<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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------------------- ---------------------
Commission File Number 0-265520
CALIFORNIA INDEPENDENT BANCORP
------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0349947
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1227 BRIDGE ST., SUITE C, YUBA CITY, CALIFORNIA 95991
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(530) 674-4444
--------------
(Registrant's telephone number, including area code)
N/A
---
(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
----- -----
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.
<TABLE>
<CAPTION>
Outstanding at
Class March 31, 1998
----- --------------
<S> <C>
Common stock, no par value 1,651,131 Shares
</TABLE>
This report contains a total of 21 pages
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1
<PAGE>
PART I- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 PAGE
<S> <C>
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'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-16
PART II- OTHER INFORMATION
ITEM 6
Consulting Services Agreement with Examen, Inc. 18-20
SIGNATURES 21
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENT
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
---------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,089 $ 18,425
Federal funds sold 9,100 35,600
---------------------------------
Total Cash and Equivalents 25,189 54,025
Investment securities:
Available-for-sale securities, at fair value 51,012 38,042
Held-to-maturity securities, at amortized cost
(fair value of $18,693 and 19,245 respectively) 18,634 19,156
---------------------------------
Total investments 69,646 57,198
Loans:
Commercial and agricultural 82,726 79,385
Consumer 2,026 1,956
Real Estate 64,497 51,959
Lease financing 27,819 33,465
Other 392 1,022
---------------------------------
Total loans 177,460 167,787
Less allowance for possible loan losses (5,822) (5,514)
---------------------------------
Net Loans 171,638 162,273
Premises and equipment, net 8,057 8,178
Interest receivable 3,411 2,671
Other real estate owned 649 918
Other assets 5,878 6,267
---------------------------------
Total assets 284,468 291,530
---------------------------------
---------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $ 51,303 $ 62,224
Demand, interest bearing 45,805 40,133
Savings and Money Market 65,750 68,790
Time certificates 96,396 95,784
---------------------------------
Total deposits 259,254 266,931
Interest payable 1,722 1,814
Other liabilities 1,444 1,415
---------------------------------
Total liabilities 262,420 270,160
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized;
1,651,131 shares outstanding March 31, 1998
and December 31, 1997 13,587 13,587
Retained earnings 8,494 7,864
Debt guarantee of ESOP (80) (80)
Net unrealized gains (losses) on available-for-sale securities 47 (1)
---------------------------------
---------------------------------
Total shareholders' equity 22,048 21,370
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 284,468 $ 291,530
---------------------------------
---------------------------------
</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, 1998 MARCH 31, 1997
----------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 4,607 $ 4,323
Interest on investment securities 970 623
Interest on federal funds sold 389 527
------------------------------- ------------------------------
Total interest income 5,966 5,473
------------------------------- ------------------------------
Interest expense:
Demand, interest bearing 404 354
Savings 426 661
Time certificates 1,336 1,190
Other 5 6
------------------------------- ------------------------------
Total interest expense 2,171 2,211
------------------------------- ------------------------------
Net interest income 3,795 3,262
Provision for possible loan losses (396) (40)
------------------------------- ------------------------------
Net interest income after provision for possible loan 3,399 3,222
losses
------------------------------- ------------------------------
Other income:
Service charges 240 236
Net gain (loss) on securities transactions - -
Real Estate Brokered loan fees 233 122
Lease Commissions and fees 559 376
Other 318 328
------------------------------- ------------------------------
Total other income 1,350 1,062
------------------------------- ------------------------------
Other expenses:
Salaries and benefits 1,963 1,709
Occupancy 187 144
Equipment 348 282
Advertising and promotion 98 85
Stationery and supplies 75 101
Telephone expenses 93 85
Legal and professional fees 161 77
Other operating expenses 530 474
------------------------------- ------------------------------
Total other expenses 3,455 2,957
Earnings before income taxes 1,294 1,327
Income taxes 482 510
------------------------------- ------------------------------
Net Income $ 812 $ 817
------------------------------- ------------------------------
------------------------------- ------------------------------
Primary earnings per share $ 0.49 $ 0.50
------------------------------- ------------------------------
------------------------------- ------------------------------
Weighted average shares outstanding 1,651,131 1,623,334
------------------------------- ------------------------------
------------------------------- ------------------------------
Fully Diluted:
Earnings per share $ 0.43 $ 0.43
------------------------------- ------------------------------
