<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, 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 executive offices) (Zip Code)
(818) 865-3300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of August 13, 1998.
<TABLE>
<CAPTION>
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
<S> <C>
Common Stock, $.01 par value 2,985,217
</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
<TABLE>
<CAPTION>
Page No.
<S> <C>
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 . . . . . . . . . . . . . . . . 8
Item 3: Quantitative and Qualitative Disclosure
About Market Risk . . . . . . . . . . . . . . . . . . . . 17
Part II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
- -----------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
Cash $ 4,270 $ 1,966
Securities purchased under resale agreements 1,801 426
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents 6,071 2,392
- -----------------------------------------------------------------------------------------------------------
Investment Securities (Note 5):
Held to maturity, at amortized cost 4,999 4,998
Available for sale, at market 278,934 217,738
Loans
Commercial mortgage 217,383 223,902
Business Loans - SBA 6,087 5,711
Residential mortgage 1,590 1,593
Commercial business/other 365 690
- -----------------------------------------------------------------------------------------------------------
Total loans 225,425 231,896
Deferred loan fees 696 763
Allowance for loan losses 4,525 4,100
- -----------------------------------------------------------------------------------------------------------
Net loans 220,204 227,033
Accrued interest receivable 5,974 5,367
Prepaid expenses and other assets 2,512 1,478
Deferred income taxes 2,421 2,622
Other real estate owned 971 2,064
Premises and equipment 682 617
- -----------------------------------------------------------------------------------------------------------
Total assets $522,768 $464,309
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing deposits:
Savings accounts $196,322 $200,255
Certificates of deposit 164,940 131,213
Money market checking 18,586 16,703
- -----------------------------------------------------------------------------------------------------------
Total deposits 379,848 348,171
Reverse repurchase agreements 15,000 21,500
Term borrowings 76,000 45,000
Company Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust Holding Solely Junior Subordinated Debentures 17,250 17,250
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 488,098 431,921
Accrued interest and other liabilities 4,092 3,580
- -----------------------------------------------------------------------------------------------------------
Total liabilities 492,190 435,501
- -----------------------------------------------------------------------------------------------------------
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, 2,984,709 shares issued and
outstanding at June 30, 1998, 2,971,946 shares
issued and outstanding at December 31, 1997 28,043 27,944
Retained earnings 3,250 849
Accumulated other comprehensive income (Note 8) 1,588 1,189
Common stock in treasury, at cost (2,303) (1,174)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 30,578 28,808
- -----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $522,768 $464,309
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Book value per common share (Note 3) $ 10.75 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans, including fees $ 6,308 $ 5,960 $12,528 $11,700
Securities purchased under resale agreements 34 23 37 27
Investment Securities:
Available for sale 4,474 1,307 8,742 2,426
Held to maturity 95 873 190 1,687
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 10,911 8,163 21,497 15,840
Interest expense:
Interest expense on interest-bearing deposits
Savings accounts 2,562 2,325 5,134 4,433
Certificates of deposit 2,212 1,488 4,160 2,854
Money market checking accounts 224 221 440 452
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense on deposits 4,998 4,034 9,734 7,739
Reverse repurchase agreements 253 355 749 604
Term borrowings 1,035 - 1,820 -
Trust preferred securities 404 - 808 -
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 6,690 4,389 13,111 8,343
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 4,221 3,774 8,386 7,497
Provision for loan losses 230 300 430 530
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,991 3,474 7,956 6,967
Noninterest income:
Gain on sale of other real estate owned 83 207 83 207
Gain on sale of commercial real estate loans 332 - 332 -
Gain on sale of SBA loans 137 - 137 -
Loan prepayment income 298 29 379 43
Loan late fee income 109 21 129 40
Other noninterest income 114 92 214 159
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,073 349 1,274 449
- ---------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Valuation adjustments to other real estate owned 50 210 50 340
Other real estate owned expenses 121 4 165 18
Salaries and employee benefits 1,581 1,276 2,938 2,522
Net occupancy expenses 437 393 846 754
Advertising and promotion 97 86 143 104
FDIC insurance premiums 11 29 21 54
Credit and collection expenses 75 12 88 10
Communication and data processing 188 157 379 322
Other expenses 299 151 530 416
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,859 2,318 5,160 4,540
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,205 1,505 4,070 2,876
Income tax provision (Note 2) 904 599 1,669 1,146
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1,301 $ 906 $ 2,401 $ 1,730
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Per share data (Note 3):
Basic earnings per common share $ 0.45 $ 0.31 $ 0.83 $ 0.59
- ---------------------------------------------------------------------------------------------------------------------
Weighted average basic common shares outstanding
(in thousands) 2,874 2,938 2,884 2,947
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.43 $ 0.30 $ 0.79 $ 0.58
- ---------------------------------------------------------------------------------------------------------------------
Weighted average diluted common shares
outstanding (in thousands) 3,042 3,049 3,050 3,006
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON TREASURY
------------------------------------
(DOLLARS AND SHARES IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 2,960 $27,838 (30) $ (255)
- --------------------------------------------------------------------------------
Comprehensive income:
Net income - - - -
Other comprehensive income,
net of tax:
Unrealized gain on securities - - - -
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)
- --------------------------------------------------------------------------------
Comprehensive income:
Net income: - - - -
Other comprehensive income,
net of tax
Unrealized gain on securities - - - -
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 - - (58) (1,129)
- --------------------------------------------------------------------------------
Balances at June 30, 1998 2,985 $28,043 (143) $(2,303)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
