-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JW3UcpNTbdFVyg/dWi8/lE7CIrj4qGMTvRMQ5VkL6ePRvc8APGxaRG4R29eoYDFY 398dLgsvUlwFtIlcoM+97Q== /in/edgar/work/0000912057-00-050117/0000912057-00-050117.txt : 20001116 0000912057-00-050117.hdr.sgml : 20001116 ACCESSION NUMBER: 0000912057-00-050117 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL CORP OF THE WEST CENTRAL INDEX KEY: 0001004740 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 770405791 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27384 FILM NUMBER: 768365 BUSINESS ADDRESS: STREET 1: 550 W MAIN STREET CITY: MERCED STATE: CA ZIP: 95340 BUSINESS PHONE: 2097252200 MAIL ADDRESS: STREET 1: 550 W MAIN STREET STREET 2: 550 W MAIN STREET CITY: MERCED STATE: CA ZIP: 95340 10-Q 1 a2031048z10-q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended SEPTEMBER 30, 2000 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: 0-27384 --------- CAPITAL CORP OF THE WEST (Exact name of registrant as specified in its charter) CALIFORNIA 77-0405791 ---------- ---------- (State or other jurisdiction of IRS Employer ID Number incorporation or organization) 550 WEST MAIN, MERCED, CA 95340 ------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (209) 725-2200 -------------- Former name, former address and former fiscal year, if changed since last report: Not Applicable -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's common stock, no par value, as of September 30, 2000 was 4,541,136. No shares of preferred stock, no par value, were outstanding at September 30, 2000. 1 CAPITAL CORP OF THE WEST Table of Contents
PART I. -- FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Income and Comprehensive Income 4 Consolidated Statement of Changes in Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 31 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 SIGNATURES 34
2 Capital Corp of the West Consolidated Balance Sheets (Unaudited)
09/30/00 12/31/99 -------- -------- (Dollars in thousands) ASSETS Cash and noninterest-bearing deposits in other banks $ 28,841 $ 41,582 Federal funds sold - 8,640 Time deposits at other financial institutions 600 850 Investment securities available for sale, at fair value 150,346 117,814 Investment securities held to maturity at cost, fair value of $31,300,000, and $28,675,000 at September 30, 2000 and December 31, 1999 31,702 29,554 Loans, net of allowance for loan losses of $7,309,000, and $6,542,000 at September 30, 2000 and December 31, 1999 387,671 324,726 Interest receivable 4,720 3,436 Premises and equipment, net 12,855 13,163 Intangible assets 4,475 5,069 Other assets 19,233 18,716 -------- -------- Total assets $640,443 $563,550 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing demand $ 96,104 $ 87,564 Negotiable orders of withdrawal 76,083 72,788 Savings 176,024 164,158 Time, under $100,000 125,155 101,395 Time, $100,000 and over 83,134 68,996 -------- -------- Total deposits 556,500 494,901 Short term borrowings 24,698 17,600 Long term borrowings 3,169 3,214 Accrued interest, taxes and other liabilities 6,315 4,158 -------- -------- Total liabilities 590,682 519,873 Preferred stock, no par value; 10,000,000 shares authorized; None outstanding Common stock, no par value; 20,000,000 shares authorized; 4,541,136 and 4,496,201 issued & outstanding at September 30, 2000, and December 31, 1999 35,808 35,593 Retained earnings 15,703 10,743 Accumulated other comprehensive loss, net (1,750) (2,659) -------- -------- Total shareholders' equity 49,761 43,677 -------- -------- Total liabilities and shareholders' equity $640,443 $563,550 ======== ========
See accompanying notes 3 Capital Corp of the West Consolidated Statements of Income and Comprehensive Income (Unaudited)
For the Three Months For the Nine Months Ended September 30, Ended September 30, 2000 1999 2000 1999 --------- ----------- ---------- --------- (Dollars in thousands, except per share data) Interest income: Interest and fees on loans $10,178 $ 7,881 $ 27,899 $21,898 Interest on deposits with other financial institutions 11 45 29 84 Interest on investments held to maturity: Taxable 502 300 1,499 667 Non-taxable 55 56 167 134 Interest on investments available for sale: Taxable 2,148 1,499 6,025 4,463 Non-taxable 281 288 852 901 Interest on federal funds sold 124 37 422 340 -------- ----------- ---------- --------- Total interest income 13,299 10,106 36,893 28,487 Interest expense: Interest on negotiable orders of withdrawal 125 117 370 339 Interest on savings deposits 1,900 1,501 5,187 4,285 Interest on time deposits, under $100,000 1,832 1,148 4,627 3,289 Interest on time deposits, $100,000 and over 1,368 599 3,594 1,696 Interest on other borrowings 367 193 1,159 423 -------- ----------- ---------- --------- Total interest expense 5,592 3,558 14,937 10,032 Net interest income 7,707 6,548 21,956 18,455 Provision for loan losses 792 672 2,323 1,772 -------- ----------- ---------- --------- Net interest income after provision for loan losses 6,915 5,876 19,633 16,683 Other income: Service charges on deposit accounts 921 846 2,605 2,383 Income from real estate held for sale -- -- 381 250 Other 419 361 1,145 1,177 -------- ----------- ---------- --------- Total other income 1,340 1,207 4,131 3,810 Other Expenses: Salaries and related benefits 2,969 2,545 8,190 7,163 Premises and occupancy 431 418 1,259 1,141 Equipment 618 539 1,862 1,547 Professional fees 307 228 802 921 Marketing 214 188 678 540 Goodwill and intangible amortization 198 198 594 594 Supplies 160 126 474 419 Other 991 1,053 2,827 2,913 ------- ----- ------------ ----- Total other expenses 5,888 5,295 16,686 15,238 Income before income taxes 2,367 1,788 7,078 5,255 Provision for income taxes 721 492 2,118 1,603 -------- ----------- ---------- --------- Net income $ 1,646 $ 1,296 $ 4,960 $ 3,652 Comprehensive Income: Unrealized gain (loss) on securities arising during the period, net 1,173 (547) 909 (2,071) Less: reclassification adjustment for losses included in net income, net -- (93) -- (72) -------- ----------- ---------- --------- Comprehensive income, net $ 2,819 $ 656 $ 5,869 $ 1,509 ======= =========== ========== ========= Basic earnings per share $ 0.36 $ 0.28 $ 1.10 $ 0.80 Diluted earnings per share $ 0.35 $ 0.28 $ 1.07 $ 0.77 - ------------------------------------------------------------------------------------------------------------------------------- See accompanying notes
4 Capital Corp of the West Consolidated Statement of Changes in Shareholders' Equity (Unaudited) (Amounts in thousands except number of shares)
Common Stock Accumulated ------------------------- other Number of Retained comprehensive shares Amounts earnings loss, net Total ------------ ----------- ----------- ----------------- ------------- Balance, December 31, 1999 4,496,201 $ 35,593 $ 10,743 $ (2,659) $ 43,677 Exercise of stock options 44,935 215 -- -- 215 Net change in fair market value of investment securities, net of tax effect of $(182) -- -- -- 909 909 Net income -- -- 4,960 -- 4,960 --------- ------- -------- ---------- -------- Balance, September 30, 2000 4,541,136 $35,808 $ 15,703 $ ( 1,750) $ 49,761 ========= ======= ======== ========== ========
See accompanying notes 5 Capital Corp of the West Consolidated Statements of Cash Flows (Unaudited)
9 months ended 9 months ended 09/30/00 09/30/99 ----------------- --------------- (Dollars in thousands) OPERATING ACTIVITIES: Net income $ 4,960 $ 3,652 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,323 1,772 Depreciation, amortization and accretion, net 1,713 2,185 Gain on sale of real estate held for sale 381 250 Gain on sale of premises and equipment - 10 Net increase in interest receivable & other assets (2,812) (3,808) Net decrease (increase) in deferred loan fees 100 (690) Net increase in accrued interest payable & other liabilities 2,209 1,880 ----------------- --------------- Net cash provided by operating activities 8,874 5,251 INVESTING ACTIVITIES: Investment security purchases (44,931) (47,591) Proceeds from maturities of investment securities 9,941 26,160 Proceeds from sales of AFS investment securities 1,725 21,351 Net decrease (increase) in time deposits in other financial 250 (6,601) institutions Proceeds from sales of commercial and real estate loans 2,315 939 Net increase in loans (67,609) (55,396) Purchases of premises and equipment (1,142) (873) Proceeds from sales of real estate held for sale 381 250 ----------------- --------------- Net cash used by investing activities (99,070) (61,761) FINANCING ACTIVITIES: Net increase in demand, NOW and savings deposits 23,648 2,225 Net increase in certificates of deposit 37,899 26,065 Net increase in other borrowings 7,053 19,864 Purchase of treasury stock -- (1,768) Exercise of stock options 215 121 ----------------- --------------- Net cash provided by financing activities 68,815 46,507 Net decrease in cash and cash equivalents (21,381) (10,003) Cash and cash equivalents at beginning of period 50,222 44,896 ----------------- --------------- Cash and cash equivalents at end of period $ 28,841 $ 34,893 ================= =============== CASH PAID DURING THE NINE MONTHS ENDED SEPTEMBER 30, 2000: Interest paid $ 15,031 $ 9,559 Income tax payments 1,895 1,511 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Investment securities net unrealized gains (losses); net of tax 909 (2,143) Transfer of securities from available for sale to held to maturity -- 4,327 Loans transferred to other real estate owned 443 --
