<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, 2000
/ / 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 or 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 / /
The number of shares outstanding of issuer's $ .01 par value common stock as of
August 3, 2000, was 2,511,780.
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.
JUNE 30, 2000 FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999.................................. 1
Consolidated Statements of Income
Three and Six Months Ended June 30, 2000 and 1999.................... 2
Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 2000 and 1999.............................. 3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999.............................. 4
Notes to Consolidated Financial Statements............................ 5
Selected Quarterly Financial Data..................................... 9
Selected Quarterly Balance Sheet Data................................. 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 11
General........................................................ 11
Results of Operations.......................................... 13
Financial Condition............................................ 26
Non-Performing Assets.......................................... 28
Liquidity...................................................... 28
Dividends...................................................... 29
Capital Resources.............................................. 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 33
Item 2. Changes in Securities.................................................. 33
Item 3. Defaults Upon Senior Securities........................................ 33
Item 4. Submission of Matters to a Vote of Security Holders.................... 33
Item 5. Other Information...................................................... 33
Item 6. Exhibits and Reports on Form 8-K....................................... 33
</TABLE>
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------------- ----------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Cash $ 2,527 $ 1,282
Securities purchased under resale agreements 4,025 3,501
-------------- ----------------
Cash and cash equivalents 6,552 4,783
-------------- ----------------
Investment securities available for sale, at market 240,866 240,760
Loans:
Commercial real estate loans 371,033 357,312
SBA loans held for investment 4,585 3,690
SBA loans held for sale, at lower of cost or market 6,386 3,269
Other loans 2,732 2,062
-------------- ----------------
Gross loans 384,736 366,333
Less: deferred loan fees (431) (381)
Less: allowance for loan losses (7,082) (6,450)
-------------- ----------------
Net loans 377,223 359,502
-------------- ----------------
Accrued interest receivable 6,735 6,604
Prepaid expenses and other assets 1,596 2,154
Deferred income taxes, net 9,735 8,600
Other real estate owned - -
Premises and equipment 1,036 857
-------------- ----------------
Total assets $ 643,743 $ 623,260
============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Savings accounts $ 163,310 $ 196,368
Certificates of deposit 329,096 269,233
Money market checking accounts 15,206 18,783
-------------- ----------------
Total deposits 507,612 484,384
-------------- ----------------
Borrowings:
Securities sold under repurchase agreements 21,000 30,500
Borrowings from State of California 33,000 20,000
Term borrowings 30,000 40,000
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely junior subordinated debentures
("Trust preferred securities") 17,250 17,250
-------------- ----------------
Total borrowings 101,250 107,750
-------------- ----------------
Total interest-bearing liabilities 608,862 592,134
Accrued interest payable and other liabilities 8,009 5,577
-------------- ----------------
Total liabilities 616,871 597,711
============== ================
SHAREHOLDERS' EQUITY
Common stock, $.01 par value (10,000,000 shares authorized, 2,986,530
shares issued at June 30, 2000 and December 31, 1999) 30 30
Additional paid-in capital 27,816 27,885
Retained earnings 12,248 9,978
Accumulated other comprehensive loss (6,254) (6,355)
Common stock in treasury, at cost (475,762 shares at
June 30, 2000 and 384,806 shares at December 31, 1999) ( 6,968) (5,989)
-------------- ----------------
Total shareholders' equity 26,872 25,549
============== ================
Total liabilities and shareholders' equity $ 643,743 $ 623,260
============== ================
Book value per common share $ 10.70 $ 9.82
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
<TABLE>
<CAPTION>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 9,063 $ 8,209 $ 17,807 $ 15,714
Securities purchased under resale agreements 27 128 30 339
Investment securities available for sale 4,107 3,472 8,217 8,205
----------- ----------- ----------- ----------
Total interest income 13,197 11,809 26,054 24,258
----------- ----------- ----------- ----------
INTEREST EXPENSE:
Deposits:
Savings accounts 2,111 3,001 4,307 6,108
Certificates of deposit 4,493 2,416 8,422 4,846
Money market checking accounts 167 249 360 506
----------- ----------- ----------- ----------
Total interest expense on deposits 6,771 5,666 13,089 11,460
----------- ----------- ----------- ----------
Borrowings:
Securities sold under repurchase agreements 655 120 1,296 474
Borrowings from State of California 474 - 791 -
Term borrowings 441 856 893 1,950
Trust preferred securities 404 404 808 809
----------- ----------- ----------- ----------
Total interest expense on borrowings 1,974 1,380 3,788 3,233
----------- ----------- ----------- ----------
Total interest expense 8,745 7,046 16,877 14,693
----------- ----------- ----------- ----------
Net interest income 4,452 4,763 9,177 9,565
Provision for loan losses 125 395 375 1,055
----------- ----------- ----------- ----------
Net interest income after provision for
loan losses 4,327 4,368 8,802 8,510
----------- ----------- ----------- ----------
NON-INTEREST INCOME:
Loan prepayment and late fee income 49 269 151 368
Gain on sale of investment securities - 71 - 586
Gain on sale of SBA loans - 79 - 175
Gain on sale of other real estate owned - 25 115 25
Other income 125 215 281 476
----------- ----------- ----------- ----------
Total non-interest income 174 659 547 1,630
----------- ----------- ----------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,414 1,734 2,912 3,474
Net occupancy expenses 360 430 746 872
Communication and data processing 222 223 442 435
Advertising and promotion 51 215 119 407
FDIC insurance premiums 26 14 52 26
Credit and collection expenses - 26 2 36
Other real estate owned expenses (6) 17 (4) 35
Valuation adjustments to other real estate owned - - - 43
Other expenses 275 362 579 629
----------- ----------- ----------- ----------
Total non-interest expense 2,342 3,021 4,848 5,957
----------- ----------- ----------- ----------
Income before income taxes 2,159 2,006 4,501 4,183
Income tax provision 901 799 1,877 1,648
----------- ----------- ----------- ----------
Net income $ 1,258 $ 1,207 $ 2,624 $ 2,535
=========== =========== =========== ==========
EARNINGS PER COMMON SHARE:
Basic $ 0.50 $ 0.45 $ 1.03 $ 0.94
Diluted $ 0.48 $ 0.43 $ 1.00 $ 0.90
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK IN TREASURY ADDITIONAL
----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
---------- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 ......... 2,986 $ 30 (296) $ (4,705) $ 28,057
Comprehensive income (loss):
Net income ........................ -- -- -- -- --
Unrealized loss on investment
securities available for sale,
net of tax .................... -- -- -- -- --
Total comprehensive loss .
Issuances of common stock in treasury:
Employee stock purchase plan ... -- -- 4 66 (12)
Non-employee directors'
stock purchase plan ...... -- -- 2 27 --
Employee stock option plan ..... -- -- 17 263 (159)
Purchase of common stock in treasury .. -- -- (57) (833) --
Cash dividends paid ($0.11 per share) . -- -- -- -- --
---------- ---------- ----------- ---------- ----------------
Balances at June 30, 1999 ............. 2,986 $ 30 (330) $ (5,182) $ 27,886
========== ========== =========== ========== ================
Balances at December 31, 1999 ......... 2,986 $ 30 (385) $ (5,989) $ 27,885
Comprehensive income:
Net income ........................ -- -- -- -- --
Unrealized gain on investment
securities available for sale,
net of tax .................... -- -- -- -- --
Total comprehensive income
Issuances of common stock in treasury:
Employee stock purchase plan ... -- -- 4 55 (14)
Non-employee directors'
stock purchase plan ...... -- -- 2 32 (7)
Employee stock option plan ..... -- -- 5 83 (48)
Purchase of common stock in treasury .. -- -- (102) (1,149) --
Cash dividends paid ($0.14 per share).. -- -- -- -- --
---------- ---------- ----------- ---------- ----------------
Balances at June 30, 2000 ............. 2,986 $ 30 (476) $ (6,968) $ 27,816
========== ========== =========== ========== ================
<CAPTION>
ACCUMULATED
OTHER TOTAL
RETAINED COMPREHENSIVE SHAREHOLDERS'
EARNINGS INCOME (LOSS) EQUITY
--------------- ---------------- --------------
<S> <C> <C> <C>
Balances at December 31, 1998 ......... $ 5,559 $ 1,199 $ 30,140
Comprehensive income (loss):
Net income ........................ 2,535 -- 2,535
Unrealized loss on investment
securities available for sale,
net of tax .................... -- (5,085) (5,085)
--------------
Total comprehensive loss . (2,550)
Issuances of common stock in treasury:
Employee stock purchase plan ... -- -- 54
Non-employee directors'
stock purchase plan ...... -- -- 27
Employee stock option plan ..... -- -- 104
Purchase of common stock in treasury .. -- -- (833)
Cash dividends paid ($0.11 per share) . (294) -- (294)
--------------- ---------------- --------------
Balances at June 30, 1999 ............. $ 7,800 $ (3,886) $ 26,648
Balances at December 31, 1999 ......... $ 9,978 $ (6,355) $ 25,549
Comprehensive income:
Net income ........................ 2,624 -- 2,624
Unrealized gain on investment
securities available for sale,
net of tax .................... -- 101 101
--------------
Total comprehensive income 2,725
Issuances of common stock in treasury:
Employee stock purchase plan ... -- -- 41
Non-employee directors'
stock purchase plan ...... -- -- 25
Employee stock option plan ..... -- -- 35
Purchase of common stock in treasury .. -- -- (1,149)
Cash dividends paid ($0.14 per share).. (354) -- (354)
--------------- ---------------- --------------
Balances at June 30, 2000 ............. $ 12,248 $ (6,254) $ 26,872
=============== ================ ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
PACIFIC CREST CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,624 $ 2,535
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 375 1,055
Gain on sale of investment securities -- (586)
Gain on sale of SBA loans -- (175)
Gain on sale of other real estate owned (115) (25)
Valuation adjustments to other real estate owned -- 43
Depreciation and amortization of premises and equipment 165 155
Accretion of deferred loan fees (152) (137)
Accretion of discount on investment securities (14) (26)
Deferred income tax (benefit) expense (1,208) 434
Changes in operating assets and liabilities:
Accrued interest receivable (131) 2,752
Prepaid expenses and other assets 558 17
Accrued interest payable and other liabilities 2,432 477
----------- -----------
Net cash provided by operating activities 4,534 6,519
=========== ===========
INVESTING ACTIVITIES:
Purchases of investment securities
available for sale -- (54,360)
Proceeds from sales and calls of investment securities
available for sale -- 158,335
Principal payments on investment securities 82 7
Loan originations (40,822) (88,858)
Purchases of loans -- (9,017)
Proceeds from sales of SBA loans -- 3,368
Principal payments on loans 22,918 26,013
Proceeds from sales of other real estate owned 75 563
Purchases of premises and equipment, net (344) (266)
----------- -----------
Net cash (used in) provided by investing activities (18,091) 35,785
=========== ===========
FINANCING ACTIVITIES:
Net decrease in savings accounts (33,058) (27,578)
Net increase in certificates of deposit 59,863 20,725
Net decrease in money market checking accounts (3,577) (1,954)
Net decrease in securities sold under repurchase agreements (9,500) (25,279)
Net increase in borrowings from State of California 13,000 --
Net decrease in term borrowings (10,000) (24,450)
Purchase of common stock in treasury, at cost (1,149) (833)
Cash dividends paid (354) (294)
Proceeds from exercise of stock options 35 104
Proceeds from employees and directors stock purchase plans 66 81
----------- -----------
Net cash provided by (used in) financing activities 15,326 (59,478)
=========== ===========
Net increase (decrease) in cash and cash equivalents 1,769 (17,174)
Cash and cash equivalents at beginning of period 4,783 25,640
----------- -----------
Cash and cash equivalents at end of period $ 6,552 $ 8,466
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim consolidated 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., ("Pacific Crest" or the "Parent"), together with its wholly owned
subsidiaries, Pacific Crest Bank (the "Bank") and PCC Capital I ("PCC Capital"),
is referred to as the "Company." Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, 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.