RETAINED ACCUMULATED
EARNINGS OTHER TOTAL TOTAL
(ACCUMULATED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
(DOLLARS AND SHARES IN THOUSANDS) DEFICIT) INCOME EQUITY INCOME
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $(2,858) $ (257) $24,468
- ---------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 3,707 - 3,707 $3,707
Other comprehensive income,
net of tax:
Unrealized gain on securities - 1,446 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 $ 849 $1,189 $28,808
- ---------------------------------------------------------------------------------------------------
Comprehensive income:
Net income: 2,401 - 2,401 $2,401
Other comprehensive income,
net of tax
Unrealized gain on securities - 399 399 399
------
Total Comprehensive income: $2,800
Issuance of common stock:
Under employee stock purchase
plan - - 63
Under employee stock option plan - - 36
Purchase of treasury shares - - (1,129)
- ---------------------------------------------------------------------------------------------------
Balances at June 30, 1998 $3,250 $1,588 $30,578
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
(DOLLARS IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,401 $ 1,730
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 430 530
Valuation adjustments to OREO 50 340
Gain from SBA loan sale (137) -
Gain from sale of commercial real estate loans (332) -
Gain from Sale of OREO (83) -
Loss on investment in joint venture - 5
Depreciation and amortization 140 126
Amortization of deferred loan fees (300) (172)
Amortization/accretion of securities (1) (8)
Changes in operating assets and liabilities:
Accrued interest receivable (607) (992)
Prepaid expenses and other assets (1,034) (142)
Deferred income taxes 5 91
Accrued interest and other liabilities 511 62
- -------------------------------------------------------------------------------
Net cash provided by operating activities 1,043 1,570
INVESTING ACTIVITIES:
Purchase of Investment Securities:
Held to maturity - (14,997)
Available for sale (110,600) (55,799)
Proceeds from Investment Securities:
Held to maturity - 5,000
Available for sale 50,000 13,000
Net increase in loans (2,310) (17,315)
Proceeds from sale of notes 600
Proceeds from sale of commercial real estate loans 7,831 -
Proceeds from SBA Loan Sales 1,509 -
Investment in joint venture - (100)
Purchases of equipment and leasehold
improvements, net (205) (119)
Proceeds from sale of other real estate owned 1,264 1,999
- -------------------------------------------------------------------------------
Net cash used in investing activities (52,511) (67,731)
FINANCING ACTIVITIES:
Net (decrease)/increase in savings accounts (3,933) 23,868
Net increase in CDs 33,727 16,194
Net increase/(decrease) in money market checking 1,883 (1,803)
Net (decrease)/increase in reverse repurchase
agreements (6,500) 26,900
Net increase in term borrowings 31,000 -
Proceeds from the issuance of common stock 99 72
Purchase of Treasury Stock, at cost (1,129) -
- -------------------------------------------------------------------------------
Net cash provided by financing activities 55,147 65,231
Net increase/(decrease) in cash and cash equivalents 3,679 (930)
Cash and cash equivalents at beginning of period 2,392 2,834
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,071 $ 1,904
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 12,808 $ 8,220
Income taxes $ 2,015 $ 965
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Transfers from loans to other real estate owned $ 206 $ 657
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 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 June 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 June 30, 1998 and 1997, the Company estimated its
provision for income taxes at $904,000 or 41.0% and $599,000 or 39.8%,
respectively. For the six months ended June 30, 1998 and 1997, the Company's
provision for income taxes was $1.7 million or 41.0% and $1.1 million or 39.8%,
respectively. The difference between the Company's statutory tax rate and its
effective tax rate, for the quarter and six months ended June 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 June
30, 1998 and December 31, 1997. The number of common shares used in this
calculation was 2,984,709 less 142,500 of treasury shares at June 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 six months
ended June 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 6/30/98 QUARTER ENDED 6/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common stockholders $1,301 2,874 $ 0.45 $906 2,938 $0.31
---------------------------------------- -----------------------------------------
Effect of Dilutive Securities
Stock Options - 168 $(0.02) - 111 (0.01)
Diluted EPS
---------------------------------------- -----------------------------------------
Income available to common stockholders $1,301 3,042 $ 0.43 $906 3,049 $0.30
---------------------------------------- -----------------------------------------
<CAPTION>
SIX MONTHS ENDED 6/30/98 SIX MONTHS ENDED 6/30/97
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common stockholders $2,401 2,884 $ 0.83 $1,730 2,947 $0.59
---------------------------------------- -----------------------------------------
Effect of Dilutive Securities
Stock Options - 166 $(0.04) - 59 (0.01)
Diluted EPS
---------------------------------------- -----------------------------------------
Income available to common stockholders $2,401 3,050 $ 0.79 $1,730 3,006 $0.58
---------------------------------------- -----------------------------------------
</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 intent. The carrying amount of securities and
their approximate fair values at June 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 $ 4,999 $ 21 $ - $ 5,020
Available for sale 276,287 2,698 52 278,934
- --------------------------------------------------------------------------------
Total investment securities $281,286 $2,719 $52 $283,954
- --------------------------------------------------------------------------------
</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 six 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 June 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 $ 4,999 $ 5,020 7.57% 8.0 Years
-----------------------------------------
Total held-to-maturity securities: $ 4,999 $ 5,020 7.57% 8.0 Years
-----------------------------------------
AVAILABLE-FOR-SALE SECURITIES:
Due from one to five years $ 15,003 $ 15,052 6.55% 3.7 Years
Due from five to ten years 200,666 203,037 6.97% 8.1 Years
Due over ten years 60,618 60,845 6.71% 10.5 Years
-----------------------------------------
Total available-for-sale securities: $276,287 $278,934 6.89% 8.4 Years
-----------------------------------------
Total investment securities $281,286 $283,954 6.90% 8.4 Years
-----------------------------------------
-----------------------------------------
</TABLE>
U.S. government sponsored agency securities carried at $96.2 million were
pledged to secure borrowings aggregating $91 million at June 30, 1998.
