------------------------------------------------------------
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 nine nonaccrual loans at June
30, 1996, totaling $4.2 million. The Company sold two of its nonaccrual loans
during June of 1996 as part of its bulk loan sale transaction. The contractual
loan balances of the nonaccrual loans sold was $2.46 million, the amount of
chargeoff taken on these loans was $587,000 and the net proceeds received on
these two loans was $1.81 million. 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.
9
<PAGE>
OTHER REAL ESTATE OWNED
Assets classified as OREO include foreclosed real estate owned by the
Company. The Company had five properties in this category at June 30, 1996,
totaling $3.0 million. The Company had one property with $1.4 million in net
book value, or 46.7% of the Company's OREO balance. The remaining $1.6 million
in OREO balances consisted of four properties.
OREO declined to $3.0 million at June 30, 1996, from $4.4 million at
December 31, 1995, a decline of $1.4 million or 31.8%. This reflects the sale
of five properties, sold on an all cash basis, with a net balance of $2.4
million during the six months ending June 30, 1996. The sale of the individual
OREO properties were separate transactions from the bulk loan sale transaction.
TROUBLED DEBT RESTRUCTURINGS (TDR'S)
A TDR is a loan in which the Company, for reasons related to the borrowers'
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 June 30, 1996, the Company had one
loan with an aggregate principal balance of $719,000 that was categorized as a
TDR. The Company sold five of its TDR loans during June of 1996 as part of its
bulk loan sale transaction. The contractual loan balances of the TDR loans sold
was $7.06 million, the amount of charge-offs taken on these loans was $1.31
million and the net proceeds received on these five loans was $5.19 million.
TDR balances are net of any prior write-offs, but any specifically assigned
general allowance for loan losses are not deducted from the above TDR loan
balance.
CAPITAL
Shareholders' equity increased by $1.47 million to $23.4 million at June
30, 1996. This increase reflects the increase to shareholders' equity by the
six months of net income of $1.46 million and the $25,000 purchase of stock
under the employee stock purchase plan, partially offset by $12,000 in
unrealized losses on securities available for sale.
The Company purchased 30,000 shares of its common stock on July 29, 1996
at $8.50 per share. The purchase of these shares are to be held by the Company
as treasury stock.
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 require it to maintain a leverage capital ratio of 7.0.
The following table sets forth Pacific Crest Investment's regulatory
capital ratios at June 30, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS AT JUNE 30, 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% 7.87% 3.87% 4.00% 7.82% 3.82%
Tier 1 risk-based capital ratio 4.00% 10.90% 6.90% 4.00% 9.48% 5.48%
Total risk-based capital ratio 8.00% 12.16% 4.16% 8.00% 10.74% 2.74%
Memorandum leverage capital ratio 7.00% 7.87% 0.87% 7.00% 7.82% 0.82%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME ANALYSIS
The following tables, for the quarter and six months ending June 30, 1996 and
1995, presents the distribution of average assets, liabilities and stockholders'
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.