In the opinion of management, all adjustments have been included, including
normal recurring adjustments necessary to present fairly the financial position
of the Company and the results of its operations for the interim period ended
June 30, 2000. Certain reclassifications have been made to prior year amounts to
conform to the 2000 presentation. The results of operations for interim periods
are not necessarily indicative of results for the full year.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto, which are
included in the Company's December 31, 1999 Annual Report on Form 10-K.
NOTE 2. INVESTMENT SECURITIES
Investment securities have been classified in the Consolidated Balance
Sheets according to management's intent and ability. Securities classified as
available for sale are recorded at market value. Unrealized gains or losses on
securities available for sale are excluded from earnings and reported in
"Accumulated other comprehensive loss," net of tax effect, as a separate
component of Shareholders' Equity. The following tables present the amortized
cost and estimated fair values of investment securities available for sale as of
the dates indicated (in thousands):
<TABLE>
<CAPTION>
GROSS UNREALIZED WEIGHTED
AMORTIZED --------------------------- ESTIMATED AVERAGE
JUNE 30, 2000 COST GAINS LOSSES FAIR VALUE YIELD
---------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government sponsored agency securities:
Callable bonds $ 243,633 $ -- $ (10,399) $ 233,234 6.46%
Mortgage-backed securities 3,914 -- (136) 3,778 7.09%
Corporate debt securities 4,102 -- (248) 3,854 8.46%
------------ ------------ ------------ ------------ ------------
Total investment securities $ 251,649 $ -- $ (10,783) $ 240,866 6.51%
------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1999
-----------------
Investment securities available for sale:
U.S. government sponsored agency securities:
Callable bonds $ 243,626 $ -- $ (10,555) $ 233,071 6.50%
Mortgage-backed securities 3,996 -- (140) 3,856 7.09%
Corporate debt securities 4,094 2 (263) 3,833 7.69%
------------ ------------ ------------ ------------ ------------
Total investment securities $ 251,716 $ 2 $ (10,958) $ 240,760 6.53%
------------ ------------ ------------ ------------ ------------
</TABLE>
U.S. government sponsored agency securities with market values totaling
$103.7 million and $98.7 million were pledged to secure borrowings aggregating
$84.0 million and $90.5 million at June 30, 2000 and December 31, 1999,
respectively.
5
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
The Company's investment securities portfolio at June 30, 2000 consisted of
fixed rate investments in U.S. government sponsored agency callable bonds and
mortgage-backed securities issued by Fannie Mae, Freddie Mac, the Federal Home
Loan Bank and the Government National Mortgage Association, as well as variable
rate investments in investment grade corporate debt securities. The callable
bonds have call features that allow the issuer to retire (call) an individual
security prior to that security's stated maturity date. As of June 30 2000, the
Company's callable bond portfolio had call dates ranging between one month and
13 months. The following table reflects the scheduled maturities in Company's
investment securities portfolio at June 30, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AMORTIZED ESTIMATED AVERAGE
COST FAIR VALUE YIELD
------------ ------------ ------------
<S> <C> <C> <C>
Due in one to five years $ 81,360 $ 79,740 6.07%
Due in six to ten years 142,273 134,869 6.66%
Due over ten years 28,016 26,257 6.95%
------------ ------------ ------------
Total investment securities $ 251,649 $ 240,866 6.51%
------------ ------------ ------------
</TABLE>
NOTE 3. BORROWINGS FROM STATE OF CALIFORNIA
The Bank has a fixed rate borrowing facility with the State of California
Treasurer's Office under which the Bank can borrow an amount not to exceed its
unconsolidated total shareholder's equity. Borrowing maturity dates under this
program cannot exceed one year. The State of California requires collateral with
a market value equal to at least 110% of the outstanding borrowing amount. The
Bank has pledged specific amounts of certain U.S. government sponsored agency
securities to meet this collateral requirement. As of June 30, 2000, the Bank's
unconsolidated total shareholder's equity was $39.6 million, and the Bank's
outstanding borrowings from the State of California totaled $33.0 million.
The table below describes the attributes of the Bank's borrowings from the
State of California as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------------
BORROWING DATE AMOUNT RATE MATURITY DATE
--------------------------------------- ------------ --------- -------------
<S> <C> <C> <C>
October 1999 $ 5,000 5.39% October 2000
November 1999 5,000 5.74% December 2000
December 1999 5,000 5.98% December 2000
April 2000 5,000 5.87% July 2000
April 2000 8,000 5.91% July 2000
June 2000 5,000 5.79% August 2000
------------ ---------
Total State of California borrowings $ 33,000 5.79%
============ =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------
BORROWING DATE AMOUNT RATE MATURITY DATE
--------------------------------------- ------------ --------- -------------
<S> <C> <C> <C>
October 1999 $ 5,000 5.18% April 2000
October 1999 5,000 5.39% October 2000
November 1999 5,000 5.74% December 2000
December 1999 5,000 5.98% December 2000
------------ ---------
Total State of California borrowings $ 20,000 5.57%
============ =========
</TABLE>
6
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 4. TERM BORROWINGS
The Company had fixed rate, long-term borrowings through one broker at June
30, 2000 and December 31, 1999. These borrowings have call features that allow
the lender to call the debt prior to the stated maturity date. This debt is
secured by pledging specific amounts of certain U.S. government sponsored agency
securities.
The tables below reflect the attributes of the Company's term borrowings as
of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------------------------------------------------
MATURITY
BORROWING TYPE AMOUNT RATE CALL DATE DATE
----------------------------- ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Three-year borrowing $ 20,000 5.75% September 2000 September 2002
Three-year borrowing 10,000 5.95% October 2000 October 2002
---------- ---------
Total term borrowings $ 30,000 5.82%
========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------
MATURITY
BORROWING TYPE AMOUNT RATE CALL DATE DATE
----------------------------- ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C>
Five-year borrowing $ 10,000 5.48% January 2000 January 2003
Three-year borrowing 20,000 5.75% September 2000 September 2002
Three-year borrowing 10,000 5.95% October 2000 October 2002
---------- ---------
Total term borrowings $ 40,000 5.73%
========== =========
</TABLE>
NOTE 5. COMPUTATION OF BOOK VALUE PER COMMON SHARE
Book value per common share was calculated by dividing total shareholders'
equity by the number of common shares issued less common shares held in
treasury. The tables below present the computation of book value per common
share as of the dates indicated (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
Total shareholders' equity $ 26,872 $ 25,549
----------- -----------
Common shares issued 2,986,530 2,986,530
Less: common shares held
in treasury (475,762) (384,806)
----------- -----------
Common shares outstanding 2,510,768 2,601,724
=========== ===========
Book value per common share $ 10.70 $ 9.82
----------- -----------
</TABLE>
7
<PAGE>
PACIFIC CREST CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 6. COMPUTATION OF EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share were determined by dividing net
income by the applicable basic and diluted weighted average common shares
outstanding. For the diluted earnings per share computation, the weighted
average common shares outstanding were adjusted to reflect the number of common
stock equivalents outstanding based on the number of outstanding stock options
issued by the Company utilizing the treasury stock method.
The tables below present the basic and diluted earnings per common share
computations for the periods indicated (dollars and shares in thousands, except
per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 1,258 $ 1,207 $ 2,624 $ 2,535
========= ========= ========= =========
Basic weighted average common
shares outstanding 2,510 2,669 2,538 2,680
Dilutive effect of stock options 95 117 87 120
--------- --------- --------- ---------
Diluted weighted average common
shares outstanding 2,605 2,786 2,625 2,800
========= ========= ========= =========
Earnings per common share:
Basic $ 0.50 $ 0.45 $ 1.03 $ 0.94
Diluted $ 0.48 $ 0.43 $ 1.00 $ 0.90
--------- --------- --------- ---------
</TABLE>
NOTE 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For purposes of the Consolidated Balance Sheets and Consolidated Statements
of Cash Flows, cash and cash equivalents include "Cash" and "Securities
purchased under resale agreements." Supplemental disclosure of cash flow
information is as follows for the periods indicated (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
2000 1999
-------------- --------------
Cash paid during the period for:
<S> <C> <C>
Interest $ 16,958 $ 15,048
Income taxes $ 2,900 $ 1,900
Non-cash investing and financing activities:
Transfers from loans to other real estate owned $ 210 $ -
Loans to facilitate the sale of other real estate owned $ 250 $ 225
</TABLE>
8
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain selected financial data
concerning the Company as of the dates or for the periods indicated (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED
----------------------------------------------------------------------
SEPTEMBER
JUNE 30, MARCH 31, DECEMBER 31, 30, JUNE 30,
2000 2000 1999 1999 1999
------------------------------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Average loans $ 383,876 $ 371,258 $ 364,959 $ 360,404 $ 345,237
Average investment securities(1) 251,690 251,716 249,127 236,968 214,029
Average interest-earning assets 637,277 623,202 615,366 602,034 570,292
Average total assets 637,926 622,416 617,669 605,856 576,889
Average deposits 483,775 477,648 487,964 490,966 456,156
Average borrowings 120,255 111,952 95,775 79,514 86,041
Average shareholders' equity 24,975 24,725 26,984 29,057 28,730
Average realized shareholders' equity (2) 32,273 31,738 31,465 30,807 29,947
LOAN VOLUME:
Loan originations $ 17,005 $ 23,817 $ 15,666 $ 27,129 $ 36,016
Loan sales - SBA - - 1,838 - 1,655
PERFORMANCE RATIOS:
Return on average (realized) shareholders'
equity (3) 15.59% 17.22% 16.26% 16.11% 16.12%
Return on average total assets (3) 0.79% 0.88% 0.83% 0.82% 0.84%
Net interest rate spread (4) 2.51% 2.75% 2.80% 2.92% 3.10%
Net interest margin (4) 2.81% 3.05% 3.07% 3.19% 3.35%
Operating expense to average total assets (5) 1.47% 1.61% 1.77% 1.84% 2.06%
Efficiency ratio (6) 50.76% 50.21% 54.13% 52.58% 55.91%
ASSET QUALITY RATIOS:
Total non-performing assets to total assets 0.18% - 0.03% 0.04% -
Allowance for loan losses to total loans 1.84% 1.77% 1.76% 1.71% 1.71%
Allowance for loan losses to non-accrual loans 597.64% - 3071.43% 2660.43% -
CAPITAL RATIOS - PACIFIC CREST CAPITAL, INC.:
Leverage ratio 6.85% 6.86% 6.89% N/A N/A
Tier 1 risk-based capital ratio 10.17% 9.94% 10.18% N/A N/A
Total risk-based capital ratio 12.85% 12.72% 13.02% N/A N/A
CAPITAL RATIOS - PACIFIC CREST BANK:
Leverage ratio 7.21% 7.33% 7.19% 7.20% 7.36%
Tier 1 risk-based capital ratio 10.61% 10.51% 10.38% 10.31% 10.35%
Total risk-based capital ratio 11.87% 11.76% 11.64% 11.56% 11.60%
PER SHARE DATA:
Dividends declared per common share $ 0.07 $ 0.07 $ 0.07 $ 0.06 $ 0.06
Basic earnings per common share 0.50 0.53 0.49 0.47 0.45
Diluted earnings per common share 0.48 0.52 0.47 0.45 0.43
Book value per common share 10.70 10.17 9.82 10.33 10.03
Realized shareholders' equity per common share (2) 13.19 12.77 12.26 11.90 11.50
------------------------------------------------------
</TABLE>
(1) Average balances of investment securities are presented on a historical
amortized cost basis, not at market value.
