-----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, N4BWzO2PjUVfaYYvJUo/BAGCAQdBWRGIdpMeyUJDMBDGeNLMCm5Q5gXLOTlxYMK4 zLOrM5yWL/4hkrHhRQz8KA== 0000912057-96-026545.txt : 19961118 0000912057-96-026545.hdr.sgml : 19961118 ACCESSION NUMBER: 0000912057-96-026545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENCY BANCORP CENTRAL INDEX KEY: 0000927718 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 770378956 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-82150 FILM NUMBER: 96666090 BUSINESS ADDRESS: STREET 1: 7060 N FRESNO CITY: FRESNO STATE: CA ZIP: 93720 BUSINESS PHONE: 2094382600 MAIL ADDRESS: STREET 1: PO BOX 16279 CITY: FRESNO STATE: CA ZIP: 93755-6279 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 . ------------------------------------ / / 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 33-82150 -------- REGENCY BANCORP --------------- (Exact name of registrant as specified in its charter) CALIFORNIA 77-0378956 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organizations) Identification No.) 7060 N. FRESNO STREET, FRESNO, CALIFORNIA 93720 ------------------------------------------ ------- (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (209) 438-2600. -------------- None ---- (Former name, former address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for the shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- As of November 14, 1996, the registrant had 1,818,160 shares of Common Stock outstanding. The Exhibit Index is located on page 33. This report contains a total of 35 pages of which this is page one. REGENCY BANCORP AND SUBSIDIARIES PART I FINANCIAL INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS) SEPTEMBER 30, 1996 DECEMBER 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 11,008 $ 8,925 Federal funds sold 7,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Total Cash and Equivalents 18,008 8,925 - ----------------------------------------------------------------------------------------------------------------------------------- Interest bearing deposits in other banks 3 3 Securities available-for-sale 28,334 31,750 - ----------------------------------------------------------------------------------------------------------------------------------- Loans 102,677 97,137 Allowance for credit losses (1,650) (1,784) Deferred loan fees & discounts (1,053) (824) - ----------------------------------------------------------------------------------------------------------------------------------- Net Loans 99,974 94,529 - ----------------------------------------------------------------------------------------------------------------------------------- Investments in real estate 13,750 17,954 Other real estate owned 569 341 Cash surrender value of life insurance 2,868 2,764 Premises and equipment, net 2,272 2,339 Accrued interest receivable and other assets 5,036 5,077 - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 170,814 $ 163,682 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing transaction accounts $ 34,012 $ 32,673 Interest bearing transaction accounts 47,438 40,656 Savings accounts 25,134 34,882 Time Deposits $100,000 or over 18,302 23,305 Other time deposits 27,182 12,229 - ----------------------------------------------------------------------------------------------------------------------------------- Total Deposits 152,068 143,745 - ----------------------------------------------------------------------------------------------------------------------------------- Short term borrowings - - Notes Payable 2,730 4,109 Other liabilities 2,745 2,886 - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities $ 157,543 $ 150,740 - ----------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity: Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding Common stock, no par value; 5,000,000 shares authorized, 1,818,160 shares issued and outstanding 8,868 8,868 Retained earnings 4,544 4,029 Net unrealized gain (loss) on available-for-sale securities, net of taxes of ($102,000) in 1996 and $ 33,000 in 1995 (141) 45 - ----------------------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 13,271 12,942 - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 170,814 $ 163,682 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 2 REGENCY BANCORP AND SUBSIDIARIES
Consolidated Statement of Income (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands, except for per common and equivalent share data) For the three months For the nine months ended September 30, ended September 30, - ---------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans (including fees) $ 2,884 $ 2,689 $ 8,380 $ 7,980 Investment securities: Taxable 430 519 1,272 1,346 Tax exempt 21 21 66 66 - ---------------------------------------------------------------------------------------------------------------------------------- Total Investment Interest Income 451 540 1,338 1,412 Other 17 18 60 67 - ---------------------------------------------------------------------------------------------------------------------------------- Total Interest Income 3,352 3,247 9,778 9,459 - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 1,130 1,313 3,296 3,782 Other 41 30 141 49 - ---------------------------------------------------------------------------------------------------------------------------------- Total Interest Expense 1,171 1,343 3,437 3,831 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income 2,181 1,904 6,341 5,628 Provision for credit losses - 173 - 173 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for credit losses 2,181 1,731 6,341 5,455 - ---------------------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME Income from investments in real estate partnerships - - - - Gain on sale of SBA loans 231 227 1,119 590 Depositor service charges 83 66 244 202 Income from investment management services 174 111 500 348 Gain/(loss) on sale of securities - - - (25) Gain on sale of assets 5 2 14 2 Servicing fees on loans sold 92 82 231 238 Other 90 100 342 214 - ---------------------------------------------------------------------------------------------------------------------------------- Total Noninterest Income 675 588 2,450 1,569 - ---------------------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Loss (Gain) from investments in real estate partnerships (12) 518 170 135 Salaries and related benefits 1,154 1,129 3,340 3,308 Occupancy & Equipment 438 412 1,231 968 FDIC insurance and regulatory assessments 15 (3) 47 156 Marketing 117 116 328 280 Professional Services 178 126 601 398 Director's fees and expenses 90 66 258 200 Management fees for real estate projects 126 (118) 359 56 Other 265 265 1002 850 - ---------------------------------------------------------------------------------------------------------------------------------- Total Noninterest Expense 2,371 2,511 7,336 6,351 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 485 (192) 1,455 673 Provision for income taxes 203 (81) 613 282 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) 282 (111) 842 391 - ---------------------------------------------------------------------------------------------------------------------------------- Net income per common and common equivalent share .15 (.06) .45 .21 Shares used in computation 1,869 1,808 1,869 1,887 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 3 REGENCY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Common Common Net Stock Number of Stock Retained Unrealized (In thousands) Shares Amount Earnings Gain (Loss) Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 1,711 $ 7,950 $ 7,017 $ (640) $ 14,327 - ---------------------------------------------------------------------------------------------------------------------------------- Issuance of common stock under stock option plan Issuance of common stock dividend 11 19 - 19 including fractional shares 86 866 (868) (2) Tax benefit of stock option transactions - 16 16 Cash dividends - - (262) (262) Net change in unrealized gain (loss) on available-for-sale securities (net of taxes of $450,000) - - 621 621 Net Income - - 391 391 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1995 1,808 $ 8,851 $ 6,278 $ (19) $ 15,110 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Common Common Net Stock Number of Stock Retained Unrealized (In thousands) Shares Amount Earnings Gain (Loss) Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 1,818 $ 8,868 $ 4,029 $ 45 $ 12,942 - ----------------------------------------------------------------------------------------------------------------------------------- Issuance of common stock under stock option plan - - - Cash dividends - - (327) (327) Net change in unrealized gain (loss) on available-for-sale securities (net of taxes of $135,000) - - - (186) (186) Net Income - - 842 842 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1996 1,818 8,868 4,544 (141) 13,271 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements
4 REGENCY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Increase (decrease) in cash equivalents: Net income $842 $ 391 Adjustments: Provisions for credit losses - 173 Provision for losses on real estate - 235 Provision for OREO losses - 30 Depreciation and amortization 535 446 Deferred income taxes 490 (164) (Increase) decrease in interest receivable and other assets (92) 324 Increase in surrender value of life insurance (104) (98) Distributions of income from real estate partnerships 103 55 Equity in (income) loss of real estate partnerships (10) 135 (Increase) decrease in real estate held for sale 6,417 - (Gain)/loss on acquisition of partnerships (63) (695) Increase (decrease) in other liabilities (566) 25 (Gain)/loss on sale of securities - (590) Gain on sale of loans held-for-sale (1,119) 7,466 Proceeds from sale of loans held-for-sale 11,619 (8,205) Additions to loans held-for-sale (8,253) (267) Loss (gain) on sale of premises and equipment and OREO (1) 3 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 9,798 (739) - ----------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Purchase of available-for-sale securities (12,109) (16,001) Proceeds from sales of available-for-sale securities 1,000 3,105 Purchases of held-to-maturity securities - (5,886) Proceeds from maturities of available-for-sale securities 14,094 8,812 Proceeds from maturities of held-to-maturity securities - 4,000 Loan participations purchased - (750) Loan participations sold - 810 Net (increase) decrease in loans (5,839) (665) Net decrease (increase) in other short-term investments - (3,801) Cash received through acquisition of partnerships 441 - Proceeds from sale of OREO 123 76 Capital contributions to real estate