<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 September 30, 1998
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 (Zip Code)
executive offices)
(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 November 13, 1998.
<TABLE>
<CAPTION>
Title of Each Class Number of Shares Outstanding
---------------------------- ----------------------------
<S> <C>
Common Stock, $.01 par value 2,986,264
</TABLE>
9.375% Cumulative Trust Preferred Securities of PCC Capital I
Guarantee of Pacific Crest Capital, Inc. with respect to the
9.375% Cumulative Trust Preferred Securities of PCC Capital I
<PAGE>
PACIFIC CREST CAPITAL, INC.
FORM 10-Q
INDEX
Page No.
--------
Part I -- FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . 1
Item 1: 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 . . . . . . . . . . . 9
Part II -- OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash $ 3,328 $ 1,966
Securities purchased under resale agreements - 426
Cash and cash equivalents 3,328 2,392
Investment Securities (Note 5):
Held to maturity, at amortized cost 5,000 4,998
Available for sale, at market 317,658 217,738
Loans
Commercial mortgage 230,380 223,902
Business Loans - SBA 6,387 5,711
Residential mortgage 1,556 1,593
Commercial business/other 1,190 690
-------- --------
Total loans 239,513 231,896
Deferred loan fees 640 763
Allowance for loan losses 4,775 4,100
-------- --------
Net loans 234,098 227,033
Accrued interest receivable 6,980 5,367
Prepaid expenses and other assets 1,640 1,478
Deferred income taxes - 2,622
Other real estate owned 957 2,064
Premises and equipment 775 617
-------- --------
Total assets $570,436 $464,309
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings accounts $209,772 $200,255
Certificates of deposit 179,657 131,213
Money market checking 18,804 16,703
-------- --------
Total deposits 408,233 348,171
Reverse repurchase agreements 26,500 21,500
Term borrowings 78,000 45,000
Company Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust Holding Solely Junior Subordinated Debentures 17,250 17,250
-------- --------
Total interest-bearing liabilities 529,983 431,921
Deferred income taxes 436 --
Accrued interest and other liabilities 5,936 3,580
-------- --------
Total liabilities 536,355 435,501
-------- --------
Shareholders' equity (Notes 6 and 7):
Preferred stock, $.01 par value, 2,000,000 shares authorized
no shares issued or outstanding -- --
Common stock, $.01 par value, 10,000,000
shares authorized, 2,984,951 shares issued and
outstanding at September 30, 1998, 2,971,946 shares
issued and outstanding at December 31, 1997 28,043 27,944
Retained earnings 4,511 849
Accumulated other comprehensive income (Note 8) 5,671 1,189
Common stock in treasury, at cost (4,131) (1,174)
-------- --------
Total shareholders' equity 34,094 28,808
-------- --------
Total liabilities and shareholders' equity $570,436 $464,309
-------- --------
-------- --------
Book value per common share (Note 3) $12.47 $9.97
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
1
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest on loans, including fees $6,267 $6,205 $18,795 $17,905
Securities purchased under resale agreements 15 47 52 74
Investment Securities:
Available for sale 5,103 1,937 13,845 4,364
Held to maturity 95 658 286 2,345
------ ----- ------ ------
Total interest income 11,480 8,847 32,978 24,688
Interest expense:
Interest expense on interest-bearing deposits
Savings accounts 2,708 2,487 7,840 6,918
Certificates of deposit 2,472 1,679 6,632 4,533
Money market checking accounts 241 221 683 675
------ ----- ------ ------
Total interest expense on deposits 5,421 4,387 15,155 12,126
Reverse repurchase agreements 450 433 1,199 1,037
Term borrowings 1,119 36 2,939 36
Trust preferred securities 404 40 1,213 41
------ ----- ------ ------
Total interest expense 7,394 4,896 20,506 13,240
------ ----- ------ ------
Net interest income 4,086 3,951 12,472 11,448
Provision for loan losses 240 280 670 810
------ ----- ------ ------
Net interest income after provision for loan losses 3,846 3,671 11,802 10,638
Noninterest income:
Gain on sale of other real estate owned - 10 83 216
Gain on sale of commercial real estate loans - - 336 -
Gain on sale of SBA loans 50 - 187 -
Gain on sale of Investments 209 - 209 -
Loan prepayment income 143 80 522 123
Loan late fee income 9 12 135 52
Other noninterest income 155 65 368 227
------ ----- ------ ------
Total noninterest income 566 167 1,840 618
------ ----- ------ ------
Noninterest expense:
Valuation adjustments to other real estate owned - 30 50 370
Other real estate owned expenses 38 31 203 48
Salaries and employee benefits 1,376 1,257 4,314 3,779
Net occupancy expenses 339 399 1,185 1,154
Advertising and promotion 111 56 254 160
FDIC insurance premiums 11 9 32 63
Credit and collection expenses 40 69 127 80
Communication and data processing 193 161 572 483
Other expenses 251 230 782 646
------ ----- ------ ------
Total noninterest expense 2,359 2,242 7,519 6,783
------ ----- ------ ------
Income before income taxes 2,053 1,596 6,123 4,473
Income tax provision (Note 2) 792 637 2,461 1,783
------ ----- ------ ------
Net income $1,261 $959 $3,662 $2,690
------ ----- ------ ------
------ ----- ------ ------
Per share data (Note 3):
Basic earnings per common share $0.45 $0.33 $1.28 $0.92
------ ----- ------ ------
Weighted average basic common shares
outstanding (in thousands) 2,803 2,939 2,857 2,938
------ ----- ------ ------
------ ----- ------ ------
Diluted earnings per common share $0.43 $0.31 $1.21 $0.88
------ ----- ------ ------
Weighted average diluted common shares
outstanding (in thousands) 2,953 3,081 3,018 3,060
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
EARNINGS OTHER
COMMON TREASURY (ACCUMULATED COMPREHENSIVE
(DOLLARS AND SHARES IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT DEFICIT) INCOME
------ ------ ------ ------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 2,960 $27,838 (30) $(255) $(2,858) $(257)
----- ------- ---- ----- ------- -----
Comprehensive income:
Net income - - - - 3,707 -
Other comprehensive income, net of tax:
Unrealized gain on securities,
available for sale - - - - - 1,446
Total Comprehensive income:
Issuance of common stock:
Under employee stock purchase plan 7 52 - - - -
Under non-employee directors' stock
purchase plan 3 39 - - - -
Under employee stock option plan 2 15 - - - -
Purchase of treasury shares - - (55) (919) - -
----- ------- ---- ----- ------- -----
Balances at December 31, 1997 2,972 $27,944 (85) $(1,174) $849 $1,189
----- ------- ---- ----- ------- -----
Comprehensive income:
Net income: - - - - 3,662 -
Other comprehensive income, net of tax
Unrealized gain on securities,
available for sale - - - - - 4,482
Total Comprehensive income:
Issuance of common stock:
Under employee stock purchase plan 6 63 - - - -
Under employee stock option plan 7 36 - - - -
Purchase of treasury shares - - (171) (2,957) - -
----- ------- ---- ----- ------- -----
Balances at September 30, 1998 2,985 $28,043 (256) $(4,131) $4,511 $5,671
----- ------- ---- ----- ------- -----
----- ------- ---- ----- ------- -----
<CAPTION>
TOTAL TOTAL
SHAREHOLDERS' COMPREHENSIVE
(DOLLARS AND SHARES IN THOUSANDS) EQUITY INCOME
------------- -------------
<S> <C> <C>
Balances at January 1, 1997 $24,468
-------
Comprehensive income:
Net income 3,707 $3,707
Other comprehensive income, net of tax:
Unrealized gain on securities
available for sale 1,446 1,446
------
Total Comprehensive income: $5,153
Issuance of common stock:
Under employee stock purchase plan 52
Under non-employee directors' stock
purchase plan 39
Under employee stock option plan 15
Purchase of treasury shares (919)
-------
Balances at December 31, 1997 $28,808
-------
Comprehensive income:
Net income: 3,662 $3,662
Other comprehensive income, net of tax
Unrealized gain on securities
available for sale 4,482 4,482
------
Total Comprehensive income: $8,144
Issuance of common stock:
Under employee stock purchase plan 63
Under employee stock option plan 36
Purchase of treasury shares (2,957)
-------
Balances at September 30, 1998 $34,094
-------
-------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,662 $ 2,690
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 670 810