See accompanying notes 6 Capital Corp of the West Notes to Consolidated Financial Statements September 30, 2000 and December 31, 1999 (Unaudited) GENERAL - COMPANY Capital Corp of the West (the "Company" or "Capital Corp") is a bank holding company incorporated under the laws of the State of California on April 26, 1995. On November 1, 1995, the Company became registered as a bank holding company, and is a holder of all of the capital stock of County Bank (the "Bank"). During 1998, the Company formed Capital West Group, a subsidiary that engaged in the financial institution advisory business but is currently inactive. The Company's primary asset is the Bank and the Bank is the Company's primary source of income. The Company's securities consist of 20,000,000 shares of Common Stock, no par value, and 10,000,000 shares of Authorized Preferred Stock. As of September 30, 2000 there were 4,541,136 common shares outstanding, held of record by approximately 2,500 shareholders. There were no preferred shares outstanding at September 30, 2000. The Bank has two wholly owned subsidiaries, Merced Area Investment & Development, Inc. ("MAID") and County Asset Advisors ("CAA"). CAA is currently inactive. All references herein to the "Company" include the Bank, and the Bank's subsidiaries, and Capital West Group, unless context otherwise requires. GENERAL - BANK The Bank was organized and commenced operations, in 1977, as County Bank of Merced, a California state banking corporation. In November 1992, the Bank changed its legal name to County Bank. The Bank's securities consist of one class of Common Stock, no par value and are wholly owned by the Company. The Bank's deposits are insured under the Federal Deposit Insurance Act by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits stated therein. County Bank is a member of the Federal Reserve System. INDUSTRY AND MARKET AREA The Bank engages in general commercial banking business primarily in Fresno, Madera, Mariposa, Merced, Tulare, Toulumne and Stanislaus counties. The Bank has sixteen branch offices: two in Merced with one branch centrally located in Merced and the other in downtown Merced within the Bank's administrative office building, two in Modesto, two in Turlock and single offices in Atwater, Dos Palos, Fresno, Hilmar, Los Banos, Livingston, Madera, Mariposa, Sonora and Visalia. OTHER FINANCIAL NOTES All adjustments which in the opinion of Management are necessary for a fair presentation of the Company's financial position at September 30, 2000 and the results of operations for the three and nine month periods ended September 30, 2000 and 1999, and the statements of cash flows for the nine months ended September 30, 2000 and 1999 have been included. The interim results for the three and nine months ended September 30, 2000 and 1999 are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and the notes included in the Company's Annual Report for the year ended December 31, 1999. 7 The accompanying unaudited financial statements have been prepared on a basis consistent with the generally accepted accounting principles and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Basic earnings per share (EPS) is computed by dividing net income available to 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 number of common shares outstanding during the period plus potential common shares outstanding. Diluted earnings per share 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 and diluted earnings per share computation of the three and nine month periods ending September 30, 2000 and 1999:
For the three months For the nine months ended September 30, ended September 30, --------------------------------- ------------------------------- (Dollars in thousands, except per share data) 2000 1999 2000 1999 --------------- --------------- -------------- -------------- Basic EPS computation: Net income $ 1,646 $ 1,296 $ 4,960 $ 3,652 ======== ======== ======== ======= Average common shares outstanding 4,539 4,550 4,524 4,585 ======== ======== ======== ======= Basic EPS $ 0.36 $ 0.28 $ 1.10 $ 0.80 ======== ======== ======= ======= Diluted EPS Computations: Net income $ 1,646 $ 1,296 $ 4,960 $ 3,652 ======== ======== ======== ======= Average common shares outstanding 4,539 4,550 4,524 4,602 Stock options 123 140 123 140 -------- -------- -------- ------- 4,662 4,690 4,647 4,725 ======== ======== ======= ======= Diluted EPS $ 0.35 $ 0.28 $ 1.07 $ 0.77 ======== ======== ======= =======
8 In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which amends the disclosure requirements of Statement No. 52, "Foreign Currency Translations" and of Statement No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS 133 supersedes Statements No. 80 "Accounting for Future Contracts", No. 105 "Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk" and No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." Under the provisions of SFAS 133, the Company is required to recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting operation. Certain sections of SFAS No. 133 were amended in June 2000, when the FASB issued Statement No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133" (SFAS No. 138). SFAS No. 133, as amended by SFAS No. 138, also nullifies or modifies the consensuses reached in a number of issues addressed by the Emerging Issues Task Force. SFAS No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Initial application of these statement should be as of the beginning of an entity's fiscal quarter; on that date, hedging relationships must be designated anew and documented pursuant to the provisions of these statements. Neither SFAS No. 133 nor SFAS No. 138 should be applied retroactively to financial statements of prior periods. The Company has a program in place to evaluate its financial instruments and purchase contracts. Management believes the effects of adopting SFAS No. 133 and SFAS No. 138 will not have a significant impact on its results of operations or financial position. On March 31, 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" (FIN No. 44). This interpretation provides guidance for issues that have arisen in applying APB Opinion No. 25, "Accounting for Stock Issued to Employees." FIN 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards, and changes in grantee status that occur on or after July 1, 2000, except for the provisions related to repricing and the definition of an employee which apply to awards issued after December 31, 1998. The provisions related to modifications to fixed stock option awards are effective for awards modified after January 12, 2000. Management believes the effects of adopting FIN No. 44 will not have a significant impact on its results of operations or financial position. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the company. This could cause results or performance to differ materially form those expressed in our forward-looking statements. Words such as "experts", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers of the Company's Form 10-Q should not rely solely on forward looking statements and should consider all uncertainties and risks discussed throughout this report, as well as those discussed in the Company's 1999 annual Report on Form 10-K filed March 17, 2000. These statements are representative only on the date hereof, and the Company undertakes no obligation to update any forward-looking statements made. Some possible events or factors that could occur that may cause differences from expected results include the following: the company's loan growth is dependent on economic conditions, as well as various discretionary factors, such as decisions to sell, or purchase certain loans or loan portfolios; participations of loans and the management of borrower, industry, product and geographic concentrations and the mix of the loan portfolio. The rate of charge-offs and provision expense can be affected by local, regional and international economic and market conditions, concentrations of borrowers, industries, products and geographical conditions, the mix of the loan portfolio and management's judgements regarding the collectibility of loans. Liquidity requirements may change as a result of fluctuations in assets and liabilities and off-balance sheet exposures, which will impact the capital and debt financing needs of the company and the mix of funding sources. Decisions to purchase, hold, or sell securities are also dependent of liquidity requirements and market volatility, as well as on the off-balance sheet positions. Factors that may impact interest rate risk include local, regional and international economic conditions, levels, mix, maturities, yields or rates of assets and liabilities and the wholesale and retail funding sources of the Company. The Company is also exposed to the potential of losses arising from adverse changes in market rate and prices which can adversely impact the value of financial products, including securities, loans, and deposits. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation and state regulators, whose policies and regulations could affect the Company's results. 10 Other factors that may cause actual results to differ from the forward-looking statements include the following: competition with other local and regional banks, savings and loan associations, credit unions and other non-bank financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, mutual funds and insurance companies, as well as other entities which offer financial services; interest rate, market and monetary fluctuations; inflation; market volatility; general economic conditions; introduction and acceptance of new banking-related products, services and enhancement; fee pricing strategies, mergers and acquisitions and their integration into the Company and management's ability to manage these and other risks. The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and its subsidiaries' financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto. RESULTS OF OPERATIONS OVERVIEW. For the three and nine months ended September 30, 2000 the Company reported record net income of $1,646,000 and $4,960,000. This compares to $1,296,000 and $3,652,000 for the same periods in 1999 and represents an increase of $350,000 and $1,308,000. Basic and diluted earnings per share were $.36 and $.35 for the three months ended September 30, 2000. This compares to basic and diluted earnings per share of $.28 and $.28 for the three months ended September 30, 1999 and represents an increase of $0.08 per basic and $0.07 per diluted share. The annualized return on average assets was 1.04% and 0.99% for the three months ended September 30, 2000 and 1999, respectively. The Company's annualized return on average equity was 13.67% and 11.92% for the three months ended September 30, 2000 and 1999, respectively. The following tables provide a summary of the major categories of income and expense for the third quarter of 2000 compared with the third quarter of 1999 and for the first nine months of 2000 compared with the first nine months of 1999:
Three Months Ended September 30, -------------------------------- Percentage Change 2000 1999 Increase --------------- -------------- ------------------------ (Dollars in thousands, except earnings per share) Interest income $ 13,299 $ 10,106 31.6 % Interest expense 5,592 3,558 57.2 Net interest income 7,707 6,548 17.7 Provisions for loan losses 792 672 17.9 Net interest income after provision for loan losses 6,915 5,876 17.7 Other income 1,340 1,207 11.0 Other expenses 5,888 5,295 11.2 Net income before income taxes 2,367 1,788 32.4 Income taxes 721 492 46.5 Net income 1,646 1,296 27.0 Diluted earnings per common share 0.35 0.28 25.0
11
Nine Months Ended September 30, Percentage Change 2000 1999 Increase --------------- -------------- ------------------------ (Dollars in thousands, except earnings per share) Interest income $ 36,893 $ 28,487 29.5% Interest expense 14,937 10,032 48.9 Net interest income 21,956 18,455 19.0 Provisions for loan losses 2,323 1,772 31.1 Net interest income after provision for loan losses 19,633 16,683 17.7 Other income 4,131 3,810 8.4 Other expenses 16,686 15,238 9.5 Net income before income taxes 7,078 5,255 34.7 Income taxes 2,118 1,603 32.1 Net income 4,960 3,652 35.8 Diluted earnings per common share 1.07 0.77 39.0
NET INTEREST INCOME. The Company's primary source of income is net interest income and is determined by the difference between interest income and fees derived from earning assets and interest paid on interest bearing liabilities. Net interest income for the three and nine months ended September 30, 2000 totaled $7,707,000 and $21,956,000 and represented an increase of $1,159,000 and $3,501,000 or 17.7% and 19.0% when compared to the $6,548,000 and $18,455,000 achieved during the three and nine months ended September 30, 1999. Total interest and fees on earning assets were $13,299,000 and $36,893,000 for the three and nine months ended September 30, 2000, an increase of $3,193,000 and $8,406,000 or 31.6% and 29.5% from the $10,106,000 and $28,487,000 for the same period in 1999. The level of interest income is affected by changes in volume of and rates earned on interest-earning assets. Interest-earning assets consist primarily of loans, investment securities and federal funds sold. The increase in interest income for the three and nine months ended September 30, 2000 was the result of both an increase in the interest rate earned and the volume of interest-earning assets. Average interest-earning assets for the three and nine months ended September 30, 2000 were $574,465,000 and $541,689,000 compared with $467,085,000 and $450,140,000 for the three and nine months ended September 30, 1999, an increase of $107,380,000 and $91,549,000 or 23.0% and 20.3%. The average interest rate earned on interest-earnings assets during the three and nine months ending September 30, 2000 was 9.26% and 9.08% which is an increase of 61 and 64 basis points or 7.1% and 7.6% from the 8.65% and 8.44% earned during the three and nine months ending September 30, 1999. Interest expense is a function of the volume of and the rates paid on interest-bearing liabilities. Interest-bearing liabilities consist primarily of certain deposits and borrowed funds. Total interest expense was $5,592,000 and $14,937,000 for the three and nine months ended September 30, 2000, compared with $3,558,000 and $10,032,000 for the three and nine months ended September 30, 1999, an increase of $2,034,000 and $4,905,000 or 57.2% and 48.9%. This increase was primarily the result of both an increase in the rates and volumes of interest-bearing liabilities. Average interest-bearing liabilities were $487,234,000 and $464,332,000 for the three and nine months ended September 30, 2000 compared with $398,308,000 and $383,805,000 for the same three and nine months in 1999, an increase of $88,926,000 and $80,527,000 or 22.3% and 21.0%. Average interest rates paid on interest-bearing liabilities were 4.59% and 4.29% for the three and nine months ending September 30, 2000 compared with 3.57% and 3.49% for the same three and nine months of 1999, an increase of 102 and 80 basis points or 28.6% and 22.9%. 12 The increase in interest-earning assets and interest-bearing liabilities is primarily the result of increased market penetration within our target markets. Internal growth has been achieved primarily through expanding existing loan and deposit balances within our existing branch network. The Company's net interest margin, the ratio of net interest income to average interest-earning assets, was 5.37% and 5.40% for the three and nine months ended September 30, 2000 compared with 5.61% and 5.47% for the same periods in 1999, a decrease of 24 and 7 basis points for the three and nine months ending September 30, 2000 compared to the same period in 1999. Net interest margin provides a measurement of the Company's ability to employ funds profitably during the period being measured. The Company's decrease in net interest margin for the three and nine months ending September 30, 2000 was primarily attributable to the increase in short term market interest rates experienced during the latter part of 1999 and through the first nine months of 2000. AVERAGE BALANCES AND RATES EARNED AND PAID. The following table presents condensed average balance sheet information for the Company, together with interest rates earned and paid on the various sources and uses of its funds for each of the three month periods indicated. Nonaccruing loans are included in the calculation of the average balances of loans, but the nonaccrued interest on such loans is excluded. AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST EARNINGS
Three months ended Three months ended September 30, 2000 September 30, 1999 Average Average Balance Interest Yield/rate Balance Interest Yield/rate (Dollars in thousands) Assets Federal funds sold $ 7,910 $ 124 6.27 % $ 2,866 $ 37 5.16% Time deposits at other financial 603 11 7.30 3,381 45 5.32 institutions Taxable investment securities 150,688 2,650 7.03 113,383 1,799 6.35 Nontaxable investment securities (1) 29,517 336 4.55 30,070 344 4.58 Loans, gross: (2) 385,747 10,178 10.55 317,385 7,881 9.93 --------- ------ ----- ------- ------ ----- Total interest-earning assets: 574,465 13,299 9.26 467,085 10,106 8.65 Allowance for loan losses (7,133) (6,048) Cash and due from banks 25,300 22,682 Premises and equipment, net 12,876 13,042 Interest receivable and other assets 27,959 25,145 --------- -------- Total assets $ 633,467 $521,906 ========= ======== Liabilities and shareholders' equity Negotiable order of withdrawal $ 74,116 $ 125 0.67 % $ 68,992 $ 117 0.68% Savings deposits 182,283 1,900 4.17 177,809 1,501 3.38 Time deposits 209,681 3,200 6.10 139,721 1,747 5.00 Other borrowings 21,154 6.94 11,786 193 6.55 --------- ------ ----- ------- ------ ----- Total interest-bearing liabilities 487,234 5,592 4.59 398,308 3,558 3.57 Noninterest-bearing deposits 92,154 75,964 Accrued interest, taxes and other liabilities 5,925 4,135 --------- ------ Total liabilities 585,313 478,407 Total shareholders' equity 48,154 43,499 --------- ------ Total liabilities and shareholders' equity $ 633,467 $ 521,906 ========= ========= Net interest income and margin (3) $ 7,707 5.37% $ 6,548 5.61% ======= ==== ======= ====
(1) Interest on nontaxable securities is not computed on a tax-equivalent basis. (2) Amount of interest earned includes loan fees of $214,000 and $53,000 for September 30, 2000 and 1999 respectively. (3) Net interest margin is computed by dividing net interest income by total average interest-earning assets. 13 The following table presents condensed average balance sheet information for the Company, together with interest rates earned and paid on the various sources and uses of its funds for each of the nine month periods indicated. Nonaccruing loans are included in the calculation of the average balances of loans, but the nonaccrued interest on such loans is excluded.
Nine months ended Nine months ended September 30, 2000 September 30, 1999 Average Average Balance Interest Yield/rate Balance Interest Yield/rate (Dollars in thousands) Assets Federal funds sold $ 8,996 $ 422 6.25% $ 9,503 $ 340 4.77% Time deposits at other financial 668 29 5.79 2,095 84 5.35 institutions Taxable investment securities 143,000 7,524 7.02 112,711 5,130 6.07 Nontaxable investment securities (1) 29,677 1,019 4.58 30,099 1,035 4.58 Loans, gross: (2) 359,348 27,899 10.35 295,732 21,898 9.87 -------- ------ ----- -------- ------ ---- Total interest-earning assets: 541,689 36,893 9.08 450,140 28,487 8.44 Allowance for loan losses (6,887) (5,769) Cash and due from banks 23,658 21,168 Premises and equipment, net 13,042 13,141 Interest receivable and other assets 27,704 24,285 -------- -------- Total assets $599,206 $502,965 ======== ======== Liabilities and shareholders' equity Negotiable order of withdrawal $ 73,297 $ 370 0.67% $ 67,350 $ 339 0.67% Savings deposits 176,905 5,187 3.91 175,363 4,285 3.26 Time deposits 191,031 8,221 5.74 133,431 4,985 4.98 Other borrowings 23,099 1,159 6.69 7,661 423 7.36 -------- ------ ----- -------- ------ ---- Total interest-bearing liabilities 464,332 14,937 4.29 383,805 10,032 3.49 Noninterest-bearing deposits 83,889 71,717 Accrued interest, taxes and other liabilities 4,990 3,899 -------- -------- Total liabilities 553,211 459,421 Total shareholders' equity 45,995 43,544 -------- -------- Total liabilities and shareholders' equity $599,206 $502,965 ======== ======== Net interest income and margin (3) $21,956 5.40% $ 18,455 5.47% ======= ==== ======== ====
(1) Interest on nontaxable securities is not computed on a tax-equivalent basis. (2) Amount of interest earned includes loan fees of $540,000 and $329,000 for September 30, 2000 and 1999 respectively. (3) Net interest margin is computed by dividing net interest income by total average interest-earning assets. 14 NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE. The following table sets forth, for the periods indicated, a summary of the changes in average asset and liability balances and interest earned and interest paid resulting from changes in average asset and liability balances (volume) and changes in average interest rates and the total net change in interest income and expenses. The changes in interest due to both rate and volume have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the change in each.