partnerships (397) (1,114) Capital distributions from real estate partnerships 1,012 687 Payments towards the acquisition and development of investments in real estate - (531) Purchases of premises and equipment (357) (183) Proceeds from sale of premises and equipment - 3,832 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (2,032) (7,609) - ----------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net increase (decrease) in time deposits accounts 9,949 6,854 Net increase (decrease) in other deposits (1,626) 2,132 Net increase (decrease) on short term borrowings - - Cash dividends paid (327) (262) Payments for fractional shares related to stock dividends - (2) Payments on notes payable (7,059) (151) Proceeds from notes payable 380 - Proceeds from the issuance of common stock under - employee stock option plan - 19 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 1,317 8,590 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,083 242 - ----------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,925 8,317 - ----------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,008 $ 8,559 - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 5 REGENCY BANCORP AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. - BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Regency Bancorp and its wholly-owned subsidiaries (the "Company"). Regency Bancorp is a California corporation organized to act as the holding company for Regency Bank (the "Bank") and its subsidiaries. The Bank has two wholly-owned subsidiaries, Regency Investment Advisors, Inc., a California corporation ("RIA"), which provides investment management and consulting services, and Regency Service Corporation, a California corporation ("RSC"), that engages in the business of real estate development primarily in the Fresno/Clovis area. All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles on a basis consistent with the accounting policies reflected in the audited consolidated financial statements of the Company included in the Annual Report on Form 10-K for the year ended December 31, 1995. They do not, however, include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments (all of which are of a normal, recurring nature) necessary for a fair presentation of the results for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole. Certain items reflected on the consolidated statement of income and supporting schedules in prior periods have been reclassified to be consistent with the current presentation. NOTE 2. - ACCOUNTING CHANGE In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which requires adoption of the disclosure provisions no later than fiscal years beginning after December 15, 1995 and adoption of the recognition and measurement provisions for nonemployee transactions no later than after December 15, 1995. The new standard defines a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to the new standard, companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but would be required to disclose in a note to the financial statements pro forma net income, and, if presented, earnings per share as if the company has applied the new method of accounting. The accounting requirements of the new method are effective for all employee awards granted 6 beginning in 1995. The Company has determined it will not elect to change to the fair value method, but will adopt the disclosure provisions in fiscal 1996. NOTE 3. - INVESTMENT SECURITIES During the period between December 31, 1995, and September 30, 1996, the Company recorded a net decrease in the value of its available-for-sale portfolio of $186,000 net of applicable taxes. This change is reflected as a change in shareholders' equity in the Consolidated Statement of Shareholders' Equity. This change in value is primarily the result of higher interest rates in the bond market at September 30, 1996 as compared to rates at December 31, 1995. Following is a comparison of the amortized cost and approximate fair value of securities available-for-sale: - ------------------------------------------------------------------------------- AVAILABLE-FOR-SALE SECURITIES SEPTEMBER DECEMBER 31, 30, 1996 1995 - ------------------------------------------------------------------------------- Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value - ------------------------------------------------------------------------------- U.S. Treasuries $ 2,023 $ 2,018 $ 2,003 $ 2,005 U.S. Government Agencies 17,104 16,903 20,474 20,459 Mortgage-backed securities 7,686 7,606 7,655 7,685 State and Political Subdivision 1,414 1,458 1,540 1,601 Equity Securities 349 349 - - - ------------------------------------------------------------------------------- Total $ 28,576 $ 28,334 $ 31,672 $ 31,750 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- At September 30, 1996 and December 31, 1995 the Company held no investment securities classified as held-to-maturity. NOTE 4. - LOANS The following table presents a breakdown of the Company's loan portfolio in both dollars outstanding as well as a percentage of total loans. Further discussion of the Company's loan portfolio can be found in Item No. 7 - Management's Discussion and Analysis, Balance Sheet Analysis. - ------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) SEPTEMBER 30, 1996 DECEMBER 31, 1995 - ------------------------------------------------------------------------------- Percent Percent of of Total Total Amount Loans Amount Loans - ------------------------------------------------------------------------------- Commercial $ 58,400 56.9% $ 54,150 55.7% Real estate mortgage 12,190 11.9% 10,389 10.7% Real estate construction 23,594 23.0% 23,706 24.4% Consumer and other 8,493 8.3% 8,892 9.2% - ------------------------------------------------------------------------------- Subtotal 102,677 100.0% 97,137 100.0% - ------------------------------------------------------------------------------- Less: Unearned discount 632 468 Deferred loan fees 421 356 Allowances for credit losses 1,650 1,784 - ------------------------------------------------------------------------------- Total loans, net $ 99,974 $ 94,529 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- As of September 30, 1996, there were $505,000 in SBA loans held-for-sale. 7 In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This standard was further modified by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures." SFAS Nos. 114 and 118 were effective for the Company as of January 1, 1995. They require the Company to measure impaired loans based upon the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. At September 30, 1996, the Bank's recorded investment in loans for which impairment has been recognized totaled $164,000. Included in this amount is $48,000 of impaired loans for which the related SFAS No. 114 allowance is $48,000, as well as $116,000 of impaired loans that as a result of write-downs or the fair value of the collateral, did not have a SFAS No. 114 allowance. NOTE 5. - EARNINGS PER SHARE Primary earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding and common stock equivalents (stock options) assumed to be outstanding during the year. All share and per share amounts have been adjusted retroactively to reflect the 5% stock dividend issued in 1995. As of September 30, 1996, and September 30, 1995, the Company had 1,869,000 and 1,887,000 total shares of common and common stock equivalents outstanding. NOTE 6. - REAL ESTATE ACTIVITIES Regency Service Corporation ("RSC") is involved in residential real estate development in the Fresno/Clovis area through both limited partnership investments in joint ventures and direct investments in real estate projects. These real estate activities consist primarily of residential subdivisions being developed into lots and homes. Limited partnership investments are accounted for under the equity method. During 1996, RSC continued to aggressively pursue divestiture of its remaining real estate projects through various transactions. During the quarter ended March 31, 1996, RSC dissolved a total of six partnerships and sold its investment in one property. As a result of these transactions, RSC obtained sole ownership of four projects, closed one project out completely and financed the sale of two properties. Additionally, the assets of RSC now reflect not only RSC's equity investment, but the total assets and liabilities of the acquired projects. The above transactions resulted in a net loss of $235,000. As of September 30, 1996, RSC's equity investment in the four partnerships acquired was $5,387,760. 8 The schedule below presents the condensed financial information of the four entities acquired as of the dates of acquisition: - ------------------------------------------------------------------------------- ASSETS: Cash $ 442 Notes receivable 2,025 Land and real estate under construction 10,031 Other assets 223 - ------------------------------------------------------------------------------- Total assets 12,721 - ------------------------------------------------------------------------------- LIABILITIES: Notes payable 5,300 Accrued interest and other liabilities 425 - ------------------------------------------------------------------------------- Total Liabilities 5,725 - ------------------------------------------------------------------------------- Equity $ 6,996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NOTE 7. - SUPPLEMENTAL CASH FLOW INFORMATION Following is a summary of amounts paid for interest and taxes and of non-cash transactions for the nine months ended September 30, 1996: - ------------------------------------------------------------------------------- (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------- Cash paid during the period for: Interest on deposits and other borrowings $ 3,387 $ 3,798 Income taxes 316 619 - ------------------------------------------------------------------------------- Non cash transactions: Transfer of loans to other real estate owned - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY The Company's consolidated net income for the nine months ended September 30, 1996, was $842,000, an increase of $451,000 or 115.3% when compared to earnings of $391,000 for the period ended September 30, 1995. Net income for the third quarter of 1996 was $282,000 as compared to a loss of ($111,000) in the third quarter of 1995. Earnings per share were $0.15 in the third quarter of 1996, $0.45 for the nine month period ended September 30, 1996, compared to ($0.06) per share in the third quarter of 1995 and $0.21 for the nine month period ended September 30, 1995. The Company paid a cash dividend