<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________to ______________________.
Commission File Number 0-26552
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CALIFORNIA INDEPENDENT BANCORP
-------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0349947
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1005 STAFFORD WAY, YUBA CITY, CALIFORNIA 95991
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(Address of principal executive offices)
(Zip Code)
(916) 674-4444
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class March 31, 1997
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Common stock, no par value 1,546,032 Shares
This report contains a total of 17 pages
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1
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PART I- FINANCIAL INFORMATION
ITEM 1 PAGE
CALIFORNIA INDEPENDENT BANCORP AND
SUBSIDIARIES FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7
ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-16
PART II- OTHER INFORMATION
ITEM 3
SIGNATURES 17
2
<PAGE>
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,967 $ 22,991
Federal funds sold 34,000 41,300
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Total Cash and Equivalents 47,967 64,291
Investment securities:
Available-for-sale securities, at fair value 12,779 11,381
Held-to-maturity securities, at amortized cost
(fair value of $29,205 and $23,511 respectively) 29,191 23,283
Loans:
Commercial 75,475 73,620
Consumer 2,940 2,984
Real Estate-mortgage 24,901 28,564
Real Estate-construction & land development 31,454 29,916
Other 28,018 16,016
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Total loans 162,788 151,100
Less allowance for possible loan losses (4,057) (4,053)
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Net Loans 158,731 147,047
Premises and equipment, net 7,747 7,420
Accrued interest receivable and other assets 8,101 9,389
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Total other assets 15,848 16,809
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TOTAL ASSETS $ 264,516 $ 262,811
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $ 46,000 $ 55,181
Demand, interest bearing 35,557 33,659
Savings and Money Market 70,655 67,756
Time certificates 87,055 81,360
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Total deposits 239,267 237,956
Accrued interest payable and other liabilities 2,740 2,823
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TOTAL LIABILITIES 242,007 240,779
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized;
1,546,032 and 1,546,032 shares issued and outstanding at
March 31, 1997 and at December 31, 1996, respectively 11,461 8,766
Retained earnings 11,091 13,284
Net unrealized gains (losses) on available-for-sale securities (43) (18)
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Total shareholders' equity 22,509 22,032
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 264,516 $ 262,811
--------- ---------
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</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 4,323 $ 3,758
Interest on investment securities 623 506
Interest on federal funds sold 527 559
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Total interest income 5,473 4,823
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Interest expense:
Demand, interest bearing 354 247
Savings 661 602
Time certificates 1,190 890
Other 6 7
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Total interest expense 2,211 1,746
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Net interest income 3,262 3,077
Provision for possible loan losses (40) (60)
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Net interest income after provision for possible loan losses 3,222 3,017
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Other income:
Service charges 236 208
Net gain (loss on securities transactions) - 4
Other 826 426
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Total other income 1,062 638
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Other expenses:
Salaries and benefits 1,709 1,245
Occupancy 144 141
Equipment 282 210
Advertising and promotion 85 104
Stationary and supplies 101 68
Legal and professional fees 77 21
Other operating expenses 559 557
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Total other expenses 2,957 2,346
Earnings before income taxes 1,327 1,309
Income taxes 510 522
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Net Income $ 817 $ 787
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Primary earnings per share $ 0.53 $ 0.51
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Weighted average shares outstanding 1,546,032 1,523,842
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Fully Diluted:
Earnings per share $ 0.46 $ 0.44
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Weighted average shares outstanding 1,792,606 1,757,068
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Cash dividend paid per share of common stock $ 0.11 $ 0.11
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</TABLE>
See accompanying notes to consolidated financial
statements
4
<PAGE>
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 817 $ 787
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 222 142
Provision for possible loan losses 40 60
Provision for deferred taxes (21) (1,043)
(Increase) decrease in assets-
Interest receivable (875) (1,079)
Other assets 1,988 4,449
Increase (decrease) in liabilities-
Interest payable (7) (297)
Other liabilities (76) 323
------ ------
Net cash provided by operating activities 2,088 3,342
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (11,724) (5,190)
Purchase of investments (7,537) (1,082)
Proceeds from Maturity of HTM Securities 115 3,673
Proceeds from sales of AFS Securities 90 2,054
Proceeds from sales of other real estate owned 51 0
Purchases of premises and equipment (549) (482)
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Net cash used for investing activities (19,554) (1,027)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest bearing deposits (9,117) (4,103)
Net increase in interest bearing deposits 10,492 3,849
Cash dividends (170) (159)
Stock options exercised 0 54
Cash paid in lieu of fractional shares 0 0
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Net cash provided by financing activities 1,205 (359)
NET INCREASE(DECREASE) (16,261) 1,956
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,228 47,963
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CASH AND CASH EQUIVALENTS, END OF PERIOD 47,967 49,919
------ ------
------ ------
See accompanying notes to consolidated financial statements
</TABLE>
5
<PAGE>
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the Company, the unaudited consolidated financial
statements, prepared on the accrual basis of accounting, contain all
adjustments (consisting of only normal recurring adjustments) which
are necessary to present fairly the financial position of the Company
and subsidiaries at March 31, 1997 and December 31, 1996 and the
results of its operations for the periods ended March 31, 1997 and
1996.
