-----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, WlVFfaItwwNAywotJLuKAej2XANptZVmBh1wQQTm/dF5JqyGly9wM1u3AtCxppx4 jBnREjW+h2zvGxyMLZ3M7g== 0001047469-98-020051.txt : 19980515 0001047469-98-020051.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-020051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA INDEPENDENT BANCORP CENTRAL INDEX KEY: 0000948976 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 680349947 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26552 FILM NUMBER: 98619789 BUSINESS ADDRESS: STREET 1: 1005 STAFFORD WAY STREET 2: P O BOX 1575 CITY: YUBA CITY STATE: CA ZIP: 95992 BUSINESS PHONE: 9166744444 MAIL ADDRESS: STREET 1: P O BOX 1575 STREET 2: 1005 STAFFORD WAY CITY: YUBA CITY STATE: CA ZIP: 95992 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC. 20549 (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --------------------- --------------------- Commission File Number 0-265520 CALIFORNIA INDEPENDENT BANCORP ------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 68-0349947 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1227 BRIDGE ST., SUITE C, YUBA CITY, CALIFORNIA 95991 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) (530) 674-4444 -------------- (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at Class March 31, 1998 ----- -------------- Common stock, no par value 1,651,131 Shares
This report contains a total of 21 pages -------- 1 PART I- FINANCIAL INFORMATION
ITEM 1 PAGE CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS 3 CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS 4 CONSOLIDATED STATEMENTS OF CASH FLOWS 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-16 PART II- OTHER INFORMATION ITEM 6 Consulting Services Agreement with Examen, Inc. 18-20 SIGNATURES 21
2 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENT CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, 1998 DECEMBER 31, 1997 --------------------------------- ASSETS Cash and due from banks $ 16,089 $ 18,425 Federal funds sold 9,100 35,600 --------------------------------- Total Cash and Equivalents 25,189 54,025 Investment securities: Available-for-sale securities, at fair value 51,012 38,042 Held-to-maturity securities, at amortized cost (fair value of $18,693 and 19,245 respectively) 18,634 19,156 --------------------------------- Total investments 69,646 57,198 Loans: Commercial and agricultural 82,726 79,385 Consumer 2,026 1,956 Real Estate 64,497 51,959 Lease financing 27,819 33,465 Other 392 1,022 --------------------------------- Total loans 177,460 167,787 Less allowance for possible loan losses (5,822) (5,514) --------------------------------- Net Loans 171,638 162,273 Premises and equipment, net 8,057 8,178 Interest receivable 3,411 2,671 Other real estate owned 649 918 Other assets 5,878 6,267 --------------------------------- Total assets 284,468 291,530 --------------------------------- --------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand, non-interest bearing $ 51,303 $ 62,224 Demand, interest bearing 45,805 40,133 Savings and Money Market 65,750 68,790 Time certificates 96,396 95,784 --------------------------------- Total deposits 259,254 266,931 Interest payable 1,722 1,814 Other liabilities 1,444 1,415 --------------------------------- Total liabilities 262,420 270,160 Shareholders' equity: Common stock, no par value; 20,000,000 shares authorized; 1,651,131 shares outstanding March 31, 1998 and December 31, 1997 13,587 13,587 Retained earnings 8,494 7,864 Debt guarantee of ESOP (80) (80) Net unrealized gains (losses) on available-for-sale securities 47 (1) --------------------------------- --------------------------------- Total shareholders' equity 22,048 21,370 --------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 284,468 $ 291,530 --------------------------------- ---------------------------------
See accompanying notes to consolidated financial statements 3 CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1998 MARCH 31, 1997 ---------------------------------------------------------------- Interest income: Interest and fees on loans $ 4,607 $ 4,323 Interest on investment securities 970 623 Interest on federal funds sold 389 527 ------------------------------- ------------------------------ Total interest income 5,966 5,473 ------------------------------- ------------------------------ Interest expense: Demand, interest bearing 404 354 Savings 426 661 Time certificates 1,336 1,190 Other 5 6 ------------------------------- ------------------------------ Total interest expense 2,171 2,211 ------------------------------- ------------------------------ Net interest income 3,795 3,262 Provision for possible loan losses (396) (40) ------------------------------- ------------------------------ Net interest income after provision for possible loan 3,399 3,222 losses ------------------------------- ------------------------------ Other income: Service charges 240 236 Net gain (loss) on securities transactions - - Real Estate Brokered loan fees 233 122 Lease Commissions and fees 559 376 Other 318 328 ------------------------------- ------------------------------ Total other income 1,350 1,062 ------------------------------- ------------------------------ Other expenses: Salaries and benefits 1,963 1,709 Occupancy 187 144 Equipment 348 282 Advertising and promotion 98 85 Stationery and supplies 75 101 Telephone expenses 93 85 Legal and professional fees 161 77 Other operating expenses 530 474 ------------------------------- ------------------------------ Total other