------------------------------- ------------------------------
Weighted average shares outstanding 1,895,090 1,882,236
------------------------------- ------------------------------
Cash dividend paid per share of common stock $ 0.11 $ 0.11
------------------------------- ------------------------------
------------------------------- ------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 812 $ 817
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 271 222
Provision for possible loan losses 396 40
Write-down of other real estate owned 38 0
Provision for deferred taxes 39 (21)
(Increase) decrease in assets-
Interest receivable (740) (875)
Other assets 351 1,988
Increase (decrease) in liabilities-
Interest payable (92) (7)
Other liabilities 30 (76)
------------------------------------------
Net cash provided by operating activities 1,105 2,088
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (9,761) (11,724)
Purchase of investments (20,413) (7,537)
Proceeds from maturity of HTM Securities 3,000 115
Proceeds from sales/maturity of AFS Securities 5,011 90
Proceeds from sales of other real estate owned 230 51
Purchases of premises and equipment (149) (549)
------------------------------------------
Net cash used for investing activities (22,082) (19,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest bearing deposits (10,921) (9,117)
Net increase in interest bearing deposits 3,244 10,492
Cash dividends (182) (170)
Stock options exercised 0 0
Cash paid in lieu of fractional shares 0 0
------------------------------------------
Net cash provided by financing activities (7,859) 1,205
NET INCREASE (DECREASE) (28,836) (16,261)
------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 54,025 64,228
------------------------------------------
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 25,189 47,967
------------------------------------------
------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
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
its subsidiaries at March 31, 1998 and December 31, 1997, and the
results of its operations for the periods ended March 31, 1998 and
1997, respectively.
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, 1998 are not necessarily indicative of the
operating results for the full year ending December 31, 1998.
NOTE 2 - CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Feather River State Bank, and
EPI Leasing Company Inc., a subsidiary of 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 31,1998, amounted to a total
of approximately $6,381,000.
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 - CASH DIVIDENDS
The Company declared an eleven cents per share dividend on January 13,
1998, payable February 13, 1998.
6
<PAGE>
NOTE 6 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 128, "Earnings per Share," which establishes standards
for computing and presenting earnings per share (EPS). It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. The statement is effective for financial statements issued
for periods ending after December 15, 1997, and requires restatement
for all periods presented. The implementation of this statement did not
have a material effect on the Company's reported financial position or
net income.
NOTE 7- COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"),
which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and
distribution to owners. Total comprehensive income for the three months
ended March 31, 1998, and March 31, 1997, is $859,000 and $774,000,
respectively.
7
<PAGE>
ITEM 2 MANAGEMENT'S 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, 1998, was $812,000 for
fully-diluted earnings of $.43 per share, representing a slight decrease of .6%
over the same period in 1997, which saw net income of $817,000, or $.43 per
share on a fully-diluted basis.
The decrease in net income is due mainly to an increase in the provision for
possible loan losses which was $396,000 at March 31, 1998, an increase of
$356,000 over the March 31, 1997, provision of $40,000. The additional provision
is to allow for anticipated future loan growth and to continue an adequate level
of reserves.
Total assets at March 31, 1998, were $284,468,000, a decrease of 2.4% over
December 31, 1997, total assets of $291,530,000.
The Company's outstanding net loans were $171,638,000 at March 31, 1998,
compared to $162,273,000 at December 31, 1997, an increase of $9,365,000 or
5.8%.
The Company's investment portfolio at March 31, 1998, was $69,646,000, or 24.5%
of total assets, an increase from $57,198,000 or 19.6% of total assets at
December 31, 1997, as the Company shifted assets from overnight Federal Funds to
longer term, higher yielding investments. At March 31, 1998, Federal Funds Sold
was $9,100,000 as compared to $35,600,000 at December 31, 1997. In addition to
shifting the funds to higher yielding investments as described above, the
decrease in Federal Funds Sold is due to the need to fund an increased loan
demand.
Deposits at March 31, 1998, were $259,254,000 compared to $266,931,000 at
December 31, 1997, a decrease of 2.9%. At March 31, 1998, interest-bearing
deposits were $207,951,000, as compared to $204,707,000 at December 31, 1997, an
increase of 1.58%.
The total loan-to-deposit ratio was 68.5% at March 31, 1998, compared to 62.9%
at December 31, 1997. This increase is the result of normal lending cycles of
agricultural loans, real estate loans and the purchase of leases.