Certain information and footnote disclosures normally presented in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations for
the period ended March 31, 1997 are not necessarily indicative of the
operating results for the full year ending December 31, 1997.
NOTE 2 - CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary Feather River State Bank. All
material intercompany accounts and transactions have been eliminated
in consolidation.
NOTE 3 - LOANS TO DIRECTORS
In the ordinary course of business, the Company makes loans to
directors of the company, which on March 31, 1997 amounted to a total
of approximately $6,197,098.
NOTE 4 - COMMITMENTS & CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various
commitments and contingent liabilities, such as commitments to extend
credit and letters of credit which are not reflected in the financial
statements. Management does not anticipate any material loss as a
result of these transactions.
NOTE 5 - NET INCOME PER SHARE
Net Income per share is computed using the weighted average number of
shares of common stock outstanding (as adjusted retroactively to
reflect the 5% stock dividend paid on August 16, 1996).
6
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NOTE 6 - CASH DIVIDENDS
The Bancorp paid an eleven cents per share dividend in February 1997.
NOTE 7 - EARNINGS PER SHARE
Effective December 31, 1997, the Bank is required to adopt Financial
Accounting Standards Board No. 128, Earnings Per Share. Among other
things the new standard requires replacement of primary EPS with basic
EPS. Basic EPS is computed by dividing reported earnings available to
common stockholders by weighted average shares outstanding. No
dilution for any potentially dilutive securities is included. Fully
diluted EPS, now called diluted EPS, is still required. The Bank has
not quantified the effect of applying the new standard.
7
<PAGE>
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF CHANGES IN THE FINANCIAL STATEMENTS
Net income for the three months ended March 31, 1997 was $817,000 or $0.53 per
share compared to $787,000 or $0.51 per share during the same period in 1996,
representing an increase in net income of 3.8%.
These increases in net income are due mainly to an increase in net loans
outstanding. In addition the Company had a substantial decrease in the
allocation for loan loss reserves and an increase in Other Operating Income.
The increase in Other Operating Income was primarily due to an increase in
Brokered Loan Fees.
Outstanding net loans were $158,731,000 March 31, 1997 compared to $147,047,000
at December 31, 1996 an increase of $11,684,000 or 7.9%.
The Company's investment portfolio at March 31, 1997 was $41,970,000 or 15.9% of
total assets, an increase from $34,664,000 or 21.1% at December 31, 1996 as the
Company shifted assets from overnight Federal Funds to longer term, higher
yielding investments. At March 31, 1997 Federal Funds Sold were $34,000,000 as
compared to $41,300,000 at December 31, 1996. This excess liquidity is due to
management's strategy to internally fund the anticipated seasonal Agricultural
and Real Estate loan demand between now and August of 1997.
The total deposits of March 31, 1997 were $239,267,000 compared to $237,956,000
at December 31, 1996, an increase of 0.6%. During the first quarter non
interest bearing demand deposits decreased from $55,181,000 at December 31, 1996
to $46,000,000 at March 31, 1997. The Company attributes this decrease of
$9,181,000 or 16.6% in demand deposits to depositors shifting their funds into
interest bearing deposits with the institution. At March 31, 1997 interest
bearing deposits were $193,267,000 as compared to $182,775,000 at December 31,
1996 an increase of 16.9%.
The total loan to deposit ratio was 68% at March 31, 1997, compared to 63.5% at
December 31, 1996. This increase is the result of normal lending cycles of
agricultural loans, real estate loans and the purchase of leases.
LOANS
Outstanding total loans at March 31, 1997 were $162,788,000, an increase of
$11,688,000 or 7.7% over year end 1996.