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, YIELDS AND RATES
Three Months Ended June 30,
-------------------------------------------------------------------------------------------------
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 $ 189,004 $ 5,240 11.15% $ 182,200 $ 4,950 10.90%
Repurchase agreements 55,453 729 5.29% 7,486 111 5.95%
U.S. government sponsored
agency securities:
Available for sale 19,306 301 6.24% - - -
Held to maturity 15,957 293 7.34% 42,355 643 6.09%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 279,720 6,563 9.44% 232,041 5,704 9.86%
Other real estate owned 4,391 4,819
Other noninterest earning
assets 8,033 7,501
Less allowance of loan
losses 4,733 6,252
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 287,411 $ 238,109
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts $ 183,568 2,343 5.13% $ 130,990 1,801 5.51%
Certificates of deposit 60,158 806 5.39% 84,145 1,182 5.63%
Money market checking 18,517 227 4.93% - - -
Other borrowings - - - 484 8 6.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 262,243 3,376 5.18% 215,619 2,991 5.56%
Non interest-bearing
liabilities 2,274 2,681
Shareholders' equity 22,894 19,809
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 287,411 $ 238,109
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 3,187 $ 2,713
Net interest rate spread 4.26% 4.30%
Net interest-earning assets $ 17,477 $ 16,422
Net interest margin 4.58% 4.69%
Average interest-earning
assets to average
interest-bearing liabilities 107% 108%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, YIELDS AND RATES
Six Months Ended June 30,
-----------------------------------------------------------------------------------------
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 $ 192,010 $ 10,922 11.44% $ 183,207 $ 9,885 10.88%
Repurchase agreements 63,670 1,680 5.31% 7,531 219 5.86%
U.S. government sponsored
agency securities:
Available for sale 9,653 301 6.24% - - -
Held to maturity 9,279 327 7.05% 47,280 1,463 6.24%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 274,612 13,230 9.69% 238,018 11,567 9.80%
Other real estate owned 4,380 5,414
Other noninterest earning
assets 7,912 7,510
Less allowance of loan
losses 4,808 7,133
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 282,096 $ 243,809
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts $ 185,194 4,807 5.22% $ 134,415 3,669 5.50%
Certificates of deposit 60,070 1,636 5.48% 86,508 2,289 5.34%
Money market checking 11,845 290 4.92% - - -
Other borrowings - - - 480 15 6.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 257,109 6,733 5.27% 221,403 5,973 5.44%
Non interest-bearing liabilities 2,454 2,718
Shareholders' equity 22,533 19,688
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 282,096 $ 243,809
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 6,497 $ 5,594
Net interest rate spread 4.42% 4.36%
Net interest-earning assets $ 17,503 $ 16,615
Net interest margin 4.76% 4.74%
Average interest-earning
assets to average
interest-bearing liabilities 107% 108%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<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 of 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 For the Six Months Ending
June 30, 1996 June 30, 1996
-------------------------------------------------------------------------------
1996 compared to 1995 1996 compared to 1995
Increase (decrease) due to Increase (decrease) due to
-------------------------------- ----------------------------------------
(Net (Net
(DOLLARS IN THOUSANDS) Volume Rate Change) Volume Rate Change)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGES IN INTEREST INCOME
Loans $ 184 $ 106 $ 290 $ 476 $ 561 $ 1,037
Repurchase agreements 709 (91) 618 1,637 (176) 1,461
U.S. Government sponsored
agency securities:
Available for sale 301 - 301 301 - 301
Held to maturity (402) 52 (350) (1,186) 50 (1,136)
- ------------------------------------------------------------------------------------------------------------------------------------
Total change in interest income 792 67 859 1,228 435 1,663
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN INTEREST EXPENSE
Savings accounts 721 (179) 542 1,390 (252) 1,138
Certificates of deposit (336) (40) (376) (701) 48 (653)
Money market checking 227 - 227 290 - 290
Other borrowings (8) - (8) (15) - (15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total change in interest expense 604 (219) 385 964 (204) 760
- ------------------------------------------------------------------------------------------------------------------------------------
Changes in net interest income $ 188 $ 286 $ 474 $ 264 $ 639 $ 903
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DETAILED COMPARISONS OF FINANCIAL RESULTS
EARNINGS PERFORMANCE
Net income was $746,000 (or $0.25 per common share on a fully diluted
basis) for the quarter ended June 30, 1996, compared to $688,000 (or $0.26 per
common share on a fully diluted basis) for the corresponding period in 1995.
Net income for the six months ending June 30, 1996 was $1.46 million (or $0.49
per common share on a fully diluted basis) compared to $1.28 million (or $0.48
per common share on a fully diluted basis) for the corresponding period in 1995.
Net income for the quarter and six months ending June 30, 1996 was positively
affected by an increase in net interest income and by a reduction in the
valuation adjustment to OREO and a reduction in both other real estate owned
expense and credit and collection expense on loans. The 1995 net income was
positively impacted by the tax credits applied to the 1995 tax provision. The
conversion of the preferred stock during the fourth quarter of 1995 impacted the
earnings per share calculation, by increasing the weighted average common shares
outstanding by approximately 293,000 shares. This dilution impacted the
quarterly and six months 1996 EPS calculation by $0.03 and $0.06 per share,
respectively.