- --------------------------------------------------------------------------------
NOTE 6. CAPITAL
- --------------------------------------------------------------------------------
At June 30, 1998, 10,000,000 shares of $0.01 par value common stock were
authorized of which, 2,984,709 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 June 30, 1998, and December 31, 1997:
<TABLE>
<CAPTION>
AT JUNE 30, 1998 AT DECEMBER 31, 1997
REGULATORY CAPITAL RATIOS ------------------------------------------------------------------------------------
PACIFIC CREST BANK Required Actual Excess Required Actual Excess
- ------------------------------------------------ ------------- -------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.60% 3.60% 4.00% 7.53% 3.53%
Tier I risk-based capital ratio 4.00% 12.85% 8.85% 4.00% 12.02% 8.02%
Total risk-based capital ratio 8.00% 14.10% 6.10% 8.00% 13.27% 5.27%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
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 $8.8
million in cash plus investments, less current liabilities and short-term debt
at June 30, 1998. However, these funds are also necessary to pay future
operating expenses of the parent Company, interest expense on the $17.25 million
in subordinated debentures, and possibly future 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 June 30, 1998, Pacific Crest Bank had unrestricted retained
earnings of $6.4 million available for dividend payments.
- --------------------------------------------------------------------------------
NOTE 8. COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
The following table reflects the tax effect of other comprehensive income:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Other comprehensive income (loss):
Unrealized gain/(loss) on U.S. agency
securities $ 618 $ 32
Tax (expense)/benefit (219) (14)
- --------------------------------------------------------------------------------
Total other comprehensive income (loss),
net of taxes $ 399 $ 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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 5.72% on June 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. The market value of
the cap approximates the carrying value at June 30, 1998.
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 Bank does not believe that adoption of SFAS
133 will have a material impact on its operations and financial position.
- --------------------------------------------------------------------------------
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
amount of total net loan growth, secondary market demand for such loans, and the
level of interest rate risk in the entire 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 to be used
for both portfolio purposes, and to generate fee income through "gains on sale."
In April of 1998, the Company sold the SBA guaranteed portion of three SBA
loans, at a premium of 10%. These loans were sold, with the servicing rights
retained, at a total premium of $137,000. The Company calculated the servicing
asset and interest only (I/O) strip related to the sale transaction, 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 June 30, 1998, the
Company had 17 loans in this category with a combined principal balance of $6.1
million, and with the SBA guaranteed portion aggregating $4.0 million.
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 consolidated financial performance of the Company for the
quarter and six months ended June 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 7 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) 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Balance
Average Loans $230,476 $230,479 $231,641 $227,533 $221,270
Average Investment Securities 263,990 250,764 229,473 142,879 119,126
Average Earning Assets 496,927 481,503 463,862 373,817 342,090
Average Assets 506,418 491,140 472,924 380,467 348,968
Average Deposits 366,195 351,178 345,416 316,474 297,936
Average Borrowings 106,710 106,140 94,512 33,716 24,685
Average Equity 29,833 29,405 28,399 26,811 25,423
Performance Ratios
Return on average assets (1) 1.03% 0.90% 0.86% 1.01% 1.04%
Return on average common equity (1) 18.09% 15.73% 14.73% 14.29% 13.99%
Net interest margin (2) 3.41% 3.51% 3.67% 4.24% 4.42%
Capital and Leverage Ratios (3)
Risk-based capital ratios:
Tier one 12.85% 11.96% 12.02% 11.95% 10.00%
Total 14.10% 13.21% 13.27% 13.21% 11.25%
Leverage capital ratio 7.60% 7.54% 7.53% 8.49% 7.49%
Asset Quality Ratios
Allowance for loan losses to total loans 2.01% 1.83% 1.77% 1.68% 1.67%
Allowance for loan losses to nonaccrual loans - 1889.04% 1798.25% 187.31% 176.10%
Total nonperforming assets to total assets (4) 0.19% 0.45% 0.49% 0.89% 1.10%
- ------------------------------------------------------------------------------------------------------------------------------
</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 troubled debt restructurings.