During the forth quarter of 1996, the Bank acquired, EPI Leasing Company, Inc.
The Bank acquires leases generated by EPI, allowing it to further diversify its
asset portfolio with high yielding, quality leases. In addition EPI will
continue its role as broker/seller whereby its leases are sold to other funding
sources with servicing income retained by them.
8
<PAGE>
In addition to the normal lending cycle, increased loans are also due to an
increase in other loans in the category which were $28,018,000 at March 31, 1997
as compared to the December 31, 1996 balance of $16,016,000 an increase of
$12,002,000, or 74.9%. This increase is primarily due to the purchase of
leases from other financial institutions and from the Banks subsidiary, EPI
Leasing Company. Leases at March 31, 1997 were $26,624,000 as compared to the
December 31, 1996 balance of $15,893,000 representing an increase of $10,731,000
or 67.5%.
At March 31, 1997 Real Estate construction and land development loans were at
$31,454,000 a slight increase over the December 31, 1996 balance of
$29,916,000. Commercial loans were at $75,475,000 on March 31, 1997 compared
to $73,620,000 at December 31, 1996.
Loans to farmers are reported in "Commercial Loans" in the consolidated
balance sheet, and these loans traditionally have peak outstandings at
harvest time in August of each year, followed by a low point in outstanding
balances around November-December.
Real Estate construction loans generally increase substantially in the spring
and summer months as the weather and the buyers market improves each year. The
majority of the Bank's construction loans are for single family residences.
The Company lends primarily to small and medium sized businesses, farmers and
consumers within its market area, which is comprised principally of Sutter,
Yuba, Colusa, Yolo, Butte and Sacramento counties in the northern end of the
Central Valley of California.
NONPERFORMING LOANS
Loans are generally placed on nonaccrual status when they are 90 days past due
as to either interest or principal ("Past Due"). At that time, any accrued but
uncollected interest is reversed, and additional income is recorded on a cash
basis as payments are received. However, loans that are in the process of
renewal in the normal course of business, or are well-secured and in the process
of collection, may not be placed on nonaccrual status, at the discretion of
Management. A nonaccrual loan may be restored to an accrual basis when interest
and principal payments are current and the prospects for future payments are no
longer in doubt ("Nonaccrual").
Total nonperforming loans increased from March 31, 1996 to March 31, 1997 by
$981,000 or 53.7%, however, nonperforming loans decreased from December 31, 1996
to March 31, 1997 by $235,000 or 7.8%.
Past Due commercial loans were $1,987,000 at December 31, 1996 and $1,431,000 at
March 31, 1997 as compared to $11,000 at March 31, 1996. The increase in Past
Due loans is in part a result of problems with agricultural operational loans
from the 1995 and 1996 crop years. During the first quarter of 1997, three
loans totaling $75,700 which were Past Due at December 31, 1996 were placed on
Nonaccrual and five Past Due loans were either restructured or paid off. Six
additional loans totaling $404,000 were placed into the Past Due category during
the quarter ended March 31, 1997. The reduction and restructuring of one Past
Due loan for $1,200,000 was accomplished after March 31, 1997, and this loan is
no longer considered to be in Past Due status.
Past Due leases increased from $81,000 at March 31, 1996 to $210,000 at December
31, 1996 or 159.3% and to $542,000 or 158.1% during the quarter ended March 31,
1997. The Bank has purchased leases from two nonaffiliated lessors, as well as
originating leases from its own subsidiary E.P.I. Leasing Co., Inc. ("EPI")
which it purchased on October 1, 1996. Leases typically are for business
equipment. At December 31, 1996 and March 31, 1997, none of the leases which
were Past Due were originated by EPI.
9
<PAGE>
The Company has an agreement with one leasing company from which it purchases
leases whereby the leasing company is obligated to repurchase the leases sold
to the Company if a lease is past due 180 days or more. The Company does
expect that it will incur losses on leases which were Past Due at March 31,
1997.
Nonaccrual commercial loans were $1,579,000 at March 31, 1996 and decreased to
$189,000 at December 31, 1996 or 88.0% and were $173,000 at March 31, 1997 or a
decrease of 8.9% during the quarter ended March 31, 1997. The decrease in
nonaccrual commercial loans is due to the full payment of $536,000 relating to
an agricultural production loan and, a loan for $906,000 where the Company has
sold its collateral and has a pending sale of OREO. The Company has taken a
loss of $203,000 on this loan in September 1996 and in January 1997 wrote down
the value of the OREO by $20,000.
