<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 .
---------------------------------------
[ ] 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 000-23815
---------
REGENCY BANCORP
-----------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0378956
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organizations) Identification No.)
7060 N. FRESNO STREET, FRESNO, CALIFORNIA 93720
----------------------------------------- -----
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (559) 438-2600.
--------------
None
----
(Former name, former address and 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 the 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 .
--- ---
As of July 30, 1999, the registrant had 2,626,499 shares of Common Stock
outstanding.
The Exhibit Index is located on page 38.
This report contains a total of 39 pages of which this is page one.
<PAGE>
REGENCY BANCORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 ................................................... 3
Consolidated Statements of Operations Three Months
Ended and Six Months Ended June 30, 1999 and 1998 ..................................... 4
Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 1999 and 1998 ............................................... 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 ............................................... 6
Notes to Consolidated Financial Statements ............................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................................... 32
Item 2. Changes in Securities ................................................................. 32
Item 3. Defaults Upon Senior Securities ....................................................... 32
Item 4. Submission of Matters to a Vote of Security Holders ................................... 32
Item 5. Other Information ..................................................................... 32
Item 6. Exhibits and Reports on Form 8-K ...................................................... 32
</TABLE>
2
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
PART I ITEM 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Consolidated Balance Sheets (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) JUNE 30, 1999 DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,917 $ 20,220
Federal funds sold 3,600 5,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Cash and Equivalents 18,517 25,220
- ---------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits in other banks 772 869
Securities available-for-sale 47,369 46,990
Non-marketable equity securities (FRB & FHLB stock) 1,416 1,170
- ---------------------------------------------------------------------------------------------------------------------------
Loans 155,047 151,151
Allowance for credit losses (2,636) (2,631)
Deferred loan fees & discounts (1,075) (932)
- ---------------------------------------------------------------------------------------------------------------------------
Net Loans 151,336 147,588
- ---------------------------------------------------------------------------------------------------------------------------
Other real estate owned 320 684
Cash surrender value of life insurance 3,258 3,186
Premises and equipment, net 1,333 1,500
Accrued interest receivable and other assets 5,359 4,760
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets 229,680 231,967
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing transaction accounts 53,847 54,236
Interest bearing transaction accounts 56,753 54,878
Savings accounts 36,740 46,464
Time deposits $100,000 or over 38,518 33,377
Other time deposits 16,991 17,682
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 202,849 206,637
- ---------------------------------------------------------------------------------------------------------------------------
Short term borrowings -- --
Notes payable and capital lease obligations 570 547
Other liabilities 2,758 2,334
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 206,177 209,518
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock, no par value;
1,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par value; 5,000,000
shares authorized, 2,626,499 and 2,624,374
shares issued and outstanding in 1999 and 1998, respectively 15,255 15,229
Retained earnings 8,928 7,000
Accumulated other comprehensive income
Net unrealized (loss) gain on available-for-sale securities,
net of (tax benefit) taxes of $(495) in 1999 and $159 in 1998 (680) 220
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 23,503 22,449
Total Liabilities and Shareholders' Equity $ 229,680 $ 231,967
- ---------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 4,210 $ 4,111 $ 8,186 $ 7,654
Interest on investment securities:
Taxable 626 431 1,222 907
Nontaxable 155 80 296 151
- ---------------------------------------------------------------------------------------------------------------------------
Total interest on investment securities 781 511 1,518 1,058
Other 15 72 39 106
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 5,006 4,694 9,743 8,818
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 1,270 1,292 2,562 2,534
Interest on borrowings 171 21 294 62
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,441 1,313 2,856 2,596
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 3,565 3,381 6,887 6,222
Provision for credit losses 50 150 125 275
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 3,515 3,231 6,762 5,947
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Gain on sale of loans 324 207 394 222
Depositor service charges 144 118 285 230
Income from investment management services 234 229 475 445
Gain (loss) on sale of investment securities (19) -- (16) 5
Gain on sale of premises & equipment -- -- 1 --
Servicing fees on loans sold 3 10 36 79
Other 80 112 164 182
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 766 676 1,339 1,163
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and related benefits 1,286 1,245 2,593 2,441
Occupancy 360 379 715 739
FDIC insurance and regulatory assessments 11 115 22 228
Marketing 77 144 170 270
Professional services 143 159 268 331
Directors' fees and expenses 68 46 126 99
Supplies, telephone and postage 74 83 156 164
Loss from investments in real estate - 221 -- 214
Other 173 423 312 633
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 2,192 2,815 4,362 5,119
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 2,089 1,092 3,739 1,991
Income tax expense 747 463 1,286 843
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1,342 $ 629 $ 2,453 $ 1,148
Earnings per common share
Basic $ 0.51 $ 0.24 $ 0.93 $ 0.44
Diluted $ 0.47 $ 0.22 $ 0.86 $ 0.41
Shares on which earnings per common share were based
Basic 2,626 2,624 2,625 2,623
Diluted 2,870 2,807 2,853 2,796
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Unaudited)
For the six months ended June 30, (In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Share- Compre- Share- Compre-
Holders' hensive Holders' hensive
Equity Income Equity Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock - Shares
Balance, beginning of period 2,624 2,621
Issuance of common stock under
stock option plan 2 3
----------------- -----------------
Balance, end of period 2,626 2,624
----------------- -----------------
----------------- -----------------
Common Stock
Balance, beginning of period $ 15,229 $ 15,203
Issuance of common stock under
stock option plan (Note 9) 26 26
----------------- -----------------
Balance, end of period 15,255 15,229
----------------- -----------------
----------------- -----------------
Retained Earnings
Balance, beginning of period 7,000 3,327
Net income 2,453 $ 2,453 $ 1,148 1,148
Common stock dividends (525) --
----------------- -----------------
Balance, end of period 8,928 4,475
----------------- -----------------
----------------- -----------------
Cumulative Other Comprehensive Income
Balance, beginning of period 220 204
Unrealized (loss) gain on investment securities
arising during the period, net of
tax (benefit) expense of $(665) and $3. (915) (915) 10 10
Reclassification adjustment for loss on sale
of securities included in net income, net
of tax benefit of $11 and $0. 15 15 -- --
----------------- -----------------
Balance, end of period (680) 214
-------------------------------------------------------------------
COMPREHENSIVE INCOME $ 1,553 $ 1,158
---------------- -----------------
---------------- -----------------
----------------- -----------------
Total shareholders' equity $ 23,503 $ 19,918
----------------- -----------------
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,453 $ 1,148
Adjustments:
Provision for credit losses 125 275
Provision for OREO losses 8 131
Depreciation and amortization 198 263
Deferred income taxes (574) 359
Increase (decrease) in interest receivable and other assets 628 (188)
Increase in cash surrender value of life insurance (72) (70)
Distributions of income from real estate partnerships -- 213
Equity in loss of real estate partnerships -- 38
Decrease in real estate held-for-sale -- 4,088
Increase (decrease) in other liabilities 448 168
Loss (gain) on sale of securities 16 (5)
Gain on sale of loans held-for-sale (394) (222)
Gain on sale of OREO (1) --
Proceeds from sale of loans held-for-sale 15,028 7,481
Additions to loans held-for-sale (18,402) (10,202)
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (539) 3,477
- ----------------------------------------------------------------------------------------------------------------------
Purchase of available-for-sale securities (12,106) (12,422)
Proceeds from sales of available-for-sale securities 4,311 5
Proceeds from maturities of available-for-sale securities 5,829 12,283
Purchases of nonmarketable equity securities (246) --
Net increase in loans (154) (12,686)
Net decrease in other short-term investments 96 156
Proceeds from sale of OREO 405 444
Purchases of premises and equipment (13) (107)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,878) (12,327)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in time deposits 4,450 3,171
Net (decrease) increase in other deposits (8,237) 2,868
Net increase in short-term borrowings -- --
Proceeds from issuance of common stock under stock option plan 26 26
Cash dividends paid (525) --
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (4,286) 6,065
- ----------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,703) (2,785)
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,220 19,893
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,517 $ 17,108
- ----------------------------------------------------------------------------------------------------------------------
CASH PAID DURING THE PERIOD:
Interest $ 2,860 $ 2,875
Income taxes 1,000 28
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Transfer of loans held-for-sale to accounts receivable -- 2,350
- ----------------------------------------------------------------------------------------------------------------------
Transfer of loans to other real estate owned 48 644
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
REGENCY BANCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Regency Bancorp and its wholly owned subsidiaries (the "Company"). Regency
Bancorp is a California corporation organized to act as the holding company for
Regency Bank (the "Bank") and Regency Investment Advisors, Inc. ("RIA"). RIA
provides investment management and consulting services. The Bank has one
wholly-owned subsidiary, Regency Service Corporation ("RSC"), a California
corporation, that has engaged in the business of real estate development
primarily in the Fresno/Clovis area. All significant intercompany balances and
transactions have been eliminated in consolidation.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles on a basis consistent
with the accounting policies reflected in the audited consolidated financial
statements of the Company included in the Annual Report on Form 10-K for the
year ended December 31, 1998. They do not, however, include all of the results
that may be expected for any other interim period or for the year as a whole.
NOTE 2. - INVESTMENT SECURITIES
The Company maintains a securities portfolio consisting of U.S.
Treasury, U.S. Government agencies and corporations, state and political
subdivisions, asset-backed and other securities. An independent custodian holds
investment securities in safekeeping. The provisions of SFAS No. 115 require,
among other things, that certain investments in debt and equity securities be
classified under three categories: securities held-to-maturity; trading
securities; and securities available-for-sale. Securities classified as
held-to-maturity are to be reported at amortized cost; securities classified as
trading securities are to be reported at fair value with unrealized gains and
losses included in operations; and securities classified as available-for-sale
are to be reported at fair value with unrealized gains and losses excluded from
earnings and reported as a separate component of shareholders' equity, net of
tax. If a security is sold, any gain or loss is recorded as a charge to earnings
and the equity adjustment is reversed. At December 31, 1998, the Bank held $46.9
million in securities classified as available-for-sale. During the period
between December 31, 1998 and June 30, 1999, the Company recorded a decrease in
the value of its available-for-sale portfolio of $900,000, net of applicable
taxes. This change is reflected as a change in shareholders' equity in the
Consolidated Statement of Shareholders' Equity and was primarily the result of
higher interest rates in general. The Company had no securities classified as
held-to-maturity or as trading securities at June 30, 1999 or December 31, 1998,
respectively.