expenses 3,455 2,957 Earnings before income taxes 1,294 1,327 Income taxes 482 510 ------------------------------- ------------------------------ Net Income $ 812 $ 817 ------------------------------- ------------------------------ ------------------------------- ------------------------------ Primary earnings per share $ 0.49 $ 0.50 ------------------------------- ------------------------------ ------------------------------- ------------------------------ Weighted average shares outstanding 1,651,131 1,623,334 ------------------------------- ------------------------------ ------------------------------- ------------------------------ Fully Diluted: Earnings per share $ 0.43 $ 0.43 ------------------------------- ------------------------------ ------------------------------- ------------------------------ Weighted average shares outstanding 1,895,090 1,882,236 ------------------------------- ------------------------------ Cash dividend paid per share of common stock $ 0.11 $ 0.11 ------------------------------- ------------------------------ ------------------------------- ------------------------------
See accompanying notes to consolidated financial statements 4 CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997 (UNAUDITED) (IN THOUSANDS)
MARCH 31, MARCH 31, 1998 1997 ------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 812 $ 817 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 271 222 Provision for possible loan losses 396 40 Write-down of other real estate owned 38 0 Provision for deferred taxes 39 (21) (Increase) decrease in assets- Interest receivable (740) (875) Other assets 351 1,988 Increase (decrease) in liabilities- Interest payable (92) (7) Other liabilities 30 (76) ------------------------------------------ Net cash provided by operating activities 1,105 2,088 CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in loans (9,761) (11,724) Purchase of investments (20,413) (7,537) Proceeds from maturity of HTM Securities 3,000 115 Proceeds from sales/maturity of AFS Securities 5,011 90 Proceeds from sales of other real estate owned 230 51 Purchases of premises and equipment (149) (549) ------------------------------------------ Net cash used for investing activities (22,082) (19,554) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in noninterest bearing deposits (10,921) (9,117) Net increase in interest bearing deposits 3,244 10,492 Cash dividends (182) (170) Stock options exercised 0 0 Cash paid in lieu of fractional shares 0 0 ------------------------------------------ Net cash provided by financing activities (7,859) 1,205 NET INCREASE (DECREASE) (28,836) (16,261) ------------------------------------------ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 54,025 64,228 ------------------------------------------ ------------------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD 25,189 47,967 ------------------------------------------ ------------------------------------------
See accompanying notes to consolidated financial statements 5 CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION In the opinion of the Company, the unaudited consolidated financial statements, prepared on the accrual basis of accounting, contain all adjustments (consisting of only normal recurring adjustments) which are necessary to present fairly the financial position of the Company and its subsidiaries at March 31, 1998 and December 31, 1997, and the results of its operations for the periods ended March 31, 1998 and 1997, respectively. Certain information and footnote disclosures normally presented in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The results of operations for the period ended March 31, 1998 are not necessarily indicative of the operating results for the full year ending December 31, 1998. NOTE 2 - CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Feather River State Bank, and EPI Leasing Company Inc., a subsidiary of Feather River State Bank. All material intercompany accounts and transactions have been eliminated in consolidation. NOTE 3 - LOANS TO DIRECTORS In the ordinary course of business, the Company makes loans to directors of the Company, which on March 31,1998, amounted to a total of approximately $6,381,000. NOTE 4 - COMMITMENTS & CONTINGENT LIABILITIES In the normal course of business, there are outstanding various commitments and contingent liabilities, such as commitments to extend credit and letters of credit, which are not reflected in the financial statements. Management does not anticipate any material loss as a result of these transactions. NOTE 5 - CASH DIVIDENDS The Company declared an eleven cents per share dividend on January 13, 1998, payable February 13, 1998. 6 NOTE 6 - EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board (the FASB) issued SFAS No. 128, "Earnings per Share," which establishes standards for computing and presenting earnings per share (EPS). It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The statement is effective for financial statements issued for periods ending after December 15, 1997, and requires restatement for all periods presented. The implementation of this statement did not have a material effect on the Company's reported financial position or net income. NOTE 7- COMPREHENSIVE INCOME In 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"), which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners. Total comprehensive income for the three months ended March 31, 1998, and March 31, 1997, is $859,000 and $774,000, respectively. 