NET INTEREST INCOME
Net interest income increased by $474,000 or 17.5% to $3.19 million for the
quarter ending June 30, 1996, while net interest income increased by $903,000 or
16.1% to $6.5 million for the six months ending June 30, 1996 compared to the
same periods of 1995. The increase in net interest income during the quarter
and six months ending June 30, 1996 was the result of an increase of $47.7
million and $36.6 million, respectively in the Company's average interest
earning assets between the 1996 and 1995 periods.
13
<PAGE>
TOTAL INTEREST INCOME
Total interest income increased by $859,000 or 15.1% to $6.56 million for
the quarter ending June 30, 1996 and increased by $1.66 million or 14.4% to
$13.2 million for the six months ending June 30, 1996, compared to the quarter
and six months ending June 30, 1995. These increases were primarily due to an
increase in the average interest earning asset balances of $47.7 million and
$36.6 million, respectively for the quarter and six months ending June 30, 1996
over the comparable periods in 1995. Offsetting these increases were declines
in the yield on the interest earning assets by 42 basis points and 11 basis
points for the quarter and six months ending June 30, 1996 compared to the same
periods of 1995. The overall yields on the Company's interest earning assets
decreased to 9.44% from 9.86% for the quarter ending June 30, 1996 compared to
the same period of 1995. For the six months ending June 30, 1996, the yield
decreased to 9.69% from 9.80% at June 30, 1995.
Interest on loans increased by $290,000 to $5.24 million, a 5.86% increase
for the quarter ending June 30, 1996, compared to 1995. Interest on loans
increased by $1.04 million to $10.92 million, a 10.49% increase for the six
months ending June 30, 1996, compared to 1995. These increases were attributable
to a 25 basis point yield increase for the second quarter and a 56 basis point
yield increase for the six months ending June 30, 1996. The Company's real
estate loan yields increased from 10.90% for the second quarter of 1995 to
11.15% for the quarter ended June 30, 1996 and increased from 10.88% for the six
months of 1995 to 11.44% for the six months ending June 30, 1996. The increase
to the loan yields were the result of fewer loans being on a nonaccrual basis
during the quarter and six months ending June 30, 1996 compared to the same
period in 1995. Also contributing to the increase in loan interest income was
an increase of $6.8 million in average loan balances for the second quarter of
1996 compared to the second quarter of 1995, and an increase of $8.8 million in
average loan balances for the six months ending June 30, 1996 compared to the
first six months of 1995.
The Company purchased a net of $64.5 million of U.S. government sponsored
agency securities during 1996. The Company posted $301,000 in income on those
securities classified as available for sale that yielded 6.24% for the quarter
and six months ending June 30, 1996. The Company had no securities classified
within this category during 1995. In addition, the Company posted $293,000 and
$327,000 in income on U.S. government sponsored agency securities that are
classified as held to maturity during the second quarter and six months ending
June 30, 1996, which represented a 7.34% and 7.05% yield, respectively on this
portfolio.
Interest earned on the Company's securities purchased under resale
agreements increased by $618,000 and $1.46 million respectively, for the quarter
and six months ending June 30, 1996, when compared to the comparable periods of
1995. These increases were primarily attributable to an increase of $48.0
million and $56.1 million respectively, in the average balance during the
quarter and six months ending June 30, 1996 compared to 1995. These increases
were partially offset by decreases in the yield of 66 basis points for the
quarter and 55 basis points for the six months ending June 30, 1996. The yield
decreased from 5.95% to 5.29% for the quarter and decreased from 5.86% to 5.31%
for the six months ending June 30, 1996 compared to 1995. This decrease
reflects the decline in market interest rates between these periods.