Valuation adjustments to OREO 50 370
Gain from SBA loan sale (187) -
Gain from sale of commercial real estate loans (336) -
Gain from sale of OREO (83) (216)
Gain from sale of securities (209) -
Loss on investment in joint venture - 7
Depreciation and amortization 204 186
Amortization of deferred loan fees (435) (270)
Amortization/accretion of securities (6) (7)
Changes in operating assets and liabilities:
Accrued interest receivable (1,613) (1,906)
Prepaid expenses and other assets (162) (629)
Deferred income taxes (394) (81)
Accrued interest and other liabilities 2,356 1,136
--------- ---------
Net cash provided by operating activities 3,517 2,090
INVESTING ACTIVITIES:
Purchase of Securities - held to maturity - (15,000)
Purchase of Securities - available for sale (265,611) (128,446)
Maturity/Sales/Call of securities - held to maturity - 20,000
Maturity/Sales/Call of securities - available for sale 173,825 50,800
Net increase in loans (16,804) (20,958)
Proceeds from sale of notes - 600
Proceeds from sale of commercial real estate loans 7,831 -
Proceeds from SBA Loan Sales 2,072 -
Investment in joint venture - (100)
Purchases of equipment and leasehold improvements, net (362) (196)
Proceeds from sale of other real estate owned 1,264 2,511
--------- ---------
Net cash used in investing activities (97,785) (90,789)
FINANCING ACTIVITIES:
Net increase in savings accounts 9,517 34,044
Net increase in certificates of deposit 48,444 36,676
Net increase/(decrease) in money market checking 2,101 (3,358)
Net increase in reverse repurchase agreements 5,000 16,000
Net increase in term borrowings 33,000 -
Proceeds from the issuance of common stock 99 81
Proceeds from the issuance of trust preferred securities - 17,250
Purchase of treasury stock, at cost (2,957) -
--------- ---------
Net cash provided by financing activities 95,204 100,693
Net increase in cash and cash equivalents 936 11,994
Cash and cash equivalents at beginning of period 2,392 2,834
--------- ---------
Cash and cash equivalents at end of period $3,328 $14,828
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $20,102 $13,048
Income taxes $2,865 $1,895
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Transfers from loans to other real estate owned $206 $836
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
NOTE 1. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
Pacific Crest Capital, Inc., without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Pacific Crest
Capital, Inc. together with its subsidiaries 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 September 30,
1998, have been included. Certain reclassifications have been made to prior
year amounts to conform to the 1998 presentation. The results of operations
for interim periods are not necessarily indicative of results for the full
year.
NOTE 2. INCOME TAXES
For the quarters ended September 30, 1998 and 1997, the Company
estimated its provision for income taxes at $792,000 or 38.6% and $637,000 or
39.9%, respectively. For the nine months ended September 30, 1998 and 1997,
the Company's provision for income taxes was $2.5 million or 40.2% and $1.8
million or 39.9%, respectively. The difference between the Company's
statutory tax rate and its effective tax rate, for the quarter and nine
months ended September 30, 1998 and 1997, was due to California tax
deductions (credits) generated by the Company on loans made in special tax
zones within California.
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, less
treasury shares, at September 30, 1998 and December 31, 1997. The number of
common shares used in this calculation was 2,984,951 less 255,500 of treasury
shares at September 30, 1998, and 2,971,946, less 85,000 treasury shares at
December 31, 1997.
Basic and diluted earnings per common share for the quarter and nine
months ended September 30, 1998 and 1997, were determined by dividing net
income by the weighted average common shares outstanding. For the diluted
earnings per share computation, 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. See table below for the diluted earnings per share
computations:
<TABLE>
<CAPTION>
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE DATA) QUARTER ENDED 9/30/98 QUARTER ENDED 9/30/97
----------------------------------- --------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- ------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,261 2,803 $ 0.45 $ 959 2,939 $ 0.33
------ ----- ------ ------ ----- ------
Effect of Dilutive Securities
Stock Options -- 150 $(0.02) -- 142 $(0.02)
------ ----- ------ ------ ----- ------
Diluted EPS $1,261 2,953 $ 0.43 $ 959 3,081 $ 0.31
------ ----- ------ ------ ----- ------
------ ----- ------ ------ ----- ------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED 9/30/98 NINE MONTHS ENDED 9/30/97
----------------------------------- --------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- ------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,662 2,857 $ 1.28 $2,690 2,938 $ 0.92
------ ----- ------ ------ ----- ------
Effect of Dilutive Securities
Stock Options -- 161 $(0.07) -- 122 $(0.04)
------ ----- ------ ------ ----- ------
Diluted EPS $3,662 3,018 $ 1.21 $2,690 3,060 $ 0.88
------ ----- ------ ------ ----- ------
------ ----- ------ ------ ----- ------
</TABLE>
5
<PAGE>
NOTE 4. CONTINGENCIES
LITIGATION
As an incident to normal operations, the Company is, from time to time,
named as a defendant in lawsuits, some of which seek monetary damages.
Management, after review, including consultation with counsel, believes that
any ultimate liability, if any, which could arise from these lawsuits and
claims would not materially affect the consolidated financial position,
results of operations or liquidity of the Company.
NOTE 5. INVESTMENT SECURITIES
Investment securities have been classified in the consolidated balance sheets
according to management's ability and intent. The carrying amount of
securities and their approximate fair values at September 30, 1998 were as
follows:
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
--------- ----- ------ ----------
<S> <C> <C> <C> <C>
Investment Securities
Held to maturity $ 5,000 $ -- $ -- $ 5,000
Available for sale 307,419 10,239 -- 317,658
-------- ------- ---- --------
Total investment securities $312,419 $10,239 $ -- $322,658
-------- ------- ---- --------
-------- ------- ---- --------
</TABLE>
The Company's security portfolio consists primarily of Federal Home
Loan Bank (FHLB) securities, Federal National Mortgage Association (FNMA)
securities, Federal Home Loan Mortgage Corporation (FHLMC) securities, and to a
lesser extent, Government National Mortgage Association (GNMA) mortgage backed
securities. These securities have call features that allow the issuing agency to
retire (call) the security prior to the securities stated maturity date. The
Company's security portfolio have call dates ranging between nine months through
four years. The Company believes that the majority of its securities will be
called by the issuing agency prior to their final maturity date. The following
table reflects the scheduled maturities in the Company's investment securities
portfolio at September 30, 1998:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) COST FAIR VALUE YIELD LIFE
--------- ---------- ------- -------
<S> <C> <C> <C> <C>
HELD TO MATURITY SECURITIES:
Due from five to ten years $ 5,000 $ 5,000 7.57% 8.0 Years
-------- -------- ----- ----------
Total held to maturity securities: $ 5,000 $ 5,000 7.57% 8.0 Years
-------- -------- ----- ----------
AVAILABLE FOR SALE SECURITIES:
Due from one to five years $ 5,000 $ 5,087 6.44% 3.1 Years
Due from five to ten years 250,802 259,570 6.69% 9.1 Years
Due over ten years 51,617 53,001 6.62% 12.4 Years
-------- -------- ----- ----------
Total available for sale securities: $307,419 $317,658 6.67% 9.5 Years
-------- -------- ----- ----------
-------- -------- ----- ----------
Total investment securities $312,419 $322,658 6.68% 9.5 Years
-------- -------- ----- ----------
-------- -------- ----- ----------
</TABLE>
U.S. government sponsored agency securities carried at $113.0 million
were pledged to secure borrowings aggregating $104.5 million at September 30,
1998.