(2) Calculation excludes accumulated other comprehensive loss from
shareholders' equity.
(3) Calculation is based upon annualized net income.
(4) Defined under "Results of Operations - Net Interest Income."
(5) Operating expense is defined as total non-interest expense less valuation
adjustments to OREO, other OREO expenses and credit and collection
expenses. Calculation is based on annualized operating expense.
(6) Efficiency ratio is defined as operating expense divided by the sum of net
interest income, loan prepayment and late fee income, gain on sale of SBA
loans and other income.
9
<PAGE>
SELECTED QUARTERLY BALANCE SHEET DATA
The following table sets forth certain selected balance sheet data
concerning the Company as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
2000 2000 1999 1999 1999
-------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans, net of deferred loan fees $ 384,305 $ 378,564 $ 365,952 $ 364,626 $ 357,538
Securities purchased under resale agreements 4,025 100 3,501 765 557
Investment securities - at amortized cost:
U.S. agency callable bonds 243,633 243,633 243,626 243,619 214,157
U.S. agency mortgage-backed securities 3,914 3,983 3,996 1,600 1,605
Corporate debt securities 4,102 4,098 4,094 1,863 -
-------------- ------------- -------------- -------------- --------------
Total investment securities 251,649 251,714 251,716 247,082 215,762
-------------- ------------- -------------- -------------- --------------
Total interest-earning assets $ 639,979 $ 630,378 $ 621,169 $ 612,473 $ 573,857
============== ============= ============== ============== ==============
INTEREST-BEARING LIABILITIES:
Deposits:
Savings accounts $ 163,310 $ 176,478 $ 196,368 $ 226,999 $ 248,433
Money market checking accounts 15,206 16,589 18,783 20,435 21,895
-------------- ------------- -------------- -------------- --------------
Total savings/money market checking 178,516 193,067 215,151 247,434 270,328
Certificates of deposit 329,096 280,572 269,233 247,749 203,704
-------------- ------------- -------------- -------------- --------------
Total deposits 507,612 473,639 484,384 495,183 474,032
-------------- ------------- -------------- -------------- --------------
Borrowings:
Securities sold under repurchase agreements 21,000 51,100 30,500 20,500 5,500
Borrowings from State of California 33,000 25,000 20,000 - -
Term borrowings 30,000 30,000 40,000 50,000 55,000
Trust preferred securities 17,250 17,250 17,250 17,250 17,250
-------------- ------------- -------------- -------------- --------------
Total borrowings 101,250 123,350 107,750 87,750 77,750
-------------- ------------- -------------- -------------- --------------
Total interest-bearing liabilities $ 608,862 $ 596,989 $ 592,134 $ 582,933 $ 551,782
============== ============= ============== ============== ==============
SHAREHOLDERS' EQUITY:
Common stock and additional paid-in capital $ 27,846 $ 27,861 $ 27,915 $ 27,915 $ 27,916
Beginning retained earnings 9,978 9,978 5,559 5,559 5,559
Current year earnings 2,624 1,366 5,055 3,776 2,535
Current year dividends (354) (179) (636) (453) (294)
Common stock in treasury, at cost (6,968) (7,005) (5,989) (5,169) (5,182)
-------------- ------------- -------------- -------------- --------------
Total realized shareholders' equity 33,126 32,021 31,904 31,628 30,534
Accumulated other comprehensive loss (6,254) (6,517) (6,355) (4,181) (3,886)
-------------- ------------- -------------- -------------- --------------
Total shareholders' equity $ 26,872 $ 25,504 $ 25,549 $ 27,447 $ 26,648
============== ============= ============== ============== ==============
</TABLE>
10
<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 results of operations and financial condition
of the Company for the period ended June 30, 2000. This analysis should be read
in conjunction with the Company's December 31, 1999 Annual Report on Form 10-K
filed with the Securities and Exchange Commission and with the unaudited
financial statements and notes as set forth in this report.
GENERAL
FORWARD-LOOKING INFORMATION
Certain matters discussed under this caption may constitute forward-looking
statements under Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. There can be no assurance that the results described or
implied in such forward-looking statements will, in fact, be achieved and actual
results, performance, and achievements could differ materially because the
business of the Company involves inherent risks and uncertainties. Risks and
uncertainties include possible future deteriorating economic conditions in the
Company's areas of operation; interest rate risk associated with volatile
interest rates and related asset/liability matching risks; liquidity risks; risk
of significant non-earning assets and net credit losses that could occur,
particularly in times of weak economic conditions or times of rising interest
rates; risk of available for sale securities declining significantly in value as
interest rates rise; and regulatory risks associated with the variety of current
and future regulations to which the Company is subject. Risk factors are also
discussed in detail in the Company's December 31, 1999 Annual Report on Form
10-K.
EARNINGS PERFORMANCE
Net income was $1.3 million (or $0.48 per common share on a diluted basis)
for the three months ended June 30, 2000, compared to $1.2 million (or $0.43 per
common share on a diluted basis) for the corresponding period in 1999. Pre-tax
income was $2.2 million compared to $2.0 million for the three months ended June
30, 2000 and 1999, respectively. The increase in pre-tax income was primarily
due to decreases of $679,000 and $270,000 in non-interest expense and provision
for loan losses, respectively, partially offset by decreases of $485,000 and
$311,000 in non-interest income and net interest income, respectively.
Net income was $2.6 million (or $1.00 per common share on a diluted basis)
for the six months ended June 30, 2000, compared to $2.5 million (or $0.90 per
common share on a diluted basis) for the corresponding period in 1999. Pre-tax
income was $4.5 million compared to $4.2 million for the six months ended June
30, 2000 and 1999, respectively. The increase in pre-tax income was primarily
due to decreases of $1.1 million and $680,000 in non-interest expense and
provision for loan losses, respectively, partially offset by decreases of $1.1
million and $388,000 in non-interest income and net interest income,
respectively.
Annualized return on average shareholders' equity was 15.59% and 16.40% for
the three and six months ended June 30, 2000, respectively, compared to 16.12%
and 17.15% for the same periods in 1999. Annualized return on average total
assets was 0.79% and 0.83% for the three and six months ended June 30, 2000,
respectively, compared to 0.84% for the same periods in 1999.
CAPITAL
As of June 30, 2000, Pacific Crest's leverage ratio, Tier 1 risk-based
capital ratio and total risk-based capital ratio were 6.85%, 10.17%, and 12.85%,
respectively. The Bank's leverage ratio, tier 1 risk-based capital ratio and
total risk-based capital ratio were 7.21%, 10.61% and 11.87%, respectively.
These ratios placed Pacific Crest and the Bank in the "well-capitalized"
category as defined by federal regulations, which require corresponding capital
ratios of 5%, 6% and 10%, respectively, to qualify for that designation.
DIVIDENDS
On July 28, 2000, the Company announced that the Board of Directors had
declared a $0.07 per common share cash dividend for the third quarter of 2000.
The dividends will be paid to shareholders of record at the close of business on
September 1, 2000 and is payable on September 15, 2000.
11
<PAGE>
On May 15, 2000, the Company announced that the Board of Directors had
declared a $0.07 per common share cash dividend for the second quarter of 2000.
The dividend was payable to shareholders of record at the close of business on
June 1, 2000 and was paid on June 15, 2000. The total amount of these dividends
was approximately $175,000. During the first quarter of 2000, the Company
declared and paid $0.07 per common share cash dividends, which totaled $179,000.
STOCK REPURCHASE PLAN
As of June 30, 2000, the Company had 39,000 remaining shares authorized for
repurchase under its common stock repurchase program. During the six months
ended June 30, 2000, the Company repurchased 102,000 shares of its common stock
for a total cost of approximately $1,149,000, which resulted in an average cost
per share of $11.27. During the same period, the Company utilized repurchased
shares for all of its common stock issuances under the Company's employee stock
purchase plan, non-employee directors stock purchase plan, and employee stock
option plan, which totaled 11,044 shares.
SALE OF INTEREST RATE CAP AGREEMENT
On February 8, 2000, the Company sold its interest rate cap agreement for
$2.5 million and recognized a deferred gain of $1.8 million. The interest rate
cap agreement had originally been purchased on June 8, 1998, for a premium of
$925,000. The deferred gain will be amortized as a credit to "Interest expense -
deposits" over the remaining life of the original interest rate cap agreement,
which had a maturity date of June 8, 2003. During the six months ended June 30,
2000, the amount of deferred gain amortization totaled $216,000, which resulted
in a reduction in interest expense on deposits. Conversely, during the six
months ended June 30, 1999, the amount of premium amortization totaled $92,000,
which resulted in an increase in interest expense on deposits. As of June 30,
2000, the remaining deferred gain resulting from the sale of the interest rate
cap totaled $1.6 million and will be amortized as follows: $276,000 for the
second six months of 2000, $554,000 for 2001, $554,000 for 2002, and $242,000
for 2003.
SBA LENDING
In April 2000, the Federal Small Business Administration ("SBA") awarded
the Company "Preferred Lender Status" for the Los Angeles SBA district, which
covers Los Angeles, Ventura, and Santa Barbara counties. Preferred Lender status
is the highest designation granted lenders by the SBA. In October 1999, the SBA
awarded the Company Preferred Lender status for the San Diego SBA district,
which covers San Diego and Imperial counties.
In June 2000, the Company hired one Senior Vice President and three Vice
Presidents in San Diego in order to significantly expand the Company's SBA
lending capabilities in Southern California. All four officers have a minimum of
five years experience in the SBA industry and together have a combined 24 years
of experience in the industry.