7
<PAGE>
The following table reflects the amortized cost and approximate fair value of
securities available-for-sale as of June 30, 1999 and December 31, 1998,
respectively.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE SECURITES: JUNE 30, 1999 DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(In thousands) COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 1,014 $ 1,014 $ 1,003 $ 1,008
U.S. Government agencies 19,652 18,986 16,434 16,468
Mortgage-backed securities 14,743 14,454 17,761 17,779
State and political subdivisions 13,130 12,910 11,166 11,488
Equity securities 5 5 247 247
- ------------------------------------------------------------------------------------------------------------------
Total $ 48,544 $ 47,369 $ 46,611 $ 46,990
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the available-for-sale securities listed above, the
Company held $1,416,000 in nonmarketable equity securities at June 30, 1999.
These securities are made up of Federal Reserve Bank and Federal Home Loan Bank
stock, which is not traded on a recognized exchange. In order to maintain
membership in these banks an equity investment is required. The Company can
resell its investment to either the Federal Reserve or the Federal Home Loan
Bank should it choose to relinquish membership. At June 30, 1999, no impairment
reserve was deemed necessary. The Company held nonmarketable equity securities
of $1,170,000 at December 31, 1998.
Note 3. - Loans
The following table presents a breakdown of the Company's loan portfolio in both
dollars outstanding, as well as, a percentage of total loans. Further discussion
of the Company's loan portfolio can be found in "Item No. 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Balance Sheet Analysis".
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
LOANS JUNE 30, 1999 DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
PERCENT PERCENT
OF TOTAL OF TOTAL
(In thousands) AMOUNT LOANS AMOUNT LOANS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 99,680 64.3% $ 99,341 65.7%
Real estate:
Mortgage 20,291 13.1% 16,682 11.0%
Construction 25,387 16.4% 25,192 16.7%
Consumer and other 9,689 6.2% 9,936 6.6%
- ----------------------------------------------------------------------------------------------------------------------
Subtotal $ 155,047 100.0% $ 151,151 100.0%
- ----------------------------------------------------------------------------------------------------------------------
Less:
Unearned discount 576 440
Deferred loan fees 499 492
Allowance for credit losses 2,636 2,631
- ----------------------------------------------------------------------------------------------------------------------
Total loans, net $ 151,336 $ 147,588
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
NOTE 4. - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing net income available to common shareholders by the weighted average
common shares outstanding during the period plus potential common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company.
The following table provides a reconciliation of the numerator and
denominator of the basic EPS computation with the numerator and denominator of
the diluted EPS computation for the three months ended June 30, 1999, and 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) FOR THE THREE MONTHS FOR THE SIX MONTHS
- ------------------------------------------------------------------------------------------------------------------------
ENDED JUNE 30, ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic EPS Computation:
Net income $ 1,342 $ 629 $ 2,453 $ 1,148
Average common shares outstanding 2,626 2,624 2,625 2,623
- ------------------------------------------------------------------------------------------------------------------------
Basic EPS $ 0.51 $ 0.24 $ 0.93 $ 0.44
- ------------------------------------------------------------------------------------------------------------------------
Diluted EPS Computation:
Net income $ 1,342 $ 629 $ 2,453 $ 1,148
Average common shares outstanding 2,626 2,624 2,625 2,623
Stock options 167 147 157 137
Warrants 77 36 71 36
- ------------------------------------------------------------------------------------------------------------------------
Total average diluted shares outstanding 2,870 2,807 2,853 2,796
- ------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 0.47 $ 0.22 $ 0.86 $ 0.41
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 0 and 40,000 shares of common stock at various prices per
share were outstanding at June 30, 1999 and 1998, respectively, but were not
included in diluted EPS because the options exercise price was greater than the
average market price of the common shares for the periods then ended.
NOTE 5. - PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management believes
that the adoption of SFAS No. 133 will not have a material impact on the
financial statements due to the Partnership's inability to invest in such
investments as stated in the Partnership agreement. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, an amendment of FASB Statement
No. 133" changed the effective date of SFAS No. 133 to June 15, 2000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed or incorporated by reference in this
Quarterly Report on Form 10-Q including, but not limited to, matters described
in Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected. Changes to such risks and uncertainties, which could impact
future financial performance, include, among others, (1) competitive pressures
in the banking industry; (2) changes in the interest rate environment; (3)
general economic conditions, either nationally or regionally; (4) changes in the
regulatory environment; (5) changes in business conditions and inflation; (6)
changes in securities markets; and (7) Year 2000 compliance problems. Therefore,
the information set forth therein should be carefully considered when evaluating
the business prospects of the Company and the Bank.
OVERVIEW
Zions Bancorporation, Regency Bancorp and Regency Bank executed an
Agreement and Plan of Merger dated April 27, 1999, amended May 11, 1999 (the
"Agreement"), by and among Zions Bancorporation, Regency Bancorp and Regency
Bank. Pursuant to the Agreement, Regency Bancorp will merge with and into Zions
Bancorporation in a tax-free merger intended to be accounted for as a pooling of
interests (the "Merger") with outstanding shares of Regency Bancorp converted
into 0.3233 of a share of Zions Bancorporation, subject to certain adjustments,
and Regency Bank will merge with and into California Bank & Trust, a subsidiary
of Zions Bancorporation. The Agreement includes among its terms, the grant of a
stock option to Zions Bancorporation to acquire up to 19.9% of the outstanding
Regency Bancorp shares upon the occurrence of certain events pursuant to a Stock
Option Agreement dated as of April 27, 1999. The Merger is subject to the
approval of Regency Bancorp shareholders and applicable regulatory approvals.
The foregoing is qualified by reference to the Forms 8-K and exhibits thereto
filed with the Commission on May 6, 1999 and May 11, 1999, respectively. The
Merger is expected to be completed in the third quarter of 1999.
The Company's second quarter and first six months, ended June 30, 1999,
were marked by stellar earnings performance. Consolidated net income for the
three and six months ended June 30, 1999, was $1.34 million and $2.45 million,
respectively. Compared to the same periods in 1998, these results represent a
113 percent increase over second quarter earnings of $629,000, and a 114 percent
increase over earnings of $1.15 million for the first six months of 1998. Return
on average assets for the three months ended June 30, 1999 was 2.30 percent and
for the first six months was 2.15%. Return on average equity was 22.73 percent
for the three months and 21.24 percent for the six months. The substantial
improvement in earnings for the second quarter of 1999 was the result of
significant revenue growth (interest and noninterest income), while noninterest
expense was virtually unchanged from the first quarter and declined from
noninterest expense in the second quarter of 1998. The improved net interest
income combined with the reduction in noninterest expense improved the Company's
efficiency ratio to 50.6 percent during the second quarter of 1999 and 53.0
percent year-to-date, compared to 69.4 percent during 1998's second quarter and
69.3 percent in 1998's first six months. Basic earnings per share for the three
and six month periods ended June 30, 1999 increased to $0.51 and $0.93, compared
to $0.24 and $0.44 for the same periods in 1998. The Company paid cash dividends
of $.10 per share in both the first and second quarters of 1999, while no cash
dividends were paid during 1998's first six months.
10
<PAGE>
At June 30, 1999, the Company's loan portfolio reached $155 million, an
increase of $12.7 million or 8.9 percent since June 30, 1998, and an increase of
$3.9 million since December 31, 1998. During 1999's second quarter, the Company
sold approximately 7.2 million in SBA guaranteed loans. Total assets at June 30,
1999 were $229.7 million, an increase of 11.7 percent or $24 million from $205.6
million at June 30, 1998. Assets were down $2.3 million or 1.0 percent from
December 31, 1998 as a result of a seasonal decline in deposits. Total deposits
were $202.9 million at June 30, 1999, up $20.6 million or 11.3 percent from June
30, 1998, but down $3.8 million from December 31, 1998. While loan growth has
been substantial during the past twelve months, nonperforming loans to total
loans declined to .70 percent at June 30, 1999 from 1.23 percent at June 30,
1998 and .79 percent at December 31, 1998.
As stated above, the Company's return on average assets was 2.30
percent for the three months ended June 30, 1999, compared to 1.27 percent for
the second quarter of 1998. For the first six months of 1999, return on average
assets was 2.15 percent compared to 1.19 percent for the comparable six months
in 1998. Return on average common equity for the second quarter of 1999 was
22.73 percent, compared to 12.82 percent for the same period in 1998, while ROE
for the first six months of 1999 was 21.24 percent compared to 11.96 percent for
the first six months of 1998. The Company continued to be well capitalized
maintaining a ratio of average shareholders' equity to assets of 10.12 percent
during 1999's second quarter.
Regency Investment Advisors ("RIA") continued to increase assets under
management. At June 30, 1999, RIA's assets under management had increased to
$112.2 million from $96.2 million at June 30, 1998. In applying the
provisions of Statement of Financial Accounting Standards No. 131, the
Company has determined that it has an operating segment, commercial banking.
NET INTEREST INCOME
The Company's operating results depend primarily on net interest income
(the difference between the interest earned on loans and investments less
interest expense on deposit accounts and borrowings). A primary factor affecting
the level of net interest income is the Company's interest rate margin, the
difference between the yield earned on interest earning assets and the rate paid
on interest bearing liabilities, as well as the difference between the relative
amounts of average interest earning assets and interest bearing liabilities.
The following tables present, for the periods indicated, the Company's
total dollar amount of interest income from average interest earning assets and
the resultant yields, as well as the interest expense on average interest
bearing liabilities and the resultant cost, expressed both in dollars and rates.
The table also sets forth the net interest income and the net earning balance
for the periods indicated.