7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF CHANGES IN THE FINANCIAL STATEMENTS Net income for the three months ended March 31, 1998, was $812,000 for fully-diluted earnings of $.43 per share, representing a slight decrease of .6% over the same period in 1997, which saw net income of $817,000, or $.43 per share on a fully-diluted basis. The decrease in net income is due mainly to an increase in the provision for possible loan losses which was $396,000 at March 31, 1998, an increase of $356,000 over the March 31, 1997, provision of $40,000. The additional provision is to allow for anticipated future loan growth and to continue an adequate level of reserves. Total assets at March 31, 1998, were $284,468,000, a decrease of 2.4% over December 31, 1997, total assets of $291,530,000. The Company's outstanding net loans were $171,638,000 at March 31, 1998, compared to $162,273,000 at December 31, 1997, an increase of $9,365,000 or 5.8%. The Company's investment portfolio at March 31, 1998, was $69,646,000, or 24.5% of total assets, an increase from $57,198,000 or 19.6% of total assets at December 31, 1997, as the Company shifted assets from overnight Federal Funds to longer term, higher yielding investments. At March 31, 1998, Federal Funds Sold was $9,100,000 as compared to $35,600,000 at December 31, 1997. In addition to shifting the funds to higher yielding investments as described above, the decrease in Federal Funds Sold is due to the need to fund an increased loan demand. Deposits at March 31, 1998, were $259,254,000 compared to $266,931,000 at December 31, 1997, a decrease of 2.9%. At March 31, 1998, interest-bearing deposits were $207,951,000, as compared to $204,707,000 at December 31, 1997, an increase of 1.58%. The total loan-to-deposit ratio was 68.5% at March 31, 1998, compared to 62.9% at December 31, 1997. This increase is the result of normal lending cycles of agricultural loans, real estate loans and the purchase of leases. LOANS Net loans outstanding as of March 31, 1998 were $171,638,000 representing an increase of $9,365,000 or 5.7% over December 31, 1997. The increase is attributable to two principal events. 1. Real estate construction loans increased by $8.8 million or 27.3% from year-end 1997. The Company extends construction loans primarily to builders of single family houses. Loans are made to individual borrowers and to real estate developers. The increase in real estate construction loans is accredited to a general increase in residential real estate activity in the Bank's market area and 8 the time of the year. Real estate construction loans generally increase during the spring and summer months due to favorable weather conditions and increased buyer activity. 2. Agricultural loans have increased $3.2 million or 7.1% over December 31, 1997. The Company provides a wide range of loan products to farmers and agri-businesses throughout its trade area. Agricultural loans are reported under the "Commercial Loan" category in the consolidated balance sheet. The increase is ascribed to the time of the season. A considerable portion of the Company's agricultural loans are budgeted, crop production loans. As the season progresses, agricultural borrowers draw on their lines of credit and the Company's loan totals increase. One additional factor influenced the loan totals as of March 31, 1998. The Company's lease portfolio decreased from $33,465,000 on December 31, 1997 to $27,819,000 on March 31, 1998, representing a decrease of 16.8%. The Company originates commercial and industrial equipment leases through its subsidiary EPI Leasing Company (EPI) located in Sacramento. The Company's total lease receivables increased consistently over the past eight quarters. However, during the first quarter of 1998, the Company elected to sell a pool of leases as part of a portfolio management strategy. This sale of leases resulted in the reduction in lease receivables as of March 31, 1998. The Company lends primarily to small and medium sized businesses, small to large sized farmers and consumers within its market area, which is comprised principally of Sutter, Yuba, Colusa and Yolo counties and secondarily Butte Glenn, Sacramento, Placer, Madera and Fresno counties. During the first quarter of 1998, the Company completed two changes, which may affect loan origination activities in the future. First, the Company relocated its Loan Production Office (LPO) in Roseville to Citrus Heights. This short distance move, within the greater Sacramento area, was done to permit an increase in office size and to control expenses. The Citrus Heights LPO specializes in residential real estate loans and the relocation is not expected to materially affect loan origination volume. Second, the Company centralized its small business and consumer loan origination activities into one unit located within its 777 Colusa Avenue, Yuba City branch. This change was made to create efficiencies to the loan origination process and position the Company to increase market share in the area of consumer and small business lending. LOAN QUALITY The Company places loans on nonaccrual status if (1) principal or interest has been in default for 90 days or more, unless the loan is both well secured and in the process of collection; (2) payment in full of principal or interest is not expected; or (3) the financial condition of the borrower has significantly deteriorated. 9 The table set forth below summarizes the composition of non-performing loans as of March 31, 1998, December 31, 1997 and March 31, 1997 ($ in 000's).