12
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 1999
The following table presents the Company's consolidated average balance
sheets, together with the total dollar amounts of interest income and interest
expense and the weighted average interest yields/rates for the periods
presented. All average balances are daily average balances (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------ ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1) $383,876 $ 9,063 9.50% $345,237 $ 8,209 9.54%
Securities purchased under resale
agreements 1,711 27 6.35% 11,026 128 4.66%
Investment securities available
for sale (2):
U.S. government sponsored agency
securities:
Callable bonds 243,635 3,948 6.48% 212,422 3,447 6.49%
Mortgage-backed securities 3,955 70 7.08% 1,607 25 6.22%
Corporate debt securities 4,100 89 8.68% - - -
------------ ----------- ----------- ------------ ------------ -----------
Total investment
securities 251,690 4,107 6.53% 214,029 3,472 6.49%
------------ ----------- ----------- ------------ ------------ -----------
Total interest-earning
assets 637,277 13,197 8.33% 570,292 11,809 8.31%
------------ ---------- ------------ -----------
Non-interest-earning assets 7,485 12,521
Less: allowance for loan losses (6,836) (5,924)
------------ ------------
Total assets $637,926 $576,889
============ ============
INTEREST-BEARING LIABILITIES:
Savings accounts $167,413 $ 2,111 5.07% $251,830 $ 3,001 4.78%
Certificates of deposit 300,523 4,493 6.01% 181,520 2,416 5.34%
Money market checking accounts 15,839 167 4.24% 22,806 249 4.38%
------------ ----------- ----------- ------------ ------------ -----------
Total deposits 483,775 6,771 5.63% 456,156 5,666 4.98%
------------ ------------------------ ------------ ------------------------
Securities sold under repurchase
agreements 40,533 655 6.50% 10,043 120 4.79%
Borrowings from State of California 32,472 474 5.77% - - -
Term borrowings 30,000 441 5.82% 58,748 856 5.76%
Trust preferred securities 17,250 404 9.37% 17,250 404 9.37%
------------ ----------- ----------- ------------ ------------ -----------
Total borrowings 120,255 1,974 6.54% 86,041 1,380 6.37%
------------ ----------- ----------- ------------ ------------ -----------
Total interest-bearing
liabilities 604,030 8,745 5.82% 542,197 7,046 5.21%
----------- ----------- ------------ -----------
Non-interest-bearing liabilities 8,921 5,962
Shareholders' equity 24,975 28,730
------------ ------------
Total liabilities and shareholders'
equity $637,926 $576,889
============ ============
Net interest-earning assets $ 33,247 $ 28,095
============ ============
Net interest income $ 4,452 $ 4,763
=========== ============
Net interest rate spread (3) 2.51% 3.10%
=========== ===========
Net interest margin (4) 2.81% 3.35%
=========== ===========
Average interest-earning assets to
average interest-bearing liabilities 105.5% 105.2%
------------------------------------------------ ============ ============
</TABLE>
(1) Average balances of loans are calculated net of deferred loan fees, but
include non-accrual loans which have a zero yield.
(2) Average balances of investment securities available for sale are presented
on a historical amortized cost basis, without the effects of fair value
adjustments.
(3) Net interest rate spread represents the yield earned on average total
interest-earning assets less the rate paid on average total
interest-bearing liabilities.
(4) Net interest margin is computed by dividing annualized net interest income
by average total interest-earning assets.
13
<PAGE>
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 periods indicated, including
the change in average balance and yield/rate between these respective periods
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------------
2000 1999 NET CHANGE
------------------------------ -------------------------------------------------------------
% AVERAGE % AVERAGE % AVERAGE
AVERAGE OF YIELD/ AVERAGE OF YIELD/ AVERAGE OF YIELD/
BALANCE TOTAL RATE BALANCE TOTAL RATE BALANCE TOTAL RATE
----------- -------- --------- ----------- -------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $383,876 60.2% 9.50% $345,237 60.6% 9.54% $ 38,639 -0.4% -0.04%
Securities purchased under
resale agreements 1,711 0.3% 6.35% 11,026 1.9% 4.66% (9,315) -1.6% 1.69%
Investment securities
available for sale:
U.S. government sponsored
agency securities:
Callable bonds 243,635 38.2% 6.48% 212,422 37.2% 6.49% 31,213 1.0% -0.01%
Mortgage-backed
securities 3,955 0.6% 7.08% 1,607 0.3% 6.22% 2,348 0.3% 0.86%
Corporate debt securities 4,100 0.7% 8.68% - 0.0% - 4,100 0.7% 8.68%
----------- -------- ----------- -------- ----------- --------
Total investment securities 251,690 39.5% 6.53% 214,029 37.5% 6.49% 37,661 2.0% 0.04%
----------- -------- ----------- -------- ----------- --------
Total interest-earning
assets $637,277 100.0% 8.33% $570,292 100.0% 8.31% $ 66,985 0.02%
=========== ======== =========== ======== ===========
INTEREST-BEARING LIABILITIES:
Savings accounts $167,413 27.7% 5.07% $251,830 46.4% 4.78% $(84,417) -18.7% 0.29%
Certificates of deposit 300,523 49.8% 6.01% 181,520 33.5% 5.34% 119,003 16.3% 0.67%
Money market
checking accounts 15,839 2.6% 4.24% 22,806 4.2% 4.38% (6,967) -1.6% -0.14%
----------- -------- ----------- -------- ----------- --------
Total deposits 483,775 80.1% 5.63% 456,156 84.1% 4.98% 27,619 -4.0% 0.65%
----------- -------- ----------- -------- ----------- --------
Securities sold under
repurchase agreements 40,533 6.7% 6.50% 10,043 1.9% 4.79% 30,490 4.8% 1.71%
Borrowings from State
of California 32,472 5.4% 5.77% - - - 32,472 5.4% 5.77%
Term borrowings 30,000 5.0% 5.82% 58,748 10.8% 5.76% (28,748) -5.8% 0.06%
Trust preferred securities 17,250 2.8% 9.37% 17,250 3.2% 9.37% - -0.3% 0.00%
----------- -------- ----------- -------- ----------- --------
Total borrowings 120,255 19.9% 6.54% 86,041 15.9% 6.37% 34,214 4.0% 0.17%
----------- -------- ----------- -------- ----------- --------
Total interest-bearing
liabilities $604,030 100.0% 5.82% $542,197 100.0% 5.21% $ 61,833 0.61%
=========== ======== =========== ======== =========== ========
Net interest-earning assets $ 33,247 $ 28,095 $ 5,152
Net interest rate spread 2.51% 3.10% -0.59%
Net interest margin 2.81% 3.35% -0.54%
</TABLE>
14
<PAGE>
The following table presents the dollar amount of changes in interest
income and interest expense due to changes in average balances of
interest-earning assets and interest-bearing liabilities 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 in
volume (i.e. changes in average balance multiplied by prior period rate) and
(ii) changes in rate (i.e. changes in rate multiplied by prior period average
balance). For purposes of this table, changes attributable to both rate and
volume which cannot be segregated have been allocated proportionately based on
the absolute dollar amounts of the changes due to volume and rate (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
2000 VS. 1999
--------------------------------------------
INCREASE (DECREASE) DUE TO
--------------------------------------------
VOLUME RATE TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 889 $ (35) $ 854
Securities purchased under resale
agreements (135) 34 (101)
Investment securities available for sale:
U.S. government sponsored agency securities:
Callable bonds 506 (5) 501
Mortgage-backed securities 41 4 45
Corporate debt securities 89 -- 89
------------ ------------ ------------
Total investment securities 636 (1) 635
------------ ------------ ------------
Total interest income $ 1,390 $ (2) $ 1,388
------------ ------------ ------------
INTEREST EXPENSE:
Savings accounts $ (1,061) $ 171 $ (890)
Certificates of deposit 1,743 334 2,077
Money market checking accounts (74) (8) (82)
------------ ------------ ------------
Total deposits 608 497 1,105
------------ ------------ ------------
Securities sold under repurchase
agreements 479 56 535
Borrowings from State of California 474 -- 474
Term borrowings (424) 9 (415)
Trust preferred securities -- -- --
------------ ------------ ------------
Total borrowings 529 65 594
------------ ------------ ------------
Total interest expense $ 1,137 $ 562 $ 1,699
------------ ------------ ------------
Net interest income $ 253 $ (564) $ (311)
============ ============ ============
</TABLE>
NET INTEREST INCOME
Net interest income decreased by $311,000, to $4.5 million, during the
three months ended June 30, 2000 compared to the same period in 1999. This
decrease was comprised of a $564,000 decrease attributable to changes in
interest rates, partially offset by a $253,000 increase attributable to changes
in volume. This was primarily due to the reduction in the net interest rate
spread of 59 basis points, to 2.51%, partially offset by the increase in the
Company's net interest-earning assets of $5.2 million, to $33.2 million, during
the second quarter of 2000 compared to the same period in 1999.
The reduction in the net interest rate spread was principally due to an
increase of 61 basis points, to 5.82%, in the rate paid on average total
interest-bearing liabilities, partially offset by an increase of 2 basis points,
to 8.33%, in the yield on average total interest-earning assets. The rate paid
on average total interest-bearing liabilities increased primarily due to the
rise in interest rates, which started during the second half of 1999. The yield
earned on average total interest-earning assets increased principally due to an
increase of 4 basis points, to 6.53%, in the yield earned on investment
securities. The growth in net interest-earning assets was primarily due to an
increase of $67.0 million, to $637.3 million, in average total interest-earning
assets, partially offset by an increase of $61.8 million, to $604.0 million, in
average total interest-bearing liabilities.
15
<PAGE>
TOTAL INTEREST INCOME
Total interest income increased by $1.4 million, to $13.2 million, during
the three months ended June 30, 2000 compared to the same period in 1999. This
was primarily due to the growth in average total interest-earning assets, which
contributed $1.4 million to interest income, partially offset by the reduction
in yield earned on these assets during 2000 compared to 1999, which reduced
interest income by $2,000.
The growth in average total interest-earning assets of $67.0 million during
the second quarter of 2000 compared to the same period in 1999, was principally
due to an increase in average loans of $38.6 million, to $383.9 million, and an
increase in average investment securities of $37.7 million, to $251.7 million,
partially offset by a decrease of $9.3 million, to $1.7 million, in average
securities purchased under resale agreements. The growth in loans and investment
securities was funded by deposits and borrowings, as well as through liquidation
of securities purchased under resale agreements.
The $37.7 million increase in average investment securities was primarily
due to the purchase in the beginning of the third quarter of 1999 of $34.5
million of fixed rate, U.S. government sponsored agency callable bonds with a
weighted average coupon of 7.10%. The purchase of these securities was funded by
an increase in deposits. Contributing to the $37.7 million increase in average
investment securities were the purchases in the fourth quarter of 1999 of $2.5
million of fixed rate, Fannie Mae mortgage-backed securities with a weighted
average coupon of 7.50%, and $4.1 million of variable rate, corporate debt
securities with a weighted average coupon of 7.36%.
The yield on average total interest-earning assets increased by 2 basis
points, to 8.33%, during the three months ended June 30, 2000 compared to the
same period in 1999, primarily due to the above-mentioned increase of 4 basis
points, to 6.53%, in the yield on investment securities. The yield on average
loans, however, declined by 4 basis points, to 9.50%, primarily because the
loans that the Company originated during the 12 months ended June 30, 2000 had
lower overall yields than the loans that paid off during that period.
Partially offsetting the above factors for the decline in the yield on
average loans was the increase of 75 basis points, to 5.50%, in the federal
funds rate by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), which took place during the second half of 1999, the increase of 50
basis points, to 6.00%, which took place during the first quarter of 2000, and
the additional increase of 50 basis points to 6.50%, which took place during the
second quarter of 2000. The impact of these increases in the federal funds rate
caused upward repricing on the Company's variable rate loans, especially those
tied to the prime rate. The federal funds rate is the rate at which banks lend
to each other in the overnight market. Increases in the federal funds rate
generally result in increases of the prime rates offered by major banks,
including Bank of America.
The increase in the yield on average investment securities of 4 basis
points during the three months ended June 30, 2000 compared to the same period
last year, was primarily due to the above mentioned purchases in the fourth
quarter of 1999 of higher yielding corporate debt securities and mortgage-backed
securities.
TOTAL INTEREST EXPENSE
Total interest expense increased by $1.7 million, to $8.7 million, during
the three months ended June 30, 2000 compared to the same period in 1999. This
was due to the growth in average interest-bearing liabilities and to the
increase in the interest rate paid on these liabilities, which contributed $1.1
million and $562,000, respectively, to interest expense.
The growth in average total interest-bearing liabilities of $61.8 million
during the second quarter of 2000 compared to the same period in 1999, was
primarily due to an increase in average deposits of $27.6 million, to $483.8
million, and an increase in average borrowings of $34.2 million, to $120.3
million. The growth in average deposits and even greater increase in average
borrowings resulted in a shift in the mix of average total interest-bearing
liabilities to higher rate borrowings from lower rate deposits. The percentage
of average borrowings to average total interest-bearing liabilities increased to
19.9% during the second quarter of 2000 from 15.9% during the same period last
year.