11
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
(In thousands, except for percentages) BALANCE RATE INTEREST BALANCE RATE INTEREST
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans (1) $ 160,729 10.51% $ 4,210 $ 137,823 11.96% $ 4,111
Investment securities (2) 51,185 6.12% 781 34,140 6.01% 511
Federal funds sold and other 1,097 5.48% 15 5,315 5.49% 72
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 213,011 9.43% 5,006 177,278 10.62% 4,694
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets:
Allowance for credit losses (2,639) (2,386)
Cash and due from banks 13,104 11,486
Real estate investments -- 1,118
OREO 341 872
Premises and equipment, net 1,386 1,678
Cash surrender value of life insurance 3,235 3,086
Accrued interest receivable and other assets 4,581 4,967
- --------------------------------------------------------------------------------------------------------------------------------
Total average assets $ 233,019 $ 198,099
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES and SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Transaction accounts 55,571 2.14% 297 48,977 2.35% 286
Savings accounts 34,016 3.49% 296 37,849 4.04% 381
Certificates of deposit 55,874 4.86% 677 46,532 5.38% 625
Federal funds purchased and other 12,503 5.49% 171 522 16.48% 21
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities: 157,964 3.66% 1,441 133,880 3.94% 1,313
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Transaction accounts 48,699 38,342
Other liabilities 2,785 2,164
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 209,448 174,386
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock 15,195 15,183
Retained earnings 8,454 3,595
Unrealized gain/loss on investment securities (78) 253
- --------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,571 19,031
- --------------------------------------------------------------------------------------------------------------------------------
Total average liabilities and
shareholders' equity $ 233,019 $ 193,417
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 3,565 $ 3,381
- --------------------------------------------------------------------------------------------------------------------------------
Interest income as a percentage
of average interest-earning assets 9.43% 10.62%
Interest expense as a percentage
of average interest-earning assets (2.71)% (2.97)%
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin 6.72% 7.65%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$400,000 and $298,000 for the quarters ended June 30, 1999 and 1998,
respectively.
(2) Applicable nontaxable securities yields have not been calculated on a
taxable-equivalent basis.
12
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
(In thousands, except for percentages) BALANCE RATE INTEREST BALANCE RATE INTEREST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans (1) $ 157,158 10.50% $ 8,186 $ 134,362 11.49% $ 7,654
Investment securities (2) 51,302 5.97% 1,518 34,881 6.12% 1,058
Federal funds sold and other 1,507 5.22% 39 3,969 5.39% 106
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 209,967 9.35% 9,743 173,212 10.26% 8,818
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets:
Allowance for credit losses (2,648) (2,335)
Cash and due from banks 13,092 11,056
Real estate investments -- 1,952
OREO 443 686
Premises and equipment, net 1,427 1,714
Cash surrender value of life insurance 3,218 3,068
Accrued interest receivable and other assets 4,391 4,917
- -----------------------------------------------------------------------------------------------------------------------------
Total average assets $ 229,890 $ 194,270
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES and SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Transaction accounts 54,458 2.13% 575 48,146 2.35% 561
Savings accounts 36,931 3.50% 641 37,220 4.05% 748
Certificates of deposit 54,810 4.95% 1,346 45,950 5.38% 1,225
Federal funds purchased and other 10,684 5.66% 294 1,212 10.67% 62
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities: 156,883 3.67% 2,856 132,528 3.95% 2,596
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Transaction accounts 47,263 39,733
Other liabilities 2,511 2,652
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 206,657 174,913
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock 15,212 15,217
Retained earnings 7,969 3,919
Unrealized gain/loss on investment securities 52 221
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,233 19,357
- -----------------------------------------------------------------------------------------------------------------------------
Total average liabilities and
shareholders' equity $ 229,890 $ 194,270
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $ 6,887 $ 6,222
- -----------------------------------------------------------------------------------------------------------------------------
Interest income as a percentage
of average interest-earning assets 9.35% 10.26%
Interest expense as a percentage
of average interest-earning assets (2.74)% (3.02)%
- -----------------------------------------------------------------------------------------------------------------------------
Net interest margin 6.61% 7.24%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$737,000 and $576,000 for the quarters ended June 30, 1999 and 1998,
respectively.
(2) Applicable nontaxable securities yields have not been calculated on a
taxable-equivalent basis.
13
<PAGE>
Changes in the interest margin can be attributed to changes in the
yield on interest earning assets, the rate paid on interest bearing liabilities,
as well as changes in the volume of interest earning assets and interest bearing
liabilities. The following table presents the dollar amount of certain changes
in interest income and expense for each major component of interest earning
assets and interest bearing liabilities and the difference attributable to
changes in average rates and volumes for the periods indicated.
VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
For the three months ended June 30, 1999 and 1998 Volume (1) Rate (1) Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Earnings Variance Analysis:
Increase (decrease) in interest income:
Loans $ 371 $ (272) $ 99
Investment securities (2) 260 10 270
Federal funds sold and other (58) 1 (57)
- ---------------------------------------------------------------------------------------------------------------------
Total 573 (261) 312
Increase (decrease) in interest expense:
Transaction accounts 30 (19) 11
Savings accounts (36) (49) (85)
Certificates of deposit 101 (49) 52
Federal funds purchased and other 154 (4) 150
- ---------------------------------------------------------------------------------------------------------------------
Total 249 (121) 128
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income $ 324 $ (140) $ 184
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A change due to both volume and rate has been allocated to the change in
volume and rate in proportion to the relationship of the dollar amount of
the change in each.
(2) Changes calculated on nontaxable securities have not considered tax
equivalent effects.
Total interest income increased $312,000 or 6.7 percent in the second
quarter of 1999 to $5.0 million as compared to $4.7 million for the second
quarter of 1998. Interest expense in the second quarter of 1999 increased
$128,000 or 9.8 percent to $1.4 million from $1.3 million in 1998. One of the
primary reasons for the Company's increased profitability in the second quarter
of 1999 was the increase in net interest income. Net interest income for the
second quarter of 1999 increased by $184,000 or 5.4 percent. The Company's net
interest margin was 6.72 percent in the second quarter of 1999 as compared to
7.65 percent for the second quarter of 1998. The Company's net interest margin
was driven higher in 1998 as a result of recoveries of interest from
nonperforming loans and a prime rate that was 75 basis points higher in 1998
than in the corresponding period in 1999.
Average interest-earning assets increased by $35.7 million in the
second quarter of 1999 to $213 million compared to $177.3 million in the second
quarter of 1998. For the period between June 30, 1999 and June 30, 1998 growth
in average interest-earning assets was paced by growth in average loans of 16.6
percent and growth in average investments of 49.9 percent. Average interest
bearing liabilities grew by 18.0 percent between June 30, 1999 and June 30,
1998, with the majority of growth occurring in the Bank's time deposits which
experienced an increase of $9.3 million or 20.0 percent. Due to the seasonal
decline in deposits experienced in 1999, the Company used FHLB advances and
overnight Federal Funds borrowings to support its growth in loans and
investments. As a result, the Company averaged $12.5 million in Federal Funds
purchased and
14
<PAGE>
other borrowings during 1999's second quarter compared to $522,000 in similar
borrowings during the comparable period in 1998.
VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
For the six months ended June 30, 1999 and 1998 Volume (1) Rate (1) Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Interest Earnings Variance Analysis:
Increase (decrease) in interest income:
Loans $ 1,074 $ (542) $ 532
Investment securities (2) 485 (25) 460
Federal funds sold and other (64) (3) (67)
- ---------------------------------------------------------------------------------------------------------------------
Total 1,495 (570) 925
Increase (decrease) in interest expense:
Transaction accounts 49 (35) 14
Savings accounts (6) (101) (107)
Certificates of deposit 205 (84) 121
Federal funds purchased and other 247 (15) 232
- ---------------------------------------------------------------------------------------------------------------------
Total 495 (235) 260
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net interest income $ 1,000 $ (335) $ 665
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A change due to both volume and rate has been allocated to the change in
volume and rate in proportion to the relationship of the dollar amount of
the change in each.
(2) Changes calculated on nontaxable securities have not considered tax
equivalent effects.
Total interest income increased $925,000 or 10.5 percent in the first
six months of 1999 to $9.7 million as compared to $8.8 million for the first six
months of 1998. Interest expense in the first six months of 1999 increased
$260,000 or 10.0 percent to $2.9 million from $2.6 million in 1998. One of the
primary reasons for the Company's increased profitability in the first six
months of 1999 was the increase in net interest income. Net interest income for
the first six months of 1999 increased by $665,000 or 10.7 percent. The
Company's net interest margin was 6.61 percent in the first six months of 1999
as compared to 7.24 percent for the first six months of 1998. The Company's net
interest margin was driven higher in 1998 as a result of recoveries of interest
from nonperforming loans and a prime rate that was 75 basis points higher in
1998 than in the corresponding period in 1999.
Average interest-earning assets increased by $36.8 million in the first
six months of 1999 to $210.0 million compared to $173.2 million in the first six
months of 1998. For the period between June 30, 1999 and June 30, 1998 growth in
average interest-earning assets was paced by growth in average loans of 17.0
percent and growth in average investments of 47.0 percent. Average interest
bearing liabilities grew by 18.4 percent between June 30, 1999 and June 30,
1998, with the majority of growth occurring in the Bank's time deposits which
experienced an increase of $8.9 million or 19.3 percent. As was true for the
Company's second quarter, short term borrowings were significantly higher in the
first six months of 1999 compared to the same period in 1998. Average short term
borrowings for the six months ended June 30, 1999 were $10.7 million compared to
$1.2 million in the same period of 1998.
15
<PAGE>
NONINTEREST INCOME
The Company receives a significant portion of its income from
noninterest sources related both to activities conducted by the Bank (loan
originations, servicing of loans, sale of loans and depositor service charges),
as well as from its subsidiary RIA.
NONINTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS) FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest Income:
Gain on sale of loans $ 324 $ 207
Depositor service charges 144 118
Income from investment management services 234 229
(Loss) on sale of securities (19) --
Gain on sale of premisis & equipent -- --
Servicing fees on loans sold 3 10
Other 80 112
- ---------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 766 $ 676
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest income during the second quarter of 1999 was $766,000
compared to $676,000 for the same period during 1998, an increase of $90,000 or
13.3 percent. The increase is primarily attributable to a $117,000 increase in
income from the sale of loans resulting from increased single family mortgage
loan production, as well as, the sale of approximately 7.2 million in SBA
guaranteed loans. Other noninterest income categories reflecting an increase in
the second quarter of 1999 included; depositor service charges, increasing
$26,000 or 22.0 percent, primarily as a result of a larger depositor base and,
an increase in income from investment management services of $5,000, as a result
of increased assets under management.
Income from investment management services is generated from the
Company's subsidiary, RIA. Revenue from RIA is primarily a result of fees
generated from assets under management. At June 30, 1999, RIA's assets under
management were $112.2 million, a 12.0 percent increase from assets under
management of $100.2 million at June 30, 1998. Assets in client accounts managed
by RIA are not reflected in the consolidated assets of the Company. Revenue from
RIA's operations increased $5,000 or 2.2 percent in the second quarter of 1999
to $234,000 from $229,000 in the second quarter of 1998. On a stand-alone basis,
RIA provided the Company with net income of $37,000 in the second quarter ended
June 30, 1999 and 1998, respectively.
