FORM 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(i) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended: December 31, 1995
Commission File: 0-11090
NAPA NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 94-2780134
(State of incorporation) (I.R.S. Identification No.)
901 Main Street, Napa, California, 94559
(Address of principal executive offices)
Registrant's telephone number: (707) 257-2440
Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of Act: Common Stock, Without
Par Value (Title of Class)
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:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of March 15, 1996: $1,828,000
Number of shares of Common Stock outstanding of the registrant's Common Stock,
without par value, as of March 15, 1996 was 754,500. Fully diluted shares
outstanding at this date was 882,300.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement for use in connection with
the 1996 Annual Meeting of Shareholders is included in Part III, Items 10, 11,
12, and 13, included herein.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
SIGNATURES
PART I
Item 1. Business.
(a) General.
Napa National Bancorp (the "Company") was incorporated in 1981 in the State
of California and is headquartered in Napa, California. The Company is a bank
holding company. Its subsidiary, Napa National Bank (the "Bank"), was organized
as a national banking association in 1982. At December 31, 1995, the Company
had consolidated assets of $104,851,000 and shareholders' equity of $7,447,000.
The Bank is a full service commercial bank with three offices serving the Napa
Valley area in Northern California. The Company itself does not engage in any
business activities other than the ownership of the Bank and the ownership of
Napa National Leasing Corporation, an inactive subsidiary authorized to engage
in the leasing of equipment and other personal property (the "Leasing Company").
W. Clarke Swanson, Jr., the President and a director of the Company,
beneficially owns approximately 71% of the outstanding shares of Common Stock of
the Company. The Company is registered under the Bank Holding Company Act of
1956, as amended.
The Bank provides a wide range of commercial banking services to
individuals, professionals and small - and medium-sized businesses in the Napa
Valley area. The services provided include those typically offered by
commercial banks, such as: checking, interest checking, savings, and time
deposit accounts, commercial, construction, personal, home improvement,
mortgage, automobile and other installment and term loans, travelers' checks,
night depository facilities, wire transfers, merchant card services, courier
service and automated teller machines. The Bank offers fixed and variable
annuities and mutual funds to its customers through a networking relationship
with a third party provider.
The Bank does not provide international banking or trust services but has
arranged for its correspondent banks to offer these and other services to its
customers on an as needed basis.
Small businesses and professionals, manufacturer, distributors, retailers,
wineries, vineyard owners, real estate developers and the Bank's shareholders
currently form the core of the Bank's customer and deposit base. In order to
attract these customers, the Bank offers extensive personalized contact,
specialized services and banking convenience, including Saturday banking hours.
Existing Locations
In addition to the Bank's head offices at 901 Main Street in Downtown Napa,
the Bank has two branch offices, one in St. Helena and one in North Napa. All
three facilities offer full service to the Bank's customers. See Item 2. -
"Properties" herein.
Deposits
Most of the Bank's deposits are obtained from individuals, professional
firms and small -to medium-sized businesses from the Bank's service area. As of
December 31, 1995, the Bank had a total of 8,830 accounts representing 5,452
demand accounts with an average balance of approximately $8,593 each, 2,185
savings accounts with an average balance of approximately $6,763 each, and 1,193
other time accounts with an average balance of approximately $29,400 each.
Other Borrowings
At December 31, 1995 and 1994, the Bank had no borrowed funds.
Lending Activities
The Bank concentrates its lending activities in four areas: commercial
loans, short-term real estate and construction loans, mortgage loans, and loans
to individuals or household, automobile and other personal expenditures. At
December 31, 1995, these four loan categories accounted for approximately 65%,
17%, 4% and 14%, respectively, of the Bank's loan portfolio. Within these
categories, $6,913,000, or 9%, of the loan portfolio, relate to the winery and
vineyard segment of the agricultural industry with commitments to lend an
additional $3,347,000. Current trends in or affecting the Napa Valley wine
industry which may have a potential effect on the Company includes phylloxera, a
parasite which attacks the roots of grapevines. Certain of these trends are
discussed in greater detail under "Selected Statistical Information--Loan
Portfolio" herein.
Under federal regulations applicable to national banks, at December 31,
1995, in general, the Bank cannot make loans to one borrower in excess of
$1,272,000. For borrowers desiring loans in excess of the Bank's lending limit,
the Bank may make such loans on a participation basis with its correspondent
banks, without recourse to the Bank. In other cases, the Bank may refer such
borrowers to larger banks or lending institutions. The interest rates charged
for the various loans made by the Bank vary with the degree of risk, size and
maturity of the loans involved and are generally affected by competition,
governmental regulation and current money market rates.
The Bank's construction and mortgage loans are not concentrated in any one
category and include loans to individuals, partnerships and corporations. As of
December 31, 1995, the Bank had gross loans outstanding of $74,699,000 and
undisbursed loan commitments of $18,814,000.
Commitments and Lines of Credit
The Bank makes contractual commitments to extend credit. Such commitments
are usually made in the form of revolving lines of credit or term loans with one
or more takedowns. Commitments and lines of credit typically mature within one
year. The Bank also extends standby letters of credit which support the
obligations of Bank customers to third parties. At December 31, 1995, the Bank
had $18,168,000 in commitments to extend credit and $646,000 in standby letters
of credit.
Correspondent Banks
At December 31, 1995, the Bank had correspondent relationships with First
Interstate Bank of California, Bank of America National Trust and Savings
Association, Union Bank and Bank of California. These relationships are a
result of the Bank's efforts to obtain a wide range of services for the Bank and
its customers and, as a net seller of federal funds (overnight interbank loans),
to minimize the risk of undue concentration of its resources with a few
entities. The Bank does not currently serve, nor does it have plans to serve,
as a correspondent to other banks.
Employees
At December 31, 1995, the Bank employed 67 employees, including 24 officers
and 6 part-time employees. At December 31, 1995, the Company employed two
employees.
(c) Napa National Leasing Corporation - Company Subsidiary
This subsidiary was inactive during 1995.
(d) Selected Statistical Information
The following tables present certain consolidated statistical information
concerning the business of the Company and its subsidiaries. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included herein at Item 7, and
the Company's consolidated financial statements and the notes thereto included
herein at Item 14.
During 1995 and prior years, the Company did not own any tax-exempt
securities.
Distribution of Average Assets, Liabilities and Shareholders' Equity
The following table sets forth the distribution of consolidated average
assets, liabilities and shareholders' equity for the years ended December 31,
1995 and 1994. Average balances have been computed using daily adjusted
balances.
Year Ended December 31,
1995 1994
Average Average
Balance Percent Balance Percent
(000's) of Total (000's) of Total
ASSETS
Cash and Due from Banks $ 5,546 6.0% $ 4,787 5.9%
Interest-Bearing Deposits
With Other Banks 4,356 4.7 3,467 4.3
Taxable Investment Securities 1,387 1.5 989 1.2
Federal Funds Sold 10,285 11.1 10,746 13.3
Loans, Net (1) 67,092 72.7 57,862 71.8
Premises and Equipment, Net 2,080 2.3 1,548 1.9
Other Assets and Accrued
Interest Receivable 1,595 1.7 1,280 1.6
Total Assets $92,341 100.0% $80,679 100.0%
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $15,752 17.1% $13,586 16.8%
Interest-Bearing
Transaction Accounts 24,682 26.7 24,726 30.6
Savings 12,151 13.2 13,768 17.1
Time 32,503 35.2 22,648 28.1
Total Deposits 85,088 92.2 74,728 92.6
Other Liabilities and
Accrued Interest 540 0.5 409 0.5
Shareholders' Equity 6,713 7.3 5,542 6.9
Total Liabilities and
Shareholders's Equity $92,341 100.0% $80,679 100.0%
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1) Average loans include net deferred loan fees and non-accrual loans and are
net of the allowance for loan losses.
Interest Rates and Differentials
The following table sets forth information concerning interest-earning
assets and interest-bearing liabilities, respective average yields or rates, the
amount of interest income or expense, and the net interest margin and the net
interest spread. Loan fees of $294,000 in 1995 and $242,000 in 1994 are
included, while non-accrual interest is excluded, from computations of interest
income and expense.
Year Ended December 31, 1995
Interest
Average Income/ Average
Balance Expense Yield/
(000's) (000's) Rate
INTEREST-EARNING ASSETS
Loans, Net (1.2) $67,092 $7,515 11.20%
Interest-Bearing Deposits
With Other Banks 4,356 251 5.76
Taxable Investment Securities 1,387 83 5.98
Federal Funds Sold 10,285 583 5.67
Total Average Earning Assets $83,120 $8,432 10.14%
INTEREST-BEARING LIABILITIES
Deposits:
Interest-Bearing Transaction
Accounts $24,682 $ 517 2.09%
Savings 12,151 292 2.40
Time 32,503 1,825 5.61
Total Average Deposits 69,336 2,634 3.80
Total Average Interest-Bearing
Liabilities $69,336 $2,634 3.80%
Net Interest Income and
Net Interest Margin (3) $5,798 6.98%
Net Interest Spread (4) 6.34%
1) Average loans include net deferred loan fees and non-accrual loans and are
net of allowance for loan losses.
2) Loan interest income includes loan fees of $294,000.
3) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
4) Net interest spread represents the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities.
Year Ended December 31, 1994
Interest
Average Income/ Average
Balance Expense Yield/
(000's) (000's) Rate
INTEREST-EARNING ASSETS
Loans, Net (1.2) $57,862 $5,619 9.71%
Interest-Bearing Deposits
With Other Banks 3,467 148 4.27
Taxable Investment Securities 989 47 4.75
Federal Funds Sold 10,746 412 3.83
Total Average Earning Assets $73,064 $6,226 8.52%
INTEREST-BEARING LIABILITIES
Deposits:
Interest-Bearing Transaction
Accounts $24,726 $ 470 1.90%
Savings 13,768 323 2.35
Time 22,648 865 3.82
Total Average Deposits 61,142 1,658 2.71
Total Average Interest-Bearing
Liabilities $61,142 $1,658 2.71%
Net Interest Income and
Net Interest Margin (3) $4,568 6.25%
Net Interest Spread (4) 5.81%
1) Average loans include net deferred loan fees and non-accrual loans and are
net of allowance for loan losses.