8
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME ANALYSIS
The following tables, for the quarter and six months, ended June 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 June 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) $230,476 $6,308 10.98% $221,270 $5,960 10.80%
Repurchase agreements 2,461 34 5.54% 1,694 23 5.45%
Investment securities:
Available for sale 258,991 4,474 6.91% 73,769 1,307 7.09%
Held to maturity 4,999 95 7.60% 45,357 873 7.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 496,927 10,911 8.81% 342,090 8,163 9.57%
Other real estate owned 1,685 2,316
Other noninterest earning assets 12,215 8,175
Less allowance for loan losses 4,409 3,613
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $506,418 $348,968
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts $195,253 2,562 5.26% $177,041 2,325 5.27%
Certificates of deposit 152,876 2,212 5.80% 102,597 1,488 5.82%
Money market checking 18,066 224 4.97% 18,298 221 4.84%
Reverse repurchase agreements 17,603 253 5.75% 24,685 355 5.77%
Term borrowings 71,857 1,035 5.78% - - -
Trust preferred securities 17,250 404 9.37% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 472,905 6,690 5.67% 322,621 4,389 5.46%
Non interest-bearing liabilities 3,680 924
Shareholders' equity 29,833 25,423
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $506,418 $348,968
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $4,221 $3,774
Net interest rate spread (2) 3.13% 4.11%
Net interest-earning assets $ 24,022 $ 19,469
Net interest margin (3) 3.41% 4.42%
Average interest-earning assets to
average interest bearing liabilities 105.1% 106.0%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 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) $230,477 $12,528 10.96% $215,968 $11,700 10.92%
Repurchase agreements 1,367 37 5.46% 1,019 27 5.34%
Investment securities:
Available for sale 252,415 8,742 6.93% 68,746 2,426 7.06%
Held to maturity 4,999 190 7.60% 43,805 1,687 7.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 489,258 21,497 8.86% 329,538 15,840 9.69%
Other real estate owned 1,863 2,847
Other noninterest earning assets 12,448 9,318
Less allowance for loan losses 4,312 3,569
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $499,257 $338,134
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts $197,055 5,134 5.25% $170,686 4,433 5.24%
Certificates of deposit 143,820 4,160 5.83% 99,643 2,854 5.78%
Money market checking 17,852 440 4.97% 18,755 452 4.86%
Reverse repurchase agreements 26,033 749 5.80% 21,437 604 5.68%
Term borrowings 63,144 1,820 5.81% - - -
Trust preferred securities 17,250 808 9.37% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 465,154 13,111 5.68% 310,521 8,343 5.42%
Non interest-bearing liabilities 4,483 2,665
Shareholders' equity 29,620 25,083
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $499,257 $338,134
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 8,386 $7,497
Net interest rate spread (2) 3.18% 4.27%
Net interest-earning assets $ 24,104 $ 19,017
Net interest margin (3) 3.46% 4.59%
Average interest-earning assets to
average interest bearing liabilities 105.2% 106.1%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
10
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
For the Quarter Ended For the Six Months Ended
June 30, 1998 June 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 $ 251 $ 97 $ 348 $ 788 $ 40 $ 828
Repurchase agreements 11 - 11 9 1 10
Investment securities:
Available for sale 3,192 (26) 3,166 6,313 3 6,316
Held to maturity (765) (13) (778) (1,463) (34) (1,497)
- --------------------------------------------------------------------------------------------------------------------------
Total change in interest income 2,689 58 2,747 5,647 10 5,657
- --------------------------------------------------------------------------------------------------------------------------
CHANGES IN INTEREST EXPENSE:
Savings accounts 239 (2) 237 686 15 701
Certificates of deposit 728 (4) 724 1,277 29 1,306
Money market checking (3) 6 3 (22) 10 (12)
Reverse repurchase agreements (102) - (102) 131 14 145
Term borrowings 1,035 - 1,035 1,820 - 1,820
Trust preferred securities 404 - 404 808 - 808
- --------------------------------------------------------------------------------------------------------------------------
Total change in interest expense 2,301 - 2,301 4,700 68 4,768
- --------------------------------------------------------------------------------------------------------------------------
Changes in net interest income $ 388 $ 58 $ 446 $ 947 $ (58) $ 889
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</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 June 30, 1998, compared to $906,000 (or $0. 30 per common
share on a diluted basis) for the corresponding period in 1997. Net income was
$2.4 million (or $0.79 per common share on a diluted basis) for the six months
ended June 30, 1998, compared to $1.7 million (or $0.58 per common share on a
diluted basis) for the corresponding period in 1997. The improvement in 1998
over the comparable periods in 1997 is primarily attributable to an increase in
the Company's net interest income, and non-interest income, partially offset by
an increase in non-interest expense.
NET INTEREST INCOME
Net interest income increased by $447,000 or 11.8% to $4.2 million for the
quarter ended June 30, 1998 compared to the same period of 1997. Net interest
income increased by $889,000 or 11.9% to $8.4 million for the six months ended
June 30, 1998 compared to the same period of 1997. The increase in net interest
income during the quarter and six months ended June 30, 1998 was primarily the
result of an increase of $154.8 million and $159.7 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 five 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 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 June 30, 1998 and 1997 was 3.13% and 4.11%,
respectively. The net interest rate spread for the six months ended June 30,
1998 was 3.18% and 4.27%, respectively. The decline in the spread for the
quarter and six months ended June 30, 1998 from the same periods in 1997, is the
result of an increase of 21 basis points and 26 basis points, respectively, on
the rates paid on interest-bearing liabilities, in addition to a decrease of 76
basis points and 83 basis points, respectively, on the yields earned on
interest-earning assets.
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 June 30, 1998 and 1997, was 3.41% and
4.42%, respectively. The net interest margin for the six months ended June 30,
1998 and 1997 was 3.46% and 4.59%, respectively. The decline in the margin is
the result of the reduced net interest rate spread, and 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, cost the Company
more than deposits.