During the second quarter, servicing fees on loans sold declined by
$7,000, primarily as a result of a smaller servicing portfolio of SBA loans
sold. With the additional sale of SBA loans during 1999's second quarter future
revenue from servicing should be slightly improved. During the quarter, the Bank
chose to sell certain investment securities and reinvest the proceeds in other
securities in an effort to improve future earnings. As a result of these sales a
loss of $19,000 was recognized during the quarter.
16
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest Income:
Gain on sale of loans $ 394 $ 222
Depositor service charges 285 230
Income from investment management services 475 445
(Loss) gain on sale of securities (16) 5
Gain on sale of premisis & equipment 1 --
Servicing fees on loans sold 36 79
Other 164 182
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 1,339 $ 1,163
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest income during the six months ended June 30, 1999 was $1.34
million compared to $1.16 million for the same period during 1998, an increase
of $176,000 or 15.1 percent. The increase is primarily attributable to a
$172,000 increase in income from the sale of loans resulting from increased
single family mortgage loan production as well as from the sale of approximately
$7.2 million of SBA guaranteed loans in the second quarter of 1999.
Additionally, depositor service charges increased $55,000, primarily as a result
of a larger depositor base, and, an increase in income from investment
management services of $30,000 as a result of increased assets under management.
On a stand-alone basis, RIA provided the Company with net income of $72,000 and
$69,000 for the six months ended June 30, 1999 and 1998, respectively.
NONINTEREST EXPENSE
Noninterest expense reflects the costs of products and services,
systems, facilities and personnel for the Company. The major components of other
operating expenses stated both as dollars and as a percentage of average assets
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest Expense:
Salaries and related benefits $ 1,286 $ 1,245
Occupancy 360 379
FDIC insurance and regulatory assessments 11 115
Marketing 77 144
Professional services 143 159
Director's fees and expenses 68 46
Supplies, telephone and postage 74 83
Loss from investments in real estate partnerships -- 221
Other 173 423
- -------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 2,192 $ 2,815
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest expense decreased by $623,000 or 22.1 percent to $2.2
million for the three months ended June 30, 1999, compared to $2.8 million
during the same period ended June 30, 1998. Categories reflecting a reduction in
noninterest expense for the quarter ended June 30, 1999, compared to the quarter
ended June 30, 1998, included: FDIC insurance and regulatory assessments
declining $114,000 as a result of an improved deposit insurance regulatory
rating in 1999; professional services declining $16,000 as a result of lower
legal and accounting expense; marketing declining $67,000 as a result of a
general reduction in advertising expense; loss from
17
<PAGE>
investments in real estate partnerships declining $221,000 as a result of the
completion of the divestiture of RSC's properties during 1998; and other
operating expense declining $250,000 as a result of OREO expense incurred in
1998 with no corresponding expense incurred in 1999.
Noninterest expense categories reflecting an increase in 1999 included:
salaries and related benefits up $41,000 or 3.3 percent, due primarily to normal
increases in salaries paid as well as an increase in full time equivalent
employees and director's fees and expenses up $22,000.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
(IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest Expense:
Salaries and related benefits $ 2,593 $ 2,441
Occupancy 715 739
FDIC insurance and regulatory assessments 22 228
Marketing 170 270
Professional services 268 331
Director's fees and expenses 126 99
Supplies, telephone and postage 156 164
(Income)/loss from investments in real estate partnerships -- 214
Other 312 633
- --------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 4,362 $ 5,119
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest expense decreased by $757,000 or 14.8 percent to $4.4
million for the six months ended June 30, 1999, compared to $5.1 million during
the same period ended June 30, 1998. Categories reflecting a reduction in
noninterest expense for the six months ended June 30, 1999, compared to the six
months ended June 30, 1998 included: FDIC insurance and regulatory assessments
declining $206,000 as a result of an improved deposit insurance regulatory
rating in 1999; professional services declining $63,000 as a result of lower
legal and accounting expense; marketing declining $100,000 as a result a of a
general reduction in advertising expense; and other operating expense declining
$321,000 as a result of OREO expense incurred in 1998 with no corresponding
expense incurred in 1999. Loss from investments in real estate partnerships
declined $214,000 as a result of the completion of the divestiture of RSC's
properties during 1998.
Noninterest expense categories reflecting an increase in 1999 included:
salaries and related benefits up $152,000 due primarily to an increase in
overall compensation paid, as well as an increase in full time equivalent
employees and director's fees and expenses up $27,000 primarily as a result of
interest expense on deferred director's fee balances. There was little change in
occupancy expense and supplies, telephone and postage from the previous year.
BALANCE SHEET ANALYSIS
Total assets at June 30, 1999 were $229.7 million, an increase of $24.1
million or 11.7 percent from $205.6 million at June 30, 1998 and a decline of
$2.3 million from assets of $232 million at December 31, 1998. The slight
decline in total assets since December 31, 1998 is a result of a seasonal
decline in deposits and is not dissimilar to declines in prior years.
For the six months ended June 30, 1999, total loans increased $3.8
million or 2.5 percent to $155 million from $151.2 million at December 31, 1998,
primarily as a result of growth in the real
18
<PAGE>
estate mortgage loan portfolio. Commercial loans increased only slightly between
December 31, 1998 and June 30, 1999, due to the sale of approximately $7.2
million of SBA loans during the second quarter. Investment securities, including
non-marketable equity securities, increased $625,000 or 1.3 percent to $48.8
million at June 30, 1999, from $48.2 million at December 31, 1998. For the six
months ended June 30, 1999, the Company's ratio of average earning assets to
average total assets was 91.3 percent, compared to 89.2 percent for the
comparable period in 1998.
Deposits declined during 1999's first six months by $3.8 million or 1.8
percent to $202.8 million from $206.6 million at December 31, 1998. The decline
in deposits is typical for the Bank during the first six months of the year and
is similar to declines in deposits experienced in prior years. Shareholders'
equity increased to $1 million at June 30, 1999 from $22.4 million at December
31, 1998, as a result of an increase in retained earnings.
LOANS
The three areas in which the Bank has directed virtually all of its
lending activities are: (a) commercial loans; (b) real estate loans (including
residential construction and mortgage loans); and (c) consumer loans. The
Company's loans are primarily made within its defined market area of Fresno and
Madera counties. The Bank also maintains a loan production office in Modesto,
California.
Commercial loans, including SBA and B&I loans, comprised approximately
64.3 percent of the Company's loan portfolio at June 30, 1999, compared to 65.7
percent at December 31, 1998, and 64.9 percent of the Company's loan portfolio
at June 30, 1998. These loans are generally made to small and mid-size
businesses and professionals. Commercial loans are diversified as to industries
and types of business with no material industry concentrations. Most of these
loans have floating rates based upon underwriting analysis. The primary source
of repayment on most commercial loans is cash flow from the primary business.
Additional collateral in the form of real estate, cash, accounts receivable,
inventory or other financial instruments is often obtained as a secondary source
of repayment.
Real estate construction lending comprised 16.4 percent of the
Company's loan portfolio at June 30, 1999, compared to 16.7 percent of the
Company's loan portfolio at December 31, 1998, and 16.1 percent at June 30,
1998. These loans are primarily made for the construction of single family
residential housing. Loans in this category may be made to the home buyer or to
the developer. Construction loans are secured by deeds of trust on the primary
property. The majority of construction loans have floating rates based upon
underwriting analysis. A significant portion of the borrowers' ability to repay
these loans is dependent upon the sale of the property, which is affected by,
among other factors, the residential real estate market. In this regard, the
Company's potential risks include a general decline in the value of the
underlying property as well as cost overruns or delays in the sale or completion
of a property.
Real estate mortgage loans comprised 13.1 percent of the loan portfolio
at June 30, 1999, compared to 11 percent at December 31, 1998, and 12.1 percent
of the loan portfolio at June 30, 1998. Real estate mortgage loans are made up
of non-residential properties and single-family, residential mortgages. The
non-residential loans generally are "mini-perm" (medium-term) commercial real
estate mortgages with maturities under seven years. The residential mortgages
are secured by first trust deeds and have varying maturities. Both types of
loans may have either fixed or floating rates. The majority are floating. Risks
associated with non-residential loans include the
19
<PAGE>
decline in value of commercial property values; economic conditions surrounding
commercial real estate properties; and vacancy rates. The repayment of
single-family residential mortgage loans is generally dependent upon the income
of the borrower from other sources, however, declines in the underlying property
value may create risk in these loans.
Consumer loans represented the remainder of the loan portfolio at June
30, 1999, comprising 6.2 percent of the loan portfolio compared to 6.6 percent
of total loans at December 31, 1998 and 6.9 percent at June 30, 1998. This
category includes traditional consumer loans, home equity lines of credit, and
Visa card loans. Consumer loans are generally secured by third trust deeds on
single-family residences or personal property, while Visa cards are unsecured.
RISK ELEMENTS AND CONCENTRATIONS
The Company assesses and manages credit risk on an ongoing basis
through stringent credit review and approval policies, extensive internal
monitoring and established formal lending policies. Additionally, the Bank
contracts with an outside loan review consultant to periodically grade new loans
and to review the existing loan portfolio. Management believes its ability to
identify and assess risk and return characteristics of the Company's loan
portfolio are critical for profitability and growth. Management strives to
continue the historically low level of credit losses by continuing its emphasis
on credit quality in the loan approval process, active credit administration and
regular monitoring. With this in mind, management has designed and implemented a
comprehensive loan review and grading system that functions to continually
assess the credit risk inherent in the loan portfolio. Additionally, management
believes its ability to manage portfolio credit risk is enhanced by the
knowledge of the Bank's service area by the lending personnel and Board of
Directors.
Generally, loans are secured by various forms of collateral. The loans
are expected to be repaid from income of the borrower or with proceeds from the
sale of assets securing the loans. The Company's loan policy requires sufficient
collateral to meet the Company's relative risk criteria for each borrower. The
Company's collateral mainly consists of real estate, cash, accounts receivable,
inventory and other financial instruments. The Company either maintains
possession of the collateral in safekeeping or perfects a security interest with
the State of California. The Company's largest concentration of loans based on
collateral is in real estate mortgages, including commercial real estate, and
real estate construction lending. A significant portion of its customers'
ability to repay these loans is dependent upon the economic sectors of
residential real estate development and construction. If a significant decline
in real estate property values were to occur in Fresno County, loans associated
with these collateral types could become impaired as to their full
collectability should default occur.