of $0.06 per share in the third quarter of 1996. During the third quarter of 1995, the Company paid a cash dividend of $0.05. The increase in net income of $451,000 for the period ended September 30, 1996 was primarily the result of an increase in net interest income of $713,000, an increase in income generated from the sale of SBA loans of $529,000 and a decline in losses from investments in real estate of $348,000. Income for the third quarter of 1996 increased by $393,000 compared to the third quarter of 1995, primarily as a result of lower losses from investments in real estate. During the third quarter of 1996, the Company recorded pre-tax income from investments in real estate of $12,000 compared to a loss of ($518,000) recorded in the third quarter of 1995. The Company's return on average assets was 0.69% for the first nine months of 1996 compared to 0.33% for the first nine months of 1995. Return on average common equity for the first nine months was 8.46 % compared to 3.51% for the same period in 1995. At September 30, 1996, the Company's total risk-based capital ratio was 10.76% while the leverage ratio was 7.52%. All capital ratios were in excess of minimum regulatory guidelines. Nonperforming assets declined during the third quarter by $143,000 to $4,093,000 at September 30, 1996 (2.40% of total assets), compared to $4,236,000 at June 30, 1996 (2.61% to total assets) and $922,000 at December 31, 1995 (0.56% of total assets) as a result of continued paydowns on nonaccrual loans made to facilitate the sale of RSC partnerships. As reported in the Company's quarterly reports on form 10-Q dated March 31, 1996 and June 30, 1996, RSC made loans amounting to approximately $3.75 million to facilitate the sale of two RSC partnerships. The two loans were immediately placed on nonaccrual status in accordance with applicable accounting guidelines regarding the sale of real estate. As homes and/or lots are sold on these projects, principal reductions, as well as interest payments received are used to reduce the principal balance outstanding on these loans. During the quarter ended September 30, 1996, a third loan of $310,000 was made to facilitate the sale of another RSC project. It was also placed on nonaccrual status. The allowance for credit losses as a percentage of total loans was 1.61% at September 30, 1996 (40.31% of nonperforming assets) compared to 1.84% (193.50% of non-performing assets) at year end 1995. 10 During the quarter ended September 30, 1996, the Company opened its fourth branch office at 126 N. "D" Street, Madera, California. NET INTEREST INCOME The Company's operating results depend primarily on net interest income (the difference between the interest earned on loans and investments less interest expense on deposit accounts and borrowings). A primary factor affecting the level of net interest income is the Company's interest rate margin, the difference between the yield earned on interest earning assets and the rate paid on interest bearing liabilities, as well as the difference between the relative amounts of average interest earning assets and interest bearing liabilities. The following table presents, for the periods indicated, the Company's total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities and the resultant cost, expressed both in dollars and rates. The table also sets forth the net interest income and the net earning balance for the periods indicated. 11 CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
- ----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT FOR PERCENTAGES) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Balance Rate Interest Balance Rate Interest - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans (1) $ 103,154 11.13% $ 2,885 $ 93,714 11.38% $ 2,689 Investment securities (2) 28,221 6.36% 451 33,224 6.45% 540 Federal funds sold & other 1,620 4.17% 17 1,420 5.03% 18 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-earning assets $ 132,995 10.03% $ 3,353 $ 128,358 10.04% $ 3,247 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-earning assets: Allowance for credit losses (1,690) (1,385) Cash and due from banks 8,668 7,842 Real estate investments 16,677 17,441 Premises and equivalent, net 2,313 4,288 Cash surrender value of life insurance 2,845 2,715 Accrued interest receivable and other assets 4,171 3,185 - ----------------------------------------------------------------------------------------------------------------------------------- Total Average Assets $ 165,980 $162,444 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transaction accounts $ 46,326 2.68% 312 $ 51,457 3.32% $ 430 Savings accounts 23,976 4.25% 256 23,530 4.72% 280 Time deposits 42,306 5.29% 563 42,401 5.64% 603 Federal funds purchased, notes payable and other 7,219 2.26% 41 765 15.56% 30 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-bearing $ 119,828 3.89% $ 1,172 $ 118,153 4.51% $ 1.343 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing liabilities: Transaction accounts 30,622 26,294 Other liabilities 2,350 2,218 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 152,800 147,294 Shareholders' Equity: Common stock 8,868 8,851 Retained earnings 4,452 6,437 Unrealized gain / (loss) on investment securities (141) (138) - ----------------------------------------------------------------------------------------------------------------------------------- Total Shareholders Equity 13,179 15,150 - ----------------------------------------------------------------------------------------------------------------------------------- Total average liabilities and shareholders' equity $165,980 $ 162,444 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 2,181 $ 1,904 - ----------------------------------------------------------------------------------------------------------------------------------- Interest income as a percentage of average interest-earning assets 10.03% 10.04% Interest expense as a percentage of average interest-earning assets (3.51%) (4.15%) - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Margin 6.52% 5.89% - -----------------------------------------------------------------------------------------------------------------------------------
(1) Loan amounts include nonaccrual loans, but the related interest income has been included only for the period prior to the loan being placed on a nonaccrual basis. Loan interest income includes loan fees of approximately $319,000 and $347,000 for the three months ended September 30, 1996, and 1995, respectively. (2) Applicable nontaxable securities yields have not been calculated on a taxable-equivalent basis because they are not material to the Company's results of operations. 12 CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
- ----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT FOR PERCENTAGES) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Balance Rate Interest Balance Rate Interest - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans (1) $ 98,964 11.31% $ 8,381 $ 91,591 11.65% $ 7,980 Investment securities (2) 28,702 6.23% 1,338 29,347 6.33% 1,412 Federal funds sold & other 1,640 4.89% 60 1,589 5.64% 67 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-earning assets $ 129,306 10.10% $ 9,779 $ 123,027 10.28% $ 9,459 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-earning assets: Allowance for credit losses (1,743) (1,421) Cash and due from banks 8,300 7,843 Real estate investments 18,723 17,104 Premises and equivalent, net 2,297 5,552 Cash surrender value of life insurance 2,811 2,682 Accrued interest receivable and other assets 4,428 3,268 - ----------------------------------------------------------------------------------------------------------------------------------- Total Average Assets $ 164,122 $ 158,055 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transaction accounts $ 45,604 2.69% $ 919 $ 52,068 3.43% $ 1,336 Savings accounts 25,383 4.19% 796 20,798 4.87% 758 Time deposits 39,740 5.32% 1,582 41,087 5.50% 1,689 Federal funds purchased, notes payable and other (3) 7,888 2.39% 141 1,084 5.92% 48 - ----------------------------------------------------------------------------------------------------------------------------------- Total Interest-bearing $ 118,615 3.87% $ 3,438 $ 115,037 4.45% $ 3,831 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing liabilities: Transaction accounts 29,653 26,013 Other liabilities 2,554 2,100 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 150,822 143,150 Shareholders' Equity: Common stock 8,868 8,382 Retained earnings 4,468 6,328 Unrealized gain / (loss) on investment securities (36) (305) - ----------------------------------------------------------------------------------------------------------------------------------- Total Shareholders Equity $ 13,300 $ 14,305 - ----------------------------------------------------------------------------------------------------------------------------------- Total average liabilities and shareholders' equity $164,122 $ 158,055 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Income $ 6,341 $ 5,628 - ----------------------------------------------------------------------------------------------------------------------------------- Interest income as a percentage of average interest-earning assets 10.10% 10.28% Interest expense as a percentage of average interest-earning assets (3.55%) (4.16%) - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Margin 6.55% 6.12% - -----------------------------------------------------------------------------------------------------------------------------------
(1) Loan amounts include nonaccrual loans, but the related interest income has been included only for the period prior to the loan being placed on a nonaccrual basis. Loan interest income includes loan fees of approximately $933,000 and $925,000 for the nine months ended September 30, 1996, and 1995, respectively. (2) Applicable nontaxable securities yields have not been calculated on a taxable-equivalent basis because they are not material to the Company's results of operations. (3) Interest expense has been reduced by capitalized interest on real estate projects of approximately $0 and $55,000 for the nine month periods ended September 30, 1996 and 1995, respectively. 13 Changes in the interest margin can be attributed to changes in the yield on interest earning assets, the rate paid on interest bearing liabilities, as well as changes in the volume of interest earning assets and interest bearing liabilities. The following table presents the dollar amount of certain changes in interest income and expense for each major component of interest earning assets and interest bearing liabilities and the difference attributable to changes in average rates and volumes for the periods indicated. VOLUME/RATE ANALYSIS --------------------
- ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME VARIANCE ANALYSIS FOR THE THREE MONTHS AMOUNT RESULTING FROM TOTAL CHANGE ENDED SEPTEMBER 30, 1996 CHANGES IN: 1995-1996 VOLUME RATE - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Earnings Variance Analysis Increase (decrease) in interest income: Loans 262 (66) 196 Investment securities (80) (9) (89) Federal funds sold and other 4 (5) (1) - ----------------------------------------------------------------------------------------------------------------------------------- Total 186 (80) 106 - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in interest expense: Transaction accounts (40) (78) (118) Savings accounts 5 (29) (24) Certificates of deposit (1) (39) (40) Federal funds purchased, notes payable and other 12 (1) 11 - ----------------------------------------------------------------------------------------------------------------------------------- Total (24) (147) (171) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net interest income 210 67 277 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME VARIANCE ANALYSIS FOR THE NINE MONTHS AMOUNT RESULTING FROM TOTAL CHANGE ENDED SEPTEMBER 30, 1996 CHANGES IN: 1995-1996 VOLUME RATE - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest Earnings Variance Analysis Increase (decrease) in interest income: Loans 615 (214) 401 Investment securities (54) (20) (74) Federal funds sold and other 2 (9) (7) - ----------------------------------------------------------------------------------------------------------------------------------- Total 563 (243) 320 - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in interest expense: Transaction accounts (153) (264) (417) Savings accounts 104 (66) 38 Certificates of deposit (54) (53) (107) Federal funds purchased and other 103 (10) 93 - ----------------------------------------------------------------------------------------------------------------------------------- Total (1) (392) (393) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net interest income 564 149 713 - -----------------------------------------------------------------------------------------------------------------------------------
(1) A change due to both volume and rate has been allocated to the change in volume and rate in proportion to the relationship of the dollar amount of the change in each. (2) Changes calculated on nontaxable securities have not considered tax equivalent effects. Net interest income before the provision for loan losses was $2,181,000 for the third quarter of 1996 as compared to $1,904,000 for the comparable period of 1995, an increase of $277,000 or 14 14.5%. This increase was primarily attributable to higher loan balances and lower rates paid on interest-bearing deposit accounts. The Company's net interest margin in the third quarter of 1996 (based on average interest earning assets) was 6.52% as compared to 5.89% for the same period in 1995. Average interest earning assets grew 3.6% between the third quarter 1996 and the third quarter of 1995 while interest-bearing liabilities grew 1.4% over the same period. Net interest income before the provision for loan losses for the first nine months of 1996 was $6,341,000 as compared to $5,628,000 for the comparable period of 1995, an increase of $713,000 or 12.7%. This increase was primarily attributable to lower rates paid on interest-bearing deposit accounts as well as an increase in the number of loans on the Company's books. The Company's net interest margin for the nine month period ended September 30, 1996 (based on average interest-earning assets) was 6.55% as compared to 6.12% for the same period in 1995. Average interest-earning assets grew 5.1% for the nine month period ended September 30, 1996 as compared to the nine month period ended September 30, 1995 while interest-bearing liabilities grew 3.1% over the comparable periods. The Company's earning asset mix changed slightly with higher yielding loans increasing as a percentage of average earning assets while lower yielding investments declined. INTEREST EARNING ASSET MIX - ------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 - ------------------------------------------------------------------------------- Average Percent Average Percent Balance of Total Balance of Total - ------------------------------------------------------------------------------- Interest -Earning Asset Mix: Loans $ 98,964 76.53% $ 91,591 74.45% Investment securities 28,702 22.20% 29,347 24.26% Federal funds sold and other 1,640 1.27% 1,589 1.29% - ------------------------------------------------------------------------------- Total Interest-earning Assets $129,306 100.0% $123,027 100.0% - ------------------------------------------------------------------------------- Average interest-earning assets for the nine months ended September 30, 1996 increased to $129,306,000 from $123,027,000 for the comparable period in 1995. Average loans increased by $7,373,000 to $98,964,000 representing 76.53% of average interest-earning assets for the first nine months of 1996, compared to $91,591,000 or 74.45% for the first nine months of 1995. The yield on average loans declined to 11.31% at September 30, 1996, from 11.65% at September 30, 1995, due primarily to a lower Prime lending rate, the rate to which most of the Company's floating rate loans are tied. Other interest-earning assets consist of investment securities, overnight federal funds sold and other short term investments. These investments are maintained to meet the liquidity requirements of the Company as well as pledging requirements on certain deposits, and typically have a lower yield than loans. The yield on investments decreased to 6.23% for the period ended September 30, 1996, from 6.33% in the comparable period in 1995. As a percentage of average interest earning assets investment securities declined to 22.20% for the nine months ended September 30, 1996 compared to 24.26% for the comparable period in 1995. Average interest-bearing liabilities for the nine months ended September 30, 1996 increased to $118,615,000 from $115,037,000 for the comparable period in 1995 an increase of $3,578,000 or 15 3.11%. The primary reason for the increase was the result of RSC assuming the debt on several real estate projects that were dissolved during the first nine months of 1996. As a result, federal funds purchased, notes payable and other increased by $6,804,000 in 1996 compared to the same period in 1995. For the first nine months ended September 30, 1996, the average interest rate paid on interest-bearing liabilities declined to 3.87% from an average rate of 4.45% paid during the first nine months of 1995. NONINTEREST INCOME ------------------ The Company receives a significant portion of its income from noninterest sources related both to activities conducted by the Bank (SBA loan originations and servicing, depositor service charges), as well as from the Bank's two subsidiaries RSC and RIA. OTHER INCOME ------------ - ------------------------------------------------------------------------------- (IN THOUSANDS) FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, - ------------------------------------------------------------------------------- 1996 1995 1996 1995 - ------------------------------------------------------------------------------- Other Income: Income from investments in real estate partnerships $ - $ - $ - $ - Gain on sale of SBA loans 231 227 1,119 590 Depositor service charges 83 66 244 202 Income from investment management services 174 111 500 348 Gain on sale of securities - - - (25) Gain on sale of assets 5 2 14 2 Servicing fees on loans sold 92 82 231 238 Other 90 100 342 214 - ------------------------------------------------------------------------------- Total $ 675 $ 588 $ 2,450 $ 1,569 - ------------------------------------------------------------------------------- (Income from RSC and RIA in these consolidated financial statements is included in noninterest income. A further discussion of RSC and RIA is set forth below.) During the third quarter of 1996, the Company recognized noninterest income of $675,000 compared to $588,000 for the same period during 1995 an increase of $87,000 or 14.8%. For the first nine months of 1996, noninterest income was $2,450,000 compared to $1,569,000 for the first nine months of 1995, an increase of $881,000 or 56.2%. These increases are attributable to increases in almost all noninterest income categories. The greatest increase is attributable to gains from the sale of SBA loans (see "SBA Loan Origination & Sales") as well as income from investment management services (see "Regency Investment Advisors"). SBA LOAN ORIGINATION & SALES ---------------------------- The Bank originates loans to customers under a Small Business Administration ("SBA") program that generally provides for SBA guarantees of 70% to 90% of each loan. The Bank then sells the guaranteed portion of the loan in the secondary market while retaining the unguaranteed portion of the loan as well as the ongoing servicing. Income from the sale of the guaranteed portion is affected by the timing and volume of sales (when loans are funded and available for sale), as well as the premium paid in the secondary market. The premium paid in the secondary market is further affected by the rate and terms of the loan as well as the yield curve. 