LOANS
Net loans outstanding as of March 31, 1998 were $171,638,000 representing an
increase of $9,365,000 or 5.7% over December 31, 1997. The increase is
attributable to two principal events.
1. Real estate construction loans increased by $8.8 million or 27.3% from
year-end 1997. The Company extends construction loans primarily to builders
of single family houses. Loans are made to individual borrowers and to real
estate developers. The increase in real estate construction loans is
accredited to a general increase in residential real estate activity in the
Bank's market area and
8
<PAGE>
the time of the year. Real estate construction loans generally increase
during the spring and summer months due to favorable weather conditions and
increased buyer activity.
2. Agricultural loans have increased $3.2 million or 7.1% over December 31,
1997. The Company provides a wide range of loan products to farmers and
agri-businesses throughout its trade area. Agricultural loans are reported
under the "Commercial Loan" category in the consolidated balance sheet. The
increase is ascribed to the time of the season. A considerable portion of
the Company's agricultural loans are budgeted, crop production loans. As
the season progresses, agricultural borrowers draw on their lines of credit
and the Company's loan totals increase.
One additional factor influenced the loan totals as of March 31, 1998. The
Company's lease portfolio decreased from $33,465,000 on December 31, 1997 to
$27,819,000 on March 31, 1998, representing a decrease of 16.8%. The Company
originates commercial and industrial equipment leases through its subsidiary EPI
Leasing Company (EPI) located in Sacramento. The Company's total lease
receivables increased consistently over the past eight quarters. However, during
the first quarter of 1998, the Company elected to sell a pool of leases as part
of a portfolio management strategy. This sale of leases resulted in the
reduction in lease receivables as of March 31, 1998.
The Company lends primarily to small and medium sized businesses, small to large
sized farmers and consumers within its market area, which is comprised
principally of Sutter, Yuba, Colusa and Yolo counties and secondarily Butte
Glenn, Sacramento, Placer, Madera and Fresno counties.
During the first quarter of 1998, the Company completed two changes, which may
affect loan origination activities in the future. First, the Company relocated
its Loan Production Office (LPO) in Roseville to Citrus Heights. This short
distance move, within the greater Sacramento area, was done to permit an
increase in office size and to control expenses. The Citrus Heights LPO
specializes in residential real estate loans and the relocation is not expected
to materially affect loan origination volume. Second, the Company centralized
its small business and consumer loan origination activities into one unit
located within its 777 Colusa Avenue, Yuba City branch. This change was made to
create efficiencies to the loan origination process and position the Company to
increase market share in the area of consumer and small business lending.
LOAN QUALITY
The Company places loans on nonaccrual status if (1) principal or interest has
been in default for 90 days or more, unless the loan is both well secured and in
the process of collection; (2) payment in full of principal or interest is not
expected; or (3) the financial condition of the borrower has significantly
deteriorated.
9
<PAGE>
The table set forth below summarizes the composition of non-performing loans as
of March 31, 1998, December 31, 1997 and March 31, 1997 ($ in 000's).
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
$ Amt. Change $ Amt. Change $ Amt.
3/31/98 Prior Per. 12/31/97 Prior Per. 3/31/97
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACCRUING LOANS PAST
DUE
90 DAYS OR MORE
Commercial 39.3 -71% 136.6 -90% 1,431 *
Agricultural 404.0 +1000% 0.4
Real Estate 0 81.7
Leases 7.6 -93% 109.1 -79% 542
Consumer 0.2 0.2
-------------------------------------------------------------------------
TOTAL 451.2 +37% 328.2 -83% 1,973
-------------------------------------------------------------------------
NONACCRUAL LOANS
-------------------------------------------------------------------------
Commercial 573.0 -17% 692.0 +400% 173 *
Agricultural 4,841.7 -3% 5,012.9
Real Estate 1,699.6 +11% 1,518.0 +229% 662
Leases 188.6 +47% 127.7
Consumer 0 0
-------------------------------------------------------------------------
TOTAL 7,302.9 -1% 7,351.8 +880% 835
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL NONPERFORMING 7,754.1 +1% 7,680.0 +273% 2,808
-------------------------------------------------------------------------
</TABLE>
* Due to differences in past record keeping procedures, the dollar amount
reported in the 3/31/97 column for commercial loans also include agricultural
loans.
An increasing trend in nonperforming loans occurred between the end of the first
quarter 1997 and the end of the fourth quarter 1997. Nonperforming loans
comprised 1.7% of the portfolio on 3/31/97 and increased to 4.5% of the
portfolio on 12/31/97. During the first quarter of 1998, very little change was
experienced in the nonperforming loan totals and this category of loans
continues to comprise 4.5% of the loan portfolio.