------------------------------------------------------------------------- $ Amt. Change $ Amt. Change $ Amt. 3/31/98 Prior Per. 12/31/97 Prior Per. 3/31/97 ------------------------------------------------------------------------- ACCRUING LOANS PAST DUE 90 DAYS OR MORE Commercial 39.3 -71% 136.6 -90% 1,431 * Agricultural 404.0 +1000% 0.4 Real Estate 0 81.7 Leases 7.6 -93% 109.1 -79% 542 Consumer 0.2 0.2 ------------------------------------------------------------------------- TOTAL 451.2 +37% 328.2 -83% 1,973 ------------------------------------------------------------------------- NONACCRUAL LOANS ------------------------------------------------------------------------- Commercial 573.0 -17% 692.0 +400% 173 * Agricultural 4,841.7 -3% 5,012.9 Real Estate 1,699.6 +11% 1,518.0 +229% 662 Leases 188.6 +47% 127.7 Consumer 0 0 ------------------------------------------------------------------------- TOTAL 7,302.9 -1% 7,351.8 +880% 835 ------------------------------------------------------------------------- ------------------------------------------------------------------------- TOTAL NONPERFORMING 7,754.1 +1% 7,680.0 +273% 2,808 -------------------------------------------------------------------------
* Due to differences in past record keeping procedures, the dollar amount reported in the 3/31/97 column for commercial loans also include agricultural loans. An increasing trend in nonperforming loans occurred between the end of the first quarter 1997 and the end of the fourth quarter 1997. Nonperforming loans comprised 1.7% of the portfolio on 3/31/97 and increased to 4.5% of the portfolio on 12/31/97. During the first quarter of 1998, very little change was experienced in the nonperforming loan totals and this category of loans continues to comprise 4.5% of the loan portfolio. The adverse trend in nonperforming loans during 1997 is attributable to increased risk exposure in a limited number of large credit relationships. Upon identifying the increased credit risk exposure, Management took corrective action and contributed a total of $6.1 million to its Provision for Loan Losses during 1997. In addition, during 1997 the Company charged off a total of $4.7 million of nonperforming loans. Several of the large nonperforming loans listed in the table above were partially charged off such that the book balance of the asset is now lower than Management's estimate of the value of the supporting loan collateral. As a result of these actions, Management believes that the risk of additional credit loss in the remaining nonperforming loans has been reduced. In 1997, Management assembled an experienced group of loan collectors to collect the nonperforming and charged-off loans. Although a reduction of nonperforming loans was not achieved during the first quarter of 1998, this was anticipated because of the structure of the loan collection plans. Most of the largest nonperforming loans are now operating under Workout Agreements, Restructure Agreements or Liquidation Agreements. The terms of these agreements did not require substantial payments during the first quarter of 1998. However, all of these loans are in the process of collection and Management 10 projects additional progress toward the reduction of nonperforming assets in the forthcoming quarters of 1998. The Company's nonaccrual credits are concentrated in five credit relationships. Two of these five credit relationships are agricultural loans and constitute 61% of total nonaccrual loans. One loan is projected to be paid in full by 7/1/98. A collection plan is currently in process for the other loan relationship. One of the additional large nonaccrual loans, comprising 21% of total nonaccruals, is to a real estate developer. This credit has been restructured under a new development plan. According to the terms of the plan, a substantial reduction in the nonaccrual balance is projected during the third and fourth quarters of 1998. The other two large nonaccruals, comprising 8% of the total, are commercial credits. One of these loans has been restructured and is performing as agreed. Management anticipates full collection of the other loan during the second quarter of 1998. The Company's Allowance for Loan Loss Reserves totals $5,822,000 or 3.28% of gross loans as of March 31, 1998. This amount is compared to $5,514,000 as of December 31, 1997 and $4,057,000 as of March 31, 1997. The Company uses the allowance method in providing for possible loan losses. Loan losses are charged to the allowance for possible loan losses and recoveries are credited to it. Management believes that the total Allowance for Loan Losses is adequate to cover potential losses in the loan portfolio. While Management uses available information to provide for loan losses, future additions to the allowance may be necessary based on changes in economic conditions and other factors. Additions to the allowance for loan losses are made by provisions for possible loan losses. The provision for possible loan losses is charged to operating expense and is based upon past loan loss experience and estimates of potential loan losses which, in Management's judgment, deserves current recognition. Other factors considered by Management include growth, composition and overall quality of the loan portfolio, review of specific problem loans and current economic conditions that may affect the borrower's ability to repay the loan. Actual losses may vary from current estimates. The estimates are reviewed constantly, and adjustments, as necessary, are charged to operations in the period in which they become known. 