Nonaccrual real estate loans were $156,000 at March 31, 1996 and increased to
$657,000 or 321.2% at December 31, 1996 and to $662,000 or an increase of .8%
during the quarter ended March 31, 1997. Of this amount $542,000 at December
31, 1996 and March 31, 1997 relates to three loans for residential development.
The Company is negotiating with the borrower to restructure these loans and to
obtain additional collateral to reduce the loan-to-value ratio to a more
appropriate level.
The following table summarizes the composition of non-performing loans as of
March 31, 1997, December 31, 1996 and March 31, 1996.
March 31 December 31, March 31
1997 1996 1996
--------------------------------------
Accruing loans past due
90 days or more
Commerical and all other $ 1,431 $ 1,987 $ 11
Leases 542 210 81
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Total $ 1,973 $ 2,197 $ 92
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Nonaccrual loans
Commercial 173 189 1,579
Real Estate 662 657 156
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Total 835 846 1,735
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Total Nonperforming Loans $ 2,808 $ 3,043 $ 1,827
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10
<PAGE>
In addition to the above, the Company holds Real Estate properties as "Other
Real Estate Owned" (OREO) recorded at $1,010,000 at March 31, 1997. In all
cases the amount recorded on the books is the lesser of the loan balance or the
fair market value obtained from a current appraisal. Therefore any identified
losses have already been recognized. The bank is in the process of marketing
the OREO properties.
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan extended
and the creditworthiness of the borrower. To reflect the estimated risks of
loss associated with its loan portfolio, provisions are made to the Bank's
allowance for possible loan losses. As an integral part of this process, the
allowance for possible loan losses is subject to review and possible adjustment
as a result of regulatory examinations conducted by governmental agencies and
through Management's assessment of risk.
The Bank uses the allowance method in providing for possible loan losses. Loan
losses are charged to the allowance for possible loan losses and recoveries are
credited to it.
Management believes that the total allowance for loan losses is adequate and
continues to be maintained at a level above the Bank's peer group. While
Management uses available information to provide for loan losses, future
additions to the allowance may be necessary based on changes in economic
conditions.
The allowance for loan losses at March 31, 1997 was $4,057,000 an increase from
$4,053,000 at year-end 1996, and is equal to 2.49% of the Bank's outstanding
loans at March 31, 1997.
Additions to the allowance for loan losses are made by provisions for possible
loan losses. The provision for possible loan losses is charged to operating
expense and is based upon past loan loss experience and estimates of potential
losses which, in Management's judgment, deserve current recognition. Other
factors considered by Management include growth, composition and overall quality
of the loan portfolio, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Actual losses may
vary from current estimates. The estimates are reviewed periodically, and
adjustments, as necessary, are charged to operations in the period in which they
become known.
For the three months ended March 31, 1997, the Bank charged-off $47,081 and
recovered $11,800. The charge-offs consisted of a $20,000 writedown on an OREO,
and a $19,962 commercial loan.
11
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RESULTS OF OPERATIONS
Three months ended March 31, 1997
compared with
Three months ended March 31, 1996
Net income for the three months ended March 31, 1997 was $817,000 as compared to
the March 31, 1996 figure of $787,000 an increase of 3.8%.
The increase in net income for the three month period ended March 31, 1997 was
largely due to an increase in net interest income after provisions for loan
losses combined with increased other income, partially offset by increased other
expenses.
Net interest income after provisions increased from $3,017,000 for the three
months ended March 31, 1997 to $3,222,000 for the same period in 1997, for an
increase of $205,000. This additional income is partially due to an
increase of 7.7% in outstanding loans at the end of the first quarter of 1997
over the same period 1996.
Other income increased by $424,000 over the same period in 1996, mostly as the
result of increased brokered loan and lease fees earned by the Bank and its
subsidiary, EPI Leasing Company.
Other expenses for the three months ended March 31, 1997 were $2,946,000, an
increase of $600,000 over the same period in 1996, mostly due to increases in
salaries and benefits. A major contributor to this increase was the purchase
of EPI Leasing Company and the opening of a new Branch in Wheatland,
California, in March 1997.