Three Months Ended Sept. 30, 2000 compared to Sept. 30, 1999 ---------------------------------------- Volume Rate Total ----------- ------------ --------------- (Dollars in thousands) Increase (decrease) in interest income: Federal funds sold $ 21 $ 66 $ 87 Time deposits at other financial (46) 12 (34) institutions Taxable investment securities 367 484 851 Tax-exempt investment securities (4) (4) (8) Loans 1,780 517 2,297 ----------- ------------ --------------- Total $ 2,118 $ 1,075 $ 3,193 =========== ============ =============== Increase (decrease) interest expense: Interest bearing demand $ 9 $ (1) $ 8 Savings deposits 39 360 399 Time deposits 1,009 444 1,453 Other borrowings 162 12 174 ----------- ------------ --------------- Total $ 1,219 $ 815 $ 2,034 =========== ============ =============== Increase in net interest income $ 899 $ 260 $ 1,159 =========== ============ ===============
Nine Months Ended Sept. 30, 2000 compared to Sept. 30, 1999 ---------------------------------------- Volume Rate Total ----------- ------------ --------------- (Dollars in thousands) Increase (decrease) in interest income: Federal funds sold $ (19) $ 101 $ 82 Time deposits at other financial (61) 6 (55) institutions Taxable investment securities 1,515 879 2,394 Tax-exempt investment securities (14) (2) (16) Loans 4,897 1,104 6,001 ----------- ------------ --------------- Total $ 6,318 $ 2,088 $ 8,406 =========== ============ =============== Increase (decrease) interest expense: Interest bearing demand $ 30 $ 1 $ 31 Savings deposits 38 864 902 Time deposits 2,394 842 3,236 Other borrowings 778 (42) 736 ----------- ------------ --------------- Total $ 3,240 $ 1,665 $ 4,905 =========== ============ =============== Increase in net interest income $ 3,078 $ 423 $ 3,501 =========== ============ ===============
15 PROVISION FOR LOAN LOSSES. The provision for loan losses for the three and nine months ended September 30, 2000 were $792,000 and $2,323,000 which compares with $672,000 and $1,772,000 for the three and nine months ended September 30, 1999. See "Allowance for Loan Losses" contained herein. As of September 30, 2000 the allowance for loan losses was $7,309,000 or 1.85% of total loans. At September 30, 2000, nonperforming assets totaled $2,459,000 or .38% of total assets, nonperforming loans totaled $1,912,000 or .48% of total loans and the allowance for loan losses totaled 382% of nonperforming loans. At December 31, 1999, nonperforming assets totaled $2,237,000 or .40% of total loans, nonperforming loans totaled $1,990,000 or .60% of total loans and the allowance for loan losses totaled 328.74% of nonperforming loans. No assurance can be given that nonperforming loans will not increase or that the allowance for loan losses will be adequate to cover losses inherent in the loan portfolio. OTHER INCOME. Total other income for the three and nine months ended September 30, 2000 was $1,340,000 and $4,131,000 which is an increase of $133,000 and $321,000 or 11.0% and 8.4% from the $1,207,000 and $3,810,000 realized during the same three and nine month periods in 1999. Service charges on deposit accounts increased by $75,000 and $222,000 or 8.9% and 9.3% to $921,000 and $2,605,000 for the three and nine months ended September 30, 2000 compared with $846,000 and $2,383,000 for the same periods in 1999. Income from the sale of real estate held for sale did not change in the third quarter of 2000 or 1999 and there were no real estate sales during this time period. Income from the sale of real estate totaled $381,000 for the first nine month of 2000, which is an increase of $131,000 or 52.4% from the $250,000 realized during the first nine months of 1999. Other income, which includes commissions earned on the retail sale of securities and annuities, increased by $58,000 or 16.1% for the three month period ended September 30, 2000 to $419,000 which compares to $361,000 recorded in the same period in 1999. During the nine months ending September 30, 2000, other income declined by $32,000 or 2.7% to $1,145,000 from the $1,177,000 recorded during the first nine months of 1999. OTHER EXPENSE. Noninterest expenses for the three and nine months ended September 30, 2000 were $5,888,000 and $16,686,000, an increase of $593,000 and $1,448,000 or 11.2% and 9.5% when compared with the $5,295,000 and $15,238,000 recorded during the three and nine months ended September 30, 1999. The primary components of noninterest expenses were salaries and related benefits, equipment expenses, premises and occupancy expenses, professional fees, marketing expenses, goodwill and intangible amortization expense, supplies expense, and other operating expenses. For the three and nine months ended September 30, 2000, salaries and related benefits increased by $424,000 and $1,027,000 or 16.7% and 14.3% over the same period in 1999 to $2,969,000 and $8,190,000. Equipment expenses increased by $79,000 and $315,000 or 14.7% and 20.4% during the three and nine months ended September 30, 2000 to $618,000 and $1,862,000 from the $539,000 and $1,547,000 experienced during the three and nine months ended September 30, 1999. Professional fees increased by $79,000 or 34.6% for the three months ended September 30, 2000 to $307,000 from the $228,000 realized for the three months ended September 30, 1999. For the nine months ended September 30, 2000, the professional fees decreased by $119,000 or 12.9% to $802,000 from the $921,000 recorded for the nine months ended September 30, 1999. When comparing the results of the three and nine months ended September 30, 2000 to three and nine months ended September 30, 1999, premises and occupancy expenses increased $13,000 and $118,000 or 3.1% and 10.3%, marketing expenses increased by $26,000 and $138,000 or 13.8% and 25.6%, supplies expense increased by $34,000 and $55,000 or 27.0% and 13.1%, and other expenses decreased by $62,000 and $86,000 or 5.9% and 3.0%. The salary expense increases were primarily the result of increased staffing levels and normal salary progression. Increased equipment expenses were primarily the result of increased 16 spending on technology and processing equipment. Increased spending on premises and occupancy is primarily related to increased spending on branch office maintenance and repair. Increased professional fees during the three months ended September 30, 2000 when compared to the same period in 1999 were the result of consulting expenses aimed at improving operational efficiencies during the quarter. Decreased professional fees for the nine months ending September 30, 2000 as compared with September 30, 1999 were primarily the result of the decreased use of outside consulting firms during this nine month period. Increased marketing expenses were primarily the result of increased media spending on network and cable television advertising. Increased supplies expense was primarily the result of increased use of supplies in supporting increased loan and deposit volumes. PROVISION FOR INCOME TAXES. The Company recorded an increase of $229,000 and $515,000 in the income tax provision to $721,000 and $2,118,000 for the three and nine months ended September 30, 2000 compared to the $492,000 and $1,603,000 recorded for the same periods in 1999. For the three and nine months ended September 30, 2000, the Company experienced an effective tax rate of 30.5% and 29.9% compared to 27.5% and 30.5% recorded for three and nine months ended September 30, 1999. The increase in income taxes during the three and nine months ending September 30, 2000 as compared to the same period in 1999 is primarily related to an overall increase in pretax earnings. The increase in effective tax rates during the three months ended September 30, 2000 as compared to the same period in 1999 is primarily related to an increased level of taxable income, primarily net interest income, without a corresponding increase in nontaxable income and tax credits. The primary source of nontaxable income during the three and nine months ending September 30, 2000 and 1999 was interest generated from investments in bank qualified municipal securities. The primary source of tax credits during these same periods was tax credits derived from investments in housing tax credit limited partnerships. These partnership investments allow the Company to utilize federal and state housing credits obtained from investments in low-income affordable housing projects. The Company had investments in these partnerships of $5,800,000 as of September 30, 2000 and 1999 which generated estimated tax credits of $130,000 and $375,000 for the three and nine months ended September 30, 2000 compared with $105,000 and $330,000 for the same periods in 1999. INTEREST RATE RISK MANAGEMENT Managing interest rate risk is an integral part of managing a banking institution's primary source of income, net interest income. The Company manages the balance between rate-sensitive assets and rate-sensitive liabilities being repriced in any given period with the objective of stabilizing net interest income during periods of fluctuating interest rates. The Company considers its rate-sensitive assets to be those which either contain a provision to adjust the interest rate periodically or mature within one year. These assets include certain loans, investment securities and federal funds sold. Rate-sensitive liabilities are those which allow for periodic interest rate changes within one year and include maturing time certificates, certain savings deposits and interest-bearing demand deposits. The difference between the aggregate amount of assets and liabilities that reprice at various time frames is called the "gap." Generally, if repricing assets exceed repricing liabilities in a time period the Company would be considered to be asset-sensitive. If repricing liabilities exceed repricing assets in a time period the Company would be considered to be liability-sensitive. Generally, the Company seeks to maintain a balanced position whereby there is no significant asset or liability sensitivity within a one-year period to ensure net interest margin stability in times of volatile interest rates. This is accomplished through maintaining a significant level of loans, investment securities and deposits available for repricing within one year. 17 The following tables set forth the interest rate sensitivity of the Company's interest-earning assets and interest-bearing liabilities as of September 30, 2000, using the interest rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or matures within its contractual terms.