2) Loan interest income includes loan fees of $242,000.
3) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
4) Net interest spread represents the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities.
Year Ended December 31, 1993
Interest
Average Income/ Average
Balance Expense Yield/
(000's) (000's) Rate
INTEREST-EARNING ASSETS
Loans, Net (1.2) $49,711 $4,502 9.06%
Interest-Bearing Deposits
With Other Banks 1,250 45 3.60
Taxable Investment Securities 651 27 4.15
Federal Funds Sold 9,343 257 2.75
Total Average Earning Assets $60,955 $4,831 7.93%
INTEREST-BEARING LIABILITIES
Deposits:
Interest-Bearing Transaction
Accounts $19,808 $ 446 2.25%
Savings 13,465 372 2.77
Time 18,514 733 3.96
Total Average Deposits 51,787 1,551 2.99
Total Average Interest-Bearing
Liabilities $51,787 $1,551 2.99%
Net Interest Income and
Net Interest Margin (3) $3,280 5.38%
Net Interest Spread (4) 4.94%
1) Average loans include net deferred loan fees and non-accrual loans and are
net of allowance for loan losses.
2) Loan interest income includes loan fees of $207,000.
3) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
4) Net interest spread represents the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities.
Rate and Volume Variances
The following tables set forth, for the periods indicated, a summary of the
changes in average interest bearing asset and liability balances (volume) and
changes in average interest rates (rate). Where significant, the change in
interest due to both volume and rate has been allocated to the change due to
volume and rate in proportion to the relationship of absolute dollar amounts in
each. Insignificant changes have been allocated solely to the change due to
volume.
Year Ended December 31, 1995
Compared to
Year Ended December 31, 1994
(In 000's)
Net
Volume Rate Change
INCREASE (DECREASE) IN INTEREST INCOME:
Loans, Net $896 $1,000 $1,896
Interest-Bearing Deposits
With Other Banks 38 65 103
Taxable Investment Securities 19 17 36
Federal Funds Sold (18) 189 171
Total Increase 935 1,271 2,206
INTEREST (DECREASE) IN INTEREST EXPENSE:
Deposits:
Interest-Bearing Transaction
Accounts (1) 48 47
Savings (37) 6 (31)
Time 377 583 960
Total Increase 339 637 976
Increase in Net Interest Income $596 $634 $1,230
Year Ended December 31, 1994
Compared to
Year Ended December 31, 1993
(In 000's)
Net
Volume Rate Change
INCREASE (DECREASE) IN
INTEREST INCOME:
Loans, Net $740 $ 377 $1,117
Interest-Bearing Deposits
With Other Banks 80 23 103
Taxable Investment Securities 14 6 20
Federal Funds Sold 39 116 155
Total Increase 873 522 1,395
INTEREST (DECREASE) IN INTEREST
EXPENSE:
Deposits:
Interest-Bearing Transaction
Accounts 110 (86) 24
Savings 8 (57) (49)
Time 164 (32) 132
Total Deposits 282 (175) 107
Total increase (decrease) 282 (175) 107
Increase in Net Interest Income $591 $ 697 $1,288
Investment Securities and Federal Reserve Stock
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS 115
changes the accounting and reporting for certain equity and all debt securities
as defined, and requires that upon acquisition, securities be classified into
one of the three categories and accounted for as follows:
Debt securities where management has the positive intent and ability to
hold to maturity are classified as "held to maturity" and reported at
amortized cost.
Debt and equity securities that are held for current sale are
classified as "trading account securities" and reported at their fair
value, with unrealized gains and losses included in earnings.
Debt and equity securities not classified as either securities to be
held to maturity or trading account securities are classified as
"securities available for sale" and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of shareholder's equity, net of the income tax
effect that would result from their sale.
The Bank's classification of its investment in debt and equity securities
according to the provisions of SFAS 115 are as follows:
December 31, 1995 - Investment Securities Classified
According to the Provisions of SFAS No. 115
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held-to-Maturity Securities
U.S. Treasury (HTM) $1,235,000 $15,000 $0 $1,250,000
December 31, 1994 - Investment Securities Classified
According to the Provisions of SFAS No. 115
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held-to-Maturity Securities
U.S. Treasury (HTM) $1,216,000 $0 $0 $1,216,000
Although not a security under SFAS No. 115, the Company had Federal Reserve
Stock totally $197,000 and $165,000, at December 31, 1995 and 1994,
respectively.
Yields on securities have been calculated by dividing interest income,
adjusted for amortization of any premium and accretion of any discount, by the
book value of the related securities. The Company's Federal Reserve Bank Stock
has no maturity and a weighted average yield of 6.0%. All of the Company's U.S.
Government Agency securities have a maturity of less than six months and also
have a weighted average yield of 6.0%.
Loan Portfolio
The Company's primary service area is Napa County and the Carneros growing
region of Sonoma County. The Company's portfolio of loans consists of real
estate mortgage and construction loans, commercial and consumer loans.
At December 31, 1995, the Company's real estate construction portfolio
totaled $7,850,000. Real estate loans consisted of single family residences to
developers and owner-builders with a history of successfully developing projects
in the Company's market area. The loan-to-value ratio on each real estate
construction loan required by the Company depends upon the amount of the loan,
the nature of the property, whether the property is residential or commercial
and whether or not it is owner occupied. For construction loans, the Company's
policy is to require that the loan-to-value ratio generally be no more than 70%
when the loan is initially made and that the borrower generally has no less than
a 50% equity interest in the land. Substantially all of the real estate
construction portfolio is secured by real estate located within the Company's
service area.
Conventional real estate loans totaled $4,729,000 at December 31, 1995. The
loan-to-value ratio required by the Company on conventional real estate loans
depends upon the nature of the property and whether or not it is owner-occupied.
For owner-occupied conventional real estate loans, the Company usually requires
that the loan-to-value ratio be no more than 80% except when private mortgage
insurance is required, whereupon the Company may allow the loan-to-value ratio
to rise generally to no more than 85% when the loan is initially made. Non-
owner-occupied conventional real estate loans must have loan-to-value ratios not
exceeding 70% when the loan is made. The entire real estate mortgage portfolio
is generally secured by first or second deeds of trust. Substantially all of
the secured property is located within the Company's service area.
At December 31, 1995, commercial loans totaled $48,407,000. Commercial
lending is primarily to professionals and companies with sales up to $10
million. The Company's lending relationships generally involve companies with
sales of no more than $30 million. Substantially all of the commercial loan
portfolio is secured, some of which may include real estate collateral. Such
loans are not intended as permanent financing of real estate but are made for
commercial purposes and are secured by commercial real estate. The Company
evaluates such loans based upon the borrower's ability to service the debt
through its business operations and does not rely primarily on the value of the
real estate collateral for repayment. The remaining portfolio is secured by
accounts receivables, inventory, equipment, stock and deposits held by the
Company.
Total consumer loans, including personal lines of credit, were $13,713,000
at December 31, 1995. Included in consumer loans to individuals are home equity
lines of credit, totaling $10,337,000, which are secured primarily by second
trust deeds on single family residences. The Company requires a debt-to-value
ratio of not higher than 75% for most home equity loans when the loan is
initially made. The remaining portfolio is collateralized by automobiles,
computers and other equipment, and deposits held by the Company. Over 70% of
the Company's consumer portfolio is secured.
The Company had standby letters of credit outstanding of $646,000 and
$1,016,000 at December 31, 1995 and December 31, 1994, respectively. In
addition, the Company had commitments to fund real estate construction loans,
commercial loans and consumer loans of $4,011,000, $12,625,000 and $1,532,000,
respectively, at December 31, 1995.
The Company did not have any loans related to lease financing activities in
the loan portfolio at December 31, 1995.
The following table shows the composition of the Bank's loan portfolio by
type of loan or borrower as of December 31, 1995 and 1994:
December 31,
1995 1994
(In 000's)
Commercial $48,407 $35,856
Real Estate--Construction 7,850 8,588
Real Estate--Mortgage 4,729 6,458
Installment Loans and Leases 3,376 2,510
Personal Lines of Credit
and Other 10,337 9,741
Total Loans 74,699 63,153
Less Allowance for
Loan Losses (1,325) (1,050)
Total Loans, Net $73,374 $62,103
In recent years, California commercial real estate markets in general have
experienced some difficulties. While these developments have not, in the
judgment of management, had a material adverse impact on the Bank's business,
there can be no assurance that further softening of the California real estate
market will not occur, nor can any assurance be given as to the effect of any
such developments on the Bank's business. Further increases in interest rates
could adversely impact real estate values or the ability of borrower to satisfy
the material terms of such loans.
During the beginning of 1995, and again in March 1995, the Napa Valley was
subjected to severe weather conditions that resulted in some areas of the Valley
flooding from high rain fall levels. Most of the flooding resulted in areas
near the Napa River on dormant fields. Management believes that this flooding
did not have a direct or material impact on its existing loan portfolio nor is
it believed that it will have an impact on future growth in loans and deposits.
Loan Concentrations
At December 31, 1995, approximately $53,921,000, or 72% of the loan
portfolio was secured by commercial or residential real estate. Concentrations
of the Bank's lending activity in the real estate sector could have the effect
of intensifying the impact on the Bank if there are any adverse changes in the
real estate market in the Bank's lending area.
The Bank is located in the Napa Valley and a significant amount of its loans
are related to winery and vineyard operations. Loans related to winery and
vineyard operations constituted approximately $6,913,000, or 9% of total loans
at December 31, 1995, as compared to $6,376,000, or 10% of total loans, at
December 31, 1994. A downturn in the wine industry in the Napa Valley or a
disruption in wine production, which may result from extreme weather conditions,
plant diseases or other natural causes, competition, changes in governmental
regulatory or tax policies, or changes in consumer preferences, could have a
significant adverse impact on the Company's results of operations and financial
condition.