For the three month period ending March 31, 1997 recoveries to the Provision for
Loan Losses were $11,000 and charge-offs were $47,000. Charge-offs exceeded
Recoveries by $36,000. In addition the Bank allocated $40,000 to the Provisions
for Loan Losses during the first quarter of 1997.
The yield on average earning assets for the three month period ended March
31, 1997 compared to the same periods in 1996 are set forth in the following
table (in thousands except for percentages):
Three months ended Three months ended
March 31, 1997 March 31, 1996
------------------ ------------------
Average loans $ 154,805 $ 143,930
outstanding
Average yields 11.17% 12.21%
Amount of interest
& fees earned $ 4,323 $ 4,393
Average prime rate 8.27% 8.77%
A large portion of the Company's loan portfolio is based upon the Bank's
reference rate, adjusted on a daily basis so that rate changes have an
immediate effect on the loan interest yield. The Bank's reference rate closely
tracks the prime rate.
12
<PAGE>
Rates and amounts paid on average deposits, including non-interest bearing
deposits for the three month period ended March 31, 1997 compared to the same
periods in 1996 are set forth in the following table (in thousands except for
percentages):
Three months ended Three months ended
March 31, 1997 March 31, 1996
------------------ ------------------
Average deposits $ 237,232 $ 192,453
outstanding
Average rates paid 3.72% 3.61%
Amount of interest
paid or accrued $ 2,204 $ 1,739
The following tables summarize the principal elements of operating expenses and
disclose the increases (decreases) and percent of increases (decreases) for the
three month period ended March 31, 1997 and 1996 (amounts in thousands except
for percentages):
<TABLE>
<CAPTION>
Three months ended March 31, Increase (Decrease)
1997 over 1996
1997 1996 Amount Percentage
------------------------- -------- -----------
<S> <C> <C> <C> <C>
Salaries and benefits $ 1,709 $ 1,245 $ 464 37.27%
Occupancy 144 141 3 2.13%
Equipment 282 210 72 34.29%
Advertising and promotion 85 104 (19) (18.27%)
Stationary & supplies 101 68 33 48.53%
Legal and professional fees 77 21 56 266.67%
Other operating expenses 548 557 (9) (1.62%)
----------------------- ---------------------
Total other expenses $ 2,946 $ 2,346 $ 600 25.58%
----------------------- ---------------------
----------------------- ---------------------
</TABLE>
The increases in salaries and benefits resulted from normal salary increases and
increased staffing for the opening of the new Wheatland Branch and the addition
of the employees at EPI Leasing Company, the Bank's subsidiary. Additional
staff has also been added to the new office location in Marysville, California.
This office has recognized a substantial increase in deposits due to the
announcement of mergers and branch closures of two major financial institutions.
The Company employed 183 full time equivalent employees on March 31, 1997,
compared to 179 on December 31, 1996 and 139 on March 31, 1996.
The increase in occupancy and equipment expense over 1996 is attributable to the
purchase, relocation and remodeling of a new building for our Marysville branch
which opened in the second quarter of 1996, the opening of the Bank's new
Wheatland office and the addition of the Bank's subsidiary EPI Leasing Company.
In addition, the Company purchased Automated Teller Machines (ATM's) for each of
its seven branches. In addition the Bank purchased a bank building in Yuba City
to provide much needed space for its Residential and Ag Real Estate Departments
and also installed walk-up and drive-up ATM's at the new Real Estate Loan
Center.
Applicable income taxes for the three month period ended March 31, 1997 were
$510,000 as compared to the March 31, 1996 amount of $522,000.
13
<PAGE>
The Company's effective tax rate for the three months ended March 31, 1997 and
1996 were 38.12% and 39.88% respectively.
LIQUIDITY
During the first two quarters of the year the bank tends to have excess
liquidity. The Bank's seasonal agricultural loan demand tends to challenge the
Bank's liquidity position beginning late in the second quarter and continuing
into the third quarter of each year. The Bank's liquid assets consist of cash
and due from banks, federal funds sold and investment securities with maturities
of one year or less (exclusive of pledged securities).
The Bank has formal and informal borrowing arrangements with the Federal Reserve
Bank and its correspondent bank to meet unforeseen deposit outflows or seasonal
loan funding demands. As of March 31, 1997 and December 31, 1996 the bank had
no balances outstanding on these lines.
The Bank has also entered into an agreement with Lehman Brothers for a standby
short term loan secured by U.S. Government and Agency Obligations in the Bank's
investment portfolio, in order to fund any liquidity needs not met by other
sources of funding as warranted by loan demand.