The Company does not believe there to be any concentration of loans in
excess of 10 percent of total loans, other than those disclosed above, which
would be significantly impacted by economic or other conditions. For further
discussion of the impact of California economic conditions upon the loan
portfolio, see "Allowance for Credit Losses" below.
NONPERFORMING LOANS
The Company's current policy is to cease accruing interest when a loan
becomes 90-days past due as to principal or interest; when the full, timely
collection of interest or principal becomes uncertain; or when a portion of the
principal balance has been charged off, unless the loan is well
20
<PAGE>
secured and in the process of collection. When a loan is placed on nonaccrual
status, the accrued and uncollected interest receivable is reversed and the loan
is accounted for on the cash or cost recovery method thereafter, until
qualifying for return to accrual status. Generally, a loan may be returned to
accrual status when all delinquent interest and principal become current in
accordance with the terms of the loan agreement or when the loan is both well
secured and in process of collection.
At June 30, 1999, nonaccrual loans totaled $1.1 million or .70 percent
of total loans, compared to $1.2 million or .79 percent at December 31, 1998,
and $1.8 million or 1.23 percent at June 30, 1998. Of the nonaccrual loans at
June 30, 1999, $847,000 represented the portion of SBA loans that are guaranteed
by the SBA. At December 31, 1998, $831,000 of total nonaccrual loans represented
the portion of SBA loans guaranteed by the SBA.
In addition to the decline in nonaccrual loans, other real estate owned
declined by $364,000 to $320,000 at June 30, 1999, from $684,000 at December 31,
1998 and $572,000 at June 30, 1998.
The gross interest income that would have been recorded for loans
placed on nonaccrual status was $125,000 and $103,000 for the quarters ended
June 30, 1999 and 1998, respectively.
The following table presents information concerning the nonperforming
assets for the periods ending June 30, 1999 and December 31, 1998, respectively.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except percentages) June 30, 1999 December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming Assets:
Nonperforming loans $ 1,089 $ 1,197
Other real estate owned 320 684
- ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 1,409 1,881
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Accruing loans 90 days past due 26 16
- ---------------------------------------------------------------------------------------------------------------------
Total loans before allowance for credit losses 155,047 151,151
Total assets 229,680 231,967
Allowance for credit losses $ (2,636) $ (2,631)
- ---------------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming loans to total loans 0.70% 0.79%
Nonperforming assets to:
Total loans 0.91% 1.24%
Total loans and OREO 0.91% 1.24%
Total assets 0.61% 0.81%
Allowance for credit losses to total
nonperforming assets 187.08% 139.87%
Allowance for credit losses to loans 1.70% 1.74%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1999 and December 31, 1998, the Company's recorded
investment in loans for which an impairment has been recognized totaled
$1,953,000 and $1,519,000, respectively. These amounts were evaluated for
impairment using the fair value of collateral. At June 30, 1999, the SFAS No.
114 allowance for credit losses related to impaired loans was $109,000. The
Company uses the cash basis method of income recognition for impaired loans. For
the three and six months ended June 30, 1999 and 1998, the Company did not
recognize any income on such loans.
21
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses reflects management's judgment as to
the level which is considered adequate to absorb potential losses inherent in
the loan portfolio. This allowance is increased by provisions charged to expense
and reduced by loan charge-offs net of recoveries. Management determines an
appropriate provision based on information currently available to analyze credit
loss potential, including: (a) the loan portfolio growth in the period, (b) a
comprehensive grading and review of new and existing loans outstanding, (c)
actual previous charge-offs, and (d) changes in economic conditions.
The allowance for credit losses totaled $2.636 million or 1.70
percent of total loans at June 30, 1999, compared to $2.631 million or 1.74
percent at December 31, 1998. The slight increase is the result of additional
provision for credit losses of $125,000 in the first six months of 1999 along
with net charge-offs of $120,000. It is the policy of management to maintain
the allowance for credit losses at a level adequate for probable losses
inherent in the loan portfolio. Based on information currently available to
analyze credit loss potential, including economic factors, overall credit
quality, historical delinquency and a history of actual charge-offs,
management believes that the credit loss provision and allowance is adequate.
However, no prediction of the ultimate level of loans charged-off in future
years can be made with any certainty.
Following is a table presenting the activity within the Company's provision for
credit losses for the period between December 31, 1998, and June 30, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(In thousands)
- ------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1998 $ 2,631
- ------------------------------------------------------------------------------
Provision charged to expense
125
Loans charged off (141)
Recoveries 21
Balance, June 30, 1999 $ 2,636
- ------------------------------------------------------------------------------
</TABLE>
DEPOSITS AND SHORT TERM BORROWINGS
Deposits represent the Bank's primary source of funds for investment.
Deposits are primarily core deposits in that they are demand, savings, and time
deposits generated from local businesses and individuals. These sources are
considered to be relatively more stable, long-term deposit relationships thereby
enhancing steady growth of the deposit base without major fluctuations in
overall deposit balances. The Bank normally experiences a seasonal decline in
deposits in the first quarter of each year. In order to assist in meeting its
funding needs the Bank maintains Fed Funds lines with correspondent banks.
During the second quarter, Zions Bank, the major operating subsidiary of Zions
Bancorporation, extended a $20 million Federal Funds line to Regency Bank
bringing the Bank's total Federal Funds borrowing capacity to $25 million as of
June 30, 1999. The Bank is also a member of the Federal Home Loan Bank of San
Francisco (the "FHLB"). At June 30, 1999, the Bank held stock in the FHLB which
would allow the Bank to borrow up to $21.1 million using various loans or
securities as collateral. In addition to these borrowing methods, the Bank from
time to time uses its investment portfolio to raise funds through repurchase
agreements. The Bank may, from time to time, obtain additional deposits through
the
22
<PAGE>
use of brokered time deposits. As of June 30, 1999, the Bank held no
institutional brokered time deposits.
The following table presents the composition of the deposit mix for the
period ending June 30, 1999 and December 31, 1998, respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except percentages) JUNE 30, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Percent of Percent of
Amount Total Deposits Amount Total Deposits
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest bearing deposits $ 53,847 26.5% $ 54,236 26.2%
Interest bearing deposits:
NOW and money market accounts 56,753 28.0% 54,878 26.6%
Savings accounts 36,740 18.1% 46,464 22.5%
Time deposits:
Under $100,000 16,991 8.4% 17,682 8.6%
$100,000 and over 38,518 19.0% 33,377 16.2%
- --------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 149,002 73.5% 152,401 73.8%
- --------------------------------------------------------------------------------------------------------------------
Total deposits $ 202,849 100.0% $ 206,637 100.0%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
The Company and Bank are subject to various minimum capital
requirements as defined by regulation. The current and projected capital
position of the Company and the impact of capital plans and long-term strategies
are reviewed regularly by Management. The Company's capital position represents
the level of capital available to support continued operations and expansion.
The Company's primary capital resource is shareholders' equity, which increased
$3.6 million or 18 percent from the previous quarter-end and increased $1
million or 4.7 percent from December 31, 1998. The ratio of total risk-based
capital to risk-adjusted assets was 16.65 percent at June 30, 1999, compared to
14.90 percent at June 30, 1998 and 16.14 percent at December 31, 1998. Tier 1
risk-based capital to risk-adjusted assets was 15.39 percent at June 30, 1999,
compared to 13.64 percent at June 30, 1998 and 14.89 percent at December 31,
1998.
The Board of Governors of the Federal Reserve System and other federal
banking agencies have adopted risk-based capital guidelines for evaluating the
capital adequacy of bank holding companies and banks. The guidelines are
designed to make capital requirements sensitive to differences in risk profiles
among banking organizations, to take into account off-balance sheet exposures
and to aid in making the definition of bank capital uniform internationally.
Under the guidelines, the Company and the Bank are required to maintain capital
equal to at least 8 percent of its assets and commitments to extend credit,
weighted by risk, of which at least 4 percent, must consist primarily of common
equity (including retained earnings) and the remainder may consist of
subordinated debt, cumulative preferred stock, or a limited amount of loan loss
reserves. Assets, commitments to extend credit and off-balance sheet items are
categorized according to risk and certain assets considered to present less risk
than other permit maintenance of capital at less than the 8 percent ratio.
The guidelines establish two categories of qualifying capital: Tier 1
capital comprising core capital elements and Tier 2 comprising supplementary
capital requirements. At least one-half of the required capital must be
maintained in the form of Tier 1 capital. Tier 1 capital
23
<PAGE>
includes common shareholder's equity and qualifying perpetual preferred stock
less intangible assets and certain other adjustments. However, no more than 25
percent of the Company's total Tier 1 capital may consist of perpetual preferred
stock. The definition of Tier 1 capital for the Bank is the same, except that
perpetual preferred stock may be included only if it is noncumulative. Tier 2
capital includes, among other items, limited life (and in the case of banks,
cumulative) preferred stock, mandatory convertible securities, subordinated debt
and a limited amount of reserves for credit losses. Effective October 1, 1998,
the Board of Governors and other federal bank regulatory agencies approved
including in Tier 2 capital up to 45 percent of the pretax net unrealized gains
on certain available-for-sale equity securities having readily determinable fair
values (i.e. the excess, if any, of fair market value over the book value or
historical cost of the investment security). The federal regulatory agencies
reserve the right to exclude all or a portion of the unrealized gains upon a
determination that the equity securities are not prudently valued. Unrealized
gains and losses on other types of assets, such as bank premises and
available-for-sale debt securities, are not included in Tier 2 capital, but may
be taken into account in the evaluation of overall capital adequacy and net
unrealized losses on available-for-sale equity securities will continue to be
deducted from Tier 1 capital as a cushion against risk.
The Board of Governors and other federal banking agencies have adopted
a revised minimum leverage ratio as a supplement to the risk-weighted capital
guidelines. The old rule established a 3 percent minimum leverage standard for
well-run banking organizations (bank holding companies and banks) with
diversified risk profiles. Banking organizations which did not exhibit such
characteristics or had greater risk due to significant growth, among other
factors, were required to maintain a minimum leverage ratio 1 percent to 2
percent higher. The old rule did not take into account the implementation of the
market risk capital measure set forth in the federal regulatory agency capital
adequacy guidelines. The revised leverage ratio establishes a minimum Tier 1
ratio of 3 percent (Tier 1 capital to total assets) for the highest rated bank
holding companies and banks or those that have implemented the risk-based
capital market risk measure. All other bank holding companies and banks must
maintain a minimum Tier 1 leverage ratio of 4 percent or higher leverage capital
ratios are required for bank holding companies and banks that have significant
financial and/or operational weaknesses, a high risk profile, or are undergoing
or anticipating rapid growth.