Certain vineyards in the Napa Valley have been invaded by phylloxera, a
parasite which attacks the roots of the vines and which over a long period of
time destroys the vines. The parasite is easily spread through various means
from vineyard to vineyard. There is a potential that, ultimately, 70% of the
Napa Valley will have to be replanted with phylloxera-resistant stock. This
replanting will be done in stages over a long period of time. Production may
decline somewhat during this period as it takes approximately five years for
newly planted vines to mature into full production. Management has evaluated,
and continues to evaluate, vineyard loans in its portfolio which may be
adversely affected by phylloxera and its associated consequences. Based on
information available at December 31, 1995, management does not believe its
vineyard and winery customers which may need to replant will experience
difficulty repaying their existing loans
Nonaccrual, Past Due and Restructured Loans
The following table shows the Company's classified loans by category as of
December 31, 1995 and 1994:
December 31,
1995 1994
(In 000's)
Nonperforming assets:
Nonaccrual Loans $1,447 $ 962
Total Nonperforming Assets $1,447 $ 962
Management analyzes each loan on a case by case basis to determine when, in
management's opinion, interest should no longer be accrued. This occurs when
management determines the ultimate collectibility of principal or interest to be
unlikely or when loans become 90 days or more past due, unless they are well
secured and in the process of collection or unless other circumstances exist
which justify the treatment of the loan as fully collectible. When a loan is
placed on nonaccrual status, unpaid interest is reversed and charged against
current income.
Interest income on nonaccrual loans at December 31, 1995 which would have
been recognized during the year if the loans had been current in accordance with
their original terms totaled $291,000 versus $85,000 for the same period in
1994.
As of December 31, 1995 and 1994, other real estate owned totaled $0. It is
the Company's policy to write foreclosed property down to the lower of fair
market value less estimated selling costs or cost at the time it is reclassified
into other real estate owned. Miscellaneous expenses relating to the property
are charged to other noninterest expenses as incurred.
As of the date of this filing, there were no other significant loans, other
than those included in the table above, where known information concerning
possible credit problems of borrowers caused management to have serious doubts
as to the ability of the borrower to comply with the present loan repayment
terms and which may become nonperforming loans. See "Nonperforming Assets"
herein.
At December 31, 1995, the Company's total recorded investment in impaired
loans was $1,447,000, of which all dollars relate to the recorded investment for
which there is a related allowance for credit losses were $233,000, determined
in accordance with these Statements and $3,000 relates to the amount of that
recorded investment for which there is no related allowance for credit losses
determined in accordance with these Standards.
The average recorded investment in the impaired loans during 1995 was
$1,204,000: the related amount of interest income recognized during the period
that such loans were impaired was less than $1,000, and the amount of interest
income recognized under the cash-basis method of accounting during the time
within the period that the loans were impaired was also less than $1,000.
Summary of Loan Loss Experience
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being made
and the credit-worthiness of the borrower over the term of the loan. The
Company has an allowance for loan losses which is maintained at a level
estimated to be adequate to provide for losses that can be reasonably
anticipated based upon specific loan conditions as determined by management,
historical loan loss experience, the amount of past due and nonperforming loans,
comments of third-party loan review consultants, prevailing economic conditions
and other factors. While these factors are essentially judgmental and may not
be reduced to a mathematical formula, it is management's view that the
$1,325,000 allowance, which constitutes 1.77% of total loans at December 31,
1995, was adequate as an allowance against foreseeable losses from the loan
portfolio. The allowance was $1,050,000, or 1.66%, of the total loan portfolio
at December 31, 1994. The allowance is increased by charges to the provision
for loan losses and reduced by net charge-offs. The continuing evaluation of
the loan portfolio and assessment of current economic conditions will dictate
future allowance levels.
An analysis of the allowance for loan losses for the years ending December
31, 1995 and 1994 follows:
December 31,
1995 1994
(In 000's)
Allowance for Loan Losses:
Balance--Beginning of Year $ 1,050 $ 912
Provision Charged to Expense 323 149
Loans Charged Off:
Commercial (20) 0
Personal Lines of Credit and Other (31) (12)
Total Loans Charged Off (51) (12)
Recoveries:
Personal Lines of Credit and Other 3 1
Total Recoveries 3 1
Net Loans (Charged Off) Recovered (48) (11)
Allowance for Loan Losses $ 1,325 $ 1,050
Average Gross Loans Outstanding
During Period $68,499 $59,025
Total Gross Loans at End of Year $74,699 $63,153
Ratios:
Net Loans Charged Off
to Average Loans Outstanding 0.07% 0.02%
Net Loans Charged Off to Total
Loans at End of Year 0.06% 0.02%
Allowance for Loan Losses to
Average Loans 1.93% 1.78%
Allowance for Loan Losses to
Total Loans at End of Year 1.77% 1.66%
Net Loans Charged Off
to Allowance for Loan
Losses at End of Year 3.62% 1.05%
Net Loans Charged Off
to Provision for
Loan Losses 14.86% 7.38%
The table set forth below shows a breakdown of the portfolio of loans at the
dates indicated and the amount of the allowance that has been allocated as of
those dates to each of the loan categories. Management believes that any
breakdown or allocation of the allowance for possible loan losses into loan
categories lends an appearance of exactness which does not exist, in that the
reserve is ultimately utilized as a single unallocated allowance available for
all loans.
December 31, 1995 December, 31, 1994
Percent Percent
of Loans of Loans
in Each in Each
Category Category
Amount of to Total Amount of to Total
Allowance Loans Allowance Loans
(000's) (000's)
Commercial $ 731 62% $ 599 57%
Real Estate-Construction 123 11 101 14
Real Estate-Mortgage 119 10 19 10
Installment Loans
and Leases 77 7 52 4
Personal Lines of
Credit and Other 120 10 109 15
Unallocated 155 170
Total $1,325 100% $1,050 100%
Maturity Distribution and Interest Rate Sensitivity of Loans
The following table shows the maturity distribution of the portfolio of
loans and leases in thousands as of December 31, 1995 and sets forth the
sensitivity to changes in interest rates of the amounts maturing in one year or
less and after one year:
After One
Through After
One Year Five Five
Or Less Years Years Total
(In 000's)
Commercial $46,299 $2,042 $ 66 $48,407
Real Estate-Construction 7,850 0 0 7,850
Real Estate-Mortgage 3,534 897 298 4,729
Installment Loans & Leases 1,449 1,927 0 3,376
Personal Lines of Credit &
Other 10,299 38 0 10,337
Total $69,431 $4,904 $364 $74,699
Loans With Fixed Interest
Rates $ 895 $3,418 $364 $ 4,677
Loans With Floating
Interest Rates 68,536 1,486 0 70,022
Total $69,431 $4,904 $364 $74,699
Nonperforming Assets
The following discussion involves an asset not included in the nonperforming
asset table above as the Company has fully reserved for the book value of this
asset.
The Company determined in early 1988 that a corporate borrower and its owner
(the "Owner") were experiencing financial difficulties such that the company
would not be able to make scheduled loan payments or repay the loan in the
normal course of business. The loan, made in early 1987, was a $500,000
unsecured loan which had been guaranteed by the Owner.
As part of a recovery strategy, the Company obtained as collateral the
Owner's interest in 55,000 shares of a total of 134,000 shares that were
represented to be outstanding in a totally unrelated corporation, Sign
Technology, Inc. ("Sign Tech"). This transaction was consummated during the
first quarter of 1988.
It soon became clear that the Company might receive approximately $150,000
less from the sale of the business and resulting sale of its stock interest
therein in the event the minority Shareholder did prevail. Thus, management
elected to provide a valuation reserve against the stock as set forth in the
provisions of Statement of Financial Accounting Standards No. 5. The valuation
reserve was established at the end of the third quarter of 1988 in the amount of
$150,000 through a charge to other expense.
Late in the fourth quarter of 1989, there were changes in the circumstances
surrounding the Sign Tech asset, which changes caused management to have
significant doubts as to the fair value of the Sign Tech stock, i.e., the amount
realizable in an outright sale of the stock to an unrelated third party for
cash.
The Company concluded that an outright sale of the stock to an unrelated
third party for cash was not probable. While the Company intends to vigorously
pursue collection of the asset, the changes in circumstances in the fourth
quarter of 1989 raised significant doubts as to the timing and amount, if any,
which the Company may ultimately recover. Therefore, in the fourth quarter of
1989, management increased the Sign Tech valuation reserve to 100% of the
asset's book value through a charge of $350,000 to other
expense. The Company's ability to divest this asset was materially and
adversely affected by a law suit between Sign Tech and its management on the one
hand, and a minority shareholder on the other. The law suit was settled in 1992.
In November 1993, the Office of the Comptroller of the Currency (OCC)
granted the Company a five year extension on the holding period of this
nonperforming asset. This extension period ends in November of 1998. The
Company continues to work with the owners and management of Sign Tech to recover
on this asset.