11 RESULTS OF OPERATIONS Three months ended March 31, 1998 compared with Three months ended March 31, 1997 During the three-month period ending March 31, 1998, the Company showed a net income of $812,000, a decrease of $5,000 over the same period in 1997. This decrease is the result of increased provisions for loan losses which stood at $396,000 at March 31, 1998 as compared to $40,000 at March 31, 1997. Net interest income before provisions for loan losses increased from $3,262,000 for the three months ended March 31, 1997, to $3,795,000 for the same period in 1998, an increase of $533,000 or 16.3%. This additional income is partially due to an increase of 8.29% in average outstanding loans during the first quarter of 1998 over the same period in 1997. In addition, the Bank's reference rate was .23% higher in the first quarter of 1998 over the same period in 1997. A large portion of the Bank's loan portfolio is based upon the Bank's reference rate, adjusted on a daily basis so that rate changes have an immediate effect on the loan interest yield. The Bank's reference rate closely tracks the prime rate. Other income for the first three months of the year increased by $288,000 over the same period in 1997, mostly as the result of increased commission and fees on leases earned by EPI. These commissions and fees amounted to $559,000 at March 31, 1998 and $376,000 at March 31, 1997. In addition the Company recognized an increase of $111,000 in brokered loan fee income during the same period. Total other expenses for the three months ended March 31, 1998, were $3,455,000, an increase of $498,000 over the same period in 1997, mostly due to increases in salaries and benefits. A major contributor to this increase was the purchase of EPI and the opening of a new branch in Wheatland, California, in March 1997. In addition, the Bank opened a new loan production office in Madera, California, in March 1997. Salary expenses commenced in the second quarter of 1997 with only a small amount of expense in the first quarter 1997 for these three offices. The yield on average earning assets for the three-month period ended March 31, 1998, compared to the same period in 1997, is set forth in the following table (in thousands except for percentages):
Three months ended Three months ended March 31, 1998 March 31, 1997 Average loans outstanding $ 167,636 $ 154,805 Average yields 10.99% 11.17% Amount of interest & fees earned $ 4,607 $ 4,323 Average prime rate 8.50% 8.27%
12 Rates and amounts paid on average deposits, including noninterest-bearing deposits for the three-month period ended March 31, 1998, compared to the same period in 1997, are set forth in the following table (in thousands except for percentages):
Three months ended Three months ended March 31, 1998 March 31, 1998 Average deposits outstanding $ 261,113 $ 237,232 Average rates paid 3.32% 3.72% Amount of interest paid or accrued $ 2,166 $ 2,204
The following table summarizes the principal elements of operating expenses and discloses the increases (decreases) and percent of increases (decreases) for the three-month period ended March 31, 1998 and 1997 (in thousands except for percentages):
Three months ended March 31, Increase (Decrease) 1998 1997 1998 over 1997 ---------------------------- ------------------- Salaries and benefits $1,963 $1,709 $ 254 14.9% Occupancy 187 144 43 29.9% Equipment 348 282 66 23.4% Advertising and promotion 98 85 13 15.3% Stationery & supplies 75 101 (26) -25.7% Telephone Expenses 93 85 8 9.4% Legal and professional fees 161 77 84 109.1% Other operating expenses 530 474 56 11.8% ------ ------ ----- ------ Total other expenses $3,455 $2,957 $ 498 16.8% ------ ------ ----- ------ ------ ------ ----- ------
Applicable income taxes for the three-month period ended March 31, 1998, were $482,000, as compared to the March 31, 1997 amount of $510,000. 13 LIQUIDITY During the first two quarters and in to the third quarter of each year, the Bank tends to have excess liquidity. The Bank's seasonal agricultural loan demand tends to challenge the Bank's liquidity position beginning in the second quarter and continuing into the third quarter of each year. The Bank's liquid assets consist of cash and due from banks, federal funds sold and investment securities with maturities of one year or less (exclusive of pledged securities). The Bank has formal and informal borrowing arrangements with the Federal Reserve Bank to meet unforeseen deposit outflows or seasonal loan funding demands. The Bank has also entered into an agreement with Lehman Brothers for a standby short-term loan secured by U.S. Government and Agency Obligations in the Bank's investment portfolio, in order to fund any liquidity needs not met by other sources of funding as warranted by loan demand. As of March 31, 1998, and December 31, 1997, respectively, the Bank had no balances outstanding on these lines. RATE SENSITIVITY Interest rate sensitivity is the relationship between market interest rates and net interest income due to the repricing characteristics of assets and liabilities. If more liabilities than assets reprice in a given period (a liability sensitive position), market interest rate changes will be reflected more quickly in liability rates. If interest rates decline, a liability sensitive position will benefit net income. Alternatively, where assets reprice more quickly than liabilities in a given period (an asset sensitive position), a decline in market rates will have an adverse effect on net interest income. Management's objective is to maintain the stability of the net interest margin in times of fluctuating interest rates by maintaining an appropriate mix of interest rate sensitive assets and liabilities. Management does not manage its interest rate sensitivity to maximize income based on its prediction of interest