On December 19, 1991, President Bush signed the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The Board of Governors
and other federal banking agencies adopted regulations effective December 19,
1992, implementing a system of prompt corrective action pursuant to Section 38
of the Federal Deposit Insurance Act and Section 131 of the FDICIA. The
regulations establish five capital categories with the following
characteristics: (1) "Well capitalized" - consisting of institutions with a
total risk-based capital ratio of 10 percent or greater, a Tier 1 risk-based
capital ratio of 6 percent or greater and a leverage ratio of 5 percent or
greater, and the institution is not subject to an order, written agreement,
capital directive or prompt corrective action directive; (2) "Adequately
capitalized" - consisting of institutions with a total risk-based capital ratio
of 8 percent or greater, a Tier 1 risk-based capital ratio of 4 percent or
greater and a leverage ratio of 4 percent or greater, and the institution does
not meet the definition of a "well capitalized" institution; (3)
"Undercapitalized" - consisting of institutions with a total risk-based capital
ratio less than 8 percent , a Tier 1 risk-based capital ratio of less than 4
percent , or a leverage ratio of less than 4 percent ; (4) "Significantly
undercapitalized" - consisting of institutions with a total risk-based capital
ratio of less than 6 percent , a Tier 1 risk-based capital ratio of less than 3
percent , or a leverage ratio of less than 3 percent ; (5) "Critically
undercapitalized" -
24
<PAGE>
consisting of an institution with a ratio of tangible equity to total assets
that is equal to or less than 2 percent.
Financial institutions classified as undercapitalized or below are
subject to various limitations including, among other matters, certain
supervisory actions by bank regulatory authorities and restrictions related to
(a) growth of assets, (b) payment of interest on subordinated indebtedness, (c)
payment of dividends or other capital distributions, and (d) payment of
management fees to a parent holding company. The FDICIA requires the bank
regulatory authorities to initiate corrective action regarding financial
institutions which fail to meet minimum capital requirements. Such action may be
taken in order to, among other matters, augment capital and reduce total assets.
Critically undercapitalized financial institutions may also be subject to
appointment of a receiver or conservator unless the financial institution
submits an adequate capitalization plan.
The following tables reflect the Company's and Bank's capital amounts,
ratios and applicable regulatory capital requirements as June 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
As of June 30, 1999 To be well
(In thousands except percentages) capitalized under
For capital prompt corrective
Actual adequacy purposes: action provisions:
- -------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets):
Consolidated $23,966 16.65% $11,516 8.00% N/A
Regency Bank $21,574 15.00% $11,509 8.00% $14,386 10.00%
Tier 1 capital (to risk weighted assets):
Consolidated $22,156 15.39% $5,758 4.00% N/A
Regency Bank $19,765 13.74% $5,755 4.00% $8,632 6.00%
Tier 1 capital (to average assets):
Consolidated $22,156 9.59% $9,238 4.00% N/A
Regency Bank $19,765 8.55% $9,242 4.00% $11,552 5.00%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The risk-based capital ratios increased in 1999 as the increase in equity
outpaced the growth in total assets. Capital ratios are reviewed on a regular
basis to ensure that capital exceeds the prescribed regulatory minimums and is
adequate to meet the Company's future needs. All ratios are in excess of the
regulatory definition of "well capitalized."
INFLATION
The impact of inflation on a financial institution differs
significantly from that exerted on manufacturing or other commercial concerns,
primarily because its assets and liabilities are largely monetary. In general,
inflation primarily affects the Company indirectly through its effect on the
ability of its customers to repay loans, or its impact on market rates of
interest, and thus the ability of the Bank to attract loan customers. Inflation
affects the growth of total assets by increasing the level of loan demand, and
potentially adversely affects the Company's capital adequacy because loan growth
in inflationary periods may increase more rapidly than capital. Interest rates
in particular are significantly affected by inflation, but neither the timing
nor the magnitude of the
25
<PAGE>
changes coincides with changes in the Consumer Price Index, which is one of the
indicators used to measure the rate of inflation. Adjustments in interest rates
may be delayed because of the possible imposition of regulatory constraints. In
addition to its effects on interest rates, inflation directly affects the
Company by increasing the Company's operating expenses. The effect of inflation
during the six-month period ended June 30, 1999 was not significant to the
Company's financial position or results of operations.
YEAR 2000 READINESS DISCLOSURE
The inability of most computers, software and other equipment utilizing
microprocessors to distinguish the year 1900 from the year 2000 poses
substantial risks to all financial institutions including the Company. The year
2000 problem is pervasive and complex. Virtually every financial institution
service provider and vendor will have their computing operations affected in
some way by the rollover of the two-digit year value to 00 if action is not
taken to fix the problem before the year 2000 arrives.
In 1997, the Company initiated a five-phase plan ("Plan") which
includes awareness, assessment, renovation, validation, and implementation. The
Company's Year 2000 Plan addresses the issues associated with the proper
functioning of the Company's computer hardware and software systems before, at,
and after the turn of the century and other date-related systems issues. The
scope of the project covers all computer systems including PC and network
hardware and software, and mainframe and mainframe software. It also covers all
equipment and other systems utilized in the bank operations or in the premises
from which the Company operates. The Company is using the Year 2000 milestones
established to date by the Federal Financial Institutions Examination Council
(FFIEC) to benchmark and gauge its progress.
Awareness and Assessment Phases - The Company completed the Awareness
and Assessment Phases, as defined by the FFIEC, for its mission critical systems
and facilities in 1997 and continues to update its assessment as needed.
Non-mission critical systems have also been identified and assessed as to Y2K
readiness and plans and timelines for renovation of both mission critical and
non-mission critical systems have been prepared. Management of the Company
reports regularly to the Board of Directors on its Year 2000 efforts.
Renovation Phase - The FFIEC guideline date for institutions to
substantially complete program changes and system upgrades for mission critical
systems was December 31, 1998. By that date, the Company had completed repairs,
upgrades, or replacements of all hardware and software components. In addition
to mission critical systems and applications, the Company completed redemption
of all non-mission critical systems prior to December 31, 1998.
Validation and Implementation Phases - To reduce the possibility of
unexpected failure of the Company's systems during and after the century date
change, which could have an impact on the Company and its customers, the Company
continues to test its systems in accordance with a testing strategy and plan
developed in 1998.
The FFIEC guideline date for institutions to begin testing their
mission critical applications and systems was September 1, 1998. During March
1998, the Company began testing various mission critical and non-mission
critical systems. By December 31, 1998, the Company had substantially completed
this testing, including both remediated systems and systems presumed to be Year
2000 compliant. As a key part of the validation phase, the
26
<PAGE>
computer software that operates the Bank's main customer and accounting system,
the "Fiserv CBS System," was thoroughly tested by Fiserv. Fiserv is one of the
largest providers of bank computer software nationwide. In addition to Fiserv's
efforts, the Bank has conducted additional testing of all components of the
software through January 3, 2001, and has detected no Year 2000 problems. All of
the systems referred to above have been implemented (i.e., placed into a
production environment). All mission critical systems will continue to be
monitored and tested throughout 1999 as releases of enhanced software become
available.
Business Partner Relationships - As part of the Company's Plan, all
third party suppliers and service providers have been contacted and assessed as
to their Year 2000 preparedness. If their reliability cannot be reasonably
assured, alternative vendors, suppliers and other contingency plans have been,
or are, being prepared. In addition, the Bank has communicated with its large
borrowers and major vendors upon which it relies to determine the extent to
which the Company might be vulnerable if those third parties fail to resolve
their Year 2000 issues. Borrowers or large deposit customers are being
categorized based upon risk and are monitored on a regular basis. If a borrowing
customer is determined to have significant Year 2000 exposure that may impair
the quality or collectability of its loan, reserves for potential losses
resulting from such Year 2000 exposures are established accordingly.
Because the Company recognizes that its business and operations could
be adversely affected if key business partners fail to achieve timely Year 2000
compliance, the Company is evaluating strategies to manage and mitigate the risk
to the Company of their Year 2000 failures. However, although the Company is
establishing reasonable safeguards, there can be no assurance that all key
business partners will adequately address their Year 2000 issues. Therefore,
failures of third parties to adequately address their Year 2000 issues could
adversely affect the business and operations of the Company.
Contingency Plans - FFIEC guidelines indicate that contingency plans
covering mission critical systems in the event of Year 2000 problems are a
prudent business practice. The Company has developed high level contingency
plans for applications and systems used by the Bank and RIA that are deemed
mission critical as well as plans to cover many non-mission critical
applications and systems.
The contingency, or business resumption plan, is based on a review of
various emergency scenarios ranging from the Year 2000 failure of a single
software or hardware component to the total loss of systems and applications
should large-scale power or communications failures occur. As part of the
contingency planning process, the Company has taken, and intends to continue to
take, reasonable steps to mitigate foreseeable and significant risks that can be
identified should key business partners fail to be Year 2000 compliant. The
Bank's contingency planning includes risk management options to insure adequate
liquidity availability for the Bank and its customers should the need arise. In
addition to the Company being prepared to operate on an independent basis, it is
expected that all major software and operating systems will be converted to
those used by California Bank & Trust during the fourth quarter of 1999.
California Bank & Trust currently has multiple redundant backup sites and their
major computing and operating systems have been determined to be Y2K ready.
Costs to Address Year 2000 Issues - The majority of costs associated
with the Company's Year 2000 preparedness efforts have been associated with the
use of existing staff to prepare, test and confirm the components of the plan.
In some cases, third parties have been used
27
<PAGE>
to assist with planning and testing and certain new software and hardware
products have been procured. The majority of these costs would have been
incurred in the normal course of business as the Company regularly upgrades its
various systems in an effort to more efficiently and effectively serve its
clientele and conduct its operations. The Company has incurred costs of
approximately $28,000 in the six months ended June 30, 1999, related to the use
of third party consultants and other extraordinary Year 2000 expenses. The
Company does not expect to spend additional sums solely related to Year 2000
issues during the remainder of 1999 as a result of the merger with Zions
Bancorporation. It is expected that the Company's data processing systems will
be converted to those of California Bank & Trust prior to year-end. Should the
Company continue to operate it's existing computer systems through year end any
additional costs are anticipated to be minimal and would not have a material
impact on the Company's net income for the year.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
The financial services industry in general and the banking industry
specifically encompass various forms and degrees of risk. As the primary source
of business, the intermediation of funds presents various degrees and types of
risk, which can be managed and controlled, but never completely eliminated.