September 30, 2000 ------------------------------------------------------------------------------------- After 3 After 1 But Year But Within Within Within After Noninterest- 3 Months 12 Months 5 Years 5 Years Bearing TOTAL -------- --------- ------- ------- ------------- ----- (Dollars in thousands) ASSETS Time deposits at other banks $ 600 $ -- $ -- $ -- $ -- $ 600 Investment securities 6,238 6,831 71,374 95,197 2,408 182,048 Loans 177,703 54,577 116,033 46,667 -- 394,980 -------- --------- ------- ------- ------------- ------- Total earning assets 184,541 61,408 187,407 141,864 2,408 577,628 Noninterest-earning assets and allowances for loan losses -- -- -- -- 62,815 62,815 -------- --------- ------- ------- ------------- ------- Total assets $184,541 $ 61,408 $187,407 $141,864 $ 65,223 $640,443 LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits $ -- $ -- $ -- $ -- $ 96,104 $ 96,104 Savings, money market and NOW deposits 252,107 -- -- -- -- 252,107 Time deposits 32,336 146,445 29,508 -- -- 208,289 Other interest-bearing liabilities 18,698 6,000 -- 3,169 -- 27,867 Other liabilities and shareholders' equity -- -- -- -- 56,076 56,076 Total liabilities and shareholders' equity 303,141 152,445 29,508 3,169 152,180 640,443 Incremental gap (118,600) (91,037) 157,899 138,695 (86,957) -- Cumulative gap (118,600) (209,637) (51,738) 86,957 -- -- Cumulative gap as a % of earning assets (20.53)% (36.29)% (8.96)% 15.05% -- --
The Company was liability-sensitive with a negative cumulative one-year gap of $209,637,000 or (36.29)% of interest-earning assets at September 30, 2000. In general, based upon the Company's mix of deposits, loans and investments, increases in interest rates would be expected to result in a decrease in the Company's net interest margin. The interest rate gaps reported in the tables arise when assets are funded with liabilities having different repricing intervals. Since these gaps are actively managed and change daily as adjustments are made in interest rate views and market outlook, positions at the end of any period may not be reflective of the Company's interest rate sensitivity in subsequent periods. Active management dictates that longer-term economic views are balanced against prospects for short-term interest rate changes in all repricing intervals. For purposes of the analysis above, repricing of fixed-rate instruments is based upon the contractual maturity of the applicable instruments. Actual payment patterns may differ from 18 contractual payment patterns. The change in net interest income may not always follow the general expectations of an asset-sensitive or liability-sensitive balance sheet during periods of changing interest rates, because interest rates earned or paid may change by differing increments and at different time intervals for each type of interest-sensitive asset and liability. As a result of these factors, at any given time, the Company may be more sensitive or less sensitive to changes in interest rates than indicated in the above tables. Greater liability sensitivity would have a more adverse effect on net interest margin if market interest rates were to increase, and a more favorable effect if rates were to decrease. In order to manage interest rate sensitivity, the Company utilizes a detailed model to project an expected change in net interest income. The model's estimate of interest rate sensitivity takes into account the differing time intervals and differing rate change increments of each type of interest-sensitive asset and liability. It then measures the projected impact of changes in market interest rates on the Company's net interest income. Based upon the September 30, 2000 mix of interest-sensitive assets and liabilities, given an immediate and sustained increase in the market interest rates of 2%, this model estimates the Company's cumulative change in net interest income over the next year would decrease by approximately $237,000 or 1% of annualized net interest income. No assurance can be given that the actual net interest income would not decrease by more than $237,000 or 1% in response to a 2% increase in market interest rates or that actual net interest income would not decrease substantially if market interest rates increased by more than 2%. FINANCIAL CONDITION Total assets at September 30, 2000 were $640,443,000, an increase of $76,893,000 or 13.6% compared with total assets of $563,550,000 at December 31, 1999. Net loans were $387,671,000 at September 30, 2000, an increase of $62,945,000 or 19.4% compared with net loans of $324,726,000 at December 31, 1999. Deposits totaled $556,500,000 at September 30, 2000, an increase of $61,599,000 or 12.4% compared with total deposits of $494,901,000 at December 31, 1999. Brokered deposits totaled $1,549,000 and $12,000,000 as of September 30, 2000 and December 31, 1999. The increase in total assets of the Company from December 31, 1999 to September 30, 2000 was primarily the result of increased efforts in gathering retail deposits through the Bank's retail branch network. During the third quarter of 2000, maturities that occurred within the investment portfolio and new deposit monies received were primarily used to fund loan growth. All short term borrowings were secured by a portion of the Company's investment portfolio. Total shareholders' equity was $49,761,000 at September 30, 2000, an increase of $6,084,000 or 13.9% from $43,677,000 at December 31, 1999. The growth in shareholders' equity between September 30, 2000 and December 31, 1999 was primarily achieved through the retention of accumulated earnings. 19 INVESTMENT PORTFOLIO. The following table sets forth the carrying amount (fair value) of available for sale investment securities as of September 30, 2000 and December 31, 1999.
September 30, December 31, 2000 1999 ---------------------------------------- (Dollars in thousands) AVAILABLE FOR SALE SECURITIES: U.S. Treasury and U.S. government agencies $36,553 $ 16,756 State and political subdivisions 23,999 23,371 Mortgage-backed securities 48,175 43,723 Collateralized mortgage obligations 29,657 20,341 Corporate debt securities 9,554 9,660 Other securities 2,408 3,963 ------------------- ---------------- Carrying amount and fair value $ 150,346 $ 117,814 =================== ================
The following table sets forth the carrying amount (amortized cost) and fair value of held to maturity securities at September 30, 2000 and December 31, 1999:
September 30, December 31, 2000 1999 --------------------------------------- (Dollars in thousands) HELD TO MATURITY SECURITIES: Amortized Cost: U.S. Treasury and U.S. government agency $ -- $ 1,004 State and political subdivisions 4,379 4,389 Mortgage-backed securities 23,309 24,161 Collateralized mortgage obligations 4,014 -- --------- --------- Carrying amount (amortized cost) $ 31,702 $ 29,554 ========= ========= Fair Value: U.S. Treasury and U.S. government agency $ -- $ 1,001 State and political subdivisions 4,311 4,159 Mortgage-backed securities 22,929 23,515 Collateralized mortgage obligations 4,060 -- Fair value $ 31,300 $ 28,675 ========= =========
20 The following table sets forth the maturities of the Company's investment securities at September 30, 2000 and the weighted average yields of such securities based on cost and the scheduled maturity of each security. Maturities of mortgage-backed securities are stipulated in their respective contracts. However, actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties. Yields on municipal securities have not been calculated on a tax-equivalent basis.
September 30, 2000 ---------------------------------------------------------------------------------------- Within One Year One To 5 Years Five To Ten Years Over Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount (Dollars in thousands) Available for Sale Securities: Treasury and U.S. Government agency $ -- --% $ 30,225 6.62% $ 6,328 7.26% $ -- --% $ 36,553 State and political 500 7.80 -- -- 3,436 4.28 20,063 4.44 23,999 Mortgage-backed securities 12 8.09 950 6.67 551 7.56 46,662 6.72 48,175 Collateralized mortgage obligations -- -- 5,171 7.12 9,020 7.29 15,466 6.53 29,657 Corporate debt securities 986 6.09 3,149 6.38 -- -- 5,419 7.86 9,554 Equity Securities -- -- -- -- -- -- 2,408 -- 2,408 ---------------------------------------------------------------------------------------- Carrying amount and fair value 1,498 6.68 39,495 6.75 19,335 6.75 90,018 6.07 150,346 ---------------------------------------------------------------------------------------- Held to maturity securities: State and political 4,379 5.14 4,379 Mortgage-backed securities -- -- -- -- -- -- 23,309 7.21 23,309 Collateralized Mortgage Obligations -- -- 4,014 7.82 -- -- -- -- 4,014 ---------------------------------------------------------------------------------------- Carrying amount (amortized cost) -- -- 4,014 7.82 -- -- 27,688 6.88 31,702 ---------------------------------------------------------------------------------------- Total securities $ 1,498 6.68% $ 43,509 6.85% $ 19,335 6.75% $ 117,706 6.26% $182,048 ======== ===== ======== ===== ======== ===== ========= ===== ========
In the above table, mortgage-backed securities and collateralized mortgage obligations are shown repricing at the time of maturity rather than in accordance with their principal amortization schedules. The Company does not own securities of a single issuer whose aggregate book value is in excess of 10% of its total equity. LOAN PORTFOLIO. The following table shows the composition of the Company's loan portfolio at the dates indicated.
