-----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, ApHJO3lERFX4a+u0jeL6Yhi74eVi6+gr7Q0lFmcBmMrOejC7usN/4vMHts/CZI4X 4+GAY0AuM3CETUL2zBvC3Q== 0000892569-96-002389.txt : 19961118 0000892569-96-002389.hdr.sgml : 19961118 ACCESSION NUMBER: 0000892569-96-002389 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELDORADO BANCORP CENTRAL INDEX KEY: 0000351991 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953642383 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09709 FILM NUMBER: 96664497 BUSINESS ADDRESS: STREET 1: 17752 E 17TH ST CITY: TUSTIN STATE: CA ZIP: 92680 BUSINESS PHONE: 7147981100 MAIL ADDRESS: STREET 1: 19100 VON KARMAN AVE SUITE 550 CITY: IRVINE STATE: CA ZIP: 92715 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1996 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: 1-9709 ELDORADO BANCORP (Exact name of registrant as specified in its charter) CALIFORNIA 95-3642383 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 17752 EAST SEVENTEENTH STREET, TUSTIN, CALIFORNIA 92680 (Address of principal executive offices) (Zip Code) (714) 798-1100 Registrant's telephone number, including area code) ________________________________________________________________________________ (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 requirement for the past 90 days. [ X ] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No There were 3,787,492 shares of common stock for the registrant outstanding as of September 30, 1996. 2 Part I. Financial Information Item I. Financial Statements Eldorado Bancorp and Its Subsidiary Eldorado Bank CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in Thousands)
ASSETS September 30, 1996 December 31, 1995 ------ ------------------ ----------------- Cash and due from banks $ 28,749 $ 32,233 Federal funds sold 10,300 9,700 Securities available-for-sale 105,080 86,580 Securities held-to-maturity - approximate market value of $7,985 in 1996 and $7,212 in 1995 8,081 7,087 Loans and direct lease financing 218,387 229,957 Less allowance for possible credit losses 4,839 6,265 -------- -------- Net loans and direct lease financing 213,548 223,692 Premises and equipment, net 8,178 8,598 Other real estate owned 403 1,965 Accrued interest receivable and other assets 14,570 13,331 -------- -------- $388,909 $383,186 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits Demand, non-interest bearing $106,468 $ 99,770 Savings and money market 144,370 157,882 Time certificates under $100,000 49,204 43,534 Time certificates of $100,000 or more 35,798 32,092 -------- -------- Total deposits 335,840 333,278 Federal funds purchased 2,165 3,772 Other liabilities 5,340 3,763 -------- -------- Total liabilities 343,345 340,813 Shareholders' equity Preferred stock, no par value; authorized 5,000 shares, none issued --- --- Common stock, no par value; authorized 12,500,000 shares; issued and outstanding 3,787,492 shares in 1996 and 2,762,008 shares in 1995 32,222 31,798 Securities valuation allowance, net 103 400 Retained earnings 13,239 10,175 -------- -------- 45,564 42,373 -------- -------- Total shareholders' equity and liabilities $388,909 $383,186 ======== ========
2 3 Part I. Financial Information Item I. Financial Statements (continued) Eldorado Bancorp and Its Subsidiary Eldorado Bank CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Dollars in Thousands except for earnings per share and weighted average number of shares outstanding)
Three Months Ended Nine Months Ended September 30 September 30 ----------------------- ----------------------- 1996 1995 1996 1995 Interest Income Loans $ 5,472 $ 4,454 $ 16,465 $ 12,914 Investment securities 1,613 1,376 4,588 3,956 Federal funds sold 204 188 677 644 Direct lease financing 22 25 67 96 --------- -------- -------- -------- 7,311 6,043 21,797 17,610 Interest Expense Deposits 1,832 1,356 5,559 3,831 Other 28 86 91 216 --------- -------- -------- -------- Total interest expense 1,860 1,442 5,650 4,047 --------- -------- -------- -------- Net interest income 5,451 4,601 16,147 13,563 Provision for loan and lease losses 1 152 153 755 --------- -------- -------- -------- Net interest income after provision for loan and lease losses 5,450 4,449 15,994 12,808 Other Income 991 966 3,338 3,004 Other Expense Salaries and related expenses 1,878 1,564 5,562 4,734 Occupancy 422 401 1,277 1,163 Other 1,776 1,412 5,549 4,613 --------- -------- -------- -------- 4,076 3,377 12,388 10,510 --------- -------- -------- -------- Earnings before taxes 2,365 2,038 6,944 5,302 Income Taxes 976 842 2,861 2,189 --------- -------- -------- -------- Net Earnings $ 1,389 $ 1,196 $ 4,083 $ 3,113 ========= ======== ======== ======== Fully-diluted earnings per common share $ 0.35 $ 0.39 $ 1.05 $ 1.03 ========= ======== ======== ======== Weighted average common shares used in per share calculation 3,909,800 3,036,597 3,880,737 3,034,043