16 During the quarter ended September 30, 1996, the Company recognized gains on sale of SBA loans of $231,000, an increase of $4,000 from $227,000 in the comparable period of 1995. For the nine months ended September 30, 1996 gains on sale of SBA loans were $1,119,000 compared to $590,000 during the first nine months of 1995, an increase of $529,000. These increases were primarily the result of timing related to the number and volume of loans available for sale in the respective periods as well as higher premiums recognized in 1996. An additional source of income related to the Bank's SBA loan origination activities is reflected in income from the ongoing servicing of loans sold. During the third quarter ended September 30, 1996, servicing income totaled $92,000, an increase of $10,000 from income of $82,000 during the quarter ended September 30, 1995. For the nine months ended September 30, 1996, servicing income totaled $231,000, a decline of $7,000 compared to $238,000 of servicing income during the first nine months of 1995. The servicing income decline for the first nine months was the result of payoffs of older SBA loans resulting in a slight decrease in the overall size of the servicing portfolio. REGENCY SERVICE CORPORATION (RSC) --------------------------------- The Bank's wholly owned subsidiary, Regency Service Corporation ("RSC"), has engaged in real estate development activities since 1986. Such activities, which typically involve the acquisition, development and sale of residential real properties (but which sometimes involve the sale of properties prior to development), historically have been structured as limited partnerships in which RSC is the limited partner and a local developer is the general partner. Partnerships are accounted for under the equity method. The FDIC has adopted final regulations under the Federal Deposit Insurance Corporation Improvement Act of 1991 regarding real estate investment and development activities of insured state banks and their majority-owned subsidiaries. Under the new FDIC regulations, banks must divest of their real estate development investments as quickly and as prudently as possible, but in no event later than December 19, 1996, and must submit a plan to the FDIC regarding the divestiture of such investments. Such regulations also permit banks to apply for the FDIC's consent to continue certain real estate development activities and/or to file for an extension to continue divestiture beyond December 19, 1996. RSC has filed a request with the FDIC to continue its divestiture beyond December 19, 1996, however, as of the date of this report the Company has not received written approval for such continuation. To comply with these regulations RSC has undertaken business strategies designed to reduce the Company's involvement in real estate development through its subsidiary as quickly and as prudently as possible. RSC's first challenge in meeting its divestiture obligations has involved the modification of the original structure of its partnerships. As stated in the first paragraph, most of the properties RSC has invested in have been through limited partnerships. Under the limited partnership structure, the general partner conducts the activities of and manages the partnership. Due to this structure, RSC has not had direct day to day control or decision making capability in regard to substantially all of the properties in which it has been a limited partner investor. 17 During 1996, RSC continued to aggressively pursue divestiture of its remaining real estate projects through various transactions. As of September 30, 1996, RSC had dissolved or closed out all but three partnerships which resulted in sole ownership of nine of the projects. These projects are accounted for under the consolidation method. For the third quarter ended September 30, 1996, the net gain from investments in real estate projects amounted to $12,000, compared to a loss of $518,000 in the third quarter ended September 30, 1995. The third quarter loss in 1995 was primarily the result of the initial establishment of a loss reserve. The net gain on the sale of real estate in the third quarter of 1996 was the result of income generated from sales in two projects while losses experienced in others were offset by the previously established loss reserve. For the first nine months of 1996 the net loss from investments in real estate projects amounted to $170,000, compared to a loss of $135,000 for the first nine months of 1995, a decline of $35,000. Actual losses from investments in real estate projects for the nine months ended September 30, 1996, amounted to $1,404,000. These losses were offset by a $1,234,000 reduction in RSC's allowance for real estate losses. On a stand alone basis, RSC's activities reduced the Company's overall pre-tax income by $1,053,000 in the first nine months of 1996. This amount includes all of the costs of operating RSC during this period, including operating costs such as legal, accounting, project management expense, salaries and the $170,000 in losses from the sale of real estate mentioned above. These operating expenses have been consolidated with similar operating expenses in the Company's income statement and noninterest expense table above. Additional discussion of loans made by RSC to its partnerships and, in general, of the Company's investment in RSC is contained in this report under the headings, "Nonperforming Loans" and "Investments in Real Estate". REGENCY INVESTMENT ADVISORS (RIA) ---------------------------------- The Bank's wholly-owned subsidiary, Regency Investment Advisors ("RIA"), was formed in August 1993 through the acquisition by the Bank of the assets, including the client list, of a fee-only investment management and consulting firm. RIA provides investment management and consulting services, including comprehensive financial and retirement planning and investment advice, to individuals and corporate clients for an annual fee that varies depending upon the size of a client account. Income from RIA for the third quarter 1996 increased to $174,000 from $111,000 in the same period of 1995, an increase of $63,000. For the first nine months of 1996, income from RIA was $500,000, an increase of $152,000 or 43.7% from income of $348,000 for the first nine months of 1995. RIA on a stand alone basis in the nine month period ended September 30, 1996, posted net pre- tax income of $21,000 compared to a net pre-tax loss of ($106,000) in the first nine months of 1995. 18 As of September 30, 1996, RIA had $72.5 million in assets under management, an increase of $21.6 million compared to $50.9 million as of September 30, 1995. Assets in client accounts managed by RIA are not reflected in the consolidated assets of the Company. OTHER EXPENSE ------------- Noninterest expense reflects the costs of products and services, systems, facilities and personnel for the Company. The major components of other operating expenses stated both as dollars and as a percentage of average assets are as follows: OTHER OPERATING EXPENSE TO AVERAGE ASSETS ----------------------------------------- - ------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 - ------------------------------------------------------------------------------- Percent Percent of of Amount Average Amount Average Assets Assets - ------------------------------------------------------------------------------- Other Expense: Loss (Gain) from investments in real estate partnerships $ (12) (0.03%) $ 518 1.27% Salaries and related benefits 1,154 2.76% 1,129 2.76% Occupancy 438 1.05% 412 1.01% FDIC insurance and regulatory assessments 15 0.04% (3) (.01)% Marketing 117 0.28% 116 0.28% Professional services 178 0.43% 126 0.31% Director's fees and expenses 90 0.22% 66 0.16% Management fees for real estate projects 126 0.30% (118) (.29)% Other 265 0.64% 265 0.65% - ------------------------------------------------------------------------------- TOTAL $2,371 5.68% $2,511 6.15% - ------------------------------------------------------------------------------- For the third quarter ended September 30, 1996, other expenses decreased by 5.6% or $140,000 to $2,371,000, from $2,511,000 during the comparable period in 1995. The primary cause of the decline was due to lower losses from investments in real estate. Professional services (legal and accounting), directors fees and expenses, and management fees for real estate projects all increased in the three month period ended September 30, 1996 compared to 1995 mainly due to increased activity related to RSC's divestiture of it's real estate holdings. When compared to average assets for the respective periods, other expenses declined to 5.68% versus 6.15% in 1995. 19
OTHER OPERATING EXPENSE TO AVERAGE ASSETS - ------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 - ------------------------------------------------------------------------------------------------------- Percent of Percent of Average Average Amount Assets Amount Assets - ------------------------------------------------------------------------------------------------------- Other Expense: Loss (Gain)from investments in real estate partnerships $ 170 0.14% $ 135 .11% Salaries and related benefits 3,340 2.71% 3,308 2.80% Occupancy 1,231 1.00% 968 0.82% FDIC insurance and regulatory assessments 47 0.04% 156 0.13% Marketing 328 0.27% 280 0.23% Professional services 601 0.49% 398 0.34% Director's fees and expenses 258 0.21% 200 0.17% Management fees for real estate projects 359 0.29% 56 0.05% Other 1,002 0.81% 850 0.72% - ------------------------------------------------------------------------------------------------------- TOTAL $ 7,336 5.96% $ 6,351 5.37% - -------------------------------------------------------------------------------------------------------
For the nine months ended September 30, 1996, other expenses increased 15.5% or $985,000 to $7,336,000, up from $6,351,000 during the comparable period in 1995. The primary causes of the increase were due to higher occupancy expense as well as higher fees for professional services (legal and accounting), directors fees and expense, and management fees for real estate projects. When compared to average assets for the respective periods, other expenses increased to 5.96% versus 5.37% in 1995. Salaries and benefits expense increased by only $32,000 or 0.97% in the nine month period ended September 30, 1996 as compared to the first nine months of 1995. Occupancy expense increased by $263,000 or 27.2% for the first nine months of 1996 compared to the same period in 1995, primarily due to the sale and leaseback transaction involving the Company's headquarters facility completed in the third quarter of 1995. As a result of the transaction, the Company now leases its facility at 7060 N. Fresno Street, Fresno, CA. As part of the transaction, the Company recorded a loan to the buyer of the property. The resulting increase in interest income from the loan offsets the higher rental expense reflected as part of the occupancy expense number shown above. FDIC insurance and regulatory assessments declined by $109,000 or 69.9% in the first nine months of 1996 compared to the same period in 1995 due to lower insurance premiums charged by the FDIC. BALANCE SHEET ANALYSIS Total assets increased by $7,132,000 or 4.4% between December 31, 1995 and September 30, 1996. The Company's loan portfolio increased by $5,540,000 or 5.7% primarily as a result of $4,060,000 in loans made by RSC to facilitate the sale of three of its partnerships. Deposits increased during the nine months ended September 30, 1996 by $8,323,000 or 5.8%, primarily due to concerted marketing efforts and additionally from new deposits generated by the Banks new Madera branch. 