September 30, December 31, (Dollars in thousands) 2000 1999 --------------------------- --------------------------------- Percent Percent Dollar Amount of Loans Dollar Amount of Loans ------------- -------- ------------- -------- Loan Categories: Commercial $ 93,470 23% $ 53,932 16% Agricultural 87,207 22 58,247 17 Real estate construction 14,851 4 11,926 4 Real estate mortgage 113,494 29 120,978 37 Consumer 85,958 22 86,185 26 ------------- -------- ------------- -------- Total 394,980 100% 331,268 100% ------------- ======== ------------- ======== Less allowance for loan losses (7,309) (6,542) ------------- ------------- Net loans $ 387,671 $ 324,726 ------------- -------------
21 The following table shows the maturity distribution of the portfolio of commercial, agricultural, real estate construction, real estate mortgage, and consumer loans at September 30, 2000:
September 30, 2000 ------------------------------------------------------------------ After 1 but Within 1 year within 5 years After 5 years Total ------------------------------------------------------------------ (Dollars in thousands) Commercial and agricultural Loans with floating interest rates $ 69,394 $ 26,345 $ 35,914 $ 131,653 Loans with fixed interest rates 7,311 19,016 22,697 49,024 ---------- --------- ---------- ---------- Subtotal 76,705 45,361 58,611 180,677 Real estate construction Loans with floating interest rates 7,101 252 5,525 12,878 Loans with fixed interest rates 1,305 -- 668 1,973 ---------- --------- ---------- ---------- Subtotal 8,406 252 6,193 14,851 Real estate mortgage Loans with floating interest rates 8,439 14,708 52,482 75,629 Loans with fixed interest rates 4,762 1,976 31,127 37,865 ---------- --------- ---------- ---------- Subtotal 13,201 16,684 83,609 113,494 Consumer installment Loans with floating interest rates 558 996 8,777 10,331 Loans with fixed interest rates 4,185 68,806 2,636 75,627 ---------- --------- ---------- ---------- Subtotal 4,743 69,802 11,413 85,958 ---------- --------- ---------- ---------- Total $ 103,055 $ 132,099 $ 159,826 $ 394,980 ========== ========== ========= =========
OFF-BALANCE SHEET COMMITMENTS. The following table shows the distribution of the Company's undisbursed loan commitments at the dates indicated.
September 30, December 31, 2000 1999 ---- ---- (Dollars in thousands) Letters of credit $ 1,480 $ 2,674 Commitments to extend credit 127,483 101,847 --------- --------- Total $ 128,963 $ 104,521 ========= =========
OTHER INTEREST-EARNING ASSETS. The following table presents other interest-earning for the dates indicated. This item consists of a salary continuation plan for the Company's executive management and deferred retirement benefits for participating board members. The plan is informally linked with universal life insurance policies for the salary continuation plan. Income from these policies is reflected in noninterest income.
September 30, December 31, 2000 1999 ---- ---- (Dollars in thousands) Cash surrender value of life insurance $6,009 $5,792 ====== ======
22 NONPERFORMING ASSETS. Nonperforming assets include nonaccrual loans, loans 90 days or more past due, restructured loans and other real estate owned. Nonperforming loans include loans on nonaccrual status, loans past due 90 days or more and still accruing and restructured loans. The Company generally places loans on nonaccrual status and accrued but unpaid interest is reversed against the current year's income when interest or principal payments become 90 days or more past due unless the outstanding principal and interest is adequately secured and, in the opinion of management, is deemed in the process of collection. Interest income on nonaccrual loans is recorded on a cash basis. Payments may be treated as interest income or return of principal depending upon management's analysis of the ultimate risk of loss on the individual loan. Cash payments are treated as interest income where management believes the remaining principal balance is fully collectible. Additional loans not 90 days past due may also be placed on nonaccrual status if management reasonably believes the borrower will not be able to comply with the contractual loan repayment terms and collection of principal or interest is in question. A "restructured loan" is a loan on which interest accrues at a below market rate or upon which certain principal has been forgiven so as to aid the borrower in the final repayment of the loan, with any interest previously accrued, but not yet collected, being reversed against current income. Interest is reported on a cash basis until the borrower's ability to service the restructured loan in accordance with its terms is established. The Company had no restructured loans as of the dates indicated in the table below. The following table summarizes nonperforming assets of the Company at September 30, 2000 and December 31, 1999:
September 30, December 31, 2000 1999 ---- ---- (Dollars in thousands) Nonaccrual loans $ 1,896 $ 1,984 Accruing loans past due 90 days or more 16 6 ------- ------- Total nonperforming loans 1,912 1,990 Other real estate owned 547 247 ------- ------- Total nonperforming assets $ 2,459 $ 2,237 ======= ======= Nonperforming assets: To total loans .62% .60% To total assets .38% .40%
The amount of gross interest income that would have been recorded in the periods then ended if the loans had been current in accordance with the original terms and had been outstanding throughout the period, or since origination, if held for part of the period, was $115,000 for the nine month period ended September 30, 2000 and $143,000 for the twelve month period ended December 31, 1999. The amount of interest income on these loans that was included in net income was $18,000 for the nine months ended September 30, 2000 and $126,000 for the twelve months ended December 31, 2000. At September 30, 2000, nonperforming assets represented .38% of total assets, a decrease of 2 basis points when compared to the .40% at December 31, 1999. Nonperforming loans represented .62% of total loans at September 30, 2000, an increase of .02% of total loans compared to the .60% at December 31, 1999. Nonperforming loans that were secured by first deeds of trust on real property were 23 $0 at September 30, 2000 and $623,000 at December 31, 1999. Other forms of collateral such as inventory and equipment secured the remaining nonperforming loans as of each date. No assurance can be given that the collateral securing nonperforming loans will be sufficient to prevent losses on such loans. The decrease in nonperforming loans and increase in nonperforming assets as of September 30, 2000 compared with their levels as of December 31, 1999, was due primarily to a decrease in non performing agricultural and commercial loans, and an increase in properties acquired through foreclosure. As of September 30, 2000, the Company had $547,000 in three properties acquired through foreclosure. The properties are carried at the lower of its estimated market value, as evidenced by an independent appraisal, or the recorded investment in the related loan, less estimated selling expenses. At foreclosure, if the fair value of the real estate is less than the Company's recorded investment in the related loan, a charge is made to the allowance for loan losses. No assurance can be given that the Company will sell such property during 2000 or at any time or the amount for which such property might be sold. Management defines impaired loans, regardless of past due status on loans, as those on which principal and interest are not expected to be collected under the original contractual loan repayment terms. An impaired loan is charged off at the time management believes the collection process has been exhausted. At September 30, 2000 and December 31, 1999, impaired loans were measured based on the present value of future cash flows discounted at the loan's effective rate, the loan's observable market price or the fair value of collateral if the loan is collateral-dependent. Impaired loans at September 30, 2000 were $1,912,000, on account of which the Company had made provisions to the allowance for loan losses of $459,000. Except for loans that are disclosed above, there were no assets as of September 30, 2000, where known information about possible credit problems of the borrower causes management to have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and which may become nonperforming assets. Given the magnitude of the Company's loan portfolio, however, it is always possible that current credit problems may exist that may not have been discovered by management. 24 ALLOWANCE FOR LOAN LOSSES The following table summarizes the loan loss experience of the Company for the nine months ended September 30, 2000 and 1999, and the year ended December 31, 1999:
Nine Months Ended Twelve Months Ended September 30, December 31, --------------------------------- ----------------------- 2000 1999 1999 ---- ---- ---- Dollars in thousands ALLOWANCE FOR LOAN LOSSES: Balance at beginning of period $ 6,542 $ 4,775 $ 4,775 --------- --------- --------- Provision for loan losses 2,323 1,772 2,659 Charge-offs: Commercial and agricultural 416 518 531 Real estate construction -- -- -- Consumer 1,502 849 1,323 --------- --------- --------- Total charge-offs 1,918 1,367 1,854 --------- --------- --------- Recoveries Commercial and agricultural 101 576 715 Real estate-mortgage -- -- -- Consumer 261 260 247 --------- --------- --------- Total recoveries 362 836 962 Net charge-offs 1,556 531 892 --------- --------- --------- Balance at end of period $ 7,309 $ 6,016 $ 6,542 ========= ========= ========= Loans outstanding at end of period $ 394,980 $ 323,366 $ 331,268 ========= ========= ========= Average loans outstanding $ 359,348 $ 295,732 $ 303,463 ========= ========= ========= Annualized net charge-offs to average loans .58% .24% 0.29% Allowance for loan losses To total loans 1.85% 1.86% 1.97% To nonperforming loans 382.27% 181.15% 328.74% To nonperforming assets 297.22% 162.02% 292.45%