Deposits
The following table reflects average balances and the average rates paid for
the major categories of deposits for the years ended December 31, 1995 and 1994:
Year Ended December 31,
1995 1994
Average Average Average Average
Balance Rate Balance Rate
(000's) (000's)
Noninterest-Bearing Demand $15,752 0.00% $13,586 0.00%
Interest-Bearing
Transaction Accounts 24,682 2.09 24,726 1.90
Savings Deposits 12,151 2.40 13,786 2.35
Time Deposits over 100,000 7,551 5.19 6,431 3.69
Other Time Deposits 24,952 5.74 16,217 3.87
Total Deposits $85,088 3.80% $74,728 2.71%
The following table sets forth, by time remaining to maturity, the domestic
time deposits in amounts of $100,000 or more at December 31, 1995:
Amount
(000's)
Maturing In:
Three Months or Less $5,721
Over Three Through Twelve Months 3,107
Over Twelve Months 621
Total $9,449
Selected Financial Ratios
The following table sets forth certain financial ratios for the periods
indicated (averages are computed using daily figures):
Year Ended December 31,
1995 1994
Net income to:
Average earning assets 1.30% 1.05%
Average total assets 1.19 0.96
Average shareholders' equity 16.40 14.02
Average shareholders' equity to:
Average total assets 7.27% 6.87%
Average net loans 10.01 9.58
Average total deposits 7.92 7.42
Year Ended December 31,(continued)
1995 1994
Average earning assets to:
Average total assets 91.52% 92.00%
Average total deposits 99.67 99.33
Percent of average total deposits:
Average net loans 79.12% 77.43%
Average noninterest-bearing
deposits 18.56 18.18
Average savings and other
time deposits 52.38 48.73
Total interest expense to:
Total gross interest income 31.24% 26.63%
The Effect of Government Policy on Banking
The earnings and growth of the Bank are affected not only by local market
area factors and general economic conditions, but also by government monetary
and fiscal policies. For example, the Board of Governors of the Federal Reserve
System ("FRB") influences the supply of money through its open market operations
in U.S. Government securities and adjustments to the discount rates applicable
to borrowings by depository institutions and others. Such actions influence the
growth of loans, investments and deposits and also affect interest rates charged
on loans and paid on deposits. The nature and impact of future changes in such
policies on the business and earnings of the Bank cannot be predicted.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company is particularly
susceptible to being affected by the enactment of federal and state legislation
which may have the effect of increasing or decreasing the cost of doing
business, modifying permissible activities or enhancing the competitive position
of other financial institutions. Any change in applicable laws or regulations
may have a material adverse effect on the business and prospects of the Company.
In response to various business failures in the savings and loan industry, and
in the banking industry, in December 1991, Congress enacted, and the President
signed into law, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). FDICIA substantially revised the bank regulatory framework and
deposit insurance funding provisions of the Federal Deposit Insurance Act and
made revisions to several other federal banking statutes.
Implementation of the various provisions of FDICIA is subject to the
adoption of regulations by the various regulatory agencies and to certain phase-
in periods. The effect of FDICIA on the Company and the Bank cannot be
determined until after all the implementing regulations are adopted by the
agencies.
Regulation and Supervision of Bank Holding Companies
The Company is a bank holding company subject to the Bank Holding Company
Act of 1956, as amended ("BHCA"). The Company reports to, registers with, and
may be examined by, the FRB. The FRB also has the authority to examine the
Company's subsidiaries. The costs of any examination by the FRB are payable by
the Company.
The FRB has significant supervisory and regulatory authority over the
Company and its affiliates. The FRB requires the Company to maintain certain
levels of capital. See "Capital Standards." The FRB also has the authority to
take enforcement action against any bank holding company that commits any unsafe
or unsound practice, or violates certain laws, regulations or conditions imposed
in writing by the FRB. See "Prompt Corrective Action and Other Enforcement
Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of the
FRB before it exercises a controlling influence over a bank, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, the Company is
required to obtain the prior approval of the FRB before it acquires, merges or
consolidates with any bank or bank holding company; any company seeking to
acquire, merge or consolidate with the Company also would be required to obtain
the approval of the FRB.
The Company is generally prohibited under the BHCA from acquiring ownership
or control of more than 5% of the voting shares of any company that is not a
bank or bank holding company and from engaging directly or indirectly in
activities other than banking, managing banks, or providing services to
affiliates of the holding company. A bank holding company, with the approval of
the FRB, may engage, or acquire the voting shares of companies engaged, in
activities that the FRB has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. A bank
holding company must demonstrate that the benefits to the public of the proposed
activity will outweigh the possible adverse effects associated with such
activity.
The FRB generally prohibits a bank holding company from declaring or paying
a cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition.
Transactions between the Company and the Bank are subject to a number of
other restrictions. FRB policies forbid the payment by bank subsidiaries of
management fees which are unreasonable in amount or exceed the fair market value
of the services rendered (or, if no market exists, actual costs plus a
reasonable profit). Additionally, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
the extension of credit, sale or lease of property, or furnishing of services.
Subject to certain limitations, depository institution subsidiaries of bank
holding companies may extend credit to, invest in the securities of, purchase
assets from, or issue a guarantee, acceptance, or letter of credit on behalf of,
an affiliate, provided that the aggregate of such transactions with affiliates
may not exceed 10% of the capital stock and surplus of the institution, and the
aggregate of such transactions with all affiliates may not exceed 20% of the
capital stock and surplus of such institution. The Company may only borrow from
depository institution subsidiaries if the loan is secured by marketable
obligations with a value of a designated amount in excess of the loan. Further,
the Company may not sell a low-quality asset to a depository institution
subsidiary.
Generally, a bank holding company and its subsidiaries are prohibited from
engaging in tie-in arrangements in connection with the extension of credit, sale
or lease of property or furnishing of services. The FRB, however, has adopted a
rule, effective September 2, 1994, amending the anti-tying provisions to permit
a bank or bank holding company to offer a lower
price on a loan, deposit or trust service (traditional bank product), or on
securities brokerage services, on the condition that the customer obtain a
traditional bank product from an affiliate. Additionally, as of January 23,
1995, a bank holding company, or a nonbank subsidiary, may offer lower prices on
any of its products or services on the condition that the customer obtain
another product or service from such company or any of its nonbank affiliates,
provided that all products offered in the package arrangement are separately
available for purchase.
The Company is a bank holding company within the meaning of Section 3700 of
the California Financial Code. As such the Company and the Bank are subject to
examination by, and may be required to file reports with, the California
Superintendent of Banks (the "Superintendent"). Regulations have not yet been
proposed or adopted, and no other steps have been taken, to implement the
Superintendent's power under this statute.
Bank Regulation and Supervision
As a national bank, the Bank is regulated, supervised and regularly
examined by the Office of the Comptroller of the Currency ("OCC"). Deposit
accounts at the Bank are insured by Bank Insurance Fund ("BIF"), as administered
by the Federal Deposit Insurance Corporation ("FDIC"), to the maximum amount
permitted by law. The Bank is also subject to applicable provisions of
California law, insofar as such provisions are not in conflict with or preempted
by federal banking law. The Bank is a member of the Federal Reserve System, and
is also subject to certain regulations of the FRB dealing primarily with check
clearing activities, establishment of banking reserves, Truth-in-Lending
(Regulation Z), Truth-in-Savings (Regulation DD), and Equal Credit Opportunity
(Regulation B).
On November 29, 1994, the OCC published a notice of proposed rulemaking to
revise and streamline its procedures with respect to corporate activities of
national banks. The OCC stated that such revised standards would allow the OCC
to approve, on a case-by-case basis, the entry of bank operating subsidiaries
into a business incidental to banking, including activities in which the parent
bank is not permitted to engage. Such a standard, if adopted, could allow a
national bank to conduct an activity approved for a bank holding company through
a bank operating subsidiary.
Capital Standards
The OCC and other federal banking agencies have risk-based capital adequacy
guidelines intended to provide a measure of capital adequacy that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and
credit equivalent amounts of off balance sheet items are multiplied by one of
several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. government securities, to 100% for assets with
relatively higher credit risk, such as business loans.
In determining the capital level the Bank is required to maintain, the OCC
does not, in all respects, follow generally accepted accounting principles
("GAAP") and has special rules which have the effect of reducing the amount of
capital it will recognize for purposes of determining the capital adequacy of
the Bank. These rules are called Regulatory Accounting Principles ("RAP"). In
December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses
which, among other things, establishes certain benchmark ratios of loan loss
reserves to classified assets. Future changes in OCC regulations or practices
could further reduce the amount of capital recognized for purposes of capital
adequacy. Such a change could affect the ability of the Company to grow and
could restrict the amount of profits, if any, available for the payment of
dividends.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk-adjusted assets and off balance sheet
items. The regulators measure risk-adjusted assets and off balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of
common stock, retained earnings, noncumulative perpetual preferred stock and
minority interests in certain subsidiaries, less most other intangible assets.
As of January 27, 1995, net unrealized holding losses on available-for-sale
equity securities with readily determinable fair value must be deducted in
determining Tier 1 capital. Additionally as of April 1, 1995, for Tier 1
capital purposes, deferred tax assets that can only be realized if an
institution earns sufficient taxable income in the future will be limited to the
amount that the institution is expected to realize within one year, or ten
percent of Tier 1 capital, whichever is less. Tier 2 capital may consist of a
limited amount of the allowance for possible loan and lease losses, cumulative
preferred stock, term preferred stock, term subordinated debt and certain other
instruments with some characteristics of equity. The inclusion of elements of
Tier 2 capital are subject to certain other requirements and limitations of the
federal banking agencies. Since December 31, 1992, the federal banking agencies
have required a minimum ratio of qualifying total capital to risk-adjusted
assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital
to risk-adjusted assets and off balance sheet items of 4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total asset must
be 3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating by the regulators since a strong capital
position is a significant part of the regulators' rating. For all banking
organizations not rated in the highest category, the minimum leverage ratio must
be at least 100 to 200 basis points above the 3% minimum. Thus, the effective
minimum leverage ratio, for all practical purposes, must be at least 4% or 5%.
In addition to these uniform risk-based capital guidelines and leverage ratios
that apply across the industry, the regulators have the discretion to set
individual minimum capital requirements for specific institutions at rates
significantly above the minimum guidelines and ratios.
The following tables present the capital ratios for the Company and the
Bank, compared to the standards for well-capitalized depository institutions, as
of December 31, 1995 (amounts in thousands except percentage amounts).