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 six months ended June 30, 1998
and 1997, including the change
11
<PAGE>
in average balance and yield/rate between these respective periods:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------
% Avg. % Avg.
Average Compo- Yield/ Average Compo- Yield/
(DOLLARS IN THOUSANDS) Balance sition Rate Balance sition Rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans $230,477 47.1% 10.96% $215,968 65.5% 10.92%
Repurchase agreements 1,367 0.3% 5.46% 1,019 0.3% 5.34%
Investment Securities 257,414 52.6% 6.94% 112,551 34.2% 7.31%
- ---------------------------------------------------------------------------------------------------------------------
Total interest earning assets 489,258 100.0% 8.86% 329,538 100.0% 9.69%
- ---------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Deposits 358,727 77.1% 5.47% 289,084 93.1% 5.40%
Borrowings 89,177 19.2% 5.81% 21,437 6.9% 5.68%
Trust preferred securities 17,250 3.7% 9.37% - - -
- ---------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $465,154 100.0% 5.68% $310,521 100.0% 5.42%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------
Avg. Bal. Net Change
- -------------------------------------------------------------------------
Yield/
Rate
(DOLLARS IN THOUSANDS) $ % Change
- -------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans $14,509 (18.4)% 0.04 %
Repurchase agreements 348 0.0 % 0.12 %
Investment Securities 144,863 18.5 % (0.37)%
- -------------------------------------------------------------------------
Total interest earning assets 159,720 (0.83)%
- -------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Deposits 69,643 (16.0)% 0.07 %
Borrowings 67,740 12.3 % 0.13 %
Trust preferred securities 17,250 3.7 % 9.37 %
- -------------------------------------------------------------------------
Total interest bearing liabilities $154,633 0.26 %
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
TOTAL INTEREST INCOME
Total interest income increased by $2.7 million, or 33.6% to $10.9 million
for the quarter ended June 30, 1998 compared to the same period of 1997. Total
interest income increased by $5.7 million, or 35.7%, to $21.5 million for the
six months ended June 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 six months ending June 30, 1998 of $154.8
million and $159.7 million, respectively over the comparable periods in 1997.
Average interest-earning assets increased as a result of the growth in the loan
portfolio during the second half of 1997, and the purchase of investment
securities over the last five quarters. Partially offsetting these increases,
the overall yields on the Company's interest-earning assets decreased by 76
basis points and 83 basis points, respectively, for the quarter and six months
ended June 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 for the quarter and six months
ended June 30, 1998 have increased by 18 basis points and 4 basis points,
respectively, the actual yields have declined slightly. The average yields
earned on loans have increased due to an increase in deferred loan fees credited
to income during 1998. This 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 yield
earned on loans. If the prepayments and sales for the quarter and six months
ended June 30, 1998 had been consistent with 1997, the average yields for 1998
would have been 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 six months ended June 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 June 30, 1998 increased by
$2.3 million, or 52.4%, to $6.7 million compared to the same period of 1997.
Total interest expense for the six months ended June 30, 1998 increased by $4.8
million, or 57.1%, to $13.1 million compared to the same period of 1997. These
increases in interest expense resulted from increases in the average balance of
interest bearing liabilities for the quarter and six months ended June 30, 1998
of $150.3 million and $154.6 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 certificates of deposit,
but also includes growth in borrowings and trust preferred securities.
Contributing to these increases, were increases in the rates paid on interest-
bearing liabilities during 1998. The rates paid on the Company's interest-
bearing liabilities increased by 21 basis points and 26 basis points,
respectively, for the quarter and six months ended June 30, 1998. The increase
in the rates paid on the Company's interest-bearing liabilities reflects the
change in the composition of interest bearing liabilities as detailed above, and
the change in market interest rates between the 1998 and 1997 periods. The
change in the composition of the interest-bearing liabilities reflects a shift
in the Company's strategy to fund a portion of the growth in assets from sources
other than deposit liabilities. This shift is reflected in the growth of
borrowings and the issuance of the trust preferred securities.
PROVISION FOR LOAN LOSSES
During the quarter and six months ended June 30, 1998, the Company's
provision for loan loss declined by $70,000 to $230,000, and declined by
$100,000 to $430,000, 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
12
<PAGE>
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 loan loss experience. As of June 30, 1998,
the Company had no loans classified as nonaccrual. As of December 31, 1997, the
ratio of nonaccrual loans to total loans, net of deferred loan fees was 0.10%,
and the ratio of allowance for loan losses to nonaccrual loans was 1798%. The
allowance for loan losses as a percentage of loans stood at 2.0% at June 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 six months ended June 30, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME ANALYSIS FOR THE QUARTER ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE 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 $ 83 $207 $(124) (59.9%) $ 83 $207 $(124) (59.9%)
Gain on sale of commercial real estate loans 332 - 332 - 332 - 332 -
Gain on sale of SBA loans 137 - 137 - 137 - 137 -
Loan prepayment income 298 29 269 927.6% 379 43 336 781.4%
Loan late fee income 109 21 88 419.0% 129 40 89 222.5%
Other noninterest income 114 92 22 23.9% 214 159 55 34.6%
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $1,073 $349 $ 724 207.4% $1,274 $449 $ 825 183.7%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest income for the quarter and six months ended June 30, 1998
increased by $724,000 or 207.4%, and $825,000 or 183.7%, 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 six months ended June 30, 1998 as compared to 1997 due to the
continued decline in OREO properties. This has resulted in fewer properties
being sold by the Company, which produces fewer gains. 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.