The Company maintains an allowance for loan losses at a level considered by management to be adequate to cover the inherent risks of loss associated with its loan portfolio under prevailing economic conditions. In determining the adequacy of the allowance for loan losses, management takes into consideration growth trends in the portfolio, examination by financial institution supervisory authorities, prior loan loss experience for the Company, concentrations of credit risk, delinquency trends, general economic conditions, the interest rate environment and internal and external credit reviews. In addition, the risks management considers vary depending on the nature of the loan. The normal risks considered by management with respect to agricultural loans include the fluctuating value of the collateral, changes in weather conditions and the availability of adequate water resources in the Company's local market area. The normal risks considered by management with respect to real estate construction loans include fluctuation in real estate values, the demand for improved commercial and industrial properties and housing, the availability of permanent financing in the Company's market area and borrowers' ability to obtain permanent financing. The normal risks considered by management with respect to real estate mortgage loans include fluctuations in the value of real estate. Additionally, the Company relies on data obtained through independent appraisals for significant properties to determine loss exposure on nonperforming loans. 25 The balance in the allowance is affected by the amounts provided from operations, amounts charged off and recoveries of loans previously charged-off. The Company recorded provisions for loan losses for the three and nine months ended September 30, 2000 of $792,000 and $2,323,000 compared with $672,000 and $1,772,000 for the same periods during 1999. The increase in loan loss provisions in 2000 compared to 1999 is primarily due to loan portfolio and an increase in the level of charge-offs. The Company's charge-offs, net of recoveries, were $1,556,000 for the nine months ended September 30, 2000 compared with $531,000 for the same nine months in 1999. The increase in net charge-offs during the first nine months of 2000 was primarily due to growth within the loan portfolio and an increase in the level of charge-offs experienced in the consumer segment of the loan portfolio. As of September 30, 2000, the allowance for loan losses was $7,309,000 or 1.85% of total loans outstanding, compared with $6,542,000 or 1.97% of total loans outstanding as of December 31, 1999. During the nine month period ended September 30, 2000, the allowance for loan loss increased $767,000 or 11.7% compared to December 31, 1999 levels. During the three months ended September 30, 2000, the allowance for loan losses increased $384,000 or 5.5% when compared to the June 30, 2000 levels. The Company uses a method developed by management in determining the appropriate level of its allowance for loan losses. This method applies relevant risk factors to the entire loan portfolio, including nonperforming loans. The methodology is based, in part, on the Company's loan grading and classification system. The Company grades its loans through internal reviews and periodically subjects loans to external reviews which then are assessed by the Company's audit committee. Credit reviews are performed on a monthly basis and the quality grading process occurs on a quarterly basis. Risk factors applied to the performing loan portfolio are based on the Company's past loss history considering the current portfolio's characteristics, current economic conditions and other relevant factors. The analysis also includes reference to factors such as the delinquency status of the loan portfolio, inherent risk by type of loans, industry statistical data, recommendations made by the Company's regulatory authorities and outside loan reviewers, and current economic environment. Important components of the overall credit rating process are the asset quality rating process and the internal loan review process. The allowance is based on estimates and ultimate future losses may vary from current estimates. It is always possible that future economic or other factors may adversely affect the Company's borrowers, and thereby cause loan losses to exceed the current allowance. In addition, there can be no assurance that future economic or other factors will not adversely affect the Company's borrowers, or that the Company's asset quality may not deteriorate through rapid growth, failure to enforce underwriting standards, failure to maintain appropriate underwriting standards, failure to maintain an adequate number of qualified loan personnel, failure to identify and monitor potential problem loans or for other reasons, and thereby cause loan losses to exceed the current allowance. 26 The following table summarizes a breakdown of the allowance for loan losses by loan category and the allocation in each category as a percentage of total loan allowance at the dates indicated:
September 30, December 31, 2000 1999 ------------ ----------- Amount Amount To Total To total Loans in Loans in Amount Category Amount Category ------ -------- ------ -------- (Dollars in thousands) Commercial and agricultural $3,562 45% $3,365 33% Real estate- construction 559 4 358 4 Real estate- mortgage 2,022 29 1,815 37 Installment 1,166 22 1,004 26 ------ --- ------ --- Total $7,309 100% $6,542 100% ====== === ====== ===
The allocation of the allowance to loan categories is an estimate by management of the relative risk characteristics of loans in those categories. No assurance can be given that losses in one or more loan categories will not exceed the portion of the allowance allocated to that category or even exceed the entire allowance. EXTERNAL FACTORS AFFECTING ASSET QUALITY. As a result of the Company's loan portfolio mix, the future quality of its assets could be affected by adverse economic trends in its region or in the agricultural community. These trends are beyond the control of the Company. California is an earthquake-prone region. Accordingly, a major earthquake could result in material loss to the Company. At times the Company's service area has experienced other natural disasters such as floods and droughts. The Company's properties and substantially all of the real and personal property securing loans in the Company's portfolio are located in California. The Company faces the risk that many of its borrowers face uninsured property damage, interruption of their businesses or loss of their jobs from earthquakes, floods or droughts. As a result these borrowers may be unable to repay their loans in accordance with their terms and the collateral for such loans may decline significantly in value. The Company's service area is a largely agricultural region and therefore is highly dependent on a reliable supply of water for irrigation purposes. The area obtains nearly all of its water from the run-off of melting snow in the mountains of the Sierra Nevada to the east. Although such sources have usually been available in the past, water supply can be adversely affected by light snowfall over one or more winters or by any diversion of water from its present natural courses. Any such event could impair the ability of many of the Company's borrowers to meet their obligations to the Company. California is a region that also experiences flooding. The Company is not aware of any material adverse effects to the collateral position of the Company as a result of flooding, but no assurance can be given that future flooding will not have an adverse impact on the Company and its borrowers and depositors. LIQUIDITY. In order to maintain adequate liquidity, the Company must have sufficient resources available at all times to meet its cash flow requirements. The need for liquidity in a banking institution arises principally to provide for deposit withdrawals, the credit needs of its customers and to take advantage of investment opportunities as they arise. The Company may achieve desired liquidity from both assets and liabilities. The Company considers cash and deposits held in other banks, federal funds sold, other short term investments, maturing loans and investments, payments of principal and interest on 27 loans and investments and potential loan sales as sources of asset liquidity. Deposit growth and access to credit lines established with correspondent banks and market sources of funds are considered by the Company as sources of liability liquidity. The Holding Company's primary source of liquidity is from dividends received from the Bank. Dividends from the Bank are subject to certain regulatory limitations. The Company reviews its liquidity position on a regular basis based upon its current position and expected trends of loans and deposits. These assets include cash and deposits in other banks, available-for-sale securities and federal funds sold. The Company's liquid assets totaled $179,787,000 and $168,886,000 on September 30, 2000 and December 31, 1999, respectively, and constituted 28%, and 30%, respectively, of total assets on those dates. Liquidity is also affected by the collateral requirements of its public deposits and certain borrowings. Total pledged securities were $135,914,000 at September 30, 2000 compared with $105,008,000 at December 31, 1999. Although the Company's primary sources of liquidity include liquid assets and a stable deposit base, the Company maintains lines of credit with the Federal Reserve Bank of San Francisco, Federal Home Loan Bank of San Francisco and Pacific Coast Bankers' Bank aggregating $82,733,000 of which $24,699,000 was outstanding as of September 30, 2000 and $12,600,000 was outstanding as of December 31, 1999. Funds used to reduce outstanding short term borrowings during the second quarter of 1999 were obtained from maturities and curtailments that occurred within the investment portfolio and deposit gathering efforts. Management believes that the Company maintains adequate amounts of liquid assets to meet its liquidity needs. The Company's liquidity might be insufficient if deposit withdrawals were to exceed anticipated levels. Deposit withdrawals can increase if a company experiences financial difficulties or receives adverse publicity for other reasons, or if its pricing, products or services are not competitive with those offered by other institutions. CAPITAL RESOURCES. Capital serves as a source of funds and helps protect depositors against potential losses. The primary source of capital for the company has been internally generated capital through retained earnings. The Company's shareholder equity increased by $6,084,000 or 13.9% from December 31, 1999 to September 30, 2000. The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a material adverse effect on the Company's financial statements. Management believes, as of September 30, 2000, that the Company and the Bank met all capital requirements to which they are subject. The Company's leverage capital ratio at September 30, 2000 was 7.48% as compared with 7.50% as of December 31, 1999. The Company's total risk based capital ratio at September 30, 2000 was 10.89% as compared to 11.24% as of December 31, 1999. 28 The Company's and Bank's actual capital amounts and ratios met all regulatory requirements as of September 30, 2000 and were summarized as follows:
To Be Well Capitalized For Capital Under Prompt Corrective Dollars in thousands Actual Adequacy Purposes Action Provisions: -------------------------------------------------------------------------------------------------------------------------- Consolidated Amount Ratio Amount Ratio Amount Ratio -------------------------------------------------------------------------------------------------------------------------- As of September 30, 2000 Total capital (to risk weighted assets) $ 53,150 10.89% $ 39,033 8.0% $ 48,791 10.0% Tier 1 capital (to risk weighted assets) 47,036 9.64 19,516 4.0 29,275 6.0 Leverage ratio* 47,036 7.48 25,160 4.0 31,450 5.0 The Bank: -------------------------------------------------------------------------------------------------------------------------- As of September 30, 2000 Total capital (to risk weighted assets) $ 50,487 10.46% $ 38,600 8.0% $ 48,250 10.0% Tier 1 capital (to risk weighted assets) 44,440 9.21 19,300 4.0 28,950 6.0 Leverage ratio* 44,440 7.13 24,945 4.0 31,181 5.0 --------------------------------------------------------------------------------------------------------------------------
* The leverage ratio consists of Tier 1 capital divided by quarterly average assets. The minimum leverage ratio is 3 percent for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality and in general, are considered top-rated banks. The Company has no formal dividend policy, and dividends are issued solely at the discretion of the Company's Board of Directors, subject to compliance with regulatory requirements. In order to pay any cash dividends, the Company must receive payments of dividends or management fees from the Bank or the Thrift. There are certain regulatory limitations on the payment of cash dividends by banks and thrift and loan companies. DEPOSITS. Deposits are the Company's primary source of funds. At September 30, 2000, the Company had a deposit mix of 32% in savings deposits, 37% in time deposits, 14% in interest-bearing checking accounts and 17% in noninterest-bearing demand accounts. Noninterest-bearing demand deposits enhance the Company's net interest income by lowering its costs of funds. The Company obtains deposits primarily from the communities it serves. No material portion of its deposits has been obtained from or is dependent on any one person or industry. The Company's business is not seasonal in nature. The Company accepts deposits in excess of $100,000 from customers. These deposits are priced to remain competitive. At September 30, 2000, the Company had brokered deposits of $1,549,000. Maturities of time certificates of deposits of $100,000 or more outstanding at September 30, 2000 and December 31, 1999 are summarized as follows:
September 30, 2000 December 31, 1999 ------------------ ----------------- (Dollars in thousands) Three months or less $17,226 $ 21,157 Over three to six months 33,376 20,655 Over six to twelve months 21,962 16,901 Over twelve months 10,570 10,283 ------- -------- Total $83,134 $ 68,996 ======= ========
29 BORROWED FUNDS At September 30 2000 and 1999, the Company's borrowed funds consisted of the following:
September 30, December 31, 2000 1999 ---- ---- (Dollars in Thousands) Federal funds purchased, dated September 29,2000; variable rate of 6.66% rate reprices daily based on changes in the federal funds rate, payable October 2, 2000. $ 2,525 $ -- Treasury tax loan, dated September 29, 2000; variable rate of 6.25% rate reprices monthly based on changes in the federal funds rate; payable October 2, 2000. 7,573 5,000 FHLB loan, dated February 11, 2000; variable rate of 6.54%; rate reprices monthly based on the 1 month LIBOR; payable on February 12, 2001. 3,000 2,600 FHLB loan, dated February 16, 2000; variable rate of 6.54%; rate reprices monthly based on the 1 month LIBOR; payable on February 16, 2001. 3,000 -- FHLB loan, dated March 20, 2000; variable rate of 6.53%; rate reprices monthly based on the 1 month LIBOR; payable on March 20, 2001 2,600 -- FHLB loan, dated February 11, 2000; fixed rate of 6.55% payable on February 11, 2005 2,000 -- FHLB loan, dated February 16, 2000; fixed rate of 6.66%; payable on February 16, 2005 2,000 5,000 FHLB loan, dated March 20, 2000; fixed rate of 6.55% payable on March 21, 2005 2,000 5,000 Long-term note from unaffiliated bank dated December 22, 1997; fixed rate of 7.80%; principal and interest payable monthly at $25,047; payments calculated as fully amortizing over 25 years with a 10 year call 3,169 3,214 -------- -------- Total $ 27,867 $ 20,814 ======== ========
The increase in other borrowings during the nine months ending September 30, 2000 was primarily due to the implementation of a leveraged investment strategy that used additional FHLB borrowings to fund purchases of investment securities within the Bank's investment portfolio. IMPACT OF INFLATION The primary impact of inflation on the Company is its effect on interest rates. The Company's primary source of income is net interest income which is affected by changes in interest rates. The Company attempts to limit inflation's impact on its net interest margin through management of rate 30 sensitive assets and liabilities and the analysis of interest rate sensitivity. The effect of inflation on premises and equipment, as well as on interest expenses, has not been significant for the periods covered in this report. REAL ESTATE DEVELOPMENT ACTIVITIES California law allows state-chartered banks to engage in real estate development activities. The Bank established MAID in 1987 pursuant to this authorization. After changes in federal law effectively required that these activities be divested as prudently as possible but in any event before 1997, MAID reduced its activities and embarked on a plan to liquidate its real estate holdings. In 1995, the uncertainty about the effect of the investment in MAID on the results of future operations caused management to write off its remaining investment of $2,881,000 in real property development. The last remaining parcel of land held by MAID was sold on May 3, 2000 for net proceeds less accrued expenses of $381,000 which was recorded as gain on sale of real estate during the second quarter of 2000. There are no plans to invest in new real estate investment properties as of September 30, 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is exposed to market risk which includes both price and liquidity risk. Price risk is created from fluctuations in interest rates and the mismatch in repricing characteristics of assets, liabilities, and off balance sheet instruments at a specified point in time. Mismatches in interest rate repricing among assets and liabilities arise primarily through the interaction of the various types of loans versus the types of deposits that are maintained as well as from management's discretionary investment and funds gathering activities. Liquidity risk arises from the possibility that the Company may not be able to satisfy current and future financial commitments or that the Company may not be able to liquidate financial instruments at market prices. Risk management policies and procedures have been established and are utilized to manage the Company's exposure to market risk. On September 30, 2000, the interest rate position of the Company was relatively neutral as the impact of a gradual parallel 100 basis-point rise or fall in interest rates over the next 12 months was estimated to be approximately 1-2% of net interest income when compared to stable rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk Management." 31 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to routine litigation in the ordinary course of its business. In the opinion of management, pending and threatened litigation is not likely to have a material adverse effect on the financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None ITEM 5. OTHER INFORMATION. In the opinion of management, there is no additional information relating to these periods being reported which warrants inclusion in the report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits.
EXHIBITS DESCRIPTION OF EXHIBITS - -------- ----------------------- 3.1 Articles of Incorporation, incorporated by reference from (filed as Exhibit * 3.1 of the Company's June 30, 1996 Form 10Q filed with the SEC on or about November 14, 1996). 3.2 Bylaws (filed as Exhibit 3.2 of the Company's June 30, 1996 Form 10Q filed * with the SEC on or about November 14, 1996.) 10 Employment agreement between Thomas T. Hawker and Capital Corp. (Filed as * Exhibit 10 of the Company's 1996 form 10K filed with the SEC on or about June 30, 1997) 10.1 Administration Construction Agreement (filed as Exhibit 10.4 of the Company's * 1995 Form 10K filed with the SEC on or about June 30, 1996). 10.2 Stock Option Plan (filed as Exhibit 10.6 of the Company's 1995 Form 10K filed * with the SEC on or about June 30, 1996). 32 10.3 401 (k) Plan (filed as Exhibit 10.7 of the Company's 1995 Form 10K filed with * the SEC on or about June 30, 1996). 10.4 Employee Stock Ownership Plan (filed as Exhibit 10.8 of the Company's 1995 * Form 10K filed with the SEC on or about June 30, 1996). 10.5 Purchase Agreement for three branches from Bank of America is incorporated * herein by reference from Note 1 of the Company's Consolidated Financial Statements 10.6 Change-in-Control Agreement between R. Dale McKinney and Capital Corp of the * West (filed as Exhibit 10.6 of the Company's 1999 Form 10K with the SEC on or about March 17, 2000). 10.7 Deferred Compensation Agreement between members of the board of directors and * Capital Corp of the West (filed as Exhibit 10.7 of the Company's 1999 Form 10K with the SEC on or about March 17, 2000). 10.8 Executive Salary Continuation Agreement between certain members of executive * management and Capital Corp of the West (filed as Exhibit 10.8 of the Company's 1999 Form 10K with the SEC on or about March 17, 2000).
(B) REPORTS ON FORM 8-K There was a report on Form 8-K filed during the third quarter of 2000. On July 14, 2000, the Company filed a report on 8-K, dated July 10, 2000 in conjunction with the Company's 1992 Stock Option Plan, 401(k) Profit Sharing Plan, and Employee Stock ownership Plan whereby the Company is authorized to purchase its common stock through open-market transactions. * DENOTES DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE. 33 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. CAPITAL CORP OF THE WEST (Registrant) By /s/ Thomas T. Hawker ---------------------------------- Thomas T. Hawker President and Chief Executive Officer By /s/ R. Dale McKinney ---------------------------------- R. Dale McKinney Chief Financial Officer 34 EX-27 2 a2031048zex-27.txt EXHIBIT 27
9 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 28,841 600 0 0 150,346 31,702 31,300 394,980 7,309 640,443 556,500 24,698 6,315 3,169 0 0 35,808 13,953 640,443 27,899 8,543 451 36,893 13,778 14,937 21,956 2,323 0 16,686 7,078 4,960 0 0 4,960 1.10 1.07 5.40 1,896 16 0 0 6,542 1,918 362 7,309 7,309 0 0
-----END PRIVACY-ENHANCED MESSAGE-----