rates, but rather to minimize interest rate risk to the Company by stabilizing the Company's net interest margin in all interest rate environments. Additionally, the Company is subject to considerable competitive pressure in generating deposits and loans at rates and terms prevailing in the Company's market area. Management has developed a matrix that calculates changes to the Net Interest Margin in both an increasing rate environment and a decreasing rate environment. The matrix calculates a one-year Interest Rate Risk taking into consideration the delays in the timing of repricing based on actual experience. The one-year Interest Rate Risk ratios at March 31, 1998, for an increasing rate environment and a decreasing rate environment were 3.9% and 16.1%, respectively. This means that if interest rates go up the Bank's Net Interest Margin will increase, if interest rates go down it will decrease. 14 CAPITAL RESOURCES Total shareholders' equity on March 31, 1998, increased by $678,00 over December 31, 1997, total shareholders' equity of $21,370,000. The Company is subject to capital adequacy guidelines issued by federal regulators. These guidelines are intended to reflect the degree of risk associated with both on- and off-balance sheet items. Financial institutions are expected to comply with a minimum ratio of qualifying total capital to risk-weighted assets of 8%, at least half of which must be in Tier 1 Capital. In addition, federal agencies have adopted a minimum leverage ratio of Tier 1 Capital to total assets of 4%, which is intended to supplement risk-based capital requirements and to ensure that all financial institutions continue to maintain a minimum level of core capital. As can be seen by the following tables, the Company exceeded all regulatory capital ratios on March 31, 1998, and on December 31, 1997:
RISK-BASED CAPITAL RATIO AS OF MARCH 31, 1998 - --------------------------------------------------------------------------------------------------- Company Bank (Dollars in thousands) Amount Ratio Amount Ratio - --------------------------------------------------------------------------------------------------- Tier 1 Capital $ 21,785 8.87% $ 21,642 8.82% Tier 1 Capital Minimum requirement 9,820 4.00% 9,814 4.00% ----------------------------------------------------- ----------------------------------------------------- Excess $ 11,965 4.87% $ 11,828 4.82% ----------------------------------------------------- ----------------------------------------------------- Total Capital 24,888 10.14% 24,743 10.11% Total Capital Minimum requirement 19,640 8.00% 19,626 8.00% ----------------------------------------------------- Excess $ 5,248 2.14% $ 5,114 2.08% ----------------------------------------------------- ----------------------------------------------------- Risk-adjusted assets $ 245,501 $ 245,362 ----------------------------------------------------- ----------------------------------------------------- LEVERAGE CAPITAL RATIO Tier 1 Capital to quarterly $ 21,785 7.56% $ 21,642 7.52% Average total assets Minimum leverage requirement 11,520 4.00% 11,512 4.00% ----------------------------------------------------- Excess $ 10,265 3.56% $ 10,130 3.52% ----------------------------------------------------- Total quarterly average assets $ 288,012 $ 287,803 ---------------- ------------- ---------------- -------------
15
RISK BASED CAPITAL RATIO AS OF DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------------- Company Bank (Dollars in thousands) Amount Ratio Amount Ratio - --------------------------------------------------------------------------------------------------- Tier 1 Capital $ 21,151 8.99% $ 21,040 8.96% Tier 1 Capital Minimum requirement 9,413 4.00% 9,390 4.00% ------------------------------------------------------- ------------------------------------------------------- Excess $ 11,738 4.99% $ 11,650 4.96% ------------------------------------------------------- ------------------------------------------------------- Total Capital 24,124 10.25% 24,006 10.23% Total Capital minimum Requirement 18,826 8.00% 18,780 8.00% ------------------------------------------------------- Excess $ 5,298 2.25% $ 5,226 2.23% ------------------------------------------------------- ------------------------------------------------------- Risk-adjusted assets $ 235,330 $234,750 ------------------------------------------------------- ------------------------------------------------------- LEVERAGE CAPITAL RATIO Tier 1 Capital to quarterly $ 21,151 7.43% $ 21,040 7.40% Average total assets Minimum leverage requirement 11,384 4.00% 11.377 4.00% ------------------------------------------------------- Excess $ 9,767 3.43% $ 9,663 3.40% ------------------------------------------------------- ------------------------------------------------------- Total quarterly average assets $ 284,598 $284,423 --------------- -------------- --------------- --------------