During 1997, the Company initiated a Small Business Administration (SBA)
loan program. The loans originated through this program are intended to be used
for both portfolio purposes, and to generate fee income through "gains on sale."
In April of 1998, the Company sold the SBA guaranteed portion of three SBA
loans, at a premium of 10%. These loans were sold, with the servicing rights
retained, at a total premium of $137,000. See also "Notes to Consolidated
Financial Statements," footnote 11.
Loan prepayment income for the quarter and six months ended June 30, 1998
rose by $269,000 and $336,000, 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 through the six months ended June 30,
1998 and 1997 aggregated $29 million and $13 million, respectively, representing
a $16 million, or 123% increase over 1997.
13
<PAGE>
NONINTEREST EXPENSE
The following table sets forth certain information with respect to the
Company's noninterest expenses for the quarter and six months ended June 30,
1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE ANALYSIS FOR THE QUARTER ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE 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 $ 50 $ 210 $(160) (76.2%) $ 50 $ 340 $(290) (85.3%)
Other real estate owned expense 121 4 117 2925.0% 165 18 147 816.7%
Salaries and employee benefits 1,581 1,276 305 23.9% 2,938 2,522 416 16.5%
Net occupancy expenses 437 393 44 11.2% 846 754 92 12.2%
Advertising and Promotions 97 86 11 12.8% 143 104 39 37.5%
FDIC insurance premiums 11 29 (18) (62.1%) 21 54 (33) (61.1%)
Credit and collections expenses 75 12 63 525.0% 88 10 78 780.0%
Communication and information systems 188 157 31 19.7% 379 322 57 17.7%
Other expenses 299 151 148 98.0% 530 416 114 27.4%
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $2,859 $2,318 $ 541 23.3% $5,160 $4,540 $ 620 13.7%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest expense for the quarter and six months ended June 30, 1998
increased by $541,000, or 23.3%, and $620,000 or 13.7%, 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 six months ended June
30, 1998 decreased by $160,000 and $290,000, respectively compared to the same
periods in 1997. The Company recorded OREO valuation adjustment on two OREO
properties in 1997, while minimal write downs were necessary during 1998.
Other real estate owned expenses increased for the quarter and six months
ended June 30, 1998 by $117,000 and $147,000, 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 six months ended June
30, 1998, increased by $305,000 and $416,000, as compared to the same period in
1997. This increase is partially the result of an increased marketing and
administrative bonus accrual 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 six months ended June 30, 1998 increased
by $148,000 and $114,000, respectively, over the comparable periods in 1997.
The increases were primarily due to the increase in Delaware State taxes, which
resulted due to the growth of the Company, and the increase in professional
services, which resulted due to both the growth of the Company and the loans
sales in 1998
INCOME TAX PROVISION
For the quarters ended June 30, 1998 and 1997, the Company estimated its
provision for income taxes at $904,000 or 41.0% and $599,000 or 39.8%,
respectively. For the six months ended June 30, 1998 and 1997, the Company's
provision for income taxes was $1.7 million or 41.0% and $1.1 million or 39.8%,
respectively. The difference between the Company's statutory tax rate and its
effective tax rate, for the quarter and six months ended June 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
JUNE 30, 1998 COMPARED TO DECEMBER 31, 1997
Total assets of the Company increased to $522.8 million at June 30, 1998
from $464.3 million at December 31, 1997, a $58.5 million increase. This
increase reflects the purchase of $61.2 million of investment securities, net of
sales and maturities, partially offset by a $6.8 million decline in loans during
the first six months of 1998. The Company funded this asset growth by increasing
its interest bearing liabilities by $56.2 million to $488.1 million at June 30,
1998 from $431.9 million at December 31, 1997. The increase in interest bearing
liabilities reflects an increase in new deposits of $31.7 million, primarily due
to the growth in the Company's certificates of deposit balances that grew $33.7
million during the first six months of 1998. Term borrowings were increased by
$31.0 million to $76.0 million at June 30, 1998. This was partially offset by
the reduction of $6.5 million of borrowings in reverse repurchase agreements to
$15.0 million at June 30, 1998.