The increase in average deposits of $27.6 million during the second quarter
of 2000 compared to the second quarter of 1999, was principally due to an
increase in average certificates of deposit of $119.0 million, partially offset
by decreases of $84.4 million and $7.0 million in average savings accounts and
average money market checking accounts, respectively.
Deposits increased $21.2 million from $474.0 million at June 30, 1999 to
$495.2 million at September 30, 1999, then declined steadily for two quarters
back down to $473.6 million at March 31, 2000, and finally increased $34.0
million to
16
<PAGE>
$507.6 million at June 30, 2000. During this twelve month period, certificate of
deposit balances constantly increased, while savings/money market checking
account balances constantly decreased.
The increases in deposits during the quarters ended September 30, 1999 and
June 30, 2000 were primarily attributable to the Company's significant increases
in certificate of deposit rates in the middle of June 1999 and later in 2000 at
the end of April and beginning of May, and to the addition of $16.8 million in
brokered deposits during the second quarter of 2000. Thus, the growth in
certificates of deposit outpaced the runoff in savings/money market checking
accounts during these two quarters. The $21.2 million increase in deposits
during the third quarter of 1999, which took place at the beginning of the
quarter, was used to fund the purchase of investment securities, as previously
discussed. The $34.0 million increase in deposits during the second quarter of
2000 was used to pay down securities sold under repurchase agreements and to
fund loans.
The changes in the average balances of the Company's deposit products
during the three months ended June 30, 2000 compared to the same period in 1999,
were primarily attributable to the Company's deposit strategy in 1999, which,
for the most part, continued through June 30, 2000. When short-term interest
rates started rising in the middle of 1999, the Company pursued a strategy of
limiting interest rate increases on its liquid savings and money market checking
accounts, while paying higher market interest rates on its term, certificates of
deposit. This strategy was intended to better control total interest costs
during a rising interest rate environment as well as to better match fixed rate
liabilities with fixed rate assets. As a result, the balances of higher rate
certificates of deposit increased, while the balances of lower rate savings
accounts and money market accounts decreased, thus changing the mix of deposits.
The percentage of average certificates of deposit to average total deposits
increased to 62.1% during the second quarter of 2000 from 39.8% during the
second quarter of 1999. In February 2000, and later, in May 2000, the Company
raised the rates on its savings accounts in response to the increase in market
interest rates. The Company continued to raise the rates on its certificates of
deposit during the first six months of 2000, although much more significantly in
the second quarter than the first quarter.
The increase in average borrowings of $34.2 million during the second
quarter of 2000 compared to the second quarter of 1999, was principally due to
increases of $32.4 million and $30.5 million in average borrowings from the
State of California and average securities sold under repurchase agreements,
respectively, partially offset by a reduction in average term borrowings of
$28.7 million.
Securities sold under repurchase agreements increased $15.0 million from
$5.0 million at June 30, 1999 to $20.5 million at September 30, 1999, then grew
$30.6 million during the next two quarters to $51.1 million at March 31, 2000,
and finally declined $30.0 million to $21.0 million at June 30, 2000. The $15.0
million increase during the third quarter of 1999, which took place at the end
of the quarter, was used to fund loans and pay down term borrowings. The $30.6
million increase during the fourth quarter of 1999 and first quarter of 2000 was
used principally to cover the deposits runoff previously discussed, and to fund
loans. The $30.0 million decrease during the second quarter of 2000 was paid
down with new deposits.
Borrowings from the State of California, which started during the fourth
quarter of 1999, increased $5.0 million from $20.0 million at December 31, 1999
to $25.0 million at March 31, 2000, and then increased $8.0 million to $33.0
million at June 30, 2000. The Company used the $25.0 million borrowed during the
fourth quarter of 1999 and first quarter of 2000 to pay off certain term
borrowings, which were called by the lender, and used the $8.0 million borrowed
during the second quarter of 2000 to pay down securities sold under repurchase
agreements.
Term borrowings decreased steadily from $55.0 million at June 30, 1999 to
$30.0 million at June 30, 2000 due to this debt being called by the lender.
17
<PAGE>
The increase in the rate on average total interest-bearing liabilities of
61 basis points during the three months ended June 30, 2000 compared to the same
period in 1999, was principally due to the following factors:
- The rate on average deposits increased 65 basis points, to 5.63%.
- The rate on average borrowings increased 17 basis points, to 6.54%.
- The mix of average deposits shifted to higher rate certificates of deposit
from lower rate savings/money market checking accounts.
- The mix of average total interest-bearing liabilities shifted to higher
rate borrowings from lower rate deposits.
The increase in the rate on average deposits of 65 basis points during the
second quarter of 2000 compared to the same period last year, was primarily due
to the following factors:
- The Company started raising the interest rates on its two-to five-year
certificates of deposit beginning in the second quarter of 1999, as
mentioned above, and continued through the second quarter of 2000.
- In February 2000, and later, in May 2000, the Company raised the rates on
its savings accounts, which had not been increased during 1999.
- The mix of average deposits shifted to higher rate certificates of deposit
from lower rate savings/money market accounts.
The increase in the rate on average borrowings of 17 basis points during
the three months ended June 30, 2000 compared to the same period in 1999, was
primarily due to the following factors:
- Interest rates started to rise in the second half of 1999 and continued to
rise through the second quarter of 2000 due to the increases in the federal
funds rate by the Federal Reserve, as described above. This served to raise
the rates on the Company's available borrowing facilities, especially
short-term borrowings. The rate on average securities sold under agreements
to repurchase increased by 171 basis points, to 6.50%, during the three
months ended June 30, 2000 compared to the same period in 1999.
- In April 1999, a $24.5 million term borrowing matured, bearing interest at
a lower rate of 5.64%. The Company paid this debt with proceeds from the
liquidation of its securities.
- During the first quarter of 2000, a $10.0 million callable term borrowing,
bearing interest at a lower rate of 5.48%, was called by the lender and was
partially replaced by a $5.0 million State of California borrowing, bearing
interest at a higher rate of 5.83% and maturing in June 2000. Upon
maturity, this $5.0 million State of California borrowing was replaced by a
$5.0 million State of California borrowing bearing interest at 5.79% and
maturing in August 2000.
- During the second quarter of 2000, a $5.0 million State of California
borrowing, bearing interest at a lower rate of 5.18%, matured and was
replaced by a $5.0 million State of California borrowing, bearing interest
at a higher rate of 5.87% and maturing in July 2000.
Partially offsetting the increase in the rate on average borrowings were the
following factors:
- In the fourth quarter of 1999, $20.0 million of higher rate 5.71% callable
term borrowings were called by the lender and replaced by the Company with
$20.0 million of lower rate 5.57% State of California borrowings.
- During the second quarter of 2000, $8.0 million of higher rate 6.85%
securities sold under repurchase agreements were replaced by a $8.0 million
State of California borrowing, bearing interest at a lower rate of 5.91%
and maturing in July 2000.
18
<PAGE>
NET INTEREST INCOME
SIX MONTHS ENDED JUNE 30, 2000 VS. SIX MONTHS ENDED JUNE 30, 1999
The following table presents the Company's consolidated average balance
sheets, together with the total dollar amounts of interest income and interest
expense and the weighted average interest yields/rates for the periods
presented. All average balances are daily average balances (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------ ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans (1) $ 377,567 $ 17,807 9.48% $ 330,450 $ 15,714 9.59%
Securities purchased under resale
agreements 969 30 6.23% 13,723 339 4.98%
Investment securities available for
sale (2):
U.S. government sponsored agency
securities:
Callable bonds 243,632 7,902 6.49% 242,162 8,001 6.61%
Mortgage-backed securities 3,973 140 7.05% 1,609 51 6.34%
Corporate debt securities 4,098 175 8.54% 4,931 153 6.21%
------------ ------------ ----------- ------------ ----------- ------------
Total investment
securities 251,703 8,217 6.53% 248,702 8,205 6.60%
------------ ------------ ----------- ------------ ----------- ------------
Total interest-earning
assets 630,239 26,054 8.31% 592,875 24,258 8.25%
------------ ----------- ----------- ------------
Non-interest-earning assets 6,654 14,098
Less: allowance for loan losses (6,722) (5,621)
------------ ------------
Total assets $ 630,171 $ 601,352
============ ============
INTEREST-BEARING LIABILITIES:
Savings accounts $ 175,003 $ 4,307 4.95% $ 257,995 $ 6,108 4.77%
Certificates of deposit 288,724 8,422 5.87% 180,666 4,846 5.41%
Money market checking accounts 16,985 360 4.26% 23,270 506 4.38%
------------ ------------ ----------- ------------ ----------- ------------
Total deposits 480,712 13,089 5.48% 461,931 11,460 5.00%
------------ ------------ ----------- ------------ ----------- ------------
Securities sold under repurchase
agreements 41,107 1,296 6.34% 18,110 474 5.28%
Borrowings from State of California 27,417 791 5.71% - - -
Term borrowings 30,330 893 5.82% 68,191 1,950 5.69%
Trust preferred securities 17,250 808 9.37% 17,250 809 9.38%
------------ ------------ ----------- ------------ ----------- ------------
Total borrowings 116,104 3,788 6.51% 103,551 3,233 6.23%
------------ ------------ ----------- ------------ ----------- ------------
Total interest-bearing
liabilities 596,816 16,877 5.69% 565,482 14,693 5.24%
------------ ----------- ----------- ------------
Non-interest-bearing liabilities 8,505 6,502
Shareholders' equity 24,850 29,368
------------ ------------
Total liabilities and shareholders'
equity $ 630,171 $ 601,352
============ ============
Net interest-earning assets $ 33,423 $ 27,393
============ =============
Net interest income $ 9,177 $ 9,565
============ ===========
Net interest rate spread 2.62% 3.01%
============ ============
Net interest margin 2.93% 3.25%
============ ============
Average interest-earning assets to
average interest-bearing liabilities 105.6% 104.8%
============ =============
</TABLE>
-----------------------------------------
(1) Average balances of loans are calculated net of deferred loan fees, but
include non-accrual loans which have a zero yield.
(2) Average balances of investment securities available for sale are presented
on a historical amortized cost basis, without the effects of fair value
adjustments.