The Company
------------
Actual Well Minimum
--------------- Capitalized Capital
Capital Ratio Ratio Requirement
------- ------ ------------ ------------
Leverage........... $7,447 7.45% 5.0% 4.0%
Tier 1 Risk-Based.. 7,447 9.51 6.0 4.0
Total Risk-Based 8,772 11.20 10.0 8.0
The Bank
------------
Actual Well Minimum
--------------- Capitalized Capital
Capital Ratio Ratio Requirement
------- ------ ------------ ------------
Leverage $7,156 7.16% 5.0% 4.0%
Tier 1 Risk-Based 7,156 9.14 6.0 4.0
Total Risk-Based 8,139 10.40 10.0 8.0
In addition, FDICIA requires the regulators to improve capital standards to
take account of risks other than credit risk. In late 1994, the federal banking
agencies published final regulations relating to capital standards and the risks
arising from the concentration of credit and nontraditional activities. The
final regulations did not include any quantitative assessment for these risks,
but listed these items, as well as an institution's ability to manage these
risks, as subjective factors that the regulators will consider in assessing an
individual bank's overall capital adequacy.
On August 2, 1995 the federal banking agencies (excluding the Office of
Thrift Supervision ("OTS")) published final regulations to take account of
interest rate risk in calculating risk based capital. These final regulations
constitute the first step of a two-step process for implementing the minimum
capital standards for interest rate risk exposures. The first step consists of
revising the capital standards of the banking agencies to explicitly include a
bank's exposure to declines in the economic value of its capital due to changes
in interest rates as a factor that the banking agencies will consider in
evaluating a bank's capital adequacy.
This final rule does not codify a measurement framework for assessing the
level of a bank's interest rate risk exposure. The information and exposure
estimates collected through a new proposed supervisory measurement process,
described in the banking agencies' joint policy statement on interest rate risk,
would be one quantitative factor used to determine the adequacy of an individual
bank's capital for interest rate risk. The focus of that proposed process is on
a bank's economic value exposure. Other quantitative factors include the bank's
historical financial performance and its earnings exposure to interest rate
movements. Examiners also will consider qualitative factors, including the
adequacy of the bank's internal interest rate risk management. The banking
agencies intend for this case-by-case approach for assessing a bank's capital
adequacy for interest rate risk to be a transitional arrangement.
The second step will consist of a proposed rule that would establish an
explicit minimum capital charge for interest rate risk, based on the level of a
bank's measured interest rate risk exposure. The banking agencies intend to
implement this second step at some future date, after the banking agencies and
the banking industry have gained more experience with the proposed supervisory
measurement and assessment process.
Prompt Corrective Action and Other Enforcement Mechanisms
FDICIA requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA. An
insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
"Well capitalized" "Adequately capitalized"
- ------------------ ------------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4%.
"Undercapitalized" "Significantly undercapitalized"
- ------------------ --------------------------------
Total risk-based capital less than Total risk-based capital less than 6%;
8%; Tier 1 risk-based capital less than 3%; or
Tier 1 risk-based capital less than Leverage ratio less than 3%.
4%; or
Leverage ratio less than 4%.
"Critically undercapitalized"
- -----------------------------
Tangible equity to total assets
less than 2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and
sanctions are required to be imposed on insured depository institutions that are
critically undercapitalized. The most important additional measure is that the
appropriate federal banking agency is required to either appoint a receiver for
the institution within 90 days, or obtain the concurrence of the FDIC in another
form of action.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement
with the agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease-and-desist order that can be
judicially enforced, the termination of insurance of deposits (in the case of a
depository institution), the imposition of civil money penalties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the issuance of removal and prohibition orders against institution-
affiliated parties and the enforcement of such actions through injunctions or
restraining orders based upon a judicial determination that the agency would be
harmed if such equitable relief was not granted. Additionally, a holding
company's inability to serve as a source of strength to its subsidiary banking
organizations could serve as an additional basis for a regulatory action against
the holding company.
Safety and Soundness Standards
FDICIA also implemented certain specific restrictions on transactions and
required federal banking regulators to adopt overall safety and soundness
standards for depository institutions related to internal control, loan
underwriting and documentation and asset growth. Among other things, FDICIA
limits the interest rates paid on deposits by undercapitalized institutions,
restricts the use of brokered deposits, limits the aggregate extensions of
credit by a depository institution to an executive officer, director, principal
shareholder or related interest, and reduces deposit insurance coverage for
deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.
In addition to the statutory limitations, FDICIA originally required the
federal banking agencies to prescribe, by regulation, standards for all insured
depository institutions for such things as classified loans and asset growth.
The Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA)
amended FDICIA to (a) authorize the agencies to establish safety and soundness
standards by regulation or by guideline for all insured depository institutions;
(b) give the agencies greater flexibility in prescribing asset quality and
earnings standards and (c) eliminate the requirement that such standards apply
to depository institution holding companies.
On July 10, 1995 the federal banking agencies published Interagency
Guidelines Establishing Standards for Safety and Soundness. By adopting the
standards as guidelines, the agencies retained the authority to require an
institution to submit to an acceptable compliance plan as well as the
flexibility to pursue other more appropriate or effective courses of action
given the specific circumstances and severity of an institution's noncompliance
with one or more standards.
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, required insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate.
The federal banking agencies amended their regulations as of June 7, 1994,
regarding the requirements for appraisals of "real estate related financial
transactions" for federally regulated financial institutions. A federally
related transaction is any real estate related financial transaction for which
an appraisal is required. An appraisal must be conducted by either state
certified or state licensed appraisers for all such transactions unless an
exemption applies. The more common exemptions relate to (i) transactions valued
at $250,000 or less; (ii) business loans valued at $1 million or less and not
dependent upon real estate as the primary source of repayment; or (iii)
transactions which are not secured by real estate.
Appraisals performed in connection with federally related transactions must also
comply with the agencies' appraisal standards.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to
declare a cash dividend or other distribution with respect to capital is subject
to statutory and regulatory restrictions which limit the amount available for
such distribution depending upon the earnings, financial condition and cash
needs of the institution, as well as general business conditions. FDICIA
prohibits insured depository institutions from paying management fees to any
controlling persons or, with certain limited exceptions, making capital
distributions, including dividends, if, after such transaction, the institution
would be undercapitalized.
Regulators also have authority to prohibit a depository institution from
engaging in business practices which are considered to be unsafe or unsound,
possibly including payment of dividends or other payments under certain
circumstances even if such payments are not expressly prohibited by statute.
The payment of dividends by a national bank is further restricted by
additional provisions of federal law, which prohibit a national bank from
declaring a dividend on its shares of common stock unless its surplus fund
exceeds the amount of its common capital (total outstanding common shares times
the par value per share). Additionally, if losses have at any time been
sustained equal to or exceeding a bank's undivided profits then on hand, no
dividend shall be paid. Moreover, even if a bank's surplus exceeded its common
capital and its undivided profits exceed its losses, the approval of the OCC is
required for the payment of dividends if the total of all dividends declared by
a national bank in any calendar year would exceed the total of its net profits
of that year combined with its retained net profits of the two preceding years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock. A national bank must consider other business factors in
determining the payment of dividends. The payment of dividends by the Bank is
governed by the Bank's ability to maintain minimum required capital levels and
an adequate allowance for loan losses. Regulators also have authority to
prohibit a depository institution from engaging in business practices which are
considered to be unsafe or unsound, possibly including payment of dividends or
other payments under certain circumstances even if such payment are not
expressly prohibited by statute.
Premiums for Deposit Insurance and Assessments for Examinations
FDICIA established several mechanisms to increase funds to protect deposits
insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is
authorized to borrow up to $30 billion from the United States Treasury; up to
90% of the fair market value of assets of institutions acquired by the FDIC as
receiver from the Federal Financing Bank; and from depository institutions that
are members of the BIF. Any borrowings not repaid by asset sales are to be
repaid through insurance premiums assessed to member institutions. Such
premiums must be sufficient to repay any borrowed funds within 15 years and
provide insurance fund reserves of $1.25 for each $100 of insured deposits.
FDICIA also provides authority for special assessments against insured deposits.
No assurance can be given at this time as to what the future level of premiums
will be.
As required by FDICIA, the FDIC adopted a transitional risk-based
assessment system for deposit insurance premiums which became effective January
1, 1993. On November 14, 1995 the Board of Directors of the FDIC adopted a
resolution to reduce to a range of 0 to 27 basis points the
assessment rates applicable to deposits assessable by the BIF for the
semiannual assessment period beginning January 1, 1996. This reduction
represents a downward adjustment of 4 basis points from the preceding BIF
assessment rate schedule. On June 30, 1995 the BIF reserve ratio stood at nearly
1.29 percent. The new assessment schedule would retain the risk based
characteristics of the current system.
At the same time the Board adopted the new rate schedule, it also amended
the FDIC's assessment regulations to permit the Board to make limited
adjustments to the schedule without notice-and-comment rulemaking. Any such
adjustments can be made as the board deems necessary to maintain the BIF reserve
ration at the designated reserve ratio ("DRR") and can be accomplished by Board
resolution. Under this provision, any such adjustment must not exceed an
increase or decrease of 5 basis points and must be uniform across the rate
schedule.
The amount of an adjustment adopted by the Board is to be determined by the
following considerations: (a) the amount of assessment revenue necessary to
maintain the reserve ratio at the DRR and (b) the assessment schedule that would
generate such amount of assessment revenue considering the risk profile of BIF
members. In determining the relevant amount of assessment revenue, the Board is
to consider BIF's expected operating expenses, case resolution expenditures and
income, the effect of assessments on BIF members' earnings and capital, and any
other factors the Board may deem appropriate.