TOTAL INTEREST EXPENSE
Total interest expense for the quarter and six months ending June 30, 1996,
increased by $385,000 and $760,000, or 12.9% and 12.7% respectively, compared
to the same periods of 1995. The increase in interest cost resulted from an
increase in the average interest bearing deposits of $46.6 million and $35.7,
respectively for the quarter and six months ending June 30, 1996, as compared to
the same periods of 1995. Offsetting these increases was a decline in the rates
paid on savings deposits during these periods. The rates paid on the Company's
interest bearing deposits declined from 5.56% to 5.18% or 38 basis points during
the second quarter and declined from 5.44% to 5.27% or 17 basis points for the
six months ending June 30, 1996 compared to the same periods in 1995. The
decline in the rates paid on the Company's deposits reflect the decline in
market interest rates between the 1995 and 1996 periods.
Interest on certificates of deposit decreased by $376,000 or 31.8% for the
quarter ended June 30, 1996, compared to the same period in 1995, due to a
decrease of $24.0 million in average certificate of deposits outstanding for the
quarter ended June 30, 1996, compared to the same period in 1995. Also
contributing to this reduction in interest cost was a 24 basis point decrease on
rates paid on certificates of deposit from 5.63% for the quarter ended June 30,
1995 to 5.39% for the quarter ended June 30, 1996.
14
<PAGE>
Interest on certificates of deposit decreased by $653,000 or 28.5% for the
six months ended June 30. 1996, compared to the same period in 1995, due to a
decrease of $26.4 million in average certificate deposits for the six months
ended June 30, 1996, compared to the same period in 1995. Partially offsetting
this was a 14 basis point increase on rates paid on certificates of deposit from
5.34% for the six months ended June 30, 1995 to 5.48% for the six months ended
June 30, 1996.
Interest on savings accounts increased by $542,000 to $2.34 million for the
quarter ended June 30, 1996, when compared to the same period in 1995, due to an
increase in the average saving deposits. Average outstanding saving deposit
balances increased by $52.6 million for the quarter ended June 30, 1996 compared
to the same period in 1995. Partially offsetting this increase was a savings
deposit rate decrease of 38 basis points from 5.51% for the quarter ended June
30, 1995 to 5.13% for the quarter ended June 30, 1996.
Interest on savings accounts increased by $1.14 million to $4.81 million
for the six months ended June 30, 1996, when compared to the same period in
1995, due to an increase in the average savings deposits. Average outstanding
savings deposit balances increased by $50.8 million for the six months ended
June 30, 1996 compared to the same period in 1995. Partially offsetting this
increase was a savings deposit rate decrease of 28 basis points from 5.50% for
the six months ended June 30, 1996 to 5.22% for the six months ended June 30,
1996.
The Company posted interest expense of $8,000 and $15,000 respectively, on
other borrowings during the second quarter and six months ending June 30, 1995.
The Company had no other borrowings during 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 during the first quarter of 1996 and attracting an
additional $7.2 million in deposits during the second quarter of 1996. At June
30, 1996, the Company had $21.1 million in this product that paid a deposit rate
of 4.93% and 4.92% for the quarter and six months ending June 30, 1996.
PROVISION FOR LOAN LOSSES
During the quarter ended June 30, 1996, the Company's loan loss provision
was $575,000. For the six months ending June 30, 1996 the provision for loan
losses was $1,100,000 compared to $107,000 for the same period in 1995. The
increase in the provision reflects, among other factors, the sale of $9.5
million in nonaccrual and TDR loans in the second quarter of 1996. 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 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. The
ratio of nonaccrual loans to total loans was 2.53% at December 31, 1995 and
2.34% at June 30, 1996. The ratio of the allowance for loan losses to
nonaccrual loans was 90.3% at December 31, 1995 and 77.6% at June 30, 1996. The
allowance for loan losses as a percentage of loans stood at 1.82% at June 30,
1996, compared to 2.29% at December 31, 1995.
NONINTEREST INCOME
Noninterest income for the quarter and six months ending June 30, 1996
increased by $298,000 and $336,000, respectively, over the same periods in 1995.