19
<PAGE>
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 periods indicated, including
the change in average balance and yield/rate between these respective periods
(dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------------------
2000 1999 NET CHANGE
------------------------------ ------------------------------ -----------------------------
% AVERAGE % AVERAGE % AVERAGE
AVERAGE OF YIELD/ AVERAGE OF YIELD/ AVERAGE OF YIELD/
BALANCE TOTAL RATE BALANCE TOTAL RATE BALANCE TOTAL RATE
----------- -------- --------- ---------- -------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 377,567 59.9% 9.48% $ 330,450 55.7% 9.59% $ 47,117 4.2% -0.11%
Securities purchased under
resale agreements 969 0.1% 6.23% 13,723 2.3% 4.98% (12,754) -2.3% 1.25%
Investment securities
available for sale:
U.S. government sponsored
agency securities:
Callable bonds 243,632 38.7% 6.49% 242,162 40.9% 6.61% 1,470 -2.2% -0.12%
Mortgage-backed
securities 3,973 0.6% 7.05% 1,609 0.3% 6.34% 2,364 0.3% 0.71%
Corporate debt securities 4,098 0.7% 8.54% 4,931 0.8% 6.21% (833) -0.1% 2.33%
----------- -------- ---------- --------- ----------- --------
Total investment securities 251,703 40.0% 6.53% 248,702 42.0% 6.60% 3,001 -2.0% -0.07%
----------- -------- ---------- --------- ----------- --------
Total interest-earning
assets $ 630,239 100.0% 8.31% $ 592,875 100.0% 8.25% $ 37,364 0.06%
=========== ======== ========== ========= ===========
INTEREST-BEARING LIABILITIES:
Savings accounts $ 175,003 29.3% 4.95% $ 257,995 45.6% 4.77% $ (82,992) -16.3% 0.18%
Certificates of deposit 288,724 48.4% 5.87% 180,666 32.0% 5.41% 108,058 16.4% 0.46%
Money market
checking accounts 16,985 2.8% 4.26% 23,270 4.1% 4.38% (6,285) -1.3% -0.12%
----------- -------- ---------- --------- ----------- --------
Total deposits 480,712 80.5% 5.48% 461,931 81.7% 5.00% 18,781 -1.2% 0.48%
----------- -------- ---------- --------- ----------- --------
Securities sold under
repurchase agreements 41,107 6.9% 6.34% 18,110 3.2% 5.28% 22,997 3.7% 1.06%
Borrowings from State
of California 27,417 4.6% 5.71% - - - 27,417 4.6% 5.71%
Term borrowings 30,330 5.1% 5.82% 68,191 12.1% 5.69% (37,861) -7.0% 0.13%
Trust preferred securities 17,250 2.9% 9.37% 17,250 3.0% 9.38% - -0.1% -0.01%
----------- -------- ---------- --------- ----------- --------
Total borrowings 116,104 19.5% 6.51% 103,551 18.3% 6.23% 12,553 1.2% 0.28%
----------- -------- ---------- --------- ----------- --------
Total interest-bearing
liabilities $ 596,816 100.0% 5.69% $ 565,482 100.0% 5.24% $ 31,334 0.45%
=========== ======== ========== ========= ===========
Net interest-earning assets $ 33,423 $ 27,393 $ 6,030
Net interest rate spread 2.62% 3.01% -0.39%
Net interest margin 2.93% 3.25% -0.32%
</TABLE>
20
<PAGE>
The following table presents the dollar amount of changes in interest
income and interest expense due to changes in average balances of
interest-earning assets and interest-bearing liabilities 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 in
volume (i.e. changes in average balance multiplied by prior period rate) and
(ii) changes in rate (i.e. changes in rate multiplied by prior period average
balance). For purposes of this table, changes attributable to both rate and
volume which cannot be segregated have been allocated proportionately based on
the absolute dollar amounts of the changes due to volume and rate (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 VS. 1999
--------------------------------------
INCREASE (DECREASE) DUE TO
--------------------------------------
VOLUME RATE TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 2,272 $ (179) $ 2,093
Securities purchased under resale
agreements (378) 69 (309)
Investment securities available for
sale:
U.S. government sponsored agency securities:
Callable bonds 48 (147) (99)
Mortgage-backed securities 83 6 89
Corporate debt securities (29) 51 22
------------ ------------ ------------
Total investment securities 102 (90) 12
------------ ------------ ------------
Total interest income $ 1,996 $ (200) $ 1,796
------------ ------------ ------------
INTEREST EXPENSE:
Savings accounts $ (2,025) $ 224 $ (1,801)
Certificates of deposit 3,131 445 3,576
Money market checking accounts (133) (13) (146)
------------ ------------ ------------
Total deposits 973 656 1,629
------------ ------------ ------------
Securities sold under repurchase
agreements 710 112 822
Borrowings from State of California 791 - 791
Term borrowings (1,100) 43 (1,057)
Trust preferred securities - (1) (1)
------------ ------------ ------------
Total borrowings 401 154 555
------------ ------------ ------------
Total interest expense $ 1,374 $ 810 $ 2,184
------------ ------------ ------------
Net interest income $ 622 $ (1,010) $ (388)
============ ============ ============
</TABLE>
NET INTEREST INCOME
Net interest income decreased by $388,000, to $9.2 million, during the six
months ended June 30, 2000 compared to the same period in 1999. This decrease
was comprised of a $1.0 million decrease attributable to changes in interest
rates, partially offset by a $622,000 increase attributable to changes in
volume. This was primarily due to the reduction in the net interest rate spread
of 39 basis points, to 2.62%, partially offset by the increase in the Company's
net interest-earning assets of $6.0 million, to $33.4 million, during the six
months ended June 30, 2000 compared to the same period in 1999.
The reduction in the net interest rate spread was principally due to an
increase of 45 basis points, to 5.69%, in the rate paid on average total
interest-bearing liabilities, partially offset by an increase of 6 basis points,
to 8.31%, in the yield on average total interest-earning assets. The rate paid
on average total interest-bearing liabilities increased primarily due to the
rise in interest rates, which started during the second half of 1999. The yield
earned on average total interest-earning assets increased, despite lower yields
earned on loans and investment securities in 2000 compared to 1999, principally
due to a shift in the mix of average total interest-earning assets to higher
yielding loans from lower yielding securities. The growth in net
interest-earning assets was primarily due to an increase of $37.4 million, to
$630.2 million, in average total interest-earning assets, partially offset by an
increase of $31.3 million, to $596.8 million, in average total interest-bearing
liabilities.
21
<PAGE>
TOTAL INTEREST INCOME
Total interest income increased by $1.8 million, to $26.1 million, during
the six months ended June 30, 2000 compared to the same period in 1999. This was
primarily due to the growth in average total interest-earning assets, which
contributed $2.0 million to interest income, partially offset by the reduction
in yields earned on loans and investment securities during 2000 compared to
1999, which reduced interest income by $200,000.
The growth in average total interest-earning assets of $37.4 million during
the six months ended June 30, 2000 compared to the same period in 1999, was
principally due to an increase in average loans of $47.1 million, to $377.6
million, and an increase in average investment securities of $3.0 million, to
$251.7 million, partially offset by a decrease of $12.8 million, to $969,000, in
average securities purchased under resale agreements. The growth in loans was
funded by deposits and borrowings as well as through liquidation of securities
purchased under resale agreements. The relatively larger growth in average loans
compared to that of average investment securities, as well as the reduction in
average securities purchased under resale agreements, resulted in a shift in the
mix of average total interest-earning assets to higher yielding loans from lower
yielding securities. The percentage of average loans to average total
interest-earning assets increased to 59.9% in the first six months of 2000 from
55.7% in the first six months of 1999.
The yield on average total interest-earning assets increased by 6 basis
points, to 8.31%, during the six months ended June 30, 2000 compared to the same
period in 1999, primarily due to the above mentioned shift in the mix of average
total interest-earning assets to higher yielding loans from lower yielding
securities. However, the yield on average loans declined by 11 basis points, to
9.48%, and the yield on average investment securities decreased by 7 basis
points, to 6.53%. The reasons for the decline in the yield earned on average
loans were described earlier under "Results of Operations - Net Interest Income
- Three Months Ended June 30, 2000 vs. Three Months Ended June 30, 1999 - Total
Interest Income."
The decrease in the yield on average investment securities of 7 basis
points during the six months ended June 30, 2000 compared to the same period
last year, was primarily due to the calls and sales in 1999 of $148.0 million of
higher yielding callable bonds with a weighted average coupon rate of 6.71%,
which were partially replaced by the purchases of $85.8 million of lower
yielding, shorter maturity, callable bonds with a weighted average coupon rate
of 6.23%. Partially offsetting this factor were the purchases in the fourth
quarter of 1999 of higher yielding corporate debt securities and mortgage-backed
securities.
TOTAL INTEREST EXPENSE
Total interest expense increased by $2.2 million, to $16.9 million, during
the six months ended June 30, 2000 compared to the same period in 1999. This was
due to the growth in average interest-bearing liabilities and to the increase in
rate on these liabilities, which contributed $1.4 million and $810,000,
respectively, to interest expense.
The growth in average total interest-bearing liabilities of $31.3 million
during the first six months of 2000 compared to the same period in 1999, was
primarily due to an increase in average deposits of $18.8 million, to $480.7
million, and an increase in average borrowings of $12.6 million, to $116.1
million. The changes in average deposits and average borrowings resulted in a
shift in the mix of average total interest-bearing liabilities to higher rate
borrowings from lower rate deposits. The percentage of average borrowings to
average total interest-bearing liabilities increased to 19.5% during the first
six months of 2000 from 18.3% during the same period last year.
The increase in average deposits of $18.8 million during the six months
ended June 30, 2000 compared to the six months ended June 30, 1999, was
principally due to an increase in average certificates of deposit of $108.1
million, partially offset by decreases of $83.0 million and $6.3 million in
average savings accounts and average money market checking accounts,
respectively.
22
<PAGE>
The changes in the average balances of the Company's deposit products
during the six months ended June 30, 2000 compared to the same period in 1999,
were primarily attributable to the Company's deposit strategy in 1999 and 2000,
which was described earlier. As a result, the balances of higher rate
certificates of deposit increased, while the balances of lower rate savings
accounts and money market accounts decreased, thus changing the mix of deposits.
The percentage of average certificates of deposit to average total deposits
increased to 60.1% during the first six months of 2000 from 39.1% during the
first six months of 1999. In February 2000, and later, in May 2000, the Company
raised the rates on its savings accounts in response to deposit runoff and the
increase in market interest rates. The Company continued to raise the rates on
its certificates of deposit during the first six months of 2000, although much
more significantly in the second quarter than the first quarter.
The increase in average borrowings of $12.6 million during the six months
ended June 30, 2000 compared to the six months ended June 30, 1999, was
principally due to increases of $27.4 million and $23.0 million in average
borrowings from the State of California and average securities sold under
repurchase agreements, respectively, partially offset by a reduction in average
term borrowings of $37.9 million.
The increase in the rate on average total interest-bearing liabilities of
45 basis points during the six months ended June 30, 2000 compared to the same
period in 1999, was principally due to the following factors:
- The rate on average deposits increased 48 basis points, to 5.48%.
- The rate on average borrowings increased 28 basis points, to 6.51%.
- The mix of average deposits shifted to higher rate certificates of deposit
from lower rate savings/money market checking accounts.
- The mix of average total interest-bearing liabilities shifted to higher
rate borrowings from lower rate deposits.
The reasons for the increases in the rates paid on average deposits and
average borrowings were described earlier under "Results of Operations - Net
Interest Income - Three Months Ended June 30, 2000 vs. Three Months Ended June
30, 1999 - Total Interest Expense."
PROVISION FOR LOAN LOSSES
During the three and six months ended June 30, 2000, the Company's
provision for loan losses decreased by $270,000 and $680,000, to $125,000 and
$375,000, respectively, compared to the same periods in 1999. The decrease in
the provision is the result of management's evaluation of the loan portfolio and
economic conditions. See "Financial Condition - Allowance for Loan Losses."