FDICIA required insured depository institutions to undergo a full-scope,
on-site examination by their primary federal banking agency at least once every
12 months. A transition rule allowed for examination of certain well
capitalized and well managed institutions every 18 months until December 31,
1993. In 1994, the exemption for smaller institutions, which allowed a
substitution of an 18 month schedule for the 12 month examination schedule for
qualified smaller institutions, was amended to increase the asset threshold from
$100 million to $250 million. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate federal
banking agency against each institution or affiliate as it deems necessary or
appropriate.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantive penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities. On November 15, 1993, the Federal
Reserve announced that it would not approve the application of a certain New
England bank holding company to acquire the voting shares of another insured
depository institution. The Federal Reserve issued a statement indicating its
failure to approve the application was based on incorrect reporting of home
mortgage lending data by the applicant, and the possibility that the applicant
may have engaged in discriminatory treatment of minorities in mortgage lending
in violation of the Equal Credit Opportunity Act.
On March 8, 1994, the federal Interagency Task Force on Fair Lending issued
a policy statement on discrimination in lending. The policy statement describes
the three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate
treatment, and evidence of disparate impact.
In 1995, new compliance and examination guidelines for the CRA were
promulgated by each of the federal banking regulatory agencies, fully replacing
the prior rules and regulatory expectations with new ones ostensibly more
performance based than before. The guidelines provide for streamlined
examinations of smaller institutions.
Recently Enacted Legislation
On September 29, 1994 the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"). This
legislation amended the Bank Holding Company Act, the National Bank Act and the
Federal Deposit Insurance Act to provide for interstate banking and branching.
Subject to certain deposit concentration limits, the legislation generally
permits bank holding companies to acquire banks in any state, beginning
September 29, 1995. Further, the Act provides that beginning June 1, 1997 a
bank may merge with a bank in another state so long as both states have not
opted out of interstate branching by May 31, 1997. States may enact laws
permitting interstate acquisitions before June 1, 1997. The appropriate federal
banking agency may also approve the establishment by a bank of a de novo branch
in another state in which the bank does not maintain a branch if a state
expressly opts-in to de novo branching. Once a bank has established a de novo
branch in a host state, it may establish or acquire additional branches any
place in such state permitted to a bank located in that state.
On September 29, 1995 the Caldera, Weggeland, and Killea California
Interstate Banking and Branching Act of 1995 became effective. This legislation
was designed to implement important features of the IBBEA, to make changes
required by the new interstate banking and branching schemes, and to repeal or
modify provisions of the Banking Law which are obsolete or impose undue
regulatory burdens.
The main features of this legislation are (a) out-of-state banks that wish
to establish a California branch office to conduct core banking business must
first acquire an existing 5 year old California bank or industrial loan company
by merger or purchase; (b) California state-chartered banks will be empowered to
conduct various authorized branch-like activities on an agency basis through
affiliated and unaffiliated insured depository institutions in California and
other states and (c) the Superintendent will be authorized to approve an
interstate acquisition or merger which would result in a deposit concentration
exceeding 30% if the Superintendent finds that the transaction is consistent
with public convenience and advantage. The legislation also contains extensive
provisions governing intrastate and interstate (a) intra-industry sales, mergers
and conversions between banks and between industrial loan companies and (b)
inter-industry transactions involving banks, savings associations and industrial
loan companies.
On September 23, 1994, the President signed into law the Riegle Community
Development and Regulatory Improvement Act of 1994. This legislation
established a government corporation and authorized federal funds to be spent
for projects in which a Community Development Financial Institution ("CDFI") is
involved. The legislation permits a CDFI to form a community partnership with a
bank or a holding company to pursue the development of a project for which
federal funding is sought.
The legislation also authorizes funds to be spent pursuant to the Bank
Enterprise Act of 1991, to provide an incentive for bank and thrift
investments in targeted activities within qualified distressed communities.
Insured depository institutions may earn assessment credits by engaging in new
lending in economically under-served areas. Further, the legislation amended
various statutory reporting obligations and other rules impacting various
paperwork requirements and examination cycles.
In October 1995, the Governor of California approved the State Bank Parity
Act. This legislation cures several longstanding disparities between state and
national charters and enacts a "wild card" statute giving the Superintendent
discretionary regulatory authority to address future disparities.
Pending Legislation
There are a number of pending legislative proposals to reform the Glass-
Steagall Act to allow affiliations between banks and other firms engaged in
"financial activities," including insurance companies and securities firms.
Glass-Steagall reform will likely be affected by a bank insurance powers case
currently pending before the U.S. Supreme Court, which could potentially give
national banks greater opportunities to sell traditional insurance products,
such as life, automobile, and property and casualty policies. In a similar case
last year, the Court upheld an OCC determination that national banks may sell
annuities.
There is legislation currently pending in Congress which would reduce
paperwork and additional regulatory burdens for depository institutions. This
pending legislation would eliminate numerous regulatory requirements mandated by
laws such as the Real Estate Settlement Procedures Act, the Truth in Savings
Act, and the Truth in Lending Act.
Further, under this pending legislation, the Community Reinvestment Act
("CRA") would be amended to preclude federal banking regulators from imposing
additional burdens, record keeping or reporting requirements on financial
institutions. The legislation also provides for self-certification of CRA
compliance by certain "satisfactory" or "outstanding" financial institutions
with assets of $250 million or less, subject to certain public notice
requirements. Further, the legislation provides that examination ratings would
become conclusive, obviating the need for an institution to have to reprove its
performance in an application proceeding.
Congress is also considering legislation to rebuild the undercapitalized
Savings Association Insurance Fund ("SAIF"). One proposed plan would capitalize
the fund with a one-time charge on SAIF-insured institutions of about 85 basis
points. Under such plans the annual interest due on the bonds issued by the
Financing Corporation ("FICO") as part of the savings and loan bailout would be
spread to BIF-insured institutions, and the thrift and bank insurance funds
would be merged.
Additional legislation pending in Congress would provide environmental
cleanup liability limitations for lenders and fiduciaries under the
Comprehensive Environmental Response, Compensation and Liability Act, as well as
other federal and state environmental protection laws.
Similarly, pending California legislation would provide lenders and
fiduciaries a clear "road map" of how they may deal with real property
contaminated by toxics and avoid liability as an "owner" or "operator" under
various state environmental laws. This is a measure which should benefit banks
of all sizes. Approval is expected during 1996.
In 1995, Superintendent Conrad W. Hewitt announced a major regulatory
reform project to reduce the number of regulations and the amount of
regulatory burdens imposed by the State Banking Department's regulations.
Although the Company cannot predict the consequences of this announcement, it is
possible that the result will be a decrease in the amount of regulatory burdens
imposed under the Department's banking regulations.
While the effect of such proposed legislation and regulatory reform on the
business of the Bank cannot be accurately predicted at this time, it seems
likely that a significant amount of consolidating in the banking industry will
occur throughout the decade.
Competition
In the past, an independent bank's principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, credit card companies,
and even retail establishments have offered new investment vehicles, such as
money-market funds, which also compete with banks for deposit business. The
direction of federal legislation in recent years seems to favor competition
between different types of financial institutions and to foster new entrants
into the financial services market, and it is anticipated that this trend will
continue.
The enactment of the IBBEA as well as the California Interstate Banking and
Branching Act of 1995 will likely increase competition within California.
Regulatory reform, as well as other changes in federal and California law will
also affect competition. While the impact of these changes, and of other
proposed changes, cannot be predicted with certainty, it is clear that the
business of banking in California will remain highly competitive.
Item 2. Properties.
The Bank maintains its main offices at 901 Main Street in the Downtown part
of Napa, California. The Company opened this banking facility in 1995. This
property is a two story building with an adjacent paved ground level parking
lot. The parking lot is approximately 10,860 square feet. The lease term runs
from December 1, 1994 to November 30, 1999, with three five (5) year renewal
options. The new lease provides for inflationary increases in the monthly
rental amount during the renewal periods and also contains options to purchase
the facility at an agreed upon market value during certain defined periods. The
base rent is $9,900.00 per month. The base rent is subject to an annual
adjustment based on the Consumer Price Index beginning on the first day of
January of every year of the first option renewal term beginning in the year
2001. The adjusted rental will not exceed an 8% increase over the adjusted
rental of the preceding year nor will the adjusted rental be less than the
original base rent. Rent paid for the Downtown Napa Office was approximately
$122,000.
The Company purchased its Claremont branch building for $558,000 in cash,
including fees, on September 6, 1989. The building, comprised of approximately
5,000 square feet, was remodeled so that it could be put into service as a full
service banking branch. The cost of the remodeling, security systems and
necessary furniture and equipment was approximately $600,000. This Office was
remodeled again in 1995 in order to accommodate the Bank's Electronic Data
Processing and Customer Service Departments. The cost of this remodel was
approximately $50,000.
The Company leases the Bank's approximately 2,400 square foot branch office
located at 1015 Adams Street in downtown St. Helena, California. The
lease term ends in 1999, with two options to extend the term of the lease for
five years each. Rent paid for the St. Helena office was approximately $61,000
during 1995. In addition, the Bank pays utilities, insurance and maintenance
relating to the branch.
Item 3. Legal Proceedings.
As of December 31, 1995, neither the Company, the Bank nor the Leasing
Company was a party to, nor was any of their property the subject of, any
material pending legal proceedings, nor are any such proceedings known to be
contemplated by governmental authorities. At the same date, the Bank was
involved as plaintiff in ordinary routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is not listed on any exchange or the National
Association of Securities Dealers' Automated Quotation System; however, there
has been limited trading in the Company's Common Stock which the company does
not believe necessarily represents an established public trading market. To the
Company's knowledge, no broker-dealers handle transactions of the Company's
stock. The following table sets forth, for the fiscal quarters indicated, the
range of high and low sales prices, not including broker's commissions, based
upon known information as reported by management. These figures may not include
private transactions. Other than to this extent, there is no established public
trading market in the Company's Common Stock.
Sales Prices of the Company's
Common Stock
Trading
Year High Low Volume (1)
1995
First Quarter $9.00 $8.00 6,450
Second Quarter 9.00 8.00 16,845
Third Quarter 9.00 8.00 600
Fourth Quarter 9.00 8.00 1,600
1994
First Quarter $7.54 $7.54 0
Second Quarter 7.54 7.54 3,200
Third Quarter 7.54 7.54 1,700
Fourth Quarter 8.00 8.00 255
(1) The Company's Employee Stock Ownership Trust ("ESOT") did not purchase any
shares in 1995. The ESOT purchased 5,155 shares of common stock in 1994.