20 LOANS The Company's loans are primarily made within its defined market area of Fresno and Madera counties. During the first quarter of 1995, the Company opened an SBA loan production office in Modesto and additionally employs business development officers targeting businesses in the northern and southern San Joaquin Valley for SBA loans as well. Commercial loans, including SBA loans, comprised approximately 56.9% of the Company's loan portfolio at September 30, 1996. These loans are generally to small and mid-size businesses and professionals. Commercial loans are diversified as to industries and types of business, with no material industry concentrations. Most of these loans have floating rates with the majority tied to the national Prime Rate. The primary source of repayment on most commercial loans is cash flow from the primary business. Additional collateral in the form of real estate, cash, accounts receivable, inventory or other financial instruments is often obtained as a secondary source of repayment. Real Estate Construction lending comprised 23.0% of the Company's loan portfolio at September 30, 1996, consisting of loans primarily for the construction of single family residential housing. Loans in this category may be to the home buyer or to the developer. Construction loans are secured by deeds of trust on the primary property. Such loans also contain $4.9 million in loans RSC has made to its partnerships or to facilitate the sale of a project. The majority of construction loans have floating rates tied to either the national Prime Rate or Regency Bank's Reference Rate. A significant portion of the borrowers' ability to repay these loans is dependent on the residential real estate market, principally from the sale of the property. In this regard, the Company's potential risks include a general decline in the value of the underlying property, as well as cost overruns or delays in the sale or completion of a property. Real Estate Mortgage loans comprised 11.9% of the loan portfolio at September 30, 1996, and are made up of (69%) non-residential properties and (31%) single-family residential mortgages. The non-residential loans generally are "mini-perm" (medium-term) commercial real estate mortgages with maturities under seven years. The residential mortgages are secured by first trust deeds and have varying maturities. Both types of loans may have either fixed or floating rates. The majority are floating. Risks associated with non-residential loans include the decline in value of commercial property values; economic conditions surrounding commercial real estate properties; and vacancy rates. The repayment of single-family residential mortgage loans is generally dependent on the income of the borrower from other sources, however, declines in the underlying property value may create risk in these loans. Consumer installment loans represented the remainder of the loan portfolio at September 30, 1996, comprising 8.2% of total loans. This category includes traditional Consumer Installment Loans (47%), Home Equity Lines of Credit (40%), Leases (1%), and Visa Card Loans (12%). Consumer installment loans are generally secured by third trust deeds on single-family residences, while Visa Cards are unsecured. 21 RISK ELEMENTS The Company assesses and manages credit risk on an ongoing basis through stringent credit review and approval policies, extensive internal monitoring and established formal lending policies. Additionally, the Bank contracts with an outside loan review consultant to periodically grade new loans and to review the existing loan portfolio. Management believes its ability to identify and assess risk and return characteristics of the Company's loan portfolio is critical for profitability and growth. Management strives to continue the historically low level of credit losses by continuing its emphasis on credit quality in the loan approval process, active credit administration and regular monitoring. With this in mind, management has designed and implemented a comprehensive loan review and grading system that functions to continually assess the credit risk inherent in the loan portfolio. Additionally, management believes its ability to manage portfolio credit risk is enhanced by the knowledge of the Bank's service area by the lending personnel and Board of Directors. In addition to the credit risk associated with the Bank's loan portfolio, the Company continually reviews and monitors RSC's activities and potential exposure to loss related to the sale of properties whether owned directly or in partnership. In conjunction with this analysis, the Company established a reserve for potential real estate losses during 1995. At September 30, 1996 the Company's analysis indicated the reserve was sufficient to absorb anticipated additional losses generated from the sale of properties at expected price levels. Should market conditions change and the expected demand for new homes or sales prices decline, or, should other issues not presently known arise which effect disposition of RSC properties, it is possible additional reserves could be required which could negatively effect the Companies results of operations, including earnings and capital ratios. NONPERFORMING LOANS The Company's current policy is to cease accruing interest when a loan becomes 90-days past due as to principal or interest; when the full, timely collection of interest or principal becomes uncertain; or when a portion of the principal balance has been charged off, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, the accrued and uncollected interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement or when the loan is both well secured and in process of collection. At September 30, 1996, nonaccrual loans amounted to $3,524,000 or 3.43% of total loans compared to $3,855,000 or 3.85% at June 30, 1996 and $581,000 or .60% at December 31, 1995. Other real estate owned was $569,000 at September 30, 1996 compared to $381,000 at June 30, 1996 and $341,000 at December 31, 1995. As previously discussed, the primary reason for the increase in nonperforming loans during the first nine months of 1996 is related to three loans made to facilitate the sale of RSC properties. During the first quarter of 1996, two loans totaling $3,750,000 were made to facilitate the sale of RSC properties, while during the third quarter an 22 additional loan of $310,000 was made to facilitate the sale of a third property. Management expects these loans will appear in the nonperforming category until the properties underlying the loans are substantially sold out. Following is a table presenting the Nonperforming Assets for the periods ending September 30, 1996 and December 31, 1995. NONPERFORMING ASSETS
- ---------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PERCENTAGES) SEPTEMBER 30, 1996 DECEMBER 31, 1995 - ---------------------------------------------------------------------------------------- Nonperforming Assets: Nonaccrual RSC loans $ 3,452 $ 505 Nonaccrual bank loans 72 76 Restructured loans - - - ---------------------------------------------------------------------------------------- Nonperforming loans 3,524 581 Other real estate owned 569 341 - ---------------------------------------------------------------------------------------- Total nonperforming assets 4,093 922 - ---------------------------------------------------------------------------------------- Accruing loans 90 days past due 75 725 - ---------------------------------------------------------------------------------------- Total loans before allowance for losses 102,677 97,137 Total assets 170,814 163,682 Allowance for possible credit losses (1,650) (1,784) - ---------------------------------------------------------------------------------------- Ratios: Nonperforming loans to total loans consolidated 3.43% .60% Nonperforming loans to total loans bank only (excluding RSC loans) .07% .08% Nonperforming assets to: Total loans 3.99% .95% Total loans and OREO 3.96% .95% Total assets 2.40% .56% Allowance for possible credit losses to total nonperforming assets 40.31% 193.50% - ----------------------------------------------------------------------------------------
At September 30, 1996, the Bank's recorded investment in loans for which impairment has been recognized totaled $164,000. Included in this amount is $48,000 of impaired loans for which the related SFAS No. 114 allowance is $48,000, as well as $116,000 of impaired loans that as a result of write-downs or the fair value of the collateral, did not have a SFAS No. 114 allowance. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses reflects management's judgment as to the level which is considered adequate to absorb potential losses inherent in the loan portfolio. This allowance is increased by provisions charged to expense and reduced by loan charge-offs net of recoveries. Management determines an appropriate provision based on information currently available to analyze credit loss potential, including: (a) the loan portfolio growth in the period, (b) a comprehensive grading and review of new and existing loans outstanding, (c) actual previous charge-offs, and (d) changes in economic conditions. The allowance for credit losses totaled $1,650,000 or 1.61% of total loans at September 30, 1996, compared to $1,784,000 or 1.84% at December 31, 1995. The decrease is the result of net charge-offs totaling $134,000 during the first nine months of 1996 with no additional provision deemed necessary. It is the policy of management to maintain the allowance for credit losses at a level adequate for known and future risks inherent in the loan portfolio. Based on information 23 currently available to analyze credit loss potential, including economic factors, overall credit quality, historical delinquency and a history of actual charge-offs, management believes that the credit loss provision and allowance is adequate. However, no prediction of the ultimate level of loans charged-off in future years can be made with any certainty. Following is a table presenting the activity within the Company's provision for credit losses for the period between December 31, 1995 and September 30, 1996. - --------------------------------------------------------------------- (IN THOUSANDS) - --------------------------------------------------------------------- Balance, December 31, 1995 $ 1,784 - --------------------------------------------------------------------- Provision charged to expense - Loans charged off 209 Recoveries 75 - --------------------------------------------------------------------- Balance, September 30, 1996 $ 1,650 - --------------------------------------------------------------------- INVESTMENTS IN REAL ESTATE The Company's investment in real estate consists of the Bank's investment of capital and retained earnings in RSC. At September 30, 1996, RSC was the sole owner of nine projects and is a limited partner in three projects. As of September 30, 1996, the Company had an equity investment of $13,750,000 invested in these partnerships and projects compared to $17,954,000 at December 31, 1995. In addition, RSC has loans totaling $4,959,000, including one loan to a partnership and three loans to facilitate the sale of projects which have been classified as construction loans on the consolidated balance sheet. As a result of the dissolution of several RSC partnerships, RSC has become the 100% owner of several projects. As a result of these transactions, the assets and liabilities of RSC now reflect not only RSC's equity investment, but the total assets and liabilities of the acquired projects as well. See "Regency Service Corporation" for further discussion of these issues. 