Management of the Company and its Board of Directors have established a
framework of policies and procedures to manage risk by identifying, measuring,
monitoring, and controlling the risks involved in the various products and lines
of business of the Company.
Market risks comprise several of the risk factors encompassed in the
Company's risk management policy/program. Market risk is described as the risk
to a financial institution's condition resulting from adverse movements in
market rates or prices, such as interest rates, foreign exchange rates, or
equity prices.
Further description of these components include:
Interest rate risk is the risk to earnings or capital arising from
movements in interest rates. The economic perspective focuses on a bank's value
given the current interest rate environment and sensitivity of that value to
changes in interest rates. Interest rate risk arises from the following:
repricing risk differences between the timing of rate changes and the timing of
cash flows; basis risk - changing rate relationships among different yield
curves affecting bank activities; yield curve risk - changing rate relationships
across the spectrum of maturities; options risk - interest-related options
embedded in bank products. The Company manages interest rate risk through a
comprehensive asset/liability policy.
Price risk is the risk to earnings or capital arising from changes in
the value of portfolios of financial instruments. This risk arises from
market-making, dealing, and position-taking activities for interest rate,
foreign exchange, equity, and commodity markets. Price risk focuses on the
changes in market factors (e.g., interest rates, market liquidity, volatilities,
etc.) that affect traded instruments. The primary accounts affected by price
risk are the ones revalued for financial presentation. The Company does not
engage in trading activities and as a result does not have exposure to price
risk due to market-making, dealing, and position-taking activities for interest
rate, foreign exchange, equity, and commodity markets. Some price risk is
inherent in the Company's balance sheet based upon changes in interest rates,
market liquidity and
28
<PAGE>
volatilities. These risks are managed under the Company's investment policy, and
secondarily, by the asset/liability and liquidity policies.
Foreign exchange risk a.k.a. transfer risk is the risk to earnings or
capital arising from movement of foreign exchange rates. It arises from accrual
accounts denominated in foreign currency, including loans, deposits, and equity
investments (i.e., cross-border investing). Under GAAP foreign-denominated
accounts are periodically revalued into U.S. dollar terms. This periodic
revaluation may reveal changes in the value of the investment related to the
relative value of the local currency versus the U.S. dollar. The Company does
not engage in foreign exchange trading or cross-border investing and has no
foreign exchange exposure as of March 31, 1999.
Liquidity risk is the risk to earnings or capital resulting from a
bank's inability to meet its obligations when they come due, without incurring
unacceptable losses, and includes the inability to manage unplanned decreases or
changes in funding sources. Liquidity risk also arises from a failure to
recognize or address changes in market conditions that affect a bank's ability
to liquidate assets quickly and with minimal loss in value. The Company manages
liquidity risk through the Bank's asset/liability and liquidity policies.
ASSET AND LIABILITY MANAGEMENT
The Company's asset/liability management policy is designed to ensure
that the Bank is managed to provide adequate liquidity, maintain adequate
capital, and provide a satisfactory and consistent level of profits, within
suitable interest rate risk constraints. Generally, asset-liability ("A/L")
management is a comprehensive integrated process for overall financial
management. The major purpose of A/L management is to ensure that the Bank's
primary financial objectives; profitability, capital adequacy, risk tolerance,
and liquidity are achieved.
Through A/L management, the Bank develops a methodology, which can be
used to optimize the critical risk/return tradeoff that the institution faces in
pricing, maturity selection, funds allocation, and other decisions every day.
Doing so will result in earnings which are adequate and consistent, thereby
enabling the achievement of profitability and risk objectives.
The primary capital objective is capital preservation, which is
achieved by controlling interest rate and credit-related risk exposure, and by
the retention of ongoing earnings. The Bank will also strive to ensure that each
dollar of capital is optimally leveraged. The Bank's A/L management program
consists of four major disciplines; interest rate risk management, net interest
margin/spread management, capital management, and liquidity management.
The formal integration of these inter-related areas into an effective
A/L management program that includes a process of planning, organizing, and
controlling all of the Bank's financial resources will enable the Bank to
achieve a planned net interest margin over time within acceptable risk levels.
INTEREST RATE RISK
As a financial institution, the Company's most significant market risk
factor is interest rate risk. Fluctuations in interest rates will ultimately
impact both the level of income and expense recorded on a large portion of the
Bank's assets and liabilities, and the market value of all interest
29
<PAGE>
earning assets, other than those which possess a short term to maturity. Since
all of the Company's interest bearing liabilities and virtually all of the
Company's interest earning assets are located at the Bank, virtually all of the
Company's interest rate risk exposure lies at the Bank level. As a result, all
significant interest rate risk management procedures are performed at the Bank
level.
One approach to quantify interest rate risk is to use a simulation
model to project changes in net interest income that result from forecast
changes in interest rates. The primary analytical tool used by the Company to
gauge interest rate sensitivity is a simulation model used by many banks and
bank regulators. This industry standard model is used to simulate, based on the
current and projected portfolio mix, the effects on net interest income of
changes in market interest rates. This analysis calculates the difference
between a net interest income forecasted over a 12-month period using a flat
interest rate scenario and a net interest income forecast using a rising (or
falling) rate scenario, where the National Prime rate, serving as a "driver" is
made to rise (or fall) by 200 basis points over the 12-month forecast interval
triggering a response in the other rates. According to the Company's policy, the
simulated changes in net interest income should always be less the 12.5 percent
or steps must be taken to reduce interest rate risk. Various strategies the Bank
will use to adjust its exposure to interest rate risk include: lengthen/shorten
asset maturities; lengthen/shorten liability maturities; new product
introductions; secondary marketing/sell newly originated assets; and
growth/contraction (overall). As can be seen from the results of the following
interest rate sensitivity analysis matrix, the simulated change in net interest
income, based on the 12-month period ending June 30, 2000, fell within the 12.5
percent risk limit.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
12 month interest rate sensitivity analysis projection as of June 30, 1999 (In
thousands, except percentages)
- --------------------------------------------------------------------------------------------------------------------
Change in Projected Net Change Change
Driver Rate Interest Income $ %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2.000% 16,545 1,497 9.95%
1.000% 15,795 747 4.96%
0.000% 15,048 -- 0.00%
(1.000)% 14,304 (744) (4.95)%
(2.000)% 13,562 (1,486) (9.88)%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk, even though such
activities may be permitted with the approval of the Company's Board of
Directors.
INTEREST RATE SENSITIVITY AND GAP ANALYSIS
It is management's objective to maintain stability in the net interest
margin in times of fluctuating interest rates by maintaining an appropriate mix
of interest sensitive assets and liabilities. Generally, if assets and
liabilities do not reprice simultaneously and in equal volumes, the potential
for interest rate risk exposure exists. To achieve this goal, the Bank prices
the majority of its interest bearing liabilities at variable rates. At the same
time, the majority of its interest-earning assets are also priced at variable
rates. This pricing structure tends to stabilize the net interest margin
percentage achieved by the Bank.
The following table sets forth the interest rate sensitivity and
repricing schedule of the Company's interest-earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate
sensitivity gap, and the cumulative interest rate sensitivity gap ratio.
30
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap: Immediately After 3 months
(In thousands, except percentages) or within but within After 12 months After
As of June 30, 1999 3 months 12 months but within 5 years 5 years Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1) $ 103,017 $ 26,017 $ 13,052 $ 10,797 $ 152,883
Interest-bearing deposits at other
banks 277 99 396 -- 772
Securities available-for-sale 4,680 6,200 10,430 26,058 47,368
Non-marketable equity securities -- -- 1,416 -- 1,416
Federal funds sold 3,600 -- -- -- 3,600
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 111,574 32,316 25,294 36,855 206,039
- -------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Interest-bearing transaction accounts 56,753 -- -- -- 56,753
Savings accounts 36,740 -- -- -- 36,740
Time deposits 29,093 20,719 5,876 106 55,794
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 122,586 20,719 5,876 106 149,287
- -------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap (11,012) 11,597 19,418 36,749
Cumulative gap $ (11,012) $ 585 $ 20,003 $ 56,752
Cumulative gap percentage to
interest earning assets (5.34)% 0.28% 9.71% 27.54%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts exclude nonaccrual loans of $1,089,000.
The table indicates the time periods in which interest-earning assets
and interest-bearing liabilities will mature or reprice in accordance with their
contractual terms. The table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive
pressures. Additionally, this table does not take into consideration changing
balances in forward periods as a result of normal amortization, principal
paydowns, changes in deposit mix or other such movements of funds as a result of
changing interest rate environments.
LIQUIDITY
Liquidity management refers to the Bank's ability to provide funds on
an ongoing basis to meet fluctuations in deposit levels as well as the credit
needs and requirements of its clients. Both assets and liabilities contribute to
the Bank's liquidity position. Federal Funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. The Bank maintains lines of credit and other
wholesale funding sources as described above. Additionally, the Bank maintains a
portfolio of SBA loans either available-for-sale or in its portfolio that could
be sold should additional liquidity be required.
The Company reflected a decrease in liquidity from its operating
activities. Although net income in the first quarter of 1999 provided net cash
flows of $2.5 million, other operating activities used $3 million in cash flows
for a total of $539,000 in net cash used by operating activities. Financing
activities, primarily the decrease of customer deposits, used additional cash
flows. Total cash flows used in financing activities were $4.3 million as a
result of the decrease in deposits for the first quarter of 1999. The Company
uses cash flows to make investments in loans and investment securities. The
increase in loans was $154,000 in the first half of 1999, and
31
<PAGE>
net cash used in investment transactions was $1.9 million. The Company
anticipates increasing its cash levels through the end of 1999 due to expected
in creases in deposit accounts and increased profitability and retained
earnings. For the same period, it is anticipated that the demand for loans will
continue to moderately increase. The growth in deposit balances is expected to
be sufficient to fund loan growth with excess funds available for investment in
securities.