3 4 Part I. Financial Information Item I. Financial Statements (continued) Eldorado Bancorp and Its Subsidiary Eldorado Bank CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1995 ------------------ ------------------ Cash Flows from operating activities: Net earnings $ 4,083 $ 3,113 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 776 638 Amortization of goodwill 479 83 Provision for possible credit losses 153 755 Provision for possible losses on other real estate owned --- 58 (Gain) loss on sale of SBA loans (144) (4) (Gain) loss on sale of securities available-for-sale (2) (48) Amortization of deferred income, costs, discounts and fees (256) (58) Loan fees collected 314 259 (Gain) loss on sale of other real estate owned (149) (51) (Gain) loss on sale of premises and equipment (6) (6) Change in assets and liabilities net of effects from acquisitions of banks: (Increase) decrease in accrued interest receivable 14 (963) (Increase) decrease in other assets/current tax receivable and other real estate owned (1,684) (2,391) Increase (decrease) in other liabilities 1,577 487 (Increase) decrease in deferred income taxes (1) 2 ------ ------- Total adjustments 1,071 (1,239) ------ ------- Net cash provided by operating activities 5,154 1,874 Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 44,616 68,910 Proceeds from sale of securities available-for-sale 2,166 569 Proceeds from sale of securities held-to-maturity 2,500 --- Purchase of securities available-for-sale (65,827) (61,962) Purchase of securities held-to-maturity (3,492) (4,503) Net (increase) decrease in loans and leases 10,077 (5,518) Purchases of premises and equipment (329) (599) Proceeds from sale of other real estate owned 1,876 667 Proceeds from sale of loans --- 1,732 Net (increase) decrease in commercial loans held for sale --- (1,483) Proceeds from sale of premises and equipment 15 5 ------- ------- Net cash used in investing activities $ (8,398) $ (2,182) --------- ----------
4 5 Part I. Financial Information Item I. Financial Statements (continued) Eldorado Bancorp and Its Subsidiary Eldorado Bank CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1995 ------------------ ------------------- Cash Flows from operating activities: Net increase (decrease) in deposits $ 2,562 $ (1,541) Net increase (decrease) in federal funds purchased (1,607) 4,458 Dividends paid (1,019) (662) Proceeds from stock options exercised 424 44 ------- ------- Net cash provided by financing activities 360 2,299 ------- ------- Increase (decrease) in cash and cash equivalents (2,884) 1,991 Cash and cash equivalents at beginning of year 41,933 32,950 Cash and cash equivalents at September 30 $ 39,049 $ 34,941 ======== =========
5 6 Part I. Financial Information Item I. Financial Statements (continued) Eldorado Bancorp and Its Subsidiary Eldorado Bank CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For nine months ended September 30, 1996 and For years ended December 31, 1995, and 1994 (Unaudited)
Net Unrealized Securities Gain (Loss) on Total Common Stock Securities Retained Shareholders' Shares Amount Available-for-Sale Earnings Equity ------------------------ ------------------ --------- ------------ Balance, December 31, 1993 2,752,255 17,427,000 --- 9,862,000 27,289,000 Net unrealized holding gain on securities available-for-sale as of January 1, 1994 --- --- $ 1,179,000 --- 1,179,000 Cash dividends declared ($0.16 per share) --- --- --- (441,000) (441,000) Stock options exercised 4,473 35,000 --- --- 35,000 Change in net unrealized gain on securities --- --- (1,524,000) --- (1,524,000) available-for-sale Net earnings --- --- --- 2,556,000 2,556,000 --------- ----------- ----------- ----------- ----------- Balance, December 31, 1994 2,756,728 $17,462,000 $ (345,000) $11,977,000 $29,094,000 Cash dividends declared ($0.36 per share) --- --- --- (960,000) (960,000) Stock options exercised 7,380 62,000 --- --- 62,000 Common stock issued 630,276 8,928,000 --- --- 8,928,000 10% common stock dividend 339,438 5,346,000 --- (5,346,000) --- Change in net unrealized gain on securities available-for-sale --- --- 745,000 --- Net earnings --- --- --- 4,504,000 4,504,000 --------- ----------- ----------- ----------- ----------- Balance, December 31, 1995 3,733,822 $31,798,000 $ 400,000 $10,175,000 $42,373,000 Cash dividends declared ($0.27 per share) --- --- --- (1,019,000) (1,019,000) Stock options exercised 53,670 424,000 --- --- 424,000 Change in net unrealized gain in securities available-for-sale --- --- (297,000) --- (297,000) Net earnings --- --- --- 4,083,000 4,083,000 --------- ----------- ----------- ----------- ----------- Balance, September 30, 1996 3,787,492 $32,222,000 $ 103,000 $13,239,000 $45,564,000