The adverse trend in nonperforming loans during 1997 is attributable to
increased risk exposure in a limited number of large credit relationships.
Upon identifying the increased credit risk exposure, Management took
corrective action and contributed a total of $6.1 million to its Provision
for Loan Losses during 1997. In addition, during 1997 the Company charged off
a total of $4.7 million of nonperforming loans. Several of the large
nonperforming loans listed in the table above were partially charged off such
that the book balance of the asset is now lower than Management's estimate of
the value of the supporting loan collateral. As a result of these actions,
Management believes that the risk of additional credit loss in the remaining
nonperforming loans has been reduced.
In 1997, Management assembled an experienced group of loan collectors to collect
the nonperforming and charged-off loans. Although a reduction of nonperforming
loans was not achieved during the first quarter of 1998, this was anticipated
because of the structure of the loan collection plans. Most of the largest
nonperforming loans are now operating under Workout Agreements, Restructure
Agreements or Liquidation Agreements. The terms of these agreements did not
require substantial payments during the first quarter of 1998. However, all of
these loans are in the process of collection and Management
10
<PAGE>
projects additional progress toward the reduction of nonperforming assets in the
forthcoming quarters of 1998.
The Company's nonaccrual credits are concentrated in five credit relationships.
Two of these five credit relationships are agricultural loans and constitute 61%
of total nonaccrual loans. One loan is projected to be paid in full by 7/1/98. A
collection plan is currently in process for the other loan relationship.
One of the additional large nonaccrual loans, comprising 21% of total
nonaccruals, is to a real estate developer. This credit has been restructured
under a new development plan. According to the terms of the plan, a substantial
reduction in the nonaccrual balance is projected during the third and fourth
quarters of 1998.
The other two large nonaccruals, comprising 8% of the total, are commercial
credits. One of these loans has been restructured and is performing as agreed.
Management anticipates full collection of the other loan during the second
quarter of 1998.
The Company's Allowance for Loan Loss Reserves totals $5,822,000 or 3.28% of
gross loans as of March 31, 1998. This amount is compared to $5,514,000 as of
December 31, 1997 and $4,057,000 as of March 31, 1997. The Company 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 to
cover potential losses in the loan portfolio. While Management uses available
information to provide for loan losses, future additions to the allowance may be
necessary based on changes in economic conditions and other factors.
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
loan losses which, in Management's judgment, deserves 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 borrower's ability to repay the loan. Actual
losses may vary from current estimates. The estimates are reviewed constantly,
and adjustments, as necessary, are charged to operations in the period in which
they become known.
11
<PAGE>
RESULTS OF OPERATIONS
Three months ended March 31, 1998
compared with
Three months ended March 31, 1997
During the three-month period ending March 31, 1998, the Company showed a net
income of $812,000, a decrease of $5,000 over the same period in 1997. This
decrease is the result of increased provisions for loan losses which stood at
$396,000 at March 31, 1998 as compared to $40,000 at March 31, 1997.
Net interest income before provisions for loan losses increased from $3,262,000
for the three months ended March 31, 1997, to $3,795,000 for the same period in
1998, an increase of $533,000 or 16.3%. This additional income is partially due
to an increase of 8.29% in average outstanding loans during the first quarter of
1998 over the same period in 1997. In addition, the Bank's reference rate was
.23% higher in the first quarter of 1998 over the same period in 1997. A large
portion of the Bank'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.
Other income for the first three months of the year increased by $288,000 over
the same period in 1997, mostly as the result of increased commission and fees
on leases earned by EPI. These commissions and fees amounted to $559,000 at
March 31, 1998 and $376,000 at March 31, 1997. In addition the Company
recognized an increase of $111,000 in brokered loan fee income during the same
period.
Total other expenses for the three months ended March 31, 1998, were $3,455,000,
an increase of $498,000 over the same period in 1997, mostly due to increases in
salaries and benefits. A major contributor to this increase was the purchase of
EPI and the opening of a new branch in Wheatland, California, in March 1997. In
addition, the Bank opened a new loan production office in Madera, California, in
March 1997. Salary expenses commenced in the second quarter of 1997 with only a
small amount of expense in the first quarter 1997 for these three offices.