24 FUNDING SOURCES Deposits represent the Bank's principal source of funds for investment. Deposits are primarily core deposits in that they are demand, savings, and time deposits generated from local businesses and individuals. These sources are considered to be relatively more stable, long-term deposit relationships thereby enhancing steady growth of the deposit base without major fluctuations in overall deposit balances. In order to assist in meeting its funding needs, the Bank maintains federal funds lines with correspondent banks in addition to using its investment portfolio to raise funds through repurchase agreements. In addition, the Bank may, from time to time, obtain additional deposits through the use of brokered time deposits. As of September 30, 1996, the Bank held no brokered time deposits and had no outstanding borrowings from correspondent banks. The following table presents the composition of the deposit mix for the period ending September 30, 1996, and December 31, 1995, respectively.
- ------------------------------------------------------------------------------------------------------- (IN THOUSANDS) SEPTEMBER 30, 1996 DECEMBER 31, 1995 - ------------------------------------------------------------------------------------------------------- Percent of Percent of Amount Total Deposits Amount Total Deposits - ------------------------------------------------------------------------------------------------------- Deposits: Noninterest-bearing transaction accounts $ 34,013 22.37% $ 32,672 22.73% Interest bearing deposits: 72,572 47.72% 75,539 52.55% Time deposits: Under $100,000 18,302 12.04% 12,229 8.51% $100,000 and over 27,181 17.87% 23,305 16.21% - ------------------------------------------------------------------------------------------------------- Total Interest-bearing Deposits 118,055 77.63% 111,073 77.27% - ------------------------------------------------------------------------------------------------------- Total Deposits $ 152,068 $ 100.0% $ 143,745 100.0% - -------------------------------------------------------------------------------------------------------
During the first nine months of 1996, total deposits increased by $8,323,000 or 5.8%, to $152,068,000 at September 30, 1996 compared to $143,745,000 at December 31, 1995. The increase was primarily due to concerted marketing efforts and additionally from new deposits generated by the Banks new Madera branch. LIQUIDITY Liquidity management refers to the Bank's ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as well as the credit needs and requirements of its clients. Both assets and liabilities contribute to the Bank's liquidity position. Federal funds lines, short-term investments and securities, and loan repayments contribute to liquidity, along with deposit increases, while loan funding and deposit withdrawals decrease liquidity. The Bank assesses the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual client funding needs. The Bank maintains lines of credit with two correspondent banks for up to $9,000,000 available on a short-term basis. Additionally, the Bank generally maintains a portfolio of SBA loans either available for sale or in its portfolio that could be sold should additional liquidity be required. 25 INTEREST RATE SENSITIVITY Interest rate sensitivity is a measure of the exposure to fluctuations in the Bank's future earnings caused by fluctuations in interest rates. Generally, if assets and liabilities do not reprice simultaneously and in equal volumes, the potential for such exposure exists. It is management's objective to maintain stability in the net interest margin in times of fluctuating interest rates by maintaining an appropriate mix of interest sensitive assets and liabilities. To achieve this goal, the Bank prices the majority of its interest-bearing liabilities at variable rates. At the same time, the majority of its interest-earning assets are also priced at variable rates, the majority of which float with the Prime Rate. This pricing structure tends to stabilize the net interest margin percentage earned by the Bank. The following table sets forth the interest rate sensitivity and repricing schedule of the Company's interest-earning assets and interest-bearing liabilities, the interest rate sensitivity gap, the cumulative interest rate sensitivity gap, and the cumulative interest rate sensitivity gap ratio.
- -------------------------------------------------------------------------------------------------------------------- NEXT DAY AFTER THREE AFTER BUT WITHIN MONTHS ONE YEAR (IN THOUSANDS, EXCEPT PERCENTAGES) THREE MONTHS BUT WITHIN BUT WITHIN AFTER AS OF SEPTEMBER 30, 1996 IMMEDIATELY 12 MONTHS FIVE YEARS FIVE YEARS TOTAL - -------------------------------------------------------------------------------------------------------------------- Interest Rate Sensitivity Gap: Loans (1) $ 40,798 $ 33,702 $ 9,154 $ 9,183 $ 6,316 $ 99,153 Investment securities and other (2) 349 7,238 3,445 11,388 6,159 28,579 Fed funds sold 7,000 - - - - 7,000 - -------------------------------------------------------------------------------------------------------------------- Total Earning Assets 48,147 40,940 12,599 20,571 12,475 134,732 - -------------------------------------------------------------------------------------------------------------------- Interest-bearing transaction accounts 47,438 - - - - 47,438 Savings accounts 22,814 2,320 - - - 25,134 Time deposits - 12,945 24,704 7,676 159 45,484 Federal funds purchased - - - - - - - -------------------------------------------------------------------------------------------------------------------- Total Interest-Bearing Liabilities 70,252 15,265 24,704 7,676 159 118,056 - -------------------------------------------------------------------------------------------------------------------- Interest rate sensitivity gap (22,105) 25,675 (12,105) 12,895 12,316 Cumulative gap (22,105) 3,570 (8,535) 4,360 16,676 Cumulative gap percentage to interest earning assets (16.41%) 2.65% (6.33%) 3.24% 12.38% - --------------------------------------------------------------------------------------------------------------------
(1) Amounts exclude nonaccrual loans of $3,524,000. (2) Amounts exclude unrealized gain/l(loss) of $242,000 The above table indicates the time periods in which interest-earning assets and interest-bearing liabilities will mature or reprice in accordance with their contractual terms. The table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures. Additionally, this table does not take into consideration changing balances in forward periods as a result of normal amortization, principle paydowns, changes in deposit mix or other such movements of funds as a result of changing interest rate environments. 26 CAPITAL RESOURCES The Board of Governors and the FDIC have adopted risk-based capital guidelines for evaluating the capital adequacy of bank holding companies and banks. The guidelines are designed to make capital requirements sensitive to differences in risk profiles among banking organizations, to take into account off-balance sheet exposures and to aid in making the definition of bank capital uniform internationally. Under the guidelines, the Company and the Bank are required to maintain capital equal to at least 8.0% of its assets and commitments to extend credit, weighted by risk, of which at least 4.0%, must consist primarily of common equity (including retained earnings) and the remainder may consist of subordinated debt, cumulative preferred stock, or a limited amount of loan loss reserves. Assets, commitments to extend credit and off-balance sheet items are categorized according to risk and certain assets considered to present less risk than other permit maintenance of capital at less than the 8.0% ratio. The guidelines establish two categories of qualifying capital: Tier 1 capital comprising core capital elements and Tier 2 comprising supplementary capital requirements. At least one-half of the required capital must be maintained in the form of Tier 1 capital. Tier 1 capital includes common shareholder's equity and qualifying perpetual preferred stock less intangible assets and certain other adjustments. However, no more than 25% of the Company's total Tier 1 capital may consist of perpetual preferred stock. The definition of Tier 1 capital for the Bank is the same, except that perpetual preferred stock may be included only if it is noncumulative. Tier 2 capital includes, among other items, limited life (and in the case of banks, cumulative) preferred stock, mandatory convertible securities, subordinated debt and a limited amount of reserve for credit losses. The Board of Governors also adopted a 3.0% minimum leverage ratio for banking organizations as a supplement to the risk-weighted capital guidelines. The leverage ratio is generally calculated using Tier 1 capital (as defined under risk-based capital guidelines) divided by quarterly average net total assets (excluding intangible assets and certain other adjustments). The Board of Governors emphasized that the leverage ratio constitutes a minimum requirement for well-run banking organizations having diversified risk. Banking organizations experiencing or anticipating significant growth, as well as those organizations which do not exhibit the characteristics of a strong, well-run banking organization above, will be required to maintain minimum capital ranging generally from 100 to 200 basis points in excess of the leverage ratio. The FDIC adopted a substantially similar leverage ratio for state non-member banks. 27 The table below presents the Company's and the Bank's risk-based and leverage capital ratios for the quarter ended September 30, 1996.