6 7 Part I. Financial Information Item I. Financial Statements (continued) Eldorado Bancorp and Its Subsidiary Eldorado Bank NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ________________________ NOTE A - BASIS OF PRESENTATION The financial statements for interim periods are unaudited. In the opinion of management, all material adjustments necessary for fair presentation of the interim financial statements have been included. Interim period financial statements are not necessarily indicative of results to be expected for the entire year. NOTE B - EARNINGS PER SHARE Net earnings per common share are based upon the weighted average number of shares outstanding during each period and common share equivalents after giving retroactive effect to stock dividends, including the 10 percent stock dividend declared in November 1995. 7 8 Part I. Financial Information Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Total assets at September 30, 1996 were $388.9 million compared to $383.2 million at December 31, 1995. The increase in total assets was primarily reflected in an increase in investment securities available-for-sale partially offset by a reduction in loans and direct lease financing. The increase in assets was funded by increases in deposits, other liabilities and retained earnings. Investment securities available-for-sale increased to $105.1 million at September 30, 1996 from $86.6 million at December 31, 1995 due to redeployment of earning assets from loans and direct lease financing. Investment securities held-to-maturity increased to $8.1 million at September 30, 1996 from $7.1 million at year end 1995 due to the purchase of securities classified in this category since year end. The following table summarizes the components of total gross loans outstanding in each category at the date indicated (in thousands):
September 30, December 31, 1996 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- -------- LOANS Commercial, Secured and Unsecured $95,880 $94,548 $66,987 $66,987 $74,603 $83,937 Interim Construction 18,718 18,219 4,789 4,789 21,595 28,770 Real Estate 74,967 88,097 78,607 78,607 90,985 98,373 Installment 26,345 26,553 18,945 18,945 21,374 28,229 Credit Card 1,776 1,791 1,298 1,298 1,456 1,491 Lease Financing 806 876 1,286 1,286 3,515 3,853 Less: Unearned Income (105) (127) (38) (38) (739) (1,208) -------- -------- -------- -------- -------- -------- Total Gross Loans $218,387 $229,957 $171,874 $182,465 $212,789 $243,445
Total gross loans decreased to $218.4 million at September 30, 1996 from $230.0 million at December 31, 1995 due to continued loan repayments in the real estate loan segment partially offset by growth in the commercial loan segment. The Company had experienced declining loan balances from 1991 to 1994 largely due to more stringent underwriting criteria, fewer borrowers in the recessionary environment meeting the underwriting criteria, loan payoffs and reduced demand for new credit as a result of a lower level of economic activity. Additionally, the Company eliminated its interim construction lending department in order to reduce its exposure to the real estate market during the recession. The growth in loan balances in 1995 reflects the acquisition of Mariners Bancorp in October 1995. The Company, through the acquisition of Mariners Bancorp once again operates a construction lending department, originating and servicing interim construction loans. 8 9 The following tables show the maturities of loans and their sensitivities to changes in interest rates at September 30, 1996. Non-accrual loans and lease financing is not included in this table:
Due in Due after One Year One Year to Due after Or Less Five Years Five Years Total --------- ---------- ---------- --------- Commercial, Secured and Unsecured $ 73,796 $ 16,779 $ 3,966 $ 94,541 Interim Construction 14,449 3,285 777 18,511 Real Estate 57,871 13,158 3,110 74,139 Installment 20,590 4,682 1,107 26,379 Credit Card 1,776 0 0 1,776 --------- -------- ------- --------- $ 168,482 $ 37,904 $ 8,960 $ 215,346 ========= ======== ======= =========