Loans, net of deferred fees and the allowance for loan losses, decreased by
$6.8 million to $220.2 million at June 30, 1998, from $227.0 million at December
31, 1997. The Company originated $35.2 million in new real estate and business
loans during the
14
<PAGE>
first six months ended June 30, 1998. Off-setting these origination's, the
Company experienced $29.4 million in loan payoffs, $7.5 million in commercial
real estate loan sales, and $1.4 million in SBA loan sales during the six months
ended June 30, 1998.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 1998 increased by $425,000 from
the level at December 31, 1997, and represents 2.01% of outstanding loans at
June 30, 1998. The increase in the general loan loss reserve from $4.1 million
at December 31, 1997 to $4.5 million at June 30, 1998 reflects a recovery of
$15,000, in addition to $430,000 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>
AT OR FOR THE SIX MONTHS ENDED JUNE 30,
ALLOWANCE FOR LOAN LOSSES ---------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $4,100 $3,400
Commercial real estate mortgages:
Chargeoffs (20) (152)
Recoveries 15 17
Provision for loan losses: 430 530
- --------------------------------------------------------------------------------
Balance at end of period: $4,525 $3,795
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Allowance for loan losses as a % of loans 2.01% 1.67%
Net loan (recoveries)/charge-offs $ (5) $ 135
Valuation adjustment to OREO 50 340
- --------------------------------------------------------------------------------
Total net loan (recoveries)/charge-offs &
OREO valuation adjustment $ 45 $ 475
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</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>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans - $ 228
Other real estate owned 971 2,064
- --------------------------------------------------------------------------------
Total nonaccrual loans and OREO $ 971 $2,292
- --------------------------------------------------------------------------------
Total nonperforming assets to total assets 0.19% 0.49%
- --------------------------------------------------------------------------------
Other impaired loans (restructured loans) $ - $ 899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
NONACCRUAL LOANS
Nonaccrual loans are loans, not classified as "troubled debt
restructurings" or OREO, that show little or no current payment ability. These
loans are supported, however, by collateral or cash flow that support the
collectibility of the Company's remaining book balance, after consideration of
the allowance for loan losses. The Company had no loans classified as nonaccrual
at June 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 June 30, 1998,
totaling $971,000. 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 decreased its short term borrowing at June 30, 1998 by $6.5
million to $15.0 million, from $21.5 million at December 31, 1997. The rates
paid on this short term debt averaged 5.8% 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 $31.0 million of term debt during
1998. The Company has a total of $125.0 million of term borrowing lines
available, of which $76.0 million had been borrowed against at June 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 million of these secured borrowing have an original five year
maturity with a two-year, one-time call option, while the remaining $21
million have an original one year maturity with no call option. The table
reflects the attributes of the Company's term borrowings.
15
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) CALL DATE MATURITY DATE AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5.82% five-year term borrowings 09/99 09/02 $25,000
5.78% five-year term borrowings 10/99 10/02 10,000
5.63% five-year term borrowings 12/99 12/02 10,000
5.48% five-year term borrowings 01/00 01/03 10,000
5.64% one- year term borrowings - 04/99 21,000
- --------------------------------------------------------------------------------
Total term borrowings $76,000
- --------------------------------------------------------------------------------
</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 June 30, 1998,
Pacific Crest Bank was in compliance with all such capital requirements.
Shareholders' equity increased by $1.8 to $30.6 million at June 30, 1998.
This increase reflects the increase to shareholders' equity by the first 6
months net income of $2.4 million and a $99,000 increase resulting from the
purchase of stock under the employee and directors' stock purchase plans, and a
$399,000 increase in accumulated other comprehensive income. This increase was
partially offset by a $1.1 million repurchase of the Company's stock.
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 June 30, 1998, and December 31, 1997:
<TABLE>
<CAPTION>
AT JUNE 30, 1998 AT DECEMBER 31, 1997
REGULATORY CAPITAL RATIOS --------------------------------------------------
PACIFIC CREST BANK Required Actual Excess Required Actual Excess
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ratio 4.00% 7.60% 3.60% 4.00% 7.53% 3.53%
Tier 1 risk-based capital
ratio 4.00% 12.85% 8.85% 4.00% 12.02% 8.02%
Total risk-based capital
ratio 8.00% 14.10% 6.10% 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 six months
ended June 30, 1998 increased by $3.7 million to $6.1 million at June 30, 1998
from $2.4 million at December 31, 1997. The Company purchased $61.2 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, decreased by
$6.8 million to $220.2 million at June 30, 1998, from $227.0 million at December
31, 1997. The Company originated $35.2 million in new real estate and business
loans during the first six months ended June 30, 1998. Off-setting these
origination's, the Company experienced $29.4 million in loan payoffs, $7.5
million in commercial real estate loan sales, and $1.4 million in SBA loan sales
during the six months ended June 30, 1998.
The Company funded this asset growth by increasing its interest bearing
liabilities by $56.2 million to $488.1 million at June 30, 1998 from $431.9
million at December 31, 1997. The increase in interest bearing liabilities
reflects an increase in new deposits of $31.7 million, primarily due to the
growth in the Company's certificates of deposit balances that grew $33.7 million
during the first six months of 1998. Term borrowings were increased by $31.0
million to $76.0 million at June 30, 1998. This was partially offset by the
reduction of $6.5 million of borrowings in reverse repurchase agreements to
$15.0 million at June 30, 1998.
The liquidity of the parent company, Pacific Crest, 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, Pacific Crest 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 $8.8 million at June 30, 1998. This amount is
necessary to pay future operating expenses, existing current liabilities, 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 Pacific Crest 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 Pacific Crest 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 $6.4 million at June 30, 1998. The total amount of retained earnings
is unrestricted and available for dividend payments.
16
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. One such instrument is an 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
5.72% on June 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. The market value of the cap approximates the
carrying value at June 30, 1998.
The Company's primary market risk is interest rate risk. Interest rate risk
is the potential of economic losses due to future interest rate changes. These
economic losses can be reflected as a loss of future net interest income and/or
a loss of current fair market values. The objective is to measure the effect on
net interest income and to adjust the balance sheet to minimize the inherent
risk while at the same time to maximize income. Management realizes certain
risks are inherent and that the goal is to identify and minimize the risks.