As of March 28, 1996, the outstanding shares of the Company's Common Stock
were held of record by 396 shareholders. The last known trade of the Company's
Common Stock occurred on November 9, 1995, for 150 shares. Price per share is
not known.
No stock or cash dividends were declared in 1995. During the first quarter
of 1996, the Board of Directors of the Company declared a cash dividend of
twelve and a half cents ($0.125) per share. The dividend was based on 1995
earnings and amounted to $94,000. The dividend was paid to shareholders on
March 15, 1996.
Item 6. Selected Financial Data.
The selected consolidated financial information for the Company presented
below for the five years ended December 31, 1995 is derived from and should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto which are included in Item 14 of this Annual Report on
Form 10-K.
Year Ended December 31,
1995 1994 1993 1992 1991
(In 000's except earnings per share and ratios)
Statement of Operations
Total interest income $8,432 $6,226 $4,831 $4,734 $5,141
Total interest expense 2,634 1,658 1,551 2,038 2,322
Provision for loan losses 323 149 198 207 201
Net interest income after
provision for loan losses 5,475 4,419 3,082 2,489 2,618
Other income 800 627 594 554 451
Other expense 4,409 3,716 3,425 3,007 3,114
Income (loss) before
income tax 1,866 1,330 251 36 (45)
Income taxes 765 553 (249) 14 2
Extraordinary tax credit 0 0 0 (12) 0
Net income (loss) 1,101 777 500 34 (47)
Net income (loss) /share 1.25 1.03 0.66 0.05 (0.06)
Cash Dividends Paid $ 0 $ 0 $ 0 $ 0 $ 0
Weighted Average Shares 882 755 755 755 755
Balance Sheet Information
(at period end):
Total assets $104,851 $86,477 $77,241 $63,454 $59,504
Net loans 73,374 62,103 54,259 45,990 47,706
Total deposits 96,752 79,378 71,463 58,243 53,402
Other borrowings 0 0 0 0 757
Subordinated capital note 0 0 0 0 0
Shareholders' equity 7,447 6,346 5,569 5,069 5,035
Book value per common
share outstanding $ 8.44 8.41 $ 7.38 $ 6.71 $ 6.67
Selected Financial Ratios:
Net interest margin 6.98% 6.25% 5.38% 4.76% 5.62%
Allowance for loan losses
to average loans 1.93% 1.78% 1.80% 1.50% 1.67%
Nonperforming loans to
average loans 2.11% 1.63% 0.72% 2.06% 1.74%
Net charge-offs
to average loans 0.07% 0.02% 0.06% 0.31% 0.48%
Average earning assets to
total average assets 91.52% 92.00% 91.66% 90.28% 90.84%
Primary capital ratio (1) N/A N/A N/A N/A N/A
Total capital ratio (1) N/A N/A N/A N/A N/A
Return on average assets 1.30% 1.05% 0.81% 0.06% (0.09%)
Return on average
shareholders' equity 16.40% 14.02% 9.77% 0.70% (0.87%)
Average equity to average
assets ratio 7.27% 6.87% 7.58% 7.77% 9.75%
Leverage Ratio (2) 7.16% 7.28% 7.04% 7.60% 9.17%
Total Risk based
capital ratio 10.40% 10.33% 9.84% 10.77% 9.51%
- ----------------
(1) As defined by regulatory guidelines.
(2) Calculated based on the Bank's capital and average assets.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The following analysis of the Company's financial condition for the years
ended December 31, 1995 and 1994 and results of operation for each of the three
years in the period ended December 31, 1995, should be read in conjunction with
the Consolidated Financial Statements, related Notes thereto and other
information presented elsewhere herein. Since the Company is a bank holding
company whose principal asset is, and is expected to be, the capital stock of
the Bank, the following relates principally to the financial condition and
results of operations of the Bank.
The consolidated financial statements of the Company are prepared in
conformity with generally accepted accounting principles and prevailing
practices within the banking industry. All material intercompany transactions
and accounts have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Average balances, including such balances used in calculating certain financial
ratios, are comprised of average daily balances. All dollar amounts are
rounded, except earnings per share data.
Summary of Financial Results
The Company recorded net income of $1,101,000, or $1.25 per share for the
year ended December 31, 1995 as compared to $777,000 or $1.03 per share, and
$500,000 or $0.66 per share, for the year ended December 31, 1994 and 1993,
respectively.
The primary reasons for the improvement in operating results in 1995 as
compared to 1994 are as follows: Net interest income increased by $1,230,000 or
27%. This growth was partially offset by an increase in the provision for loan
losses of $174,000 or 116%. Total noninterest income increased by $173,000 or
28%. These improvements were also offset by an increase in total noninterest
expense of $693,000 or 19%.
The Company's improved operating results for 1994 over 1993 were due to a
variety of reasons. Net interest income increased by $1,288,000 or 39%. The
provision for loan losses decreased by $49,000 or 25%. Total noninterest income
increased by $33,000 or 6%. In 1994 the Company recorded $553,000 in federal
and state income taxes compared to a tax credit of $249,000 in 1993. The tax
credit in 1993 was primarily due to the Company's ability to recognize certain
deferred tax assets that management previously had considered not realizable due
to a history of net losses. These improvements were partially offset by an
increase in total noninterest expenses of $291,000 or 8%.
Moving into 1996, management is not aware of any trends, events or
uncertainties that would have a material impact on the Company's liquidity,
capital resources, or results of operations.
Net Interest Income
The Company's primary source of income is the difference between interest
income and fees derived from earning assets and interest paid on liabilities
incurred for the funding of those assets. This difference is
referred to as "net interest income." Net interest income expressed as a
percentage of average total earning assets is referred to as the "net interest
margin" or "margin."
Net interest income increased in 1995 by $1,230,000, or 27%, over 1994. This
number is a component of total interest income and total interest expense.
Total interest income increased in 1995 by $2,206,000, or 35%, over 1994. This
increase was offset by an increase in total interest expense of $976,000, or
59%. These results can be attributed to a number of factors, such as an
increase in the net interest margin from 6.25% in 1994 to 6.98% in 1995 (based
on period end earning assets). This rise in net interest margin was aided by
increases in the prime interest rate during late 1994 and early 1995.
Additionally, average earning assets increased by $10,056,000 or 14%, in 1995
over 1994 totals. The increase in interest expense was primarily due to a
limited time, one year 7% certificate of deposit product offered by the Bank
late in the first quarter of 1995 (See "Deposits" herein).
For the period ended December 31, 1994, net interest income increased by
$1,288,000, or 39%, over the same period of 1993. The $12,100,000 increase in
average earning assets in 1994 compared to 1993 contributed significantly to
this increase in net interest income. Additionally, during 1994, interest rates
increased six separate times, or approximately 250 basis points. These rate
increases also had a positive impact on interest income. For 1994, the net
interest margin was 6.25% compared to 5.38% for 1993.
As of December 31, 1995, total average earning assets were $83,120,000, an
increase of $10,056,000, or 14%, from the 1994 level of $73,064,000.
Provision for Loan Losses
The provision for loan losses is based upon management's assessment of the
amount that is necessary to maintain the allowance for loan losses at an
adequate level. As further described in the "Allowance for Loan Losses" herein,
management takes many factors into consideration when determining the provision
including loan portfolio growth.
The provision for loan losses was $323,000 at December 31, 1995 compared to
$149,000 for 1994. This represents an increase of $174,000, or 116%, over the
prior year. The increase in the provision was due to increases in both average
loans and outstanding loan balances at year end, projected loan growth,
increases in non-performing loans, and management's ongoing assessment of the
adequacy of the allowance for loan losses (See "Loans and Nonaccrual Loans"
herein).
During 1994, the provision for loan losses was $149,000 as compared to
$198,000 for 1993. As of December 31, 1994, total net loans were $62,103,000
compared to $54,259,000 for the same period in 1993. This is an increase of
$7,844,000, or 14% over the prior year.
Noninterest Income
Noninterest income consists primarily of service charges on deposit
accounts, fees charged for other banking services, and merchant card processing
income. Noninterest income increased in 1995 by $173,000, or 28%, over 1994
totals, primarily due to increases in the number of deposit accounts and related
service charges. As with the past few years, the Company continued its policy
of assessing service charges and other related fees. Additionally, the Bank's
merchant card processing program has shown strong gains in 1995 over earnings in
1994.
Noninterest income increased in 1994 by $33,000, or 6%, over 1993 totals,
primarily due to growth deposit accounts and related increases in service charge
income.
Noninterest Expense
Total noninterest expense was $4,409,000 in 1995, representing an increase
of $693,000, or 19%, over the 1994 total of $3,716,000. Total noninterest
expense in 1994 was $291,000, or 8%, above 1993's total of $3,425,000.
Salaries and employee benefits were $2,261,000 in 1995, an increase of
$297,000, or 15%, over 1994. This increase can be primarily attributed to an
addition of approximately five full time equivalent employees during 1995. This
staff increase was a strategic move by management in order to take advantage of
unique marketing opportunities taking place in the Company's service area and
were necessary to maintain an adequate service level given the overall growth
within the company. Additionally, salaries also increased as a result of
average bank-wide raises of five percent which took place in March 1995. As of
December 31, 1995, the Company had $72,000 accrued for incentive payouts.
Annual incentive payouts generally occur in March of the following year after
annual performance reports have been completed.
Net salaries and employee benefit expense was $1,964,000 in 1994, an
increase of $244,000, or 14%, over 1993's total of $1,620,000. During 1994, the
Company grew by approximately two full time equivalent employees. Additionally,
salaries increased due to average bank-wide raises of approximately five percent
which took place in March 1994. As of December 31, 1994, the Company had
$92,000 accrued for incentive payouts.