NON-INTEREST INCOME
The following table sets forth certain information with respect to the
Company's non-interest income for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------------- -----------------------------------------
AMOUNTS NET CHANGE AMOUNTS NET CHANGE
------------------------------------------ --------------------- --------------------
2000 1999 $ % 2000 1999 $ %
---------- ---------- --------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan prepayment and late fee income $ 49 $ 269 $ (220) (81.8%) $ 151 $ 368 $ (217) (59.0%)
Gain on sale of investment securities - 71 (71) (100.0%) - 586 (586) (100.0%)
Gain on sale of SBA loans - 79 (79) (100.0%) - 175 (175) (100.0%)
Gain on sale of other real estate owned - 25 (25) (100.0%) 115 25 90 360.0%
Other income 125 215 (90) (41.9%) 281 476 (195) (41.0%)
---------- -------------------- ---------- ---------- ---------- --------------------
Total non-interest income $ 174 $ 659 $ (485) (73.6%) $ 547 $1,630 $(1,083) (66.4%)
---------- -------------------- ---------- ---------- ---------- --------------------
</TABLE>
23
<PAGE>
Non-interest income for the three months ended June 30, 2000 decreased by
$485,000, to $174,000, compared to the same period in 1999. This was primarily
due to decreases of $220,000, $150,000 and $90,000 in loan prepayment and late
fee income, gains on sale of securities and loans, and other income,
respectively.
Non-interest income for the six months ended June 30, 2000 decreased by
$1.1 million, to $547,000, compared to the same period in 1999. This was
primarily due to decreases of $761,000, $217,000, and $195,000 in gains on sale
of securities and loans, loan prepayment and late fee income, and other income,
respectively.
NON-INTEREST EXPENSE
The following table sets forth certain information with respect to the
Company's non-interest expense for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ------------------------------------------
AMOUNTS NET CHANGE AMOUNTS NET CHANGE
---------------------- --------------------- -------------------------------------------
2000 1999 $ % 2000 1999 $ %
----------- ---------- ---------- ---------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $1,414 $1,734 $ (320) (18.5%) $2,912 $3,474 $ (562) (16.2%)
Net occupancy expenses 360 430 (70) (16.3%) 746 872 (126) (14.4%)
Communication and data processing 222 223 (1) (0.4%) 442 435 7 1.6%
Advertising and promotion 51 215 (164) (76.3%) 119 407 (288) (70.8%)
FDIC insurance premiums 26 14 12 85.7% 52 26 26 100.0%
Credit and collection expenses - 26 (26) (100.0%) 2 36 (34) (94.4%)
Other real estate owned expenses (6) 17 (23) (135.3%) (4) 35 (39) (111.4%)
Valuation adjustments to
other real estate owned - - - - - 43 (43) (100.0%)
Other expenses 275 362 (87) (24.0%) 579 629 (50) (7.9%)
----------- ---------- ---------- ---------- ----------- ---------- ---------- --------
Total non-interest expense $2,342 $3,021 $ (679) (22.5%) $4,848 $5,957 $(1,109) (18.6%)
=========== ========== ========== ========== =========== ========== ========== ========
</TABLE>
Non-interest expense for the three months ended June 30, 2000 decreased by
$679,000, to $2.3 million, compared to the same period in 1999. This was
primarily due to decreases of $320,000, $164,000, and $70,000 in salaries and
employee benefits, advertising and promotion, and net occupancy expenses,
respectively.
Non-interest expense for the six months ended June 30, 2000 decreased by
$1.1 million, to $4.8 million, compared to the same period in 1999. This was
primarily due to decreases of $562,000, $288,000, and $126,000 in salaries and
employee benefits, advertising and promotion, and net occupancy expenses,
respectively.
Salaries and employee benefits for the three and six months ended June 30,
2000 decreased by $320,000 and $562,000, to $1.4 million and $2.9 million,
respectively, as compared to the same periods in 1999. The decreases were
primarily due to the following factors:
- During the fourth quarter of 1999, the Company eliminated its five loan
production offices located outside of Southern California. These loan
production offices had each been staffed with one loan production officer.
- During the first quarter of 2000, the Company closed its office in Orange
County, California, which had been established to coordinate and originate
loans for its secondary market loan sales program. This office was staffed
with six employees.
Partially offsetting the decreases in salaries and employee benefits was
the approximate 4% increase to employee base salaries in January 2000, as well
as an increase due to the hiring in June 2000 of four officers in San Diego to
expand the Company's SBA lending capabilities in Southern California and the
hiring in June 2000 of a commercial real estate marketing representative in
Laguna Hills to handle lending in Orange County and the Inland Empire.
24
<PAGE>
Net occupancy expenses decreased by $70,000 and $126,000, to $360,000 and
$746,000, respectively, for the three and six months ended June 30, 2000,
compared to the same periods last year. This decrease was primarily due to the
aforementioned closure of the five loan production offices located outside of
Southern California during the fourth quarter of 1999. The lease on the
secondary market loan sales office in Orange County, which was closed during the
first quarter of 2000, had an expiration date of March 2002. However, the
landlord released the Company from its obligation under the lease effective June
19, 2000. The Company paid no additional costs to the landlord in connection
with this lease other than normal rent through the June 19, 2000 release date.
Partially offsetting the decrease in net occupancy expenses was the opening
of an office in Laguna Hills for the commercial marketing representative hired
in June 2000. The four SBA officers hired in June 2000 worked out of the
Company's San Diego branch office, but the Company plans to open an office for
them in San Diego during the third quarter of 2000.
Advertising and promotion costs decreased by $164,000 and $288,000, to
$51,000 and $119,000, respectively, for the three and six months ended June 30,
2000, compared to the same period in 1999. The Company started reducing the
level of advertising and promotion in the third quarter of 1999.
INCOME TAX PROVISION
For the three months ended June 30, 2000 and 1999, the Company's provision
for income taxes was $901,000 and $799,000, respectively, which resulted in
effective tax rates of 41.7% and 39.8%, respectively. For the six months ended
June 30, 2000 and 1999, the Company's provision for income taxes was $1.9 and
$1.6 million, which resulted in effective tax rates of 41.7% and 39.4%,
respectively. The difference between the effective tax rates for the three and
six months ended June 30, 2000 and 1999 is the result of adjustments made to the
tax valuation reserves for the three and six months ended June 30, 1999.
25
<PAGE>
FINANCIAL CONDITION
BALANCE SHEET ANALYSIS
The following table presents condensed balance sheets as of the dates
indicated and the dollar and percentage changes between the periods (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, NET CHANGE
--------------- -------------- ------------------------------
2000 1999 $ %
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 6,552 $ 4,783 $ 1,769 36.99%
Investment securities available for sale, at market 240,866 240,760 106 0.04%
Net loans 377,223 359,502 17,721 4.93%
Other assets 19,102 18,215 887 4.87%
--------------- -------------- -------------- ---------------
Total assets $ 643,743 $ 623,260 $ 20,483 3.29%
=============== ============== ============== ===============
LIABILITIES
Savings accounts $ 163,310 $ 196,368 $ (33,058) (16.83%)
Certificates of deposit 329,096 269,233 59,863 22.23%
Money market checking accounts 15,206 18,783 (3,577) (19.04%)
--------------- -------------- -------------- ---------------
Total deposits 507,612 484,384 23,228 4.80%
--------------- -------------- -------------- ---------------
Securities sold under repurchase
agreements 21,000 30,500 (9,500) (31.15%)
Borrowings from State of California 33,000 20,000 13,000 65.00%
Term borrowings 30,000 40,000 (10,000) (25.00%)
Trust preferred securities 17,250 17,250 - 0.00%
--------------- -------------- -------------- ---------------
Total borrowings 101,250 107,750 (6,500) (6.03%)
--------------- -------------- -------------- ---------------
Total interest-bearing liabilities 608,862 592,134 16,728 2.83%
Other liabilities 8,009 5,577 2,432 43.61%
--------------- -------------- -------------- ---------------
Total liabilities 616,871 597,711 19,160 3.21%
=============== ============== ============== ===============
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 27,846 27,915 (69) (0.25%)
Retained earnings 12,248 9,978 2,270 22.75%
Accumulated other comprehensive loss (6,254) (6,355) 101 (1.59%)
Common stock in treasury, at cost (6,968) (5,989) (979) 16.35%
--------------- -------------- -------------- ---------------
Total shareholders' equity 26,872 25,549 1,323 5.18%
=============== ============== ============== ===============
Total liabilities and
shareholders' equity $ 643,743 $ 623,260 $ 20,483 3.29%
=============== ============== ============== ===============
</TABLE>
Total assets increased by $20.5 million, to $643.7 million, during the six
months ended June 30, 2000, primarily due to a $17.7 million increase in net
loans and a $1.8 million increase in cash and cash equivalents. The increase in
net loans was principally due to $40.8 million of originations, partially offset
by $22.9 million of principal payments. The increase in cash and cash
equivalents was attributable to the growth in deposits. Investment securities
available for sale increased by $106,000, to $240.9 million, primarily due to an
increase in market value.
Total liabilities increased by $19.2 million, to $616.9 million, during
the six months ended June 30, 2000, primarily due to an increase in deposits of
$23.2 million, partially offset by a decrease in borrowings of $6.5 million.
This resulted in a shift in the mix of total interest-bearing liabilities to
lower rate deposits from higher rate borrowings and helped to decrease interest
expense for the first six months of 2000. Deposits as a percentage of total
interest-bearing liabilities increased to 83.4% at June 30, 2000 from 81.8% at
December 31, 1999.
26
<PAGE>
The increase in deposits was attributable to a significant increase in
interest rates paid on certificates of deposit during the second quarter of 2000
compared to the first quarter of 2000. In the first quarter, the Company raised
the rates only on its six month, one year, two year and five year certificate of
deposit products by 22 basis points, nine basis points, nine basis points and
eight basis points, respectively, as well as the tiered rates on its savings
accounts. Certificates of deposit increased $11.3 million during the quarter,
but savings and money market checking accounts together decreased $22.1 million,
resulting in an overall decrease in deposits of $10.7 million during the first
quarter. This deposit outflow, along with loan originations, was funded with
securities sold under repurchase agreements. However, during the second quarter,
the Company significantly increased its rates on all of its certificate of
deposit products, increased the rate on its highest tier savings account by 27
basis points, and kept unchanged the rate on money market checking accounts.
This resulted in an increase in total deposits of $34.0 million, attributable to
the growth in certificates of deposit of $48.5 million. This deposit inflow was
used to pay down securities sold under repurchase agreements, which had built up
during the first quarter, and to fund loans.
The $23.2 million increase in deposits during the first six months of 2000
was comprised of an increase of $59.9 million in certificates of deposit,
partially offset by decreases of $33.1 million and $3.6 million in savings
accounts and money market checking accounts, respectively. The changes in the
balances of the Company's deposit products during the first six months of 2000
resulted in a shift in the mix of deposits from lower yielding savings/money
market accounts to higher yielding certificates of deposit. The percentage of
certificates of deposit to total deposits increased to 64.8% at June 30, 2000
from 55.6% at December 31, 1999 and served to increase interest expense for the
first six months of 2000.
The $6.5 million decrease in borrowings during the first six months of 2000
was comprised of a decrease of $9.5 million in securities sold under repurchase
agreements and a principal payment of $10.0 million on a term borrowing, which
was called by the lender, partially offset by $13.0 million in additional
borrowings from the State of California. The combined $19.5 million reduction in
securities sold under repurchase agreements and term borrowings was funded with
$13.0 million of borrowings from the State of California and $6.5 million from
an increase in certificates of deposit.
Shareholders' equity increased by $1.3 million, to $26.9 million, during
the six months ended June 30, 2000. Changes to shareholders' equity were due to
the following factors:
- The Company recorded $2.6 million of net income for the first six
months of 2000.
- The Company declared and paid cash dividends of $354,000 for the first
six months of 2000.