Maturing Within After One Year One Year Total -------- -------- ------- Loans with Predetermined Interest Rates $19,627 $44,058 $63,685 Loans with Floating or Adjustable Interest Rates 150,181 1,480 151,661
The following table provides information with respect to the components of the Company's nonperforming loans at the dates indicated (amounts in thousands):
December 31, September 30, -------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ ------ Nonaccrual Loans $4,818 $5,818 $3,161 $2,092 $2,927 $8,364 Loans More Than 90 Days Past Due --- 380 246 56 361 349 ------ ------ ------ ------ ------ ------ Total Nonperforming Loans $4,818 $6,198 $3,407 $2,148 $3,288 $8,713 ------ ------ ------ ------ ------ ------
Ordinarily, the accrual of interest ceases when no payment of interest or principal has been made for 90 days or if the Bank has reason to believe that continued payment of interest and principal is unlikely. Accrued interest, if any, is reversed at the time such loans are placed on nonaccrual status. If these loans had been current throughout their terms, interest and fees on loans would have increased by approximately $213,000 for the nine months ended September 30, 1996 and $172,000, $144,000, $108,000, $103,000, and $166,000, for the years ended 1995, 1994, 1993, 1992, and 1991 respectively. 9 10 The following is a summary of impaired loans and the related allowance for possible credit losses:
September 30, 1996 -------------------------- December 31, 1995 Allowance --------------------------- for Possible Allowance Recorded Credit Recorded for Possible Investment Losses Investment Credit Losses ---------- --------- ----------- ------------- (In thousands) Impaired loans requiring an allowance for possible credit losses $4,106 $1,005 $5,077 $1,985 Impaired loans not requiring an allowance --- --- 741 --- for possible credit losses ------ ------ ------ ------ $4,106 $1,005 $5,818 $1,985 ====== ====== ====== ======
Troubled Debt Restructurings
December 31, September 30, ---------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------- ------ ------ ------ ------ ------ (In thousands) Troubled debt restructuring $3,580 $1,531 $7,069 $1,431 $ --- $ ---
Troubled debt restructurings consist primarily of loans for which the interest rate was reduced or the payment provisions were modified because of the inability of the borrower to service the obligation under the original terms of the agreements. Income is accrued at the lower effective rate provided the borrower is current under the revised terms and conditions of the agreements. Under the original terms of the restructured loans, interest earned would have totaled approximately $356 thousand for the nine months ended September 30, 1996 and $235 thousand for the year ended December 31, 1995. Under the restructured terms, recorded interest income amounted to $152 thousand for the nine months ended September 30, 1996 and $187 thousand for the year ended December 31, 1995. 10 11 The following table summarizes, for the periods indicated, changes in the allowance for possible credit losses arising from loans charged off, recoveries on loans previously charged off, and additions to the allowance which have been charged to operating expenses and certain ratios relating to the allowance for possible credit losses (amounts in thousands):
For the Nine Months ended For the Year ended December 31, September 30, ------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------ ------------------------------------------------------- Allowance for possible credit losses: Balance at beginning of period $6,265 $5,564 $4,740 $3,530 $3,757 $2,656 Actual charge-offs: Commercial 97 342 570 502 574 406 Interim construction --- --- --- 590 741 --- Credit cards 40 36 36 35 66 48 Consumer 164 165 151 98 494 307 Real estate 1,458 763 720 1,277 142 --- Direct lease financing 5 5 97 32 60 21 ------ ------ ------ ------ ------ ------ Total charge-offs 1,764 1,311 1,574 2,534 2,077 782 Less recoveries: Commercial 54 156 118 27 54 61 Interim construction --- --- --- 11 --- --- Credit cards 10 9 13 21 5 8 Consumer 75 49 30 106 50 60 Real estate 46 225 --- --- --- --- Direct lease financing --- --- 8 3 6 --- ------ ------ ------ ------ ------ ------ Total recoveries 185 439 169 168 115 129 ------ ------ ------ ------ ------ ------ Net loans charged off 1,579 872 1,405 2,366 1,962 653 Provision for credit losses 153 756 2,006 3,576 1,735 1,159 Changes incident to acquisitions --- 817 223 --- --- --- ------ ------ ------ ------ ------ ------ Balance at end of period $4,839 $6,265 $5,564 $4,740 $3,530 $3,757 ------ ------ ------ ------ ------ ------ Ratios: Net loans charged off to average loans 0.71% 0.47% 0.79% 1.22% 0.84% 0.30% Allowance for credit losses to total gross loans 2.22% 2.72% 3.24% 2.60% 1.66% 1.54% Net loans charged off to allowance for credit losses 32.63% 13.92% 25.25% 49.92% 55.58% 17.38% Net loans charged off to provision for credit losses 1,032.03% 115.34% 70.04% 66.16% 113.08% 56.34% Allowance for credit losses to non- performing loans 100.44% 101.08% 163.31% 220.07% 107.36% 43.12%