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The future results of the Company's operations, the necessity of further provisions for its loan loss reserves, quality of its loan portfolio, and ability to pay future dividends constitute "forward-looking" information as defined by: (1) the Private Litigation Reform Act of 1995 ("Act"); and (2) releases made by the Securities and Exchange Commission ("SEC"). This cautionary statement is being made pursuant to the provisions of the Act with the express intention of obtaining the benefits of the "safe harbor" provisions of the Act. Investors are cautioned that any forward-looking statements made by the Company and its Management are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of, but not limited to, the following factors: the economic environment, particularly in the region in which the Company operates; competitive products and pricing; fiscal and monetary policies of the federal government; changes in government regulations affecting financial institutions, including regulatory fees and capital requirements; changes in prevailing interest rates; acquisitions and the integration of acquired businesses; credit risk management and asset/liability management; the financial and securities markets; and the availability of and costs associated with sources of liquidity. 16 PART II OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8K (a) Exhibits Consulting Services Agreement with Examen, Inc., dated February 25, 1998. (b) Reports on Form 8K No reports on Form 8K were filed during the quarter. 17 CONSULTING SERVICES AGREEMENT THIS CONSULTING SERVICES AGREEMENT, together with its exhibits ("AGREEMENT") between Feather River State Bank ("CLIENT") and Examen, Inc. ("EXAMEN") is effective upon acceptance by Examen on the date specified below. 1. ENGAGEMENT. Client engages Examen to perform and provide to Client legal cost management consulting services, which may include legal bill analysis, legal bill auditing, training, management consulting projects or formation of expert opinions in anticipation of litigation or arbitration or the preparation for and testimony at deposition, trial or arbitration ("CONSULTING SERVICES"). Examen will render to Client such Consulting Services as are mutually agreeable. Client acknowledges and agrees that Examen is not offering or rendering any legal, tax or certified accounting/audit opinions, advice or counsel in performing or providing any Consulting Services. 2. RESPONSIBILITIES OF THE PARTIES. Examen will use reasonable efforts in completing the Consulting Services, will keep Client informed of progress and developments and will respond promptly to Client's inquiries and communications. Client will use reasonable efforts to cooperate with Examen, will provide all information reasonably requested by Examen and will keep Examen reasonably informed of developments which may affect the progress of the Consulting Services. 3. EXAMEN AS CLIENT'S AGENT. Client may request Examen to perform Consulting Services in the form of conducting reviews or audits of certain records maintained by law firms representing Client. In performing any such reviews and audits, Examen will act as the agent of Client with full authority for the limited purpose of examining the confidential legal files of Client and their full contents (including, without limitation, legal bills). 4. CONFIDENTIAL INFORMATION. Client may disclose proprietary, confidential or privileged information to Examen hereunder. Examen will keep confidential and not disclose to any third party such information or any specific findings from the review of any legal bill, the audit of any legal files or the results of the Consulting Services; provided, however, that confidential Client information may be disclosed (i) with the express consent of Client; or (ii) to Examen's attorneys, accountants and consultants or if, upon the advice of its counsel, Examen is legally compelled to disclose such information. Confidential Client information shall not include any information in the possession of Examen prior to the date of its disclosure by Client, any information generally available to the public, or any information which becomes available to Examen on a non-confidential basis from a third party who is not bound by a confidentiality obligation to Client. Examen will not be prohibited from using or disclosing gross data or other information that is not proprietary, confidential or privileged. 5. COMPENSATION AND PAYMENT. Client shall timely compensate Examen according to EXHIBIT A. Examen periodically reviews its billing rates for Consulting Services and may adjust rates for inflation, expertise factors or increased overhead. Client will receive 30 days written notice in advance of any adjustment to the billing rates described on Exhibit A. 6. OTHER COSTS AND EXPENSES. Client shall timely reimburse Examen as designated on Exhibit A for reasonable costs and expenses incurred in performing Consulting Services, including but not limited to travel, long distance telephone, delivery, facsimile and duplicating charges. Examen may request that Client pay in advance for cost items exceeding $1,000.00. In addition, if Examen is requested to appear at a judicial or administrative hearing in connection with this engagement (other than the provision of Consulting Services in the form of expert testimony), Client will pay Examen its normal hourly fees and reimburse its reasonable out-of-pocket expenses (including attorneys' fees and expenses) in connection with such appearance. 7. LIMITED LIABILITY. Client agrees that Examen and its directors, officers, agents, consultants and employees shall not have any liability to Client or its directors, officers, employees, consultants or agents, directly or indirectly, related to or arising out of this Agreement, except Losses (as defined in Section 8) incurred by Client to the extent that a court of competent jurisdiction shall have determined by a final judgment that such Losses were the result of bodily injury or property damage arising primarily from the negligence or willful misconduct of Examen. In any event, Examen will not be liable to Client for any consequential, indirect, punitive, special or incidental damages, whether foreseeable or unforeseeable, based on claims of Client arising out of breach of express or implied warranty, breach of contract, misrepresentation, negligence, strict liability in tort or otherwise. 