RETURN ON EQUITY AND ASSETS
The following table sets forth the ratios of net income to average assets and
average shareholders' equity, and average shareholders' equity to average
assets. Also indicated is the Company's dividend payout ratio. (For purposes of
calculating average Shareholders' equity as used in these ratios, unrealized
gains and losses on the Company's available-for-sale securities portfolio have
been included and the percentages shown have been annualized).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
For the three months For the six months
ended June 30, ended June 30,
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on average assets 2.30% 1.27% 2.15% 1.19%
Return on average shareholders' equity 22.73% 12.82% 21.24% 11.96%
Average shareholders' equity to average assets 10.12% 9.93% 10.11% 9.96%
Dividend payout ratio 19.61% -- 21.51% --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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 MATTER TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(2) Plan of Reorganization and Merger Agreement dated
July 21, 1994 by and among Regency Bank, Regency
Merger Corporation and Regency Bancorp, incorporated
by reference from exhibit 2 of registration
statement number 33-82150 on Form S-4, filed with
the Commission on July 27, 1994.
32
<PAGE>
(3.1) Articles of Incorporation dated June 9, 1994,
incorporated by reference from exhibit 3.1 of
registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, filed with the Commission
on February 27, 1995.
(3.2) Bylaws, as amended, incorporated by reference from
exhibit 3.2 of registrant's Annual Report on Form
10-K for the year ended December 31, 1998, filed
with the Commission on March 26, 1999.
(4.1) Specimen form of Regency Bancorp stock certificate
incorporated by reference from exhibit 4.1 of
registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, filed with the Commission
on February 27, 1995.
*(10.1) 401(k) Pension and Profit Sharing Plan, incorporated
by reference from exhibit 10.3 of registration
statement number 33-82150 on Form S-4, filed with
the Commission on July 27, 1994.
*(10.2) Employee Stock Ownership Plan, incorporated by
reference from exhibit 10.4 of registration
statement number 33-82150 on Form S-4, filed with
the Commission on July 27, 1994.
*(10.3) Directors Deferred Fee Plan, incorporated by
reference from exhibit 10.5 of registration
statement number 33-82150 on Form S-4, filed with
the Commission on July 27, 1994.
*(10.4) Form of Directors Deferred Fees Agreement for
Regency Bank, incorporated by reference from exhibit
10.6 of registration statement number 33-82150 on
Form S-4, filed with the Commission on July 27,
1994.
(10.5) Lease agreement dated December 22, 1988 for premises
located at 5240 N. Palm Avenue, Fresno, California,
incorporated by reference from exhibit 10.10 of
registration statement number 33-82150 on Form S-4,
filed with the Commission on July 27, 1994.
(10.6) Electronic Financial Services Agreement dated June
9, 1992, between Regency Bank and Fiserv,
incorporated by reference from exhibit 10.12 of
registration statement number 33-82150 on Form S-4,
filed with the Commission on July 27, 1994.
(10.7) Comprehensive Banking System License and Service
Agreement dated April 13, 1992, between Regency Bank
and Fiserv, incorporated by reference from exhibit
10.13 of registration statement number 33-82150 on
Form S-4, filed with the Commission on July 27,
1994.
(10.8) Lease agreement dated February 20, 1995 for premises
located at 3501 Coffee Road, Suite 3, Modesto,
California, incorporated by reference from exhibit
10.19 of registrant's Annual Report on Form 10-K for
the year ended December 21, 1995, filed with the
Commission on March 29, 1996.
33
<PAGE>
(10.9) Lease agreement dated August 17, 1995 for premises
located at 7060 N. Fresno Street, Fresno,
California, incorporated by reference from exhibit
10.21 of registrant's Annual Report on Form 10-K for
the year ended December 21, 1995, filed with the
Commission on March 29, 1996.
(10.10) Form of Indemnification Agreement, incorporated by
reference from exhibit 10.3 of registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, filed with the Commission on August
2, 1996.
(10.11) Lease agreement dated May 13, 1996 for premises
located at 126 "D" Street, Madera, California,
incorporated by reference from exhibit 10.4 of
registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed with the
Commission on August 2, 1996.
*(10.12) Employment Agreement made and entered into as of
August 22, 1996 between Regency Bank, a California
Corporation, and Steven F. Hertel, President/Chief
Executive Officer, incorporated by reference from
exhibit 10.2 of registrant's Quarterly Report on
Form 10-Q/A-1 for the quarter ended September 31,
1996, filed with the Commission on November 16,
1996.
*(10.13) Employment Agreement made and entered into as of
August 22, 1996 between Regency Bank, a California
Corporation, and Steven R. Canfield, Executive Vice
President/Chief Financial Officer incorporated by
reference from exhibit 10.3 of registrant's
Quarterly Report on Form 10-Q/A- 1 for the quarter
ended September 31, 1996, filed with the Commission
on November 16, 1996.
*(10.14) Employment Agreement made and entered into as of
August 22, 1996 between Regency Bank, a California
Corporation, and Robert J. Longatti, Executive Vice
President/Chief Credit Officer incorporated by
reference from exhibit 10.4 of registrant's
Quarterly Report on Form 10-Q/A-1 for the quarter
ended September 31, 1996, filed with the Commission
on November 16, 1996.
*(10.15) Employment Agreement made and entered into as of
August 22, 1996 between Regency Bank, a California
Corporation, and Regency Investment Advisors
Incorporated, a California Corporation, and Alan R.
Graas, President, incorporated by reference from
exhibit 10.5 of registrant's Quarterly Report on
Form 10-Q/A-1 for the quarter ended September 31,
1996, filed with the Commission on November 16,
1996.
*(10.16) Regency Bancorp 1990 Stock Option Plan, as amended,
and Form of Nonstatutory Stock Option Agreement,
Form of Incentive Stock Option Agreement and Form of
Nonstatutory Stock Option Agreement for Outside
Directors, under the Regency Bancorp 1990 Stock
Option Plan, as amended, incorporated by reference
from registration statement number 33-3848 on Form
S-8, filed with the Commission on April 19, 1996.
*(10.17) Incentive Stock Option Agreement entered into with
Steven F. Hertel, dated December 16, 1996
incorporated by reference from exhibit 10.29 of
registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, filed with the Commission
on March 31, 1997.
34
<PAGE>
*(10.18) Incentive Stock Option Agreement entered into with
Steven R. Canfield, dated December 16, 1996
incorporated by reference from exhibit 10.30 of
registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, filed with the Commission
on March 31, 1997.
*(10.19) Incentive Stock Option Agreement entered into with
Robert J. Longatti, dated December 16, 1996
incorporated by reference from exhibit 10.31 of
registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, filed with the Commission
on March 31, 1997.
*(10.20) Form of Director Deferred Fees Agreement for Regency
Bancorp incorporated by reference from exhibit 10.32
of registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, filed with the
Commission on March 31, 1997.
*(10.21) Form of Director Deferred Fees Agreement for Regency
Service Corporation incorporated by reference from
exhibit 10.33 of registrant's Annual Report on Form
10-K for the year ended December 31, 1996, filed
with the Commission on March 31,1997.
*(10.22) Amended and Restated Executive Salary Continuation
Agreement dated September 23, 1997, made by and
between Regency Bank and Steven F. Hertel,
incorporated by reference from exhibit 99.1 of
registrant's current report on Form 8-K, filed with
the Commission on October 9, 1997.
*(10.23) Amended and Restated Executive Salary Continuation
Agreement dated September 26, 1997, made by and
between Regency Bank and Robert J. Longatti,
incorporated by reference from exhibit 99.2 of the
Form 8-K, filed with the Commission on October 9,
1997.
*(10.24) Amended and Restated Executive Salary Continuation
Agreement dated September 30, 1997, made by and
between Regency Bank and Steven R. Canfield,
incorporated by reference from exhibit 99.3 of the
Form 8-K, filed with the Commission on October 9,
1997.
(10.25) Form of Warrant Agreement and Warrant Certificate,
incorporated by reference from exhibit 10.29 of
registrant's Annual Report on Form 10-K for the year
ended December 31, 1997, filed with the Commission
on March 27, 1997.
*(10.26) Belle Plaine Financial LLC Agreement, dated July 23,
1998, incorporated by reference from exhibit 10.1 on
Form 10-Q, filed with the Commission on July 30,
1998.
(27.1) Financial Data Schedule
35
<PAGE>
(b) Reports on Form 8-K
(i) The Company filed a current Report on Form 8-K
dated April 7, 1999, in which it reported that
the Registrant earned $1.1 million or $0.42 per
share in the first quarter of 1999.
(ii) The Company filed a current Report on Form 8-K
dated April 23, 1999, in which it reported that
the Registrant declared a $.10 per share cash
dividend for its shareholders of record May 17,
1999.
(iii) The Company filed a current Report on Form 8-K
dated April 27, 1999, in which it reported that
the Registrant and Zions Bancorporation issued a
joint press release dated April 27, 1999,
announcing the signing of an Agreement and Plan
of Merger by and among Zions Bancorporation,
Regency Bancorp and Regency Bank.
(iv) The Company filed a current Report on Form 8-K
dated May 11, 1999, in which it announced that
Zions Bancorporation, Regency Bancorp and Regency
Bank executed an Amendment, dated May 11, 1999,
to the Agreement and Plan of Merger, dated April
27, 1999, by and among Zions Bancorporation,
Regency Bancorp and Regency Bank.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGENCY BANCORP
Date: August 3, 1999 By: /s/ STEVEN F. HERTEL
-------------- --------------------
Steven F. Hertel
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 3, 1999 By: /s/ STEVEN R. CANFIELD
-------------- ----------------------
Steven R. Canfield
Executive Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
<S> <C> <C>
27.1 Financial Data Schedule 39
</TABLE>
38
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,917
<INT-BEARING-DEPOSITS> 772
<FED-FUNDS-SOLD> 3,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,785
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 155,047
<ALLOWANCE> 2,636
<TOTAL-ASSETS> 229,680
<DEPOSITS> 202,849
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,328
<LONG-TERM> 0
0
0
<COMMON> 15,255
<OTHER-SE> 8,928
<TOTAL-LIABILITIES-AND-EQUITY> 229,680
<INTEREST-LOAN> 8,186
<INTEREST-INVEST> 1,518
<INTEREST-OTHER> 39
<INTEREST-TOTAL> 9,743
<INTEREST-DEPOSIT> 2,562
<INTEREST-EXPENSE> 2,856
<INTEREST-INCOME-NET> 6,887
<LOAN-LOSSES> 125
<SECURITIES-GAINS> (16)
<EXPENSE-OTHER> 4,362
<INCOME-PRETAX> 3,739
<INCOME-PRE-EXTRAORDINARY> 3,739
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,453
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 6.61
<LOANS-NON> 1,089
<LOANS-PAST> 26
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,631
<CHARGE-OFFS> 141
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 2,636
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,636
</TABLE>