The allowance for possible credit losses is established by a provision for possible credit losses charged against current period income. Loans and leases are charged against the allowance for possible credit losses when management believes that the collectibility of principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans, leases and commitments to extend credit, based on the evaluations of the collectibility and prior loss experience of loans, leases and commitments to extend credit. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality; loan concentrations; specific problem loans, leases and commitments; and current and anticipated economic conditions that may affect the borrowers' ability to pay. 11 12 Management believes that the allowance for possible credit losses is adequate. While management uses available information to recognize losses on loans and leases, future additions to the allowance may be necessary based on changes in economic conditions. In addition, both Federal and state regulators, as an integral part of their examination process, periodically review the Bank's allowance for possible credit losses and may recommend additions based upon their evaluation of the portfolio at the time of their examination. The risk of nonpayment of loans is an inherent feature of the banking business. That risk varies with the type and purpose of the loan, the collateral which is utilized to secure payment, and ultimately, the credit worthiness of the borrower. In order to minimize this credit risk, the Bank has established lending limits for each of its officers having lending authority, in each case based upon the officer's experience level and prior performance. Whenever a proposed loan by itself, or when aggregated with outstanding extensions of credit to the same borrower, exceeds the officer's lending limits, the loan must be approved by the Bank's Chairman, President or Executive Vice President/Chief Credit Officer or by the Bank's loan committee, depending upon the dollar amount involved. The loan committee is comprised of two directors and four members of the Bank's senior management. In addition, each loan officer has primary responsibilities to conduct credit documentation reviews of all loans made by that officer. Furthermore, the Bank also maintains a program of periodic review of all existing loans and employs a specialist who reviews loans over a certain dollar amount and grades these loans based upon the dollar amount and credit worthiness using a grading system. Loans are graded from "one" to "eight" depending on credit quality, with "grade one" representing a prime loan with a definite and reliable repayment program based upon liquid collateral with adequate margin or supported by a strong up-to-date financial statement. Problem or substandard loans identified in the review process are scheduled for remedial action, and where appropriate, allowances are established for such loans. Periodically, an outside loan review consultant further reviews loans for credit quality. Additionally, the Bank is examined regularly by the FDIC and California State Banking Department at which time a further review of loans is conducted. Problem or substandard loans identified in the review process are largely due to a decline in local real estate values during the past several years. Management believes that it has adequately provided an allowance to cover estimated losses in the credit portfolio. Significant further deterioration in California real estate values could materially impact future operating results, liquidity or capital resources. The Company has allocated the allowance for credit losses according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the categories of loans set forth in the following table:
September 30, 1996 1995 1994 1993 1992 1991 --------------- --------------- --------------- --------------- --------------- --------------- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- Commercial, Secured and Unsecured $2,125 43.9 $2,117 33.8 $2,281 39.0% $2,164 37.1% $1,715 35.1% $1,296 34.5% Interim Construction 414 8.6 280 4.5 310 2.8 325 7.1 440 10.1 443 11.8 Real Estate 1,661 34.3 3,274 52.3 2,597 45.7 1,780 43.9 1,091 42.8 1,518 40.4 Installment 584 12.1 500 8.0 271 11.0 334 9.8 245 10.0 428 11.4 Credit Card 39 0.8 64 1.0 52 0.8 101 0.8 11 0.7 23 0.6 Lease Financing 16 0.3 30 0.4 53 0.7 36 1.3 28 1.3 49 1.3 ------ ------ ------ ----- ------ ------ ------ ------ ------ ----- ------ ----- Total $4,839 100.0% $6,265 100.0% $5,564 100.0% $4,740 100.0% $3,530 100.0% $3,757 100.0% ====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
The Company sometimes acquires real estate properties in satisfaction of loans receivable through foreclosure or other means. These real estate properties acquired are accounted for pursuant to Statement of Position 92-3, Accounting for Foreclosed Assets, which presumes that foreclosed assets are held for sale and not for the production of income. Accordingly, the real estate properties are carried at fair value less estimated costs to sell. Fair value is determined based upon appraisals near the date of foreclosure. These appraisals are updated periodically and subsequent write-downs of the carrying value may be recognized in the event of declining fair values. On September 30, 1996 other real estate owned totaled $403 thousand compared to $2.0 million at December 31, 1995. Total deposits increased $2.5 million at September 30, 1996 to $335.8 million compared to $333.3 million at December 31, 1995. Noninterest bearing demand deposits, time certificates of deposits under $100,000 and time certificates of $100,000 and greater increased $6.7 million, $5.7 million and $3.7 million, respectively during the first nine months of 1996. Savings and money market deposits, however, declined $13.5 million during this same period. 12 13 Federal funds purchased decreased $1.6 million to $2.2 million at September 30, 1996 compared to December 31, 1995. The Company purchases federal funds from one of its financial institution customers as an accommodation. Total shareholders' equity increased $3.2 million during the nine months ended September 30, 1996. Net earnings for the period contributed $4.1 million to retained earnings while cash dividends of approximately $1.0 million decreased retained earnings. During this period common stock increased approximately $424 thousand as a result of exercise of stock options and the value of securities available-for-sale declined $297 thousand. Liquidity and Interest Sensitivity In order to meet periodic increases in loan demand, potential deposit withdrawals and maturities of short-term, large time certificates of deposit, the Company maintains short-term fund sources. These include cash on hand and on deposit with correspondent banks; "federal funds sold", which are essentially demand loans to other banks; and investments in marketable securities available-for-sale. Such cash and near-cash items, marketable securities available-for-sale and short-term investments totaled $144.1 million at September 30, 1996, which represented 37.1 percent of total assets. Other possible liquidity sources to meet cash requirements include federal funds purchased lines, the sale of loans, and anticipated increases in deposits. Substantially all of the Company's installment loans and leases are made on terms that require regular monthly repayments, which provides a regular flow of cash funds. The Company manages its interest rate sensitivity by matching the repricing opportunities on its earning assets to those on its funding liabilities. Management uses various asset/liability strategies to manage the repricing characteristics of its assets and liabilities to ensure that exposure to interest rate fluctuations is limited within Company guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits, and managing the deployment of its securities are used to reduce mismatches in interest rate repricing opportunities of portfolio assets and their funding sources. The Company does not utilize derivative financial instruments as part of its hedging strategy. One way to measure the impact that future change in interest rates will have on net interest income is through a cumulative gap measure. The gap represents the net position of assets and liabilities subject to repricing in specified time periods. The Company's cumulative gap at September 30, 1996 for