18 8. INDEMNITY. Client agrees to indemnify and hold harmless Examen, and its directors, employees, agents and consultants ("INDEMNIFIED PERSONS") from and against any losses, claims, damages, expenses, and liabilities or actions in respect thereof ("LOSSES"), as they may be incurred (including all legal fees and other expenses incurred in investigating, defending, settling or compromising any Losses, whether or not in connection with pending or threatened litigation) which are related to or arise out of any act or omission of Client, including without limitation the Client's use of Examen's reports to Client or of any other Consulting Services provided by Examen pursuant to this Agreement. 9. TERM AND TERMINATION. This Agreement shall remain in effect unless terminated by either party upon not less than thirty (30) days' written notice to the other party. Either party may terminate this Agreement immediately upon notice to the other if the other party becomes insolvent, enters into suspension of payments, moratorium, reorganization or bankruptcy, makes a general assignment for the benefit of creditors, or otherwise admits or evidences insolvency, a receiver is appointed for its business or property or is subject to any other proceeding relating to insolvency or creditors rights. The provisions of Sections 5 through 8, 11 and 13 will survive the expiration or termination of this Agreement. 10. PERFORMANCE EXCUSED. In the event that Examen is unable to perform or is delayed in timely performing the Consulting Services due to circumstances beyond the control of Examen, including those caused by Client and its law firms, Examen's performance under this Agreement is excused. 11. ARBITRATION. Any controversy or claim arising out of or relating to Examen's compensation or the interpretation or termination of this Agreement shall be settled by compulsory binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"). The arbitration proceeding will be consolidated in a single proceeding in Sacramento, California. Judgment on the arbitrators' award may be entered in any court of competent jurisdiction. Each party shall pay its own attorneys' fees and costs of arbitration. Nothing in this Section 11 is intended to limit either party's rights or remedies with respect to any other claim against the other party. 12. DESIGNATED LIAISON. Client designates Robert Mulder as its liaison with Examen for the Consulting Services. 13. MISCELLANEOUS PROVISIONS. This Agreement will be governed by and interpreted in accordance with the laws of the State of California, excluding its conflict of law principles. A finding that any provision of this Agreement is invalid or unenforceable will not affect the validity of the remaining provisions of this Agreement. Any amendment must be in writing. The language used in this Agreement shall be deemed to be that chosen by the parties to express their mutual intent and no rule of construction will apply. The failure by either party to exercise any of its rights under this Agreement will not be deemed a waiver of such rights in the future. Each party acknowledges that it has had an opportunity to obtain advice of counsel in entering into this Agreement and neither party is relying on any representation of the other party not expressly provided in this Agreement. The duties and obligations of the parties are non-assignable and non-delegable without the prior written consent of the parties. This Agreement and its exhibits and supplements constitute the complete and entire statement of all terms, conditions, and representations between the parties with respect to the subject matter and supersede all prior agreements or understandings between the parties. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement effective as of the date specified below. FEATHER RIVER STATE BANK: EXAMEN, INC.: By: /s/ Robert Mulder By: /s/ David A. Haynes ------------------------ ---------------------------------- Name: Robert Mulder Name: David A. Haynes Title: Chief Executive Oficer Title: Executive VP-General Counsel Address: 1227 Bridge Street Address: 3831 North Freeway Blvd., Ste. 200 Yuba City, CA 95992-0429 Sacramento, CA 95834 (916)674-4073 916-921-4300 Effective Date: 2-25, 1998 19 EXHIBIT A FEES AND DISBURSEMENTS FOR CONSULTING SERVICES 1. Specific Services: Legal Cost Management Consulting Services which may include but are not limited to legal cost management consultation, the development of legal services management and billing guidelines, the development of law firm retention and other policies, and prospective legal bill reviews. 2. Consulting Fee Schedule: Professional Consultants: $145.00 per hour Data Analyst/Database Preparation $ 45.00 per hour 3. Disbursement Schedule Photocopying $ .10 per page Outgoing FAX Actual Telephone Charge Mileage IRS Approved Rate Courier/Overnight Mail Actual Long Distance Telephone Actual Travel Actual Postage Actual License Fees Actual 4. Payment Terms Fees and disbursements will be billed monthly and are due and payable when billed. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. California Independent Bancorp Date: May 7, 1998 /S/ Robert J. Mulder ----------------------- -------------------------- Robert J. Mulder President Date: May 7, 1998 /S/ Annette Bertolini ----------------------- -------------------------- Annette Bertolini Chief Financial Officer 21 EX-27 2 EXHIBIT 27
9 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 25,189 0 9,100 0 51,012 18,634 18,693 177,460 5,822 284,468 259,254 398 2,688 80 0 0 13,587 8,461 284,468 4,607 970 389 5,966 2,166 5 3,795 396 0 3,455 1,294 1,294 0 0 812 0.49 0.43 7.76 7,333 451 387 3,961 5,514 99 11 5,822 5,822 0 0
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