Pacific Crest's exposure to market risk is reviewed on a regular basis by the
Asset/Liability committee. Tools used by management include the standard GAP
report. The Company has no market risk sensitive instruments held for trading
purposes. Management believes that the Company's market risk is reasonable at
this time.
The table below provides information about the Company's balance sheet
non-derivative financial instruments that are sensitive to changes in interest
rates. For all outstanding financial instruments, the table presents the
principal outstanding balance at June 30, 1998 and the weighted average interest
yield/rate of the instruments by either the date the instrument can be repriced
for variable rate financial instruments or the expected maturity date for fixed
rate financial instruments.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
EXPECTED MATURITY DATES OR REPRICING DATE BY YEAR
--------------------------------------------------------------------------------
FAIR
VALUE AT
(DOLLARS IN THOUSANDS) 1998 1999 2000 2001 2002 THEREAFTER TOTAL 6/30/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS:
ASSETS:
Repurchase agreements (1) $ 1,801 $ - $ - $ - $ - $ - $ 1,801 $ 1,801
average yield (variable rate) 5.54% - - - - - 5.54% -
Investment securities, held to
maturity (2) - - - - 4,999 - 4,999 5,020
average yield (fixed rate) - - - - 7.60% - 7.60% -
Investment securities, available
for sale (2) - - - 5,039 10,013 263,882 278,934 278,934
average yield (fixed rate) - - - 6.44% 6.60% 6.95% 6.89% -
Total loans gross (3) 174,587 11,551 10,789 9,472 1,494 17,531 225,425 230,772
average yield 10.67% 9.63% 9.88% 9.76% 9.98% 9.46% 10.44% -
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Savings accounts (1) 196,322 - - - - - 196,322 196,322
average rates (variable rate) 5.24% - - - - - 5.24% -
Money market checking (1) 18,586 - - - - - 18,586 18,586
average rates (variable rate) 5.0% - - - - - 5.0% -
Certificates of deposit (4) 60,098 99,835 3,550 1,117 243 97 164,940 162,843
average rates (fixed rate) 5.77% 5.74% 5.82 5.95 6.41 5.96 5.75% -
Reverse repurchase agreements (1) 15,000 - - - - - 15,000 15,000
average rates (variable rate) 5.73% - - - - - 5.73% -
Term borrowings (5) 21,000 55,000 - - - - 76,000 76,552
average rates (fixed rate) 5.64% 5.72% - - - - 5.70% -
Trust preferred securities (2) - - - - - 17,250 17,250 17,034
average rates (fixed rate) - - - - - 9.38% 9.38% -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value balances reflected in the table were derived as follows:
(1) For financial instruments that mature or reprice within 90 days,
the carrying amounts and the fair value are considered identical,
due to the short term repricing of the financial instruments.
17
<PAGE>
(2) For investment securities, and the trust preferred securities,
fair value is based on the quoted market price of these
securities by broker dealers making a market for these
securities.
(3) Fair value of loans is based on the value the Company could
receive on the loans in a loan sale. The Company estimates that
it could sell a majority of its loans at a premium of between
0.0% and 2.5%.
(4) Fair value of the Company's fixed maturity deposits are estimated
using rates currently offered for deposits of similar remaining
maturities.
(5) Fair value of term borrowings is estimated using discounted cash
floor analysis based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
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
On May 13, 1998, the Annual meeting of Shareholders of the Company
was held for the purpose of electing two persons to the Board of
Directors for a term of three years and to serve until a successor
is elected and qualified. The nominees were Martin J. Frank, and
Steven J. Orlando. A total of 2,890,537 shares were represented at
the meeting. 2,877,461 Shares were cast "FOR" the election of Mr.
Frank and Mr. Orlando, and 13,076 shares were "WITHHELD" from
voting for the nominees.
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
June 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: August 13, 1998 /s/Gary Wehrle
------------------------- -------------------------------------
Gary Wehrle
President and Chief Executive Officer
Date: August 13, 1998 /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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,071
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 278,934
<INVESTMENTS-CARRYING> 4,999
<INVESTMENTS-MARKET> 5,020
<LOANS> 224,729
<ALLOWANCE> 4,525
<TOTAL-ASSETS> 522,768
<DEPOSITS> 379,848
<SHORT-TERM> 15,000
<LIABILITIES-OTHER> 4,092
<LONG-TERM> 93,250
0
0
<COMMON> 28,043
<OTHER-SE> 2,535
<TOTAL-LIABILITIES-AND-EQUITY> 522,768
<INTEREST-LOAN> 6,308
<INTEREST-INVEST> 4,569
<INTEREST-OTHER> 34
<INTEREST-TOTAL> 10,911
<INTEREST-DEPOSIT> 4,998
<INTEREST-EXPENSE> 6,690
<INTEREST-INCOME-NET> 4,221
<LOAN-LOSSES> 230
<SECURITIES-GAINS> 1,073
<EXPENSE-OTHER> 2,859
<INCOME-PRETAX> 2,205
<INCOME-PRE-EXTRAORDINARY> 2,205
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,301
<EPS-PRIMARY> $0.45
<EPS-DILUTED> $0.43
<YIELD-ACTUAL> 3.41
<LOANS-NON> 0
<LOANS-PAST> 3,551
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,885
<ALLOWANCE-OPEN> 4,307
<CHARGE-OFFS> 20
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 4,525
<ALLOWANCE-DOMESTIC> 4,525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,556
</TABLE>