The yield on average earning assets for the three-month period ended March 31,
1998, compared to the same period in 1997, is set forth in the following table
(in thousands except for percentages):
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Average loans
outstanding $ 167,636 $ 154,805
Average yields 10.99% 11.17%
Amount of interest
& fees earned $ 4,607 $ 4,323
Average prime rate 8.50% 8.27%
</TABLE>
12
<PAGE>
Rates and amounts paid on average deposits, including noninterest-bearing
deposits for the three-month period ended March 31, 1998, compared to the same
period in 1997, are set forth in the following table (in thousands except for
percentages):
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1998
<S> <C> <C>
Average deposits
outstanding $ 261,113 $ 237,232
Average rates paid 3.32% 3.72%
Amount of interest
paid or accrued $ 2,166 $ 2,204
</TABLE>
The following table summarizes the principal elements of operating expenses
and discloses the increases (decreases) and percent of increases (decreases)
for the three-month period ended March 31, 1998 and 1997 (in thousands except
for percentages):
<TABLE>
<CAPTION>
Three months ended March 31, Increase (Decrease)
1998 1997 1998 over 1997
---------------------------- -------------------
<S> <C> <C> <C> <C>
Salaries and benefits $1,963 $1,709 $ 254 14.9%
Occupancy 187 144 43 29.9%
Equipment 348 282 66 23.4%
Advertising and promotion 98 85 13 15.3%
Stationery & supplies 75 101 (26) -25.7%
Telephone Expenses 93 85 8 9.4%
Legal and professional fees 161 77 84 109.1%
Other operating expenses 530 474 56 11.8%
------ ------ ----- ------
Total other expenses $3,455 $2,957 $ 498 16.8%
------ ------ ----- ------
------ ------ ----- ------
</TABLE>
Applicable income taxes for the three-month period ended March 31, 1998, were
$482,000, as compared to the March 31, 1997 amount of $510,000.
13
<PAGE>
LIQUIDITY
During the first two quarters and in to the third quarter of each year, the Bank
tends to have excess liquidity. The Bank's seasonal agricultural loan demand
tends to challenge the Bank's liquidity position beginning 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 to meet unforeseen deposit outflows or seasonal loan funding demands. 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. As of March 31, 1998, and
December 31, 1997, respectively, the Bank had no balances outstanding on these
lines.
RATE SENSITIVITY
Interest rate sensitivity is the relationship between market interest rates and
net interest income due to the repricing characteristics of assets and
liabilities. If more liabilities than assets reprice in a given period (a
liability sensitive position), market interest rate changes will be reflected
more quickly in liability rates. If interest rates decline, a liability
sensitive position will benefit net income. Alternatively, where assets reprice
more quickly than liabilities in a given period (an asset sensitive position), a
decline in market rates will have an adverse effect on net interest income.
Management's objective is to maintain the stability of the net interest margin
in times of fluctuating interest rates by maintaining an appropriate mix of
interest rate sensitive assets and liabilities.
Management does not manage its interest rate sensitivity to maximize income
based on its prediction of interest rates, but rather to minimize interest rate
risk to the Company by stabilizing the Company's net interest margin in all
interest rate environments.
Additionally, the Company is subject to considerable competitive pressure in
generating deposits and loans at rates and terms prevailing in the Company's
market area.
Management has developed a matrix that calculates changes to the Net Interest
Margin in both an increasing rate environment and a decreasing rate environment.
The matrix calculates a one-year Interest Rate Risk taking into consideration
the delays in the timing of repricing based on actual experience.
The one-year Interest Rate Risk ratios at March 31, 1998, for an increasing rate
environment and a decreasing rate environment were 3.9% and 16.1%, respectively.
This means that if interest rates go up the Bank's Net Interest Margin will
increase, if interest rates go down it will decrease.
14
<PAGE>
CAPITAL RESOURCES
Total shareholders' equity on March 31, 1998, increased by $678,00 over December
31, 1997, total shareholders' equity of $21,370,000.
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 be in
Tier 1 Capital.