The major component of noninterest income for 1996 included a recovery, during
the second quarter of 1996, on a corporate debt security of $350,000 that had
previously been written off during 1994. Included in 1995 was the sale and
receipt of payments on the Company's remaining collateralized mortgage
obligation (CMO residual). The Company sold its remaining interest in its CMO
residual during the second quarter of 1995.
Other noninterest income increased by $121,000 and $181,000 for the quarter
and six months ending June 30, 1996 compared to the same periods in 1995.
Increases in late fees and loan prepayment fees and rents received on OREO
properties accounted for these increases.
15
<PAGE>
NONINTEREST EXPENSE
Noninterest expense for the quarter and six months ending June 30, 1996
decreased by $385,000 and $844,000 respectively over the same periods in 1995.
These decreases are primarily attributable to the decline in the Company's
valuation adjustment on OREO, a decrease in other real estate owned expense, a
decrease to credit and collection expense, a decrease in FDIC insurance premiums
and a decrease in other operating expenses.
The valuation adjustment to OREO decreased by $111,000 to $29,000 for the
second quarter and decreased by $72,000 to $94,000 for the six months ending
June 30, 1996, compared to the same periods in 1995. The decrease to the
Company's OREO valuation adjustment is a result of the stabilization of
commercial real estate values in California.
The OREO expense decreased by $35,000 to $15,000 for the second quarter and
decreased by $72,000 to $23,000 for the six months ending June 30, 1996,
compared to the same periods in 1995. The decline in these costs reflect the
reduction in the number of OREO properties liquidated during 1996 compared to
1995.
Salaries and employee benefits increased by $37,000 to $1.04 million for
the second quarter and decreased by $65,000 to $2.11 million for the six months
ending June 30, 1996 over 1995. The second quarter increase was the result of
the establishment and hiring of three individuals to manage the Company's SBA
department during the second quarter of 1996. The six month 1996 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
residential real estate lending department.
Net occupancy increased by $35,000 to $431,000 for the second quarter and
decreased by $3,000 to $782,000 for the six months ending June 30, 1996 over the
same periods in 1995.
FDIC insurance premiums declined by $133,000 and $268,000 respectively, for
the quarter and six months ending June 30, 1996 compared to the same periods in
1995. FDIC insurance premium rates were reduced by the FDIC during the third
quarter of 1995.
Credit and collections cost decreased by $89,000 to $13,000 for the second
quarter and decreased by $92,000 to $25,000 for the six months ending June 30,
1996 compared to the same periods in 1995. These decreases were the result of
the Company having established expense accruals on several of the larger
nonaccrual accounts at the end of 1995. In addition the Company has not had the
same number of delinquent nonaccrual accounts in 1996 compared to 1995.
Communication and data processing cost increased by $11,000 to $137,000 for
the second quarter and increased by $5,000 to $256,000 for the six months ending
June 30, 1996 compared to the same periods in 1995. These increases in
communication and telephone usage are the result of the establishment of the
Company's SBA lending department.
Other expenses decreased by $100,000 to $277,000 for the second quarter and
decreased by $277,000 to $430,000 for the six months ending June 30, 1996.
These decreases are the result of a $100,000 reduction in the accrual for
Delaware franchise taxes in the first quarter of 1996. The second quarter of
1995 included legal and consulting fees associated with the 1995 exchange offer
of the Preferred Stock into Common Stock.
INCOME TAX PROVISION
For the quarter and six months ended June 30, 1996, the Company estimated
its provision for income taxes at $460,000 and $910,000 or 38.1% and 38.4%
respectively. The difference between the Company's statutory tax rate of 41.5%
and its effective rates for the quarter and six months ending June 30, 1996 is
due to California tax deductions (credits) generated by the Company on loans
made in special tax zones within California.
The Company's income tax provision for the quarter and six months ending
June 30, 1995, was offset by a like reduction in the Company's tax valuation
reserves. The amount of the 1995 second quarter and six months tax provision of
approximately $292,000 and $542,000 respectively, representing a combined
federal and state statutory tax rate provision of 42.4%, was offset by $292,000
for the second quarter and $541,000 for the six months ending June 30, 1995.