- -------------------------------------------------------------------------------- RISK-BASED CAPITAL RATIOS (IN THOUSANDS) COMPANY BANK - -------------------------------------------------------------------------------- Amount Ratio Amount Ratio - -------------------------------------------------------------------------------- Risk-Based Capital Ratio: Total Capital $ 14,062 10.76% $ 13,554 10.38% Tier 1 Capital 12,429 9.51% 11,921 9.13% Total Risk-Adjusted Assets 130,703 130,614 - -------------------------------------------------------------------------------- Leverage Ratio: Tier 1 Capital 12,429 7.52% 11,921 7.21% Average Total Assets 165,222 165,301 - --------------------------------------------------------------------------------
As indicated in the table above, at September 30, 1996, the Company's capital ratios exceed the minimum capital levels required by current federal regulations. Management believes based upon currently available information that the Company and the Bank will continue to meet their respective minimum capital requirements in the foreseeable future. On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA, among other matters, substantially revises banking regulations and establishes a framework for determination of capital adequacy of financial institutions. Under the FDICIA, financial institutions are placed into one of five capital adequacy categories as follows: (1) "Well capitalized" - consisting of institutions with a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive; (2) "Adequately capitalized" - consisting of institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution; (3) "Undercapitalized" - consisting of institutions with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly undercapitalized" - consisting of institutions with a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting of an institution with a ratio of tangible equity to total assets that is equal to or less than 2%. Financial institutions classified as undercapitalized or below are subject to various limitations including, among other matters, certain supervisory actions by bank regulatory authorities and restrictions related to (i) growth of assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of dividends or other capital distributions, and (iv) payment of management fees to a parent holding company. The FDICIA requires the bank regulatory authorities to initiate corrective action regarding financial institutions which fail to meet minimum capital requirements. Such action may be taken in order to, among other matters, augment capital and reduce total assets. Critically undercapitalized financial institutions may also be subject to appointment of a receiver or conservator unless the financial institution submits an adequate capitalization plan. 28 RETURN ON EQUITY AND ASSETS The following table sets forth the ratios of net income to average assets and average shareholders' equity, and average shareholders' equity to average assets. Also indicated is the Company's dividend payout ratio. (For purposes of calculating average shareholders' equity as used in these ratios, unrealized losses on the Company's available-for-sale securities portfolio have been included and the percentages shown have been annualized).
- ------------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ENDED SEPTEMBER 30, 1996 - ------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Return on average assets 0.68% (.27)% 0.69% 0.33% - ------------------------------------------------------------------------------------------------------------------- Return on average shareholders' equity 8.51% (2.91)% 8.46% 3.51% - ------------------------------------------------------------------------------------------------------------------- Average shareholders' equity to average assets 7.94% 9.33% 8.10% 9.43% - ------------------------------------------------------------------------------------------------------------------- Dividend payout ratio 38.68% (81.31)% 38.87% 66.93% - -------------------------------------------------------------------------------------------------------------------
29 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3.1) Articles of Incorporation, as amended, dated September 9, 1994, incorporated by reference from exhibit 3.1 of registrant's Annual Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on February 27, 1995. (3.2) Bylaws, as amended, incorporated by reference from exhibit 3.2 of registrant's Annual Report on Form 10-K for the year ended December 31, 1994, filed with the Commission on February 27, 1995. *(10.1) Amendment to the Project Management Agreement, dated August 21, 1996, by and between Regency Service Corporation, a California Corporation, and Gary L. McDonald Real Estate and Development Co., a California Corporation, for project managerial services related to real estate development activities conducted by RSC. 30 (27.1) Financial Data Schedule * Denotes management contracts, compensatory plans or arrangements. (b) Reports on Form 8-K The Company filed a Form 8-K dated July 26, 1996 in which it reported the Company had declared a $.06 per share cash dividend payable to shareholders of record on July 29, 1996. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REGENCY BANCORP Date: November 8, 1996 By: /s/Steven F. Hertel ------------------------ ---------------------------- Steven F. Hertel President and Chief Executive Officer (Principal Executive Officer) Date: November 8, 1996 By: /s/Steven R. Canfield ------------------------ ---------------------------- Steven R. Canfield Executive Vice President and (Chief Financial Officer and Accounting Officer) 32 EXHIBIT INDEX EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER *10.1 Amendment to the Project Management Agreement, dated 34 August 21, 1996, by and between Regency Service Corporation, a California Corporation, and Gary L. McDonald Real Estate and Development Co., a California Corporation, for project managerial services related to real estate development activities conducted by RSC. 27.1 Financial Data Schedule 35 * Denotes management contracts, compensatory plans or arrangements. 33 EX-10.1 2 EXHIBIT 10.1 AMENDMENT TO PROJECT MANAGER AGREEMENT DATED: AUGUST 21, 1996 PARTIES: GARY L. MCDONALD REAL ESTATE AND DEVELOPMENT CO. (PROJECT MANAGER) REGENCY SERVICE CORPORATION (RSC) AGREEMENT Exhibit C of the Agreement shall be amended as follows: In the event that total commissions paid to all parties exceed 6% of the total sales price, net of incentives, the Project Manager's 3% commission will be reduced to an amount so that total commissions paid to all parties do not exceed 6% of the total sales price, net of incentives. Said reduction shall in no way cause the Project Manager's commission to go negative. By: /s/ STEVEN HERTEL Pres ------------------------------------- Regency Service Corporation, a California Corporation By: /s/ GARY L. MCDONALD ------------------------------------- Gary L. McDonald Real Estate and Development Co., Inc., a California Corporation EX-27 3 EXHIBIT 27
9 1,000 9-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 11,008 7,000 3,000 0 28,334 0 0 102,677 1,650 170,814 152,068 0 5,475 0 0 0 8,868 4,544 170,814 8,380 1,338 60 9,778 3,296 3,437 6,341 0 0 7,336 1,455 842 0 0 842 0.46 0.45 6.55 3,524 75 0 164 1,784 209 75 1,650 0 0 1,650
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