RATE SENSITIVITY
On a monthly basis, the Bank tracks its RSA's (Rate Sensitive Assets) and RSL's
(Rate Sensitive Liabilities) and calculates the difference between the two (GAP)
as a percentage of total assets for various time horizons.
The Bank's goal is to maintain a cumulative GAP of between 0% and +10% for a
one-year horizon. The March 31, 1997, one-year GAP was +2.2%. Since this
figure is positive, it means that in an increasing interest rate environment the
Bank's RSA's will reprice faster than the Bank's RSL's, therefore, creating a
larger difference between interest income and interest expense, which in turn
results in a larger net interest margin.
The Bank's 90-day interest sensitivity gap was +14.7% on March 31, 1997, which
means that an interest rate increase at this time would have a more pronounced
positive effect on earnings during the next 90 days.
CAPITAL RESOURCES
The Company has sustained its growth in capital through profit retention, net of
cash dividends paid out to shareholders.
On March 31, 1997 total shareholders equity has increased by $477,000 primarily
via retained earnings, and stood at $22,509,000.
On December 31, 1996 total shareholders equity was $22,032,000.
The Company is subject to capital adequacy guidelines issued by Federal
Regulators. These guidelines are intended to reflect the degree of risk
associated with both on and off-balance sheet items.
Financial institutions are expected to comply with a minimum ratio of qualifying
total capital to risk-weighted assets of 8%, at least half of which must to be
in Tier 1 Capital.
14
<PAGE>
In addition, federal agencies have adopted a minimum leverage ratio of Tier 1
Capital to total assets of 4% which is intended to supplement risk based capital
requirements and to ensure that all financial institutions continue to maintain
a minimum level of core capital.
As can be seen by the following tables, the Company exceeded all regulatory
capital ratios on March 31, 1997 and on December 31, 1996:
RISK BASED CAPITAL RATIO
AS OF MARCH 31, 1997
- ------------------------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
Tier 1 Capital $ 22,318 11.35% $ 22,108 11.24%
Tier 1 Capital minimum
requirement 7,869 4.00% 7,866 4.00%
--------------------------------------------
Excess $ 14,449 7.35% $ 14,242 7.24%
--------------------------------------------
--------------------------------------------
Total Capital 24,882 12.65% 24,670 12.54%
Total Capital minimum
requirement 15,737 8.00% 15,733 8.00%
--------------------------------------------
Excess $ 9,145 4.65% $ 8,937 4.54%
--------------------------------------------
Risk-adjusted assets $ 196,714 $ 196,657
--------------------------------------------
--------------------------------------------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly $ 22,318 8.49% $ 22,108 8.42%
average total assets
Minimum leverage requirement 10,518 4.00% 10,506 4.00%
--------------------------------------------
Excess $ 11,800 4.49% $ 11,602 4.42%
--------------------------------------------
--------------------------------------------
Total Quarterly average assets $ 262,944 $ 262,660
--------- ---------
--------- ---------
15
<PAGE>
RISK BASED CAPITAL RATIO
AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
Tier 1 Capital $ 21,813 11.31% $ 21,804 11.32%
Tier 1 Capital minimum
requirement 7,713 4.00% 7,708 4.00%
---------------------------------------------
Excess $ 14,100 7.31% $ 14,096 7.32%
---------------------------------------------
---------------------------------------------
Total Capital 22,918 11.89% 24,225 12.57%
Total Capital minimum
requirement 15,426 8.00% 15,415 8.00%
---------------------------------------------
Excess $ 7,492 3.89% $ 8,810 4.57%
---------------------------------------------
Risk-adjusted assets $ 192,825 $ 192,693
---------------------------------------------
---------------------------------------------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly $ 21,813 8.82% $ 21,804 8.82%
average total assets
Minimum leverage requirement 9,891 4.00% 9,890 4.00%
---------------------------------------------
Excess $ 11,922 4.82% $ 11,914 4.82%
---------------------------------------------
---------------------------------------------
Total Quarterly average assets $ 247,274 $ 247,255
--------- ---------
--------- ---------
16
<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.
Date May 5, 1997 /S/ Robert J. Mulder
------------------------------ --------------------------------
Robert J. Mulder
President/CEO
Date May 5, 1997 /S/ Annette Bertolini
------------------------------ --------------------------------
Annette Bertolini
Chief Financial Officer
17
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