16
<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 decrease in the Company's holdings of cash and cash
equivalents during the six months ending June 30, 1996. Cash and cash
equivalents decreased by $18.1 million to $38.0 million at June 30, 1996 from
December 31, 1995. The purchase, net of maturities, of $64.4 million in the
U.S. governmental agency securities portfolio occurred during the six months
ending June 30, 1996. The funds used to purchase these securities originated
from an increase in the Company's interest bearing deposits of $30.3 million.
The Company increased its savings accounts by $11.4 million, while increasing
its newly introduced money market checking account balances by $21.2 million
during the six months of 1996. These increases were partially offset by a
decline in certificates of deposit balances of $2.3 million during the six
months ending June 30, 1996. The Company originated a total of $13.1 million in
commercial real estate loans, of which, $10.3 million were originated in the
second quarter and $2.8 million in the first quarter of 1996. Off-setting these
originations, the Company experienced a total of $23.9 million, $15.4 million
for the second quarter and $8.5 million for the first quarter, in loan
reductions. Included in the $15.4 million second quarter loans reduction was
the bulk loan sale transaction of $9.5 million of nonaccrual and TDR loans. The
Company transferred a total of $1.4 million of loans to OREO during the six
months ending June 30, 1996.
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 the dividend. At June 30, 1996 Pacific Crest
Investment and Loan had deficit retained earnings of $1.98 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 a regulatory Memorandum of Understanding, must receive regulatory
approval to pay a dividend to its parent.
17
<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
On Thursday, May 23, 1996 the Annual Meeting of Shareholders of the
Company was held for the purpose of electing two people to the Board
of Directors for a term of three years and to serve until his or her
successor is elected and qualified. The nominees were Richard S.
Orfalea and Gary Wehrle. A total of 2,796,919 shares were represented
at the Meeting. 2,794,723 shares were cast "For" the election of Mr.
Orfalea, and 2,196 shares were "WITHHELD" from voting in the
election. 2,794,839 shares were cast "For" the election of Mr.
Wehrle, and 2,080 shares were "WITHHELD" from voting in the election.
There was a total of 162,779 shares that "ABSTAINED" from voting in
the election.
In addition, a proposal to approve the 1996 Non-Employee Directors'
Stock Purchase Plan ("Plan") was voted on. 2,761,912 shares were cast
"For" the approval of the Plan, 24,506 shares were cast "Against" the
Plan. There was a total of 6,332 shares that "ABSTAINED" from casting
a vote on the Plan.
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 no reports on Form-8K during the quarter ended June
30, 1996.
18
<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: AUGUST 8, 1996 S/GARY WEHRLE
-------------------------------------
Gary Wehrle
President and Chief Executive Officer
Date: AUGUST 8, 1996 S/ROBERT J. DENNEN
---------------------------------------
Robert J. Dennen
Vice President, Chief Financial Officer
Corporate Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,280
<INT-BEARING-DEPOSITS> 300
<FED-FUNDS-SOLD> 36,445
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,492
<INVESTMENTS-CARRYING> 25,900
<INVESTMENTS-MARKET> 25,855
<LOANS> 181,344
<ALLOWANCE> 3,292
<TOTAL-ASSETS> 290,443
<DEPOSITS> 264,780
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,241
<LONG-TERM> 0
0
0
<COMMON> 23,422
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 290,443
<INTEREST-LOAN> 5,240
<INTEREST-INVEST> 594
<INTEREST-OTHER> 729
<INTEREST-TOTAL> 6,563
<INTEREST-DEPOSIT> 3,376
<INTEREST-EXPENSE> 3,376
<INTEREST-INCOME-NET> 3,187
<LOAN-LOSSES> 575
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,961
<INCOME-PRETAX> 1,206
<INCOME-PRE-EXTRAORDINARY> 746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 0
<LOANS-NON> 4,244
<LOANS-PAST> 1,835
<LOANS-TROUBLED> 719
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,850
<CHARGE-OFFS> 2,291
<RECOVERIES> 158
<ALLOWANCE-CLOSE> 3,292
<ALLOWANCE-DOMESTIC> 3,292
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