NOTE 6. CAPITAL
At September 30, 1998, 10,000,000 shares of $0.01 par value common stock
were authorized of which, 2,984,951 shares were issued and outstanding.
Pacific Crest Bank is required to maintain certain minimum capital
levels and must maintain certain capital ratios to be considered "well
capitalized" under the prompt corrective action provisions of the FDIC
Improvement Act.
The following table sets forth Pacific Crest Bank's regulatory capital
ratios at September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997
-------------------------------------- --------------------------------------
PACIFIC CREST BANK REQUIRED ACTUAL EXCESS REQUIRED ACTUAL EXCESS
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.23% 3.23% 4.00% 7.53% 3.53%
Tier I risk-based capital ratio 4.00% 12.44% 8.44% 4.00% 12.02% 8.02%
Total risk-based capital ratio 8.00% 13.69% 5.69% 8.00% 13.27% 5.27%
----- ------ ----- ----- ------ -----
----- ------ ----- ----- ------ -----
</TABLE>
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 $7.7 million in cash plus investments, less current liabilities
and short-term debt at September 30, 1998. These funds are also available to
pay future operating expenses of the Parent, interest expense on the $17.25
million in subordinated debentures, and possibly future
6
<PAGE>
capital infusion into Pacific Crest Bank. Without dividends from Pacific
Crest Bank, the Parent must rely solely on existing cash, investments and
borrowings.
Pacific Crest Bank's ability to pay dividends to the Parent is
restricted by California state law, which requires that retained earnings are
available to pay the dividend. At September 30, 1998, Pacific Crest Bank had
unrestricted retained earnings of $7.8 million available for dividend
payments.
On October 29, 1998, the Company announced that the Board of Directors
had declared a $.05 per common share cash dividend for the fourth quarter of
1998. The dividend will be paid to shareholders of record at the close of
business November 19, 1998 and is payable on December 3, 1998.
NOTE 8. OTHER COMPREHENSIVE INCOME
The following table reflects the tax effect of other comprehensive income:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(DOLLARS IN THOUSANDS) 1998 1997
---- ----
<S> <C> <C>
Other comprehensive income (loss):
Unrealized gain on U.S. agency securities $ 7,921 $1,026
Tax expense (3,439) (431)
------- ------
Total other comprehensive income, net of taxes $ 4,482 $ 595
------- ------
------- ------
</TABLE>
NOTE 9. INTEREST RATE CAP
On June 8, 1998, the Company executed a five-year interest rate cap
agreement for a notional amount of $100 million. Under the cap agreement,
the Company earns income when the 90-day London Interbank Offered Rate
(LIBOR) exceeds 6.70%. LIBOR closed at 5.31% on September 30, 1998. The cost
of the cap was $925,000 which will be amortized over five years. The interest
rate cap was purchased as a hedge instrument for the Company's deposit
liabilities which reprice in one year or less. It was designed to hedge the
risk that interest rates may rise, which would produce an increase in the
rates paid on these deposit liabilities, resulting in an increase in interest
expense and a reduction in net interest margin. The interest rate cap
mitigates this risk somewhat since it earns income for the Company if
interest rates rise beyond a certain level. The interest rate cap does not
expose the Company to any additional risk beyond the initial investment of
$925,000.
NOTE 10. SECONDARY MARKET LOAN SALES
The Company has recently instituted a commercial real estate loan
program designed to produce loan product for both the Company's portfolio and
for potential sale in the secondary market. The loans originated are fixed
rate loans with interest rates fixed for ten years based on a margin over the
ten-year U.S. Treasury Bond. In June of 1998, the Company sold a pool of
seven loans, along with their servicing rights, with a principal balance
aggregating $7.5 million. The loans were sold at a premium ranging between
3.1% and 6.1%, depending upon the characteristics of each loan. The total
premium received on this pool of loans was $306,000. Although this program
has been designed in part to produce recurring gain income for the Company,
there can be no assurance that future sales will occur to produce future gain
income. Actual future sales of these types of loans will be based on a
variety of factors, including the total amount of net loan growth, secondary
market demand for such loans, and the level of interest rate risk in the
Company's financial structure.
NOTE 11. SMALL BUSINESS ADMINISTRATION (SBA) LOAN PROGRAM
During 1997, the Company initiated a Small Business Administration (SBA)
loan program. The loans originated through this program are intended in part
for retention in the portfolio and in part to generate fee income through SBA
loan sales, and the related "gains on sale." In April of 1998 and September
of 1998, the Company sold the SBA guaranteed portion of three SBA loans, and
four SBA Loans, respectively, at a premium range of 5.75% to 10%. These
loans were sold, with the servicing rights retained, at a total premium of
$137,000, and $50,000, respectively. The Company calculated the servicing
asset and interest only (I/O) strip related to the sale transactions, in
accordance with SFAS No. 125 and other authoritative literature. The Company
calculated these values using assumptions resulting in values for the
servicing asset and I/O strip that were not material to the financial
statements as a whole. Although this program has been designed to produce
recurring gain income for the Company on a quarterly basis, there can be no
assurance that future sales will occur to produce future gain income. As of
September 30, 1998, the Company had 17 loans in this category with a combined
principal balance of $6.4 million, and with the SBA guaranteed portion
aggregating $4.2 million.
NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires the Bank to recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 allows derivatives to be
designated as hedges only if certain criteria are met with the resulting gain
or loss on the derivative either charged to income or reported as a part of
other comprehensive income if criteria are met. SFAS 133 is effective for
all fiscal quarters beginning after June 15, 1999. The Company does not
believe that adoption of SFAS 133 will have a material impact on its
operations and financial position.
In October 1998, FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends
SFAS No. 65,
7
<PAGE>
"Accounting for Certain Mortgage Banking Activities," which
establishes accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct operations
that are substantially similar. SFAS No. 134 requires that after the
securitization of mortgage loans held for sale, the resulting mortgage-backed
securities and other retained interests should be classified in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," based on the company's intent to sell or hold the investment.
SFAS No. 134 is effective for the first fiscal quarter beginning after
December 15, 1998. The Company does not believe that adoption of SFAS 134
will have a material impact on its operations and financial position.
8
<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 consolidated financial performance of the Company
for the quarter and nine months ended September 30, 1998. This analysis
should be read in conjunction with the Company's 1997 Annual Report on Form
10-K and with the unaudited financial statements and notes as set forth on
pages 1 through 8 of this report.
The following discussion and analysis is intended to provide greater
details of the results of operations and financial condition of the Company.