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, 1998, and on December 31, 1997:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIO
AS OF MARCH 31, 1998
- ---------------------------------------------------------------------------------------------------
Company Bank
(Dollars in thousands)
Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 21,785 8.87% $ 21,642 8.82%
Tier 1 Capital
Minimum requirement 9,820 4.00% 9,814 4.00%
-----------------------------------------------------
-----------------------------------------------------
Excess $ 11,965 4.87% $ 11,828 4.82%
-----------------------------------------------------
-----------------------------------------------------
Total Capital 24,888 10.14% 24,743 10.11%
Total Capital
Minimum requirement 19,640 8.00% 19,626 8.00%
-----------------------------------------------------
Excess $ 5,248 2.14% $ 5,114 2.08%
-----------------------------------------------------
-----------------------------------------------------
Risk-adjusted assets $ 245,501 $ 245,362
-----------------------------------------------------
-----------------------------------------------------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly $ 21,785 7.56% $ 21,642 7.52%
Average total assets
Minimum leverage requirement 11,520 4.00% 11,512 4.00%
-----------------------------------------------------
Excess $ 10,265 3.56% $ 10,130 3.52%
-----------------------------------------------------
Total quarterly average assets $ 288,012 $ 287,803
---------------- -------------
---------------- -------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO
AS OF DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------
Company Bank
(Dollars in thousands)
Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $ 21,151 8.99% $ 21,040 8.96%
Tier 1 Capital
Minimum requirement 9,413 4.00% 9,390 4.00%
-------------------------------------------------------
-------------------------------------------------------
Excess $ 11,738 4.99% $ 11,650 4.96%
-------------------------------------------------------
-------------------------------------------------------
Total Capital 24,124 10.25% 24,006 10.23%
Total Capital minimum
Requirement 18,826 8.00% 18,780 8.00%
-------------------------------------------------------
Excess $ 5,298 2.25% $ 5,226 2.23%
-------------------------------------------------------
-------------------------------------------------------
Risk-adjusted assets $ 235,330 $234,750
-------------------------------------------------------
-------------------------------------------------------
LEVERAGE CAPITAL RATIO
Tier 1 Capital to quarterly $ 21,151 7.43% $ 21,040 7.40%
Average total assets
Minimum leverage requirement 11,384 4.00% 11.377 4.00%
-------------------------------------------------------
Excess $ 9,767 3.43% $ 9,663 3.40%
-------------------------------------------------------
-------------------------------------------------------
Total quarterly average assets $ 284,598 $284,423
--------------- --------------
--------------- --------------
</TABLE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The future results of the Company's operations, the necessity of further
provisions for its loan loss reserves, quality of its loan portfolio, and
ability to pay future dividends constitute "forward-looking" information as
defined by: (1) the Private Litigation Reform Act of 1995 ("Act"); and (2)
releases made by the Securities and Exchange Commission ("SEC"). This cautionary
statement is being made pursuant to the provisions of the Act with the express
intention of obtaining the benefits of the "safe harbor" provisions of the Act.
Investors are cautioned that any forward-looking statements made by the Company
and its Management are not guarantees of future performance and that actual
results may differ materially from those in the forward-looking statements as a
result of, but not limited to, the following factors: the economic environment,
particularly in the region in which the Company operates; competitive products
and pricing; fiscal and monetary policies of the federal government; changes in
government regulations affecting financial institutions, including regulatory
fees and capital requirements; changes in prevailing interest rates;
acquisitions and the integration of acquired businesses; credit risk management
and asset/liability management; the financial and securities markets; and the
availability of and costs associated with sources of liquidity.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Consulting Services Agreement with Examen, Inc., dated February
25, 1998.
(b) Reports on Form 8K
No reports on Form 8K were filed during the quarter.
17
<PAGE>
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT, together with its exhibits
("AGREEMENT") between Feather River State Bank ("CLIENT") and Examen, Inc.
("EXAMEN") is effective upon acceptance by Examen on the date specified below.
1. ENGAGEMENT. Client engages Examen to perform and provide to Client
legal cost management consulting services, which may include legal bill
analysis, legal bill auditing, training, management consulting projects or
formation of expert opinions in anticipation of litigation or arbitration or the
preparation for and testimony at deposition, trial or arbitration ("CONSULTING
SERVICES"). Examen will render to Client such Consulting Services as are
mutually agreeable. Client acknowledges and agrees that Examen is not offering
or rendering any legal, tax or certified accounting/audit opinions, advice or
counsel in performing or providing any Consulting Services.
2. RESPONSIBILITIES OF THE PARTIES. Examen will use reasonable
efforts in completing the Consulting Services, will keep Client informed of
progress and developments and will respond promptly to Client's inquiries and
communications. Client will use reasonable efforts to cooperate with Examen,
will provide all information reasonably requested by Examen and will keep Examen
reasonably informed of developments which may affect the progress of the
Consulting Services.