a three month and one year period was 93 percent and 115 percent, respectively. Since interest rate changes do not affect all categories of assets and liabilities equally or simultaneously, a cumulative gap analysis alone cannot be used to evaluate the Company's interest rate sensitivity position. To supplement traditional gap analysis, the Company performs dynamic gap analysis by altering various assumptions in the traditional gap analysis and performs simulation modeling to estimate the potential effects of changing interest rates. The process allows the Company to explore the complex relationships within the gap over time and various interest rate environments. The analysis indicates certain scenarios in which the Company may experience a decline in its net interest income despite its strategy of matching repricing opportunities of its earning assets and funding liabilities. Results of Operations - Quarter Ended September 30, 1996 Net income for the three months ended September 30, 1996 was $1.4 million, or $0.35 per share, compared to $1.2 million, or $0.39 per share, for the same period in 1995. The increase in third quarter 1996 net earnings is due to higher net interest income and lower provisions for possible credit losses, partially offset by higher noninterest expenses. The 1996 period reflects the acquisition of Mariners Bancorp in October 1995 and the issuance of additional shares in this transaction. Net interest income increased $418 thousand in the three month period ended September 30, 1996 to $5.5 million compared to $4.6 million for the same period in 1995. The increase is due to a greater volume of earning assets during the 1996 period partially offset by narrower net interest margins. The slightly lower yields on loans, federal funds sold and investment securities is a result of lower market rates of interest in the 1996 period as compared to 1995. While lower yields have been earned on the Company's earning assets, the cost of funds on the deposits has increased slightly due to a change in mix to higher costing deposits. However, greater volumes of noninterest-bearing liabilities funding the earning assets has assisted in preserving the net interest margin. 13 14 The provision for loan and lease losses during the three months ended September 30, 1996 was $1 thousand compared to $152 thousand for the same period in 1995. This reduction was made based upon the Company's evaluation of the adequacy of its allowance for possible credit losses. The allowance for possible credit losses is established based upon an analysis providing specific allowances for loans that management has identified to have potential loss and general allowances for unidentified losses inherent in the portfolio. The general allowance is determined by segmenting the portfolio by risk rating and loan type with allowances established based upon historical losses in each portfolio segment. Additionally, consideration is given to loan type concentrations in the portfolio and the current and anticipated economic environment. Other income for the third quarter ended September 30, 1996 was nearly flat at $1.0 million compared to the 1995 period. Other expenses for the three months ended September 30, 1996 were $4.1 million compared to $3.4 million for the same period in 1995. Salaries were $314 thousand higher in the 1996 period compared with 1995 due to higher staffing levels as a result of the acquisition of Mariners Bancorp and the addition of several new production departments. Other operating expenses were $364 thousand higher in the third quarter of 1996 compared to the same quarter last year due to higher legal and other professional expense and higher expense associated with goodwill amortization. Results of Operations - Nine Months Ended September 30, 1996 Net earnings for the nine months ended September 30, 1996 were $4.1 million, or $1.05 per share, compared to $3.1 million, or $1.03 per share, for the first nine months in 1995. The increase in net earnings for the 1996 period is due to increased interest income, lower provisions for loan and lease losses and higher noninterest income, partially offset by higher noninterest expenses. Net interest income increased $2.6 million to $16.1 million for the nine months ended September 30, 1996 compared to $13.6 million for the same period in 1995. Interest income increased $4.2 million in the 1996 period while interest expense on deposits and other borrowings increased only $1.6 million. The 1996 interest income was higher due to higher