The following discussion should be read in conjunction with the information
in the Company's consolidated financial statements and notes thereto and
other financial data included elsewhere herein. Certain statements under this
caption constitute "forward-looking statements" within the meaning of the
Private Securities Reform Act of 1995, and as such, may involve risks and
uncertainties. The Company's actual results, performance and achievements may
differ materially from the results, performance and achievements expressed or
implied in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, economic conditions, competition
in the geographic and business areas in which the Company conducts its
operations, fluctuations in interest rates, credit quality and governmental
regulation. The following table sets forth certain selected financial data
concerning the Company for the periods indicated:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
SELECTED FINANCIAL DATA -------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 9/30/98 6/30/98 3/31/98 12/31/97 9/30/97
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Average Balance
Average Loans $230,400 $230,476 $230,479 $231,641 $227,533
Average Investment Securities 311,378 263,990 250,764 229,473 142,879
Average Earning Assets 542,745 496,927 481,503 463,862 373,817
Average Assets 550,803 506,418 491,140 472,924 380,467
Average Deposits 391,301 366,195 351,178 345,416 316,474
Average Borrowings 125,361 106,710 106,140 94,512 33,716
Average Equity 30,262 29,833 29,405 28,399 26,811
Performance Ratios
Return on average assets (1) 0.92% 1.03% 0.90% 0.86% 1.01%
Return on average common equity (1) 17.63% 18.09% 15.73% 14.73% 14.29%
Net interest margin (2) 2.99% 3.41% 3.51% 3.67% 4.19%
Capital and Leverage Ratios (3)
Risk-based capital ratios:
Tier one 12.44% 12.85% 12.22% 12.02% 12.04%
Total 13.69% 14.10% 13.47% 13.27% 13.17%
Leverage capital ratio 7.23% 7.60% 7.45% 7.53% 8.22%
Asset Quality Ratios
Allowance for loan losses to total loans 2.00% 2.01% 1.83% 1.77% 1.68%
Allowance for loan losses to nonaccrual loans -- -- 1889.04% 1798.25% 187.31%
Total nonperforming assets to total assets (4) 0.17% 0.19% 0.45% 0.49% 0.89%
</TABLE>
- -------------------
(1) Calculations based upon annualized net income, excluding accumulated other
comprehensive income.
(2) Net interest margin is calculated by dividing annualized net income by
average earning assets.
(3) Capital ratios of Pacific Crest Bank only.
(4) Non-performing assets include nonaccrual loans and other real estate owned
("OREO") and exclude performing troubled debt restructurings.
9
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME ANALYSIS
The following tables, for the quarter and nine months ended September 30,
1998 and 1997, present 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 have been included
in the table as loans, having a zero yield.
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, YIELDS AND RATES
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------
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 (1) $230,400 $ 6,267 10.79% $227,533 $6,205 10.82%
Repurchase agreements 967 15 5.95% 3,405 47 5.48%
Investment securities:
Available for sale 306,379 5,103 6.66% 108,982 1,937 7.11%
Held to maturity 4,999 95 7.60% 33,897 658 7.76%
-------- ------- ------ -------- ------ ------
Total interest-earning assets 542,745 11,480 8.39% 373,817 8,847 9.39%
Other real estate owned 968 1,642
Other noninterest earning assets 11,741 8,832
Less allowance for loan losses 4,651 3,825
-------- ------- ------ -------- ------ ------
Total assets $550,803 $380,466
-------- ------- ------ -------- ------ ------
INTEREST-BEARING LIABILITIES:
Savings accounts $201,389 2,708 5.33% $185,401 2,487 5.32%
Certificates of deposit 170,867 2,472 5.74% 113,390 1,679 5.87%
Money market checking 19,045 241 5.02% 17,682 221 4.96%
Reverse repurchase agreements 31,024 450 5.75% 29,583 433 5.81%
Term borrowings 77,087 1,119 5.76% 2,446 36 5.84%
Trust preferred securities 17,250 404 9.37% 1,688 40 9.40%
-------- ------- ------ -------- ------ ------
Total interest-bearing liabilities 516,662 7,394 5.68% 350,190 4,896 5.55%
Non interest-bearing liabilities 3,879 3,466
Shareholders' equity 30,262 26,811
-------- ------- ------ -------- ------ ------
Total liabilities and
shareholders' equity $550,803 $380,466
-------- ------- ------ -------- ------ ------
Net interest income $4,086 $3,951
Net interest rate spread (2) 2.71% 3.84%
Net interest-earning assets $ 26,083 $ 23,627
Net interest margin (3) 2.99% 4.19%
Average interest-earning assets to
average interest bearing liabilities 105.05% 106.75%
-------- ------- ------ -------- ------ ------
-------- ------- ------ -------- ------ ------
</TABLE>
(1) Calculated net of deferred loan fees.
(2) Net interest rate spread represents the average yield earned on interest-
earning assets, less the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
10
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------
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 (1) $230,451 $18,795 10.90% $219,865 $17,905 10.89%
Repurchase agreements 1,232 52 5.64% 1,823 74 5.43%
Investment securities:
Available for sale 270,601 13,845 6.82% 82,306 4,364 7.07%
Held to maturity 4,999 286 7.63% 40,466 2,345 7.73%
-------- ------- ------ -------- ------- ------
Total interest-earning assets 507,283 32,978 8.69% 344,460 24,688 9.58%
Other real estate owned 1,561 2,441
Other noninterest earning assets 11,921 9,154
Less allowance for loan losses 4,426 3,655
-------- ------- ------ -------- ------- ------
Total assets $516,339 $352,400
-------- ------- ------ -------- ------- ------
INTEREST-BEARING LIABILITIES:
Savings accounts $198,516 7,840 5.28% $175,645 6,918 5.27%
Certificates of deposit 152,935 6,632 5.80% 104,276 4,533 5.81%
Money market checking 18,254 683 5.00% 18,393 675 4.91%
Reverse repurchase agreements 27,715 1,199 5.78% 24,182 1,037 5.73%
Term borrowings 67,842 2,939 5.79% 824 36 5.84%
Trust preferred securities 17,250 1,213 9.38% 569 41 9.37%
-------- ------- ------ -------- ------- ------
Total interest-bearing liabilities 482,512 20,506 5.68% 323,889 13,240 5.47%
Non interest-bearing liabilities 3,991 2,845
Shareholders' equity 29,837 25,666
-------- ------- ------ -------- ------- ------
Total liabilities and
shareholders' equity $516,339 $352,400
-------- ------- ------ -------- ------- ------
Net interest income $12,472 $11,448
Net interest rate spread (2) 3.01% 4.11%
Net interest-earning assets $ 24,771 $ 20,571
Net interest margin (3) 3.29% 4.44%
Average interest-earning assets to
average interest bearing liabilities 105.13% 106.35%
-------- ------- ------ -------- ------- ------
-------- ------- ------ -------- ------- ------
</TABLE>
(1) Calculated net of deferred loan fees.
(2) Net interest rate spread represents the average yield earned on
interest-earning assets, less the average rate paid on interest-
bearing liabilities.
(3) Net interest margin is computed by dividing net interest income by
total average earning assets.
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.
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
----------------------------------------------------------------------------------
1998 COMPARED TO 1997 1998 COMPARED TO 1997
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 $ 78 $ (16) $ 62 $ 863 $ 27 $ 890
Repurchase agreements (36) 4 (32) (25) 3 (22)
Investment securities:
Available for sale 3,321 (155) 3,166 9,610 (129) 9,481
Held to maturity (554) (9) (563) (2,024) (35) (2,059)
------ ----- ------ ------- ----- -------
Total change in interest income 2,809 (176) 2,633 8,424 (134) 8,290
------ ----- ------ ------- ----- -------
CHANGES IN INTEREST EXPENSE:
Savings accounts 214 7 221 903 18 921
Certificates of deposit 832 (39) 793 2,111 (12) 2,099
Money market checking 17 3 20 (5) 13 8
Reverse repurchase agreements 21 (4) 17 152 10 162
Term borrowings 1,084 (1) 1,083 2,902 1 2,903
Trust preferred securities 368 (4) 364 1,170 3 1,173
------ ----- ------ ------- ----- -------
Total change in interest expense 2,536 (38) 2,498 7,233 33 7,266
------ ----- ------ ------- ----- -------
Changes in net interest income $273 $(138) $135 $1,191 $(167) $1,024
------ ----- ------ ------- ----- -------
------ ----- ------ ------- ----- -------
</TABLE>
DETAILED COMPARISONS OF FINANCIAL RESULTS
EARNINGS PERFORMANCE
Net income was $1.3 million (or $0.43 per common share on a diluted
basis) for the quarter ended September 30, 1998, compared to $959,000 (or
$0.31 per common share on a diluted basis) for the corresponding period in
1997. Net income was $3.7 million (or $1.21 per common share on a diluted
basis) for the nine months ended September 30, 1998, compared to $2.7 million
(or $0.88 per common share on a diluted basis) for the corresponding period
in 1997. The improvements in 1998 over the comparable periods in 1997 are
primarily attributable to increases in the Company's net interest income, and
non-interest income, partially offset by increases in non-interest expense.