- Accumulated other comprehensive loss decreased by $101,000 during the
first six months of 2000 due to an increase in market value of the
Company's investment securities available for sale.
- Common stock in treasury increased by $979,000 during the first six
months of 2000, primarily due to the $1.1 million purchase of 102,000
shares of the Company's common stock under its stock repurchase plan.
Partially offsetting this increase and thereby reducing the number of
treasury shares was the issuance of 11,044 shares of common stock in
treasury for $170,000 under the Company's employee stock purchase plan,
non-employee directors stock purchase plan, and employee stock option
plan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at June 30, 2000 increased by $632,000 from
the level at December 31, 1999, primarily due to $375,000 in provision for loan
losses recorded during the first six months of 2000 and a recovery of $246,000
on a previously charged off commercial real estate loan. The calculation of the
adequacy of the allowance for loan losses is based on a variety of factors,
including growth in the Company's loan portfolio, the adequacy of collateral
securing the loans in the loan portfolio, current delinquency trends, historical
loan loss experience, regional real estate economic conditions, and overall
economic trends impacting the Company's real estate lending portfolio.
Commercial real estate serves as collateral for virtually all of the Company's
loan portfolio. The allowance for loan losses as a percentage of loans stood at
1.84% at June 30, 2000, compared to 1.76% at December 31, 1999.
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.
27
<PAGE>
The following table sets forth certain information with respect to the
Company's allowance for loan losses for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Allowance for loan losses at beginning of period $ 6,450 $ 5,024
Provision for loan losses 375 1,677
Charge-offs: commercial real estate - (280)
Charge-offs: commercial business - (7)
Recoveries: commercial real estate 257 36
----------------- -----------------
Allowance for loan losses at end of period $ 7,082 $ 6,450
================= =================
</TABLE>
NON-PERFORMING ASSETS
The following table sets forth non-accrual loans, OREO and restructured
loans as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Non-accrual loans $ 1,185 $ 210
OREO - -
--------------- ---------------
Total non-performing assets $ 1,185 $ 210
--------------- ---------------
Total non-performing assets to total assets 0.18% 0.03%
--------------- ---------------
Restructured loans $ - $ -
=============== ===============
</TABLE>
During the six months ended June 30, 2000, the non-accrual loan of $210,000
at December 31, 1999 was transferred to OREO and sold for a gain of $115,000.
The Company had one non-accrual loan for $1.2 million at June 30, 2000 which had
transferred from accruing loans during the second quarter of 2000.
LIQUIDITY
The Company's primary sources of funds are deposits, borrowings, and
payments of principal and interest on loans and investment securities. While
maturities and scheduled principal amortization on loans are a reasonably
predictable source of funds, deposit flows and mortgage loan prepayments are
greatly influenced by the level of interest rates, economic conditions, and
competition. As a measure of protection against these uncertainties, the Company
maintains borrowing relationships with several brokers, whereby the Company is
able to borrow funds that are secured by pledging specific amounts of certain
U.S. government sponsored agency securities. The Company is generally able to
borrow up to 98% of the market value of these securities. As of June 30, 2000,
the market values of U.S. government sponsored agency securities that were
available for collateral purposes totaled $133.3 million.
The Bank also has a fixed rate borrowing facility with the State of
California Treasurer's Office under which the Bank can borrow an amount not to
exceed its unconsolidated total shareholder's equity. Borrowing maturity dates
under this program cannot exceed one year. As of June 30, 2000, the Bank's
unconsolidated total shareholder's equity was $39.6 million and the Bank's
outstanding borrowings from the State of California totaled $33.0 million.
28
<PAGE>
DIVIDENDS
As a Delaware corporation, Pacific Crest 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, on an unconsolidated basis, had approximately
$3.3 million in cash and investments less current liabilities and short-term
debt at June 30, 2000. These funds are necessary to pay future operating
expenses of the Parent, service all outstanding debt, including the $17.25
million junior subordinated debentures payable to PCC Capital, and fund possible
future capital infusions into the Bank. Without dividends from the Bank, the
Parent must rely solely on existing cash, investments, and the ability to secure
borrowings.
The 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. The Bank declared and paid dividends to the
Parent in the amount of $1.0 million for the first six months of 2000. At June
30, 2000, the Bank had retained earnings of $16.0 million that may be available
for dividend payments. On July 27, 2000, the Bank declared a $600,000 cash
dividend for the third quarter of 2000 payable to the Parent on September 15,
2000. The Bank anticipates that it will continue to declare and pay quarterly
dividends to the Parent.
CAPITAL RESOURCES
The Company's objective is to maintain a level of capital that will support
sustained asset growth and anticipated credit risks and will ensure that
regulatory guidelines and industry standards are met. Pacific Crest and the Bank
are subject to certain minimum capital adequacy and minimum well capitalized
category guidelines adopted by the Federal Reserve and the FDIC. These
guidelines relate primarily to the leverage ratio, the Tier 1 risk-based capital
ratio, and the total risk-based capital ratio. The minimum well capitalized
required ratios are 5.00% leverage, 6.00% Tier 1 risk-based capital, and 10.00%
total risk-based capital. The minimum capital adequacy required ratios are 4.00%
leverage, 4.00% Tier 1 risk-based capital, and 8.00% total risk-based capital.
At June 30, 2000, Pacific Crest and the Bank were in compliance with all such
capital requirements.
The following table sets forth the regulatory capital and ratios of Pacific
Crest and the Bank as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------------- ---------------
PACIFIC CREST CAPITAL, INC.
-----------------------------------
<S> <C> <C>
Leverage ratio 6.85% 6.89%
Tier 1 risk-based capital ratio 10.17% 10.18%
Total risk-based capital ratio 12.85% 13.02%
Tier 1 capital $ 44,168 $ 42,539
Total risk-based capital 55,825 54,392
Average quarterly total assets 645,243 617,669
Net risk-weighted assets 434,266 417,788
PACIFIC CREST BANK
----------------------
Leverage ratio 7.21% 7.19%
Tier 1 risk-based capital ratio 10.61% 10.38%
Total risk-based capital ratio 11.87% 11.64%
Tier 1 capital $ 45,743 $ 43,586
Total risk-based capital 51,151 48,848
Average quarterly total assets 634,107 606,604
Net risk-weighted assets 431,004 419,747
</TABLE>
29
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. The
Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability committee. Tools used by management include an interest rate
shock analysis and, to a lesser extent, the standard GAP report, which measures
the estimated difference between the amount of interest-earning assets and
interest-bearing liabilities anticipated to mature or reprice during future
periods, based on certain assumptions. The Company has no market risk sensitive
instruments held for trading purposes and is not currently engaged in
transactions involving derivative financial instruments. Management believes
that the Company's market risk is reasonable at this time.
30
<PAGE>
The table below provides information about the Company's balance sheet
non-derivative financial instruments at June 30, 2000 that are sensitive to
changes in interest rates. For all financial instruments, the table presents the
outstanding principal balance and the weighted average interest yield/rate of
the instruments by either the date that the instrument can be repriced, for
variable rate financial instruments, or the expected maturity date, for fixed
rate financial instruments (dollars in thousands):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE OR REPRICING DATE
------------------------------------------------------------------------------
OVER OVER OVER ESTIMATED
WITHIN 3 TO 12 1 TO 3 3 TO 5 OVER FAIR
AT JUNE 30, 2000 3 MONTHS MONTHS YEARS YEARS 5 YEARS TOTAL VALUE
---------------- ------------ ------------ ------------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS:
Securities purchased under
resale agreements (1) $ 4,025 $ - $ - $ - $ - $ 4,025 $ 4,025
average yield (variable
rate) 6.34% - - - - 6.34%
U.S. government sponsored
agency callable bonds
available for sale (2) - - 50,272 29,469 153,493 233,234 233,234
average yield (fixed rate) - - 5.65% 6.80% 6.66% 6.46%
U.S. government sponsored
agency mortgage-backed
securities available for
sale (2) - - - - 3,778 3,778 3,778
average yield (fixed rate) - - - - 7.09% 7.09%
Corporate debt securities
available for sale (2) 3,854 - - - - 3,854 3,854
average yield (variable
rate) 8.46% - - - - 8.46%
Loans, gross (3) 91,218 80,139 90,313 66,130 56,936 384,736 389,353
average yield 10.85% 10.42% 8.76% 8.47% 8.42% 9.48%
------------ ------------ ------------- ------------ ------------- ----------- -----------
Total interest-sensitive assets $ 99,097 $ 80,139 $ 140,585 $ 95,599 $ 214,207 $ 629,627 $ 634,244
============ ============ ============= ============ ============= =========== ===========
INTEREST-SENSITIVE LIABILITIES:
Savings accounts (1) $ 163,310 $ - $ - $ - $ - $ 163,310 $ 163,310
average rates (variable
rate) 5.46% - - - - 5.46%
Certificates of deposit (4) 34,355 171,038 140,894 17,974 835 329,096 327,450
average rates (fixed rate) 5.75% 6.21% 6.57% 6.11% 6.38% 6.26%
Money market checking
accounts (1) 15,206 - - - - 15,206 15,206
average rates (variable
rate) 4.22% - - - - 4.22%
Securities sold under
repurchase agreements (1) 21,000 - - - - 21,000 21,000
average rates (variable
rate) 6.68% - - - - 6.68%
Borrowings from State of
California (5) 18,000 15,000 - - - 33,000 32,967
average rate (fixed rate) 5.87% 5.70% - - - 5.79%
Term borrowings (5) 20,000 10,000 - - - 30,000 29,987
average rates (fixed rate) 5.75% 5.95% - - - 5.82%
Trust preferred securities (2) - - - - 17,250 17,250 14,663
average rates (fixed rate) - - - - 9.38% 9.38%
------------ ------------ ------------- ------------ ------------- ----------- -----------
Total interest-sensitive
liabilities $ 271,871 $ 196,038 $ 104,894 $ 17,974 $ 18,085 $ 608,862 $ 604,583
============ ============ ============= ============ ============= =========== ===========
</TABLE>
31
<PAGE>
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 values are considered identical due to
the short term repricing of the financial instruments.
(2) Fair value of investment securities and the trust preferred securities
is based on the quoted market price of these securities by broker
dealers making a market for these securities on a national exchange.
(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 3.0%.
(4) Fair value of certificates of deposit, which have a fixed maturity, is
estimated using rates currently offered for deposits of similar
remaining maturities.
(5) Fair values of borrowings from the State of California and term
borrowings are estimated using discounted cash flow analysis based on
the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
32
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the Company's shareholders, held on May 12,
2000, the following matter was submitted to a vote of shareholders with the
indicated number of votes being cast for, against or withheld:
1. To elect one member to the board of directors for a term of three
years and to serve until his successor is elected and qualified.
Number of Votes
------------ ------------
For Withheld
------------ ------------
Rudolph I. Estrada 2,388,290 2,845
The Company's other directors, Martin J. Frank, Steven J. Orlando,
Gary Wehrle and Richard S. Orfalea are serving for a term of three years.
The terms for Mr. Frank and Mr. Orlando expire at the annual meeting of
shareholders in 2001. The terms for Mr. Wehrle and Mr. Orfalea expire at
the annual meeting of shareholders in 2002.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter
ended June 30, 2000.
33
<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 14, 2000 /s/ GARY WEHRLE
--------------------------------------------------
Gary Wehrle
President and Chief Executive Officer
Date: August 14, 2000 /s/ ROBERT J. DENNEN
--------------------------------------------------
Robert J. Dennen
Senior Vice President, Chief Financial Officer
Corporate Secretary