volumes of earning assets as a result of the Mariners Bancorp acquisition in October 1995. Additionally, a greater level of noninterest bearing deposits funded the earning assets in the first nine months of 1996. The provision for loan and lease losses for the first nine months of 1996 was $153 thousand compared to $755 thousand for the nine months ended September 30, 1995. The decrease was based upon management's assessment of the adequacy of the allowance for possible credit losses as discussed above in the quarterly analysis. Other income increased to $3.3 million for the nine months ended September 30, 1996 compared to $3.0 million for the same period in 1995 primarily due to fees related to deposit accounts. Operating expenses were $1.9 million higher in the first nine months of 1996 totaling $12.4 million compared to $10.5 million for the same period in 1995. Salary expense and employee benefit expense was $828 thousand higher for the 1996 period compared to 1995 due to additional staffing related to the Mariners Bancorp acquisition and the addition of several new production departments. Other miscellaneous expenses were $5.5 million for the first nine months of 1996 compared to $4.6 million for the same period in 1995 due to higher legal and other professional expenses and higher expense associated with the amortization of goodwill. 14 15 Newly Issued Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable. However, SFAS 121 does not apply to financial instruments, core deposit intangibles, mortgage and other servicing rights or deferred tax assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. The Company has adopted SFAS 121 effective January 1, 1996 and it has had no material impact on the financial statements. In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage Servicing Rights", an amendment to Statement of Financial Accounting Standards No. 65. SFAS 122 requires an institution that purchases or originates mortgage loans and sells or securitizes those loans with servicing rights retained to allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. In addition, institutions are required to assess impairment of the capitalized mortgage servicing portfolio based on the fair value of those rights on a stratum-by-stratum basis with any impairment recognized through a valuation allowance for each impaired stratum. Capitalized mortgage servicing rights are to be stratified based upon one or more of the predominate risk characteristics of the underlying loans such as loan type, size, note rate, date of origination, term and/or geographic location. SFAS 122 is effective for fiscal years beginning after December 15, 1995. The adoption of SFAS 122 on January 1, 1996 has had no material impact on the Company's operation. In June 1996, the FASB issued Statement of Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. The financial-components approach focuses on the assets and liabilities that exist after the transfer. Many of these assets and liabilities are components of financial assets that existed prior to the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with pledge of collateral. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and should be applied prospectively. Management has not yet evaluated the effect, if any, SFAS 125 will have on the Company's financial conditions or operations. 15 16 Part II. Items 1-4. No reportable events. Item 5. Other Information On August 21, 1996 the Board of Directors declared an increased cash dividend of 10 cents per share payable October 7, 1996 to shareholders of record September 2, 1996. Item 6. Exhibits and Reports on Form 8-K Exhibits (27) Financial Data Schedule. Reports on Form 8-K (1) None. 16 17 SIGNATURE Pursuant to 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. Eldorado Bancorp ----------------------------------- (Registrant) November 13, 1996 /s/ RAYMOND E. DELLERBA ---------------------------------- ----------------------------------- Date Raymond E. Dellerba President Chief Operating Officer November 13, 1996 /s/ DAVID R. BROWN ---------------------------------- --------------------------------------- Date David R. Brown Executive Vice President Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 28,749 0 10,300 0 105,080 8,081 7,985 218,387 4,839 388,909 335,840 2,165 5,340 0 0 0 32,222 13,342 388,909 16,465 4,588 744 21,797 5,559 5,650 16,147 153 2 12,388 6,944 6,944 0 0 4,083 1.05 1.05 6.40 4,818 0 3,580 0 6,265 1,764 185 4,839 4,839 0 4,839
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