NET INTEREST INCOME
Net interest income increased by $135,000 or 3.4% to $4.1 million for the
quarter ended September 30, 1998 compared to the same period of 1997. Net
interest income increased by $1.0 million or 8.9% to $12.5 million for the nine
months ended September 30, 1998 compared to the same period of 1997. The
increase in net interest income during the quarter and nine months ended
September 30, 1998 was primarily the result of an increase of $168.9 million and
$162.8 million, respectively, in the Company's average balance of interest
earning assets between the 1998 and 1997 periods.
The Company's net interest rate spread and net interest margin, both
declined during the 1998 and 1997 periods. These declines were anticipated by
the Company, as the Company implemented a strategic repositioning of its balance
sheet. The Company, in order to more effectively leverage its capital, increased
its holdings of investment securities over the last several quarters. The
increase in investment securities, while improving both total interest income
and net interest income, resulted in the decline in the net interest margin and
net interest rate spread.
The net interest margin is defined as the difference between interest
income and interest expense divided by the average interest-earning assets.
The net interest margin for the quarter ended September 30, 1998 and 1997,
was 2.99% and 4.19%, respectively. The net interest margin for the nine
months ended September 30, 1998 and 1997 was 3.29% and 4.44%, respectively.
The decline in the margin is primarily the result of the change in the
composition of the balance sheet. Loans, the highest yielding asset, have
decreased as a percentage of average interest-earning assets while the
Company's holdings in the lower yielding investment securities have increased
as a percentage of average interest-earning assets. Additionally, the Company
has financed a portion of these security purchases with borrowings, including
the issuance of the trust preferred securities, which on average, have a
significantly higher interest rate than deposits.
The net interest rate spread is defined as the yield on interest-earning
assets less the rates paid on interest-bearing liabilities. The net interest
rate spread for the quarter ended September 30, 1998 and 1997 was 2.71% and
3.84%, respectively. The net interest rate spread for the nine months ended
September 30, 1998 was 3.01% and 4.11%, respectively. The decline in the spread
for the quarter and nine months ended September 30, 1998 from the same periods
in 1997, is the result of an increase of 13 basis points and 21 basis points,
respectively, on the rates paid on interest-bearing liabilities, in addition to
a decrease of 100 basis points and 89 basis points, respectively, on the yields
earned on interest-earning assets.
The following table sets forth the composition of average interest-earning
assets and average interest-bearing liabilities by category, and by the
percentage of each category to the total, for the nine months ended September
30, 1998 and 1997, including the change in average balance and yield/rate
between these respective periods:
12
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
--------------------------------------- --------------------------------------
% AVG. % AVG.
AVERAGE COMPO- YIELD/ AVERAGE COMPO- YIELD/
BALANCE SITION RATE BALANCE SITION RATE
--------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans $230,451 45.4% 10.90% $219,865 63.8% 10.89%
Repurchase agreements 1,232 0.3% 5.64% 1,823 0.5% 5.43%
Investment Securities 275,600 54.3% 6.84% 122,772 35.7% 7.29%
-------- ------ ----- -------- ------ -----
Total interest-earning assets 507,283 100.0% 8.69% 344,460 100.0% 9.58%
-------- ------ ----- -------- ------ -----
Interest-bearing liabilities:
Deposits 369,705 76.6% 5.48% 298,314 92.1% 5.43%
Borrowings 95,557 19.8% 5.79% 25,006 7.7% 5.74%
Trust preferred securities 17,250 3.6% 9.38% 569 0.2% 9.37%
-------- ------ ----- -------- ------ -----
Total interest-bearing liabilities $482,512 100.0% 5.68% $323,889 100.0% 5.47%
-------- ------ ----- -------- ------ -----
-------- ------ ----- -------- ------ -----
<CAPTION>
AVG. BAL. NET CHANGE
---------------------------------------
YIELD/
RATE
$ % CHANGE
-------- ------- -------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans $10,586 (18.4%) 0.01%
Repurchase agreements (591) -0.3% 0.21%
Investment Securities 152,828 18.7% (0.45%)
------- ----- ------
Total interest-earning assets 162,823 (0.89%)
------- ----- ------
Interest-bearing liabilities:
Deposits 71,391 (15.5%) 0.05%
Borrowings 70,551 12.1% 0.05%
Trust preferred securities 16,681 3.4% 0.01%
------- ----- ------
Total interest-bearing liabilities $158,623 0.21%
------- ----- ------
------- ----- ------
</TABLE>
TOTAL INTEREST INCOME
Total interest income increased by $2.6 million, or 29.8% to $11.5
million for the quarter ended September 30, 1998 compared to the same period
of 1997. Total interest income increased by $8.3 million, or 33.6%, to $33.0
million for the nine months ended September 30, 1998 compared to the same
period in 1997. These increases were primarily due to increases in the
average balance of interest earning assets for the quarter and nine months
ending September 30, 1998 of $168.9 million and $162.8 million, respectively,
over the comparable periods in 1997. Average interest-earning assets have
increased due to the purchase of investment securities over the last several
quarters, and to a lesser extent, the growth in the loan portfolio. Partially
offsetting these increases, the overall yields on the Company's
interest-earning assets have decreased by 100 basis points and 89 basis
points, respectively, for the quarter and nine months ended September 30,
1998, from the comparable periods in 1997. These declines were primarily due
to the change in the composition of interest-earning assets detailed above.
Although the average yields earned on loans (computed on pages
10 and 11) are shown to have decreased by three basis points and increased by
one basis point, respectively, for the quarter and nine months ended
September 30 1998, the actual yields have declined by a slightly wider
margin. The average yields earned on loans (computed on pages 10
and 11) have shown only a slight decline for the quarter and an increase for
the nine months ended September 30, 1998, due to an increase in deferred loan
fees credited to income during 1998, which has occurred due to both the
increases in loan payoffs and loan sales in the current year. In accordance
with SFAS No. 91, net loan fees are deferred and amortized over the life of
the loan, as an adjustment to the yield of the loan. When a loan prepays or
is sold prior to maturity, the remaining deferred fee is immediately
recognized as an adjustment to the yield of the loan. In 1998, this has
resulted in an increase to the average yields earned on loans. If the
prepayments and sales for the quarter and nine months ended September 30,
1998 had been consistent with 1997, the average yields for 1998 would have
been slightly lower than shown above, and slightly lower than 1997. The
primary reason for this decline is due to seasoned, higher yielding loans
paying off, and being replaced with newly originated lower yielding loans.
This reflects the increased competitive rate pressure in the marketplace.
The substantial increase in the average balances of the Company's
investment securities for the quarter and nine months ended September 30,
1998, reflects the Company's effort to optimize earnings by more effectively
leveraging capital with the purchase of these securities.