In November of 1994, the Bank entered into a five year noncancellable
operating lease for a new facility in Downtown Napa. This facility was intended
to house its existing Downtown Napa branch, primary lending services and
headquarters. The Bank began leasehold improvements early in 1995 and rent
payments during the later half of the first quarter. During the leasehold
improvement stage on this new facility, the Bank continued to operate from the
existing Downtown Napa branch.
During April 1995, the Bank closed its original banking office located at
1500 Third Street, Napa, California and re-opened at 901 Main Street, Napa,
California. At the end of June, the Bank relocated it primary lending services
and headquarters into the completed facility. After relocation of the lending
and administration staff from its previous location on 3263 Claremont Way, Napa,
California, this facility began remodeling to accommodate the Bank's customer
service and EDP departments. The remodeling of the Claremont facility was
completed in July and these two departments were immediately relocated. With
the completion of this move, the Bank was able to vacate the leased space which
previously housed the Customer Service Center. At the end of the third quarter
of 1995, the Bank had consolidated back into three locations, all offering full
banking services. Occupancy and furniture, fixtures and equipment expenses for
the twelve months ending December 31, 1995 increased by $164,000 or 27%, over
the same period of 1994. These increases in costs were attributed primarily to
the Bank's new branch/headquarters tenant improvements, and the costs of
supporting its other locations.
Occupancy and furniture, fixtures and equipment expenses increased in 1994
by $38,000, or 7% over 1993 totals. The increase was due primarily to upgrades
in furniture, fixtures and equipment, in addition to general increases in annual
maintenance fees associated with the Bank's computer system.
In 1995, professional fees increased by $241,000, or 137%, over 1994. This
additional expense is primarily due to increases in consulting, legal and
director fees. Beginning in January 1995, the Company approved a new director
compensation plan which resulted in an increase of $63,000 over the prior year.
Consulting fees increased in 1995 by $34,000, due to the outsourcing of a number
of loan related reviews, audits and other similar procedures. The Company
incurred additional legal expenses of $52,000 in 1995 over the same period of
1994. Professional fees dropped by $41,000, or 19%, in 1994 over 1993 totals.
The Company decreased its marketing and business development costs by
$11,000, or 8%, during 1995 over the same period of 1994. This decrease is due
primarily to the high profile marketing efforts incurred during the first
quarter of 1995. Given the growth in loans and deposits resulting from these
marketing efforts, management curtailed the Bank's marketing costs greatly
during the remaining three quarters of the year.
The competition for deposits in the Company's service area have warranted
increased marketing and business development expenditures during 1994 over 1993.
These expenditures resulted in an increase in marketing and business development
of $27,000 in 1994 over 1993 totals of $108,000.
Stationery and supply expense for 1995 was $95,000, or 42%, higher than
1994. This increase in 1995 was due to significant one time expenses related to
the numerous facility moves and relocations which incurred during 1995.
Stationery and supply expense remained relatively consistent for the years
ending December 31, 1994 and 1993, with $67,000 and $62,000, respectively.
Other noninterest expense decreased by $26,000, or 3%, in 1995 over 1994
totals. This decline was principally due to the reduction of the FDIC insurance
assessment that occurred during the third quarter of 1995. The Bank's insurance
assessment rate declined from $0.23 to $0.04 per $100 of applicable deposits
beginning with the July 1995 assessment period. This reduction in assessment
rate resulted in a refund of approximately $12,000 from the second quarter
payments which was received in September 1995. Additionally, it reduced the
third and forth quarter 1995 payments by an estimated $72,000 over what was paid
in 1994.
Income Taxes
Income tax expense was 41% of pre-tax income for the years ending December
31, 1995 and 1994.
Earning Assets
Total earning assets consist of investment securities, loans, federal funds
sold and interest bearing deposits held in other institutions. Earning assets
increased from $79,651,000 at December 31, 1994 to $95,562,000 at December 31,
1995, an increase of $15,911,000, or 20%.
Loans and Nonaccrual Loans
Total loans, excluding the allowance for loan losses (see Notes 1 and 3 to
the consolidated financial statements included herein at Item 14, for further
discussion of the allowance for loan losses), increased from $63,153,000 at
December 31, 1994 to $74,699,000 at December 31, 1995. The
increase of $11,546,000 represents a 18% increase in outstanding loans during
1995. The Bank experienced increases in all of its loan categories except real
estate loans during the year under review. Management attributes these increases
to more seasoned staff, both loan and deposit officers, which assisted with new
loan generation and changes taking place in the Company's service area.
General economic and credit risks are inherent in the lending function and
within particular types of lending categories. The Bank primarily makes four
types of loans: Real state construction, real estate mortgage, commercial and
consumer loans. As discussed in "Item 1. Business - Loan Portfolio" herein, the
Bank generally takes a well collateralized position, with reasonable loan to
value ratios on its loans (over 90% of the Bank's loan portfolio is
collateralized). The primary source of collateral is real estate located within
the Company's service area. An inherent risk in taking real estate as
collateral is the possibility of declines in real estate market values.
Overall, California had been suffering a recession which began in approximately
1991 and appeared to end during 1995. This recession caused declines, some
areas more dramatically than others, in California real estate values. The
Company's service area is Napa Valley, which is located approximately fifty
miles northeast of the San Francisco Bay Area. Napa Valley is a very unique,
elite and rather isolated area that has been able to sustain higher than average
real estate market values. The Napa Valley, due to its unique nature, has only
seen minor effects from the California recession. Overall, real estate prices
have not declined more than 10% over the previous four year time period.
Approximately four years ago, given the economic trends and possibility of
declining market values, the Company took a more conservative approach on its
collateral base and began lowering its loan to value ratios on new loans. Even
though the Company's loan portfolio is heavily secured by California real
estate, management does not presently foresee any material impact on the
Company's operations, given the low loan to value ratios and only slight
declines in Napa Valley real estate markets.
As discussed in "Part I - Business, Loan Portfolio", in early 1995, the
Company's service area was subjected to severe weather conditions that resulted
in some flooding. Management believes that this flooding will not have a direct
or material impact on either its existing loan portfolio or future growth.
As of December 31, 1995, nonperforming loans were $1,447,000, or 2.1% of
total average loans. This is up slightly from $962,000, or 1.6% of total
average loans for year end 1994. The growth in nonperforming loans between 1995
and 1994 is primarily due to a general growth in outstanding loan balances.
On January 1, 1995, the Company adopted SFAS No. 114, Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure. These statements
address the accounting and reporting by creditors for impairment of certain
loans. 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. These statements are applicable
to all loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
such as credit cards, residential mortgage and consumer installment loans, loans
that are measured at fair value or at the lower of cost or fair value and
leases. Impairment is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, except that as a
practical expedient, the Company measures impairment based on a loan's
observable market price or the fair value of the collateral if the loan is
collateral
dependent. Loans are measured for impairment as part of the Company's normal
internal asset review process.
Interest income is recognized on impaired loans in a manner similar to that
of all loans. It is the Company's policy to place loans that are delinquent 90
days or more as to principal or interest on a nonaccrual of interest basis
unless secured and in the process of collection, and to reverse from current
income accrued but uncollected interest. Cash payments subsequently received on
nonaccrual loans are recognized as income only where the future collection of
principal is considered by management to be probable.
At December 31, 1995, the Company's total recorded investment in impaired
loans was $1,447,000, of which all dollars relate to the recorded investment for
which there is a related allowance for credit losses were $233,000, determined
in accordance with these Statements and $3,000 relates to the amount of that
recorded investment for which there is no related allowance for credit losses
determined in accordance with these Standards.
The average recorded investment in the impaired loans during 1995 was
$1,204,000: the related amount of interest income recognized during the period
that such loans were impaired was less than $1,000, and the amount of interest
income recognized under the cash-basis method of accounting during the time
within the period that the loans were impaired was also less than $1,000.
Loans currently classified as special mention, substandard, doubtful or loss
(See Item 1, "Business" herein) do not, in management's view, represent or
result from trends or uncertainties which may have a material adverse effect on
the entire loan portfolio, liquidity or capital resources.
Allowance for Loan Losses
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being made
and the credit - worthiness of the borrower over the term of the loan. The
Company maintains an allowance for possible loan losses at a level estimated to
be adequate to provide for losses that can be reasonably anticipated based upon
specific loan conditions as determined by management, and based upon
management's assessment of historical loan loss experience, prevailing economic
conditions and other factors including growth of the loan portfolio. While
these factors are essentially judgmental and may not be reduced to a
mathematical formula, it is management's view that the $1,325,000 allowance,
approximately 1.77% of total loans outstanding at December 31, 1995, was
adequate as an allowance against foreseeable losses in the portfolio at that
time. The allowance was 1.66% of the loan portfolio at December 31, 1994. The
allowance is increased by charges to the provision for loan losses and reduced
by net charge-offs.
Deposits
Deposits totaled $96,752,000 at December 31, 1995, an increase of
$17,374,000, or 22%, from the December 31, 1994 balance of $79,378,000. In
1995, noninterest bearing transaction accounts grew by $970,000, or 5%, savings
accounts decreased by $2,062,000, or 14%, and interest bearing transaction
accounts grew $3,629,000, or 15%, over 1994 totals. Time certificates of
deposit of $100,000 or more increased by $2,632,000, or 39%, and other time
deposits increased by $12,205,000, or 78%, during 1995. The growth in 1995 and
1994 in non-certificates of deposit accounts was primarily due to a
comprehensive marketing effort on the part of the Bank's staff and
management, the introduction of new and enhanced deposit products and increases
in deposit officers. The growth in the certificates of deposits was due almost
entirely to a one year, 7% certificate of deposit product offered during the
March 1995.
Non-interest bearing demand deposits were 20% of total deposits at December
31, 1995, as compared to 23% at December 31, 1994. Time certificates of deposit
were 39