3. EXAMEN AS CLIENT'S AGENT. Client may request Examen to perform
Consulting Services in the form of conducting reviews or audits of certain
records maintained by law firms representing Client. In performing any such
reviews and audits, Examen will act as the agent of Client with full authority
for the limited purpose of examining the confidential legal files of Client and
their full contents (including, without limitation, legal bills).
4. CONFIDENTIAL INFORMATION. Client may disclose proprietary,
confidential or privileged information to Examen hereunder. Examen will keep
confidential and not disclose to any third party such information or any
specific findings from the review of any legal bill, the audit of any legal
files or the results of the Consulting Services; provided, however, that
confidential Client information may be disclosed (i) with the express consent of
Client; or (ii) to Examen's attorneys, accountants and consultants or if, upon
the advice of its counsel, Examen is legally compelled to disclose such
information. Confidential Client information shall not include any information
in the possession of Examen prior to the date of its disclosure by Client, any
information generally available to the public, or any information which becomes
available to Examen on a non-confidential basis from a third party who is not
bound by a confidentiality obligation to Client. Examen will not be prohibited
from using or disclosing gross data or other information that is not
proprietary, confidential or privileged.
5. COMPENSATION AND PAYMENT. Client shall timely compensate Examen
according to EXHIBIT A. Examen periodically reviews its billing rates for
Consulting Services and may adjust rates for inflation, expertise factors or
increased overhead. Client will receive 30 days written notice in advance of any
adjustment to the billing rates described on Exhibit A.
6. OTHER COSTS AND EXPENSES. Client shall timely reimburse Examen as
designated on Exhibit A for reasonable costs and expenses incurred in performing
Consulting Services, including but not limited to travel, long distance
telephone, delivery, facsimile and duplicating charges. Examen may request that
Client pay in advance for cost items exceeding $1,000.00. In addition, if Examen
is requested to appear at a judicial or administrative hearing in connection
with this engagement (other than the provision of Consulting Services in the
form of expert testimony), Client will pay Examen its normal hourly fees and
reimburse its reasonable out-of-pocket expenses (including attorneys' fees and
expenses) in connection with such appearance.
7. LIMITED LIABILITY. Client agrees that Examen and its directors,
officers, agents, consultants and employees shall not have any liability to
Client or its directors, officers, employees, consultants or agents, directly or
indirectly, related to or arising out of this Agreement, except Losses (as
defined in Section 8) incurred by Client to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such Losses were the
result of bodily injury or property damage arising primarily from the negligence
or willful misconduct of Examen. In any event, Examen will not be liable to
Client for any consequential, indirect, punitive, special or incidental damages,
whether foreseeable or unforeseeable, based on claims of Client arising out of
breach of express or implied warranty, breach of contract, misrepresentation,
negligence, strict liability in tort or otherwise.
18
<PAGE>
8. INDEMNITY. Client agrees to indemnify and hold harmless Examen,
and its directors, employees, agents and consultants ("INDEMNIFIED PERSONS")
from and against any losses, claims, damages, expenses, and liabilities or
actions in respect thereof ("LOSSES"), as they may be incurred (including all
legal fees and other expenses incurred in investigating, defending, settling or
compromising any Losses, whether or not in connection with pending or threatened
litigation) which are related to or arise out of any act or omission of Client,
including without limitation the Client's use of Examen's reports to Client or
of any other Consulting Services provided by Examen pursuant to this Agreement.
9. TERM AND TERMINATION. This Agreement shall remain in effect unless
terminated by either party upon not less than thirty (30) days' written notice
to the other party. Either party may terminate this Agreement immediately upon
notice to the other if the other party becomes insolvent, enters into suspension
of payments, moratorium, reorganization or bankruptcy, makes a general
assignment for the benefit of creditors, or otherwise admits or evidences
insolvency, a receiver is appointed for its business or property or is subject
to any other proceeding relating to insolvency or creditors rights. The
provisions of Sections 5 through 8, 11 and 13 will survive the expiration or
termination of this Agreement.
10. PERFORMANCE EXCUSED. In the event that Examen is unable to perform
or is delayed in timely performing the Consulting Services due to circumstances
beyond the control of Examen, including those caused by Client and its law
firms, Examen's performance under this Agreement is excused.
11. ARBITRATION. Any controversy or claim arising out of or relating
to Examen's compensation or the interpretation or termination of this Agreement
shall be settled by compulsory binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
The arbitration proceeding will be consolidated in a single proceeding in
Sacramento, California. Judgment on the arbitrators' award may be entered in any
court of competent jurisdiction. Each party shall pay its own attorneys' fees
and costs of arbitration. Nothing in this Section 11 is intended to limit either
party's rights or remedies with respect to any other claim against the other
party.
12. DESIGNATED LIAISON. Client designates Robert Mulder as its liaison
with Examen for the Consulting Services.
13. MISCELLANEOUS PROVISIONS. This Agreement will be governed by and
interpreted in accordance with the laws of the State of California, excluding
its conflict of law principles. A finding that any provision of this Agreement
is invalid or unenforceable will not affect the validity of the remaining
provisions of this Agreement. Any amendment must be in writing. The language
used in this Agreement shall be deemed to be that chosen by the parties to
express their mutual intent and no rule of construction will apply. The failure
by either party to exercise any of its rights under this Agreement will not be
deemed a waiver of such rights in the future. Each party acknowledges that it
has had an opportunity to obtain advice of counsel in entering into this
Agreement and neither party is relying on any representation of the other party
not expressly provided in this Agreement. The duties and obligations of the
parties are non-assignable and non-delegable without the prior written consent
of the parties. This Agreement and its exhibits and supplements constitute the
complete and entire statement of all terms, conditions, and representations
between the parties with respect to the subject matter and supersede all prior
agreements or understandings between the parties.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
effective as of the date specified below.
FEATHER RIVER STATE BANK: EXAMEN, INC.:
By: /s/ Robert Mulder By: /s/ David A. Haynes
------------------------ ----------------------------------
Name: Robert Mulder Name: David A. Haynes
Title: Chief Executive Oficer Title: Executive VP-General Counsel
Address: 1227 Bridge Street Address: 3831 North Freeway Blvd., Ste. 200
Yuba City, CA 95992-0429 Sacramento, CA 95834
(916)674-4073 916-921-4300
Effective Date: 2-25, 1998
19
<PAGE>
EXHIBIT A
FEES AND DISBURSEMENTS FOR CONSULTING SERVICES
1. Specific Services:
Legal Cost Management Consulting Services which may include
but are not limited to legal cost management consultation, the
development of legal services management and billing
guidelines, the development of law firm retention and other
policies, and prospective legal bill reviews.
2. Consulting Fee Schedule:
Professional Consultants: $145.00 per hour
Data Analyst/Database Preparation $ 45.00 per hour
3. Disbursement Schedule
Photocopying $ .10 per page
Outgoing FAX Actual Telephone Charge
Mileage IRS Approved Rate
Courier/Overnight Mail Actual
Long Distance Telephone Actual
Travel Actual
Postage Actual
License Fees Actual
4. Payment Terms
Fees and disbursements will be billed monthly and are due and payable
when billed.
20
<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.
California Independent Bancorp
Date: May 7, 1998 /S/ Robert J. Mulder
----------------------- --------------------------
Robert J. Mulder
President
Date: May 7, 1998 /S/ Annette Bertolini
----------------------- --------------------------
Annette Bertolini
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,189
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,012
<INVESTMENTS-CARRYING> 18,634
<INVESTMENTS-MARKET> 18,693
<LOANS> 177,460
<ALLOWANCE> 5,822
<TOTAL-ASSETS> 284,468
<DEPOSITS> 259,254
<SHORT-TERM> 398
<LIABILITIES-OTHER> 2,688
<LONG-TERM> 80
0
0
<COMMON> 13,587
<OTHER-SE> 8,461
<TOTAL-LIABILITIES-AND-EQUITY> 284,468
<INTEREST-LOAN> 4,607
<INTEREST-INVEST> 970
<INTEREST-OTHER> 389
<INTEREST-TOTAL> 5,966
<INTEREST-DEPOSIT> 2,166
<INTEREST-EXPENSE> 5
<INTEREST-INCOME-NET> 3,795
<LOAN-LOSSES> 396
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,455
<INCOME-PRETAX> 1,294
<INCOME-PRE-EXTRAORDINARY> 1,294
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 812
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 7.76
<LOANS-NON> 7,333
<LOANS-PAST> 451
<LOANS-TROUBLED> 387
<LOANS-PROBLEM> 3,961
<ALLOWANCE-OPEN> 5,514
<CHARGE-OFFS> 99
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 5,822
<ALLOWANCE-DOMESTIC> 5,822
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