TOTAL INTEREST EXPENSE
Total interest expense for the quarter ended September 30, 1998 increased
by $2.5 million, or 51.0%, to $7.4 million compared to the same period in
1997. Total interest expense for the nine months ended September 30, 1998
increased by $7.3 million, or 54.9%, to $20.5 million compared to the same
period in 1997. These increases in interest expense resulted primarily from
increases in the average balance of interest bearing liabilities for the
quarter and nine months ended September 30, 1998 of $166.5 million and $158.6
million, respectively, over the comparable periods in 1997. Average
interest-bearing liabilities continue to rise to fund the growth of the
Company. The growth has primarily been in term borrowings, trust preferred
securities, and certificates of deposit, but also includes growth in savings
accounts. Contributing to the increases in interest expense, were increases
in the rate paid on interest-bearing liabilities during 1998. The rates paid
on the Company's interest-bearing liabilities increased by 13 basis points
and 21 basis points, respectively, for the quarter and nine months ended
September 30, 1998. The increase in the rate paid on the Company's
interest-bearing liabilities reflects the change in the composition of
interest bearing liabilities as detailed in the table above, and the change
in market interest rates between the 1998 and 1997 periods. The change in the
composition of interest-bearing liabilities reflects the leveraging of the
balance sheet with increased borrowings subsequent to the issuance of $17.25
million of trust preferred securities in September of 1997.
PROVISION FOR LOAN LOSSES
During the quarter and nine months ended September 30, 1998, the
Company's provision for loan loss declined by $40,000 to $240,000, and
declined by $140,000 to $670,000, respectively, compared to the same periods
in 1997. The decline in the provision is the result of management's
evaluation of current portfolio loan loss exposure. 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 several factors, including underlying
loan collateral values, delinquency trends and historical
13
<PAGE>
loan loss experience. As of September 30, 1998, the Company had no loans
classified as nonaccrual. The allowance for loan losses as a percentage of
loans stood at 2.0% at September 30, 1998, compared to 1.77% at December 31,
1997.
NONINTEREST INCOME
The following table sets forth certain information with respect to the
Company's noninterest income for the quarter and nine months ended September
30, 1998:
<TABLE>
<CAPTION>
NONINTEREST INCOME ANALYSIS FOR THE QUARTER ENDED SEPTEMBER 30 FOR THE NINE MONTHS ENDED SEPTEMBER 30
---------------------------------- --------------------------------------
AMOUNTS CHANGE AMOUNTS CHANGE
(DOLLARS IN THOUSANDS) 1998 1997 $ % 1998 1997 $ %
------ ------ ----- -------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gain on sale of other real estate owned $ - $ 10 $(10) (100.0%) $ 83 $216 $ (133) (61.6%)
Gain on sale of commercial real estate loans - - - - 336 - 336 -
Gain on sale of SBA loans 50 - 50 - 187 - 187 -
Gain on sale of Investments 209 - 209 - 209 - 209 -
Loan prepayment income 143 80 63 78.8% 522 123 399 324.4%
Loan late fee income 9 12 (3) (25.0%) 135 52 83 159.6%
Other noninterest income 155 65 90 138.5% 368 227 141 62.1%
---- ---- ---- ----- ------ ---- ------ -----
Total noninterest income $566 $167 $399 238.9% $1,840 $618 $1,222 197.7%
---- ---- ---- ----- ------ ---- ------ -----
---- ---- ---- ----- ------ ---- ------ -----
</TABLE>
Noninterest income for the quarter and nine months ended September 30,
1998 increased by $399,000 or 238.9%, and $1.2 million or 197.7%,
respectively, as compared to the same periods in 1997. These changes are
detailed on the table above and significant changes in noninterest income are
described below.
The gain on sale of other real estate owned (OREO) has declined during
the quarter and nine months ended September 30, 1998 as compared to 1997 due
to the continued decline in the balances held in OREO properties.
Additionally, in May of 1997, an OREO property was sold at a gain of
$176,000, which substantially exceeds all gains recorded in 1998.
The Company has recently instituted a commercial real estate loan program
designed to produce loan product for both the Company's portfolio and for
potential sale in the secondary market. The loans originated are fixed rate
loans with interest rates fixed for ten years based on a margin over the
ten-year U.S. Treasury Bond. In June of 1998, the Company sold a pool of
seven loans, along with their servicing rights, with a principal balance
aggregating $7.5 million. The loans were sold at a premium ranging between
3.1% and 6.1%, depending upon the characteristics of each loan. The total
premium received on this pool of loans was $306,000. See also "Notes to
Consolidated Financial Statements," footnote 10.
In April of 1998 and again in September of 1998, the Company sold the SBA
guaranteed portion of three SBA loans, and four SBA loans, respectively, at a
premium ranging between 5.75% and 10.0%. These loans were sold, with the
servicing rights retained, at a total premium of $137,000 and $50,000,
respectively. See also "Notes to Consolidated Financial Statements,"
footnote 11.
In the third quarter of 1998, the Company sold $108.8 million in
investment securities for a gain on sale of $209,000. Also in the third
quarter of 1998, the Company purchased $125.0 million in investment
securities with similar maturity characteristics as those sold, but with
longer call protection. The Company did not sell any investments during 1997
which resulted in a gain on sale.
Loan prepayment income for the quarter and nine months ended September
30, 1998 rose by $63,000 and $399,000, respectively, over the comparable
periods in 1997. This increase is due to the increased volume of loans
prepaying in 1998, as compared to 1997. Total prepayments for the nine
months ended September 30, 1998 increased by $23.4 million to $41.9 million
over the comparable period in 1997.
14
<PAGE>
NONINTEREST EXPENSE
The following table sets forth certain information with respect to the
Company's noninterest expenses for the quarter and nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
NONINTEREST INCOME ANALYSIS FOR THE QUARTER ENDED SEPTEMBER 30 FOR THE NINE MONTHS ENDED SEPTEMBER 30
---------------------------------- --------------------------------------
AMOUNTS CHANGE AMOUNTS CHANGE
(DOLLARS IN THOUSANDS) 1998 1997 $ % 1998 1997 $ %
------ ------ ----- -------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Valuation adjustments to other real estate owned $ - $ 30 $(30) (100.0%) $50 $ 370 $(320) (86.5%)
Other real estate owned expense 38 31 7 22.6% 203 48 155 322.9%
Salaries and employee benefits 1,376 1,257 119 9.5% 4,314 3,779 535 14.2%
Net occupancy expenses 339 399 (60) (15.0%) 1,185 1,154 31 2.7%
Advertising and Promotions 111 56 55 98.2% 254 160 94 58.8%
FDIC insurance premiums 11 9 2 22.2% 32 63 (31) (49.2%)
Credit and collections expenses 40 69 (29) (42.0%) 127 80 47 58.8%
Communication and data processing 193 161 32 19.9% 572 483 89 18.4%
Other expenses 251 230 21 9.1% 782 646 136 21.1%
------ ------ ---- ----- ------ ------ ---- ------
Total noninterest expense $2,359 $2,242 $117 5.2% $7,519 $6,783 $736 10.9%
------ ------ ---- ----- ------ ------ ---- ------
------ ------ ---- ----- ------ ------ ---- ------
</TABLE>
Noninterest expense for the quarter and nine months ended September 30,
1998 increased by $117,000, or 5.2%, and $736,000 or 10.9%, respectively,
over the same periods in 1997. These changes are detailed on the table above
and significant changes in noninterest expense are described below.
The valuation adjustment to OREO for the quarter and nine months ended
September 30, 1998 decreased by $30,000 and $320,000, respectively, compared
to the same periods in 1997. The Company recorded OREO valuation adjustments
on two OREO properties in 1997, while minimal write downs were necessary
during 1998.
Other real estate owned expenses increased for the quarter and nine
months ended September 30, 1998 by $7,000 and $155,000, respectively, over
the comparable periods in 1997. The increases were due to the Company
accruing for additional expenses anticipated to be incurred prior to the sale
of two OREO properties in 1998.
Salaries and employee benefits for the quarter and nine months ended
September 30, 1998, increased by $119,000 and $535,000, as compared to the
same periods in 1997. These increases are partially the result of increased
marketing and administrative bonus accruals in 1998 versus 1997, due to
higher loan volume and improved return on equity. In addition, the Company
provided an approximate 4% salary increase to most employee base salaries in
January 1998.
Other expenses for the quarter and nine months ended September 30, 1998
increased by $21,000 and $136,000, respectively, over the comparable periods
in 1997. The increases were primarily due to the increase in Delaware State
taxes, which are based on the Company's total assets, which have grown
substantially in 1997. Additionally, the Company experienced an increase in
investor relations expense due to an increase in printing costs associated
with the annual report.
INCOME TAX PROVISION
For the quarters ended September 30, 1998 and 1997, the Company estimated
its provision for income taxes at $792,000 or 38.6% and $637,000 or 39.9%,
respectively. For the nine months ended September 30, 1998 and 1997, the
Company's provision for income taxes was $2.5 million or 40.2% and $1.8
million or 39.9%, respectively. The difference between the Company's
statutory tax rate and its effective tax rate, for the quarter and nine
months ended September 30, 1998 and 1997, was due to California tax
deductions (credits) generated by the Company on loans made in special tax
zones within California.
FINANCIAL CONDITION
SUMMARY OF CHANGES IN BALANCE SHEETS
SEPTEMBER 30, 1998 COMPARED TO DECEMBER 31, 1997
Total assets of the Company increased to $570.4 million at September 30,
1998 from $464.3 million at December 31, 1997, a $106.1 million increase.
This increase reflects the purchase of $99.9 million of investment
securities, net of sales and maturities, and an increase of $7.1 million in
loans during the first nine months of 1998. The Company funded this asset
growth by increasing its interest bearing liabilities by $98.1 million to
$530.0 million at September 30, 1998 from $431.9 million at December 31,
1997. The increase in interest bearing liabilities reflects an increase in
deposits of $60.1 million, primarily due to the growth in the Company's
certificates of deposit balances that grew by $48.4 million during the first
nine months of 1998. For the nine months ended September 30, 1998, term
borrowings were increased by $33.0 million to $78.0 million. Additionally,
the Company added $5.0 million of borrowings in reverse repurchase agreements
for a total of $26.5 million as of September 30, 1998.
Loans, net of deferred fees and the allowance for loan losses, increased
by $7.1 million to $234.1 million at September 30, 1998, from $227.0 million
at December 31, 1997. The Company originated $64.9 million in new real estate
and business loans during the first nine months ended September 30, 1998.
Additionally, the Company experienced $41.9 million in loan payoffs, $7.5
million in commercial real estate loan sales, and $1.8 million in SBA loan
sales during the nine months ended September 30, 1998.
15
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1998 increased by $675,000
from the level at December 31, 1997, and represents 2.0% of outstanding loans at
September 30, 1998. The increase in the general loan loss reserve from $4.1
million at December 31, 1997 to $4.8 million at September 30, 1998 reflects a
recovery of $25,000, in addition to $670,000 in loan loss provision, partially
offset by a chargeoff of $20,000. 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:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
---- ----
<S> <C> <C>
Balance at beginning of period $4,100 $3,400
Chargeoffs (20) (368)
Recoveries 25 24
Provision for loan losses: 670 810
------ ------
Balance at end of period: $4,775 $3,866
------ ------
------ ------
Allowance for loan losses as a % of loans 2.00% 1.68%
Net loan (recoveries)/charge-offs $ (5) $ 344
Valuation adjustment to OREO 50 370
------ ------
Total net loan charge-offs & OREO valuation adjustment $ 45 $ 714
------ ------
------ ------
</TABLE>
NON-PERFORMING AND RESTRUCTURED ASSETS
The following table sets forth loans accounted for on a nonaccrual basis,
OREO and loans that were impaired due to the loans being restructured at the
dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998 1997
------------- ------------
<S> <C> <C>
Nonaccrual loans - $ 228
Other real estate owned 957 2,064
----- ------
Total nonaccrual loans and OREO $ 957 $2,292
----- ------
Total nonperforming assets to total assets 0.17% 0.49%
----- ------
Other impaired loans (restructured loans) $ -- $ 899
----- ------
----- ------
</TABLE>
NONACCRUAL LOANS
Nonaccrual loans are loans, not classified as "troubled debt
restructurings" or OREO, that are 60 days or more delinquent, or 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 no loans classified as nonaccrual at September 30, 1998.
Nonaccrual loan balances are net of any prior write-offs, but any
specifically assigned portions of the general allowance for loan losses are
not deducted from the nonaccrual loan balances above.
OTHER REAL ESTATE OWNED
Assets classified as OREO include foreclosed real estate owned by the
Company. The Company had 3 properties in this category at September 30, 1998,
totaling $957,000. The Company makes valuation adjustments to its OREO,
based on the most recent collateral appraisal data and other relevant
information which effectively reduces the book value of such assets to the
estimated fair market value less selling cost of the properties. The fair
value of the real estate takes into account the real estate values net of
expenses such as brokerage commission, past due property taxes, property
repair expenses, and other items. The estimated sale price does not
necessarily reflect the appraisal values which management believes, in some
cases, may be higher than what could be realized in a sale of the OREO.
REVERSE REPURCHASE AGREEMENTS
The Company increased its short term borrowing at September 30, 1998 by
$5.0 million to $26.5 million, from $21.5 million at December 31, 1997. The
rates paid on this short term debt averaged 5.78% during 1998. The Company
continued to utilize these borrowing lines to cover the short term financing
needs for loan fundings and investment security purchases.
TERM BORROWINGS
The Company borrowed an additional $33.0 million of term debt during
1998. The Company has a total of $95.0 million of term borrowing lines
available, of which $78.0 million had been borrowed at September 30, 1998.
This debt is secured by pledging specific amounts of specific securities from
the Company's U.S. government sponsored agency securities portfolio. $55.0
million of these secured borrowing have an original five year maturity with a
two-year, one-time call option, while the remaining $23.0 million have an
original one year maturity with no call option. The table reflects the
attributes of the Company's term borrowings.
16
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) CALL DATE MATURITY DATE AMOUNT
--------- ------------- ------
<S> <C> <C>
5.82% five-year term borrowings September 1999 September 2002 $25,000
5.78% five-year term borrowings October 1999 October 2002 10,000
5.63% five-year term borrowings December 1999 December 2002 10,000
5.48% five-year term borrowings January 2000 January 2003 10,000
5.64% one- year term borrowings - April 1999 23,000
-------
Total term borrowings $78,000
-------
-------
</TABLE>
CAPITAL RESOURCES
The Company's objective is to maintain a strong level of capital that
will support consistent and sustained asset growth, anticipated credit risks
and to ensure that regulatory and industry capital guidelines and standards
are maintained. Pacific Crest Bank is subject to leverage and risk-based
capital adequacy standards applicable to FDIC insured institutions. At
September 30, 1998, Pacific Crest Bank was in compliance with all such
capital requirements.
Shareholders' equity increased by $5.3 million to $34.1 million at
September 30, 1998. This increase reflects the increase to shareholders'
equity by the nine months net income of $3.7 million, a $99,000 increase
resulting from the purchase of stock under the employee and directors' stock
purchase plans, and a $4.5 million increase in accumulated other
comprehensive income. This increase was partially offset by a $3.0 million
repurchase of the Company's stock.
On October 29, 1998, the Company announced that the Board of Directors
had declared a $.05 per common share cash dividend for the fourth quarter of
1998. The dividend will be paid to shareholders of record at the close of
business November 19, 1998 and is payable on December 3, 1998.
Pacific Crest Bank is required to maintain certain minimum capital
levels and must maintain certain capital ratios to be considered "well
capitalized" under the prompt corrective action provisions of the FDIC
Improvement Act.
The following table sets forth Pacific Crest Bank's regulatory capital
ratios at September 30, 1998, and December 31, 1997:
<TABLE>
<CAPTION>
REGULATORY CAPITAL RATIOS AT SEPTEMBER 30, 1998 AT DECEMBER 31, 1997
-------------------------------------- --------------------------------------
PACIFIC CREST BANK REQUIRED ACTUAL EXCESS REQUIRED ACTUAL EXCESS
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.23% 3.23% 4.00% 7.53% 3.53%
Tier 1 risk-based capital ratio 4.00% 12.44% 8.44% 4.00% 12.02% 8.02%
Total risk-based capital ratio 8.00% 13.69% 5.69% 8.00% 13.27% 5.27%
----- ------ ----- ----- ------ -----
----- ------ ----- ----- ------ -----
</TABLE>
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.
The Company's holdings of cash and cash equivalents during the nine
months ended September 30, 1998 increased by $936,000 to $3.3 million at
September 30, 1998 from $2.4 million at December 31, 1997. The Company
purchased $99.9 million of U.S. government sponsored agency securities, net
of maturities, calls and sales during 1998.
Loans, net of deferred fees and the allowance for loan losses, increased
by $7.1 million to $234.1 million at September 30, 1998, from $227.0 million
at December 31, 1997. The Company originated $64.9 million in new real estate
and business loans during the first nine months ended September 30, 1998.
Additionally, the Company experienced $41.9 million in loan payoffs, $7.5
million in commercial real estate loan sales, and $1.8 million in SBA loan
sales during the nine months ended September 30, 1998.
The Company funded this asset growth by increasing its interest bearing
liabilities by $98.1 million to $530.0 million at September 30, 1998 from
$431.9 million at December 31, 1997. The increase in interest bearing
liabilities reflects an increase in new deposits of $60.1 million, primarily
due to the growth in the Company's certificates of deposit balances that grew
by $48.4 million during the first nine months of 1998. Term borrowings were
increased by $33.0 million to $78.0 million at September 30, 1998.
Additionally, the Company added $5.0 million of borrowings in reverse
repurchase agreements for a total of $26.5 million as of September 30, 1998.
The liquidity of Pacific Crest Capital, Inc., (the Parent), is dependent
on several factors, including the payment of cash dividends by its
subsidiary, Pacific Crest Bank, or the ability to secure borrowings. Without
dividends from Pacific Crest Bank, the Parent must rely solely on existing
cash and investments, or the ability to secure borrowings. Cash plus
investments less current liabilities and short-term debt totaled $7.7 million
at September 30, 1998. This amount is available to pay future operating
expenses, the interest cost associated with the subordinated debt security
issued in September of 1997, and for the possible infusion of capital into
Pacific Crest Bank. The interest on the Junior Subordinated Debentures will
be paid by the Parent to the Trust, and represents the sole revenues of the
Trust and the source of dividend distributions by the Trust to the holders of
the Capital Trust Securities.
Pacific Crest Bank'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. Pacific Crest Bank had retained
earnings of $7.8 million at September 30, 1998. The total amount of retained
earnings is unrestricted and available for dividend payments.
YEAR 2000
The financial institutions industry, as with other industries, is faced
with Year 2000 issues. These issues center around computer programs that do
not recognize a year which begins with "20" instead of "19", or uses only 2
digits for the year. This could result in major systems failures or
miscalculations. This Year 2000 issue creates risks for the Company from
unforeseen or
17
<PAGE>
unanticipated problems in its internal computer systems as well as from
computer systems of the Federal Reserve Bank, correspondent banks, customers,
vendors, and utility providers. Failures of these systems or untimely
corrections could have a material adverse impact on the Company's ability to
conduct its business and results of operations.
Certain statements in this section constitute forward-looking statements
under the Private Securities Litigation Reform Act of 1995 which involve risk
and uncertainties. The Company's actual results may differ significantly
from the results discussed in these forward-looking statements. Such factors
include, but are not limited to, the estimated costs of remediation, the
preparedness of third party vendors, timetables for implementation of future
remediation and testing, contingency plans, and estimated future costs due to
business disruption caused by affected third parties.
The Company's computer systems and programs are designed and supported
by companies specifically in the business of providing such products and
services. The Company has formed a Year 2000 committee comprised of certain
officers to evaluate and address the Year 2000 issue for both information
technology and non-information technology systems.
As of the date of this 10Q filing, the Company has successfully
completed the awareness and assessment phases of the Year 2000 plan and is
currently in the remediation, testing and validation phases of the plan.
None of the Company's critical systems were programmed by internal staff;
rather, they are serviced or provided by outside system vendors. The systems
that were identified in the assessment phase as critical to the Company's
operations are expected to be remediated, tested, and certified as compliant
by the end of the first quarter of 1999.
The Company has notified its customers by means of statement stuffers of
Year 2000 issues. It is also in the process of contacting each of its major
borrowing customers to make them aware of the issues and to seek information
regarding its customers' preparedness for the Year 2000. Vendors and
utilities have informed the Company that their Year 2000 projects are on
schedule and their progress is being monitored by Company personnel.
An expected reasonable "worst case" scenario is that, notwithstanding
the testing and certification of all the Company's critical systems
beforehand, a problem is discovered in the year 2000 that impacts the core
accounting systems. In this event, the Company would be required to perform
many business functions manually until such time as the responsible vendor
corrected the problem. Such manual processing of functions is provided for
in the Company's contingency plans.
The Year 2000 issues are not expected to have a material impact on the
operations of the Company. The total cost estimated to correct the new
computer software systems, or to have existing systems modified, is not
expected to exceed $200,000 over the next year.
18
<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
(a) Financial data schedules
(b) REPORTS ON FORM 8-K:
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1998.
19
<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: November 16, 1998 /s/ GARY WEHRLE
--------------------------------------
Gary Wehrle
President and Chief Executive Officer
Date: November 16, 1998 /s/ ROBERT J. DENNEN
---------------------------------------
Robert J. Dennen
Vice President, Chief Financial Officer
Corporate Secretary
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3328
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 317658
<INVESTMENTS-CARRYING> 5000
<INVESTMENTS-MARKET> 5000
<LOANS> 238873
<ALLOWANCE> 4775
<TOTAL-ASSETS> 570436
<DEPOSITS> 408233
<SHORT-TERM> 26500
<LIABILITIES-OTHER> 5936
<LONG-TERM> 95250
0
0
<COMMON> 28043
<OTHER-SE> 6372
<TOTAL-LIABILITIES-AND-EQUITY> 570436
<INTEREST-LOAN> 6267
<INTEREST-INVEST> 5198
<INTEREST-OTHER> 15
<INTEREST-TOTAL> 11480
<INTEREST-DEPOSIT> 5421
<INTEREST-EXPENSE> 7394
<INTEREST-INCOME-NET> 4086
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 566
<EXPENSE-OTHER> 2359
<INCOME-PRETAX> 2053
<INCOME-PRE-EXTRAORDINARY> 2053
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1261
<EPS-PRIMARY> .45
<EPS-DILUTED> .43
<YIELD-ACTUAL> 2.99
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2869
<ALLOWANCE-OPEN> 4525
<CHARGE-OFFS> 0
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 4775
<ALLOWANCE-DOMESTIC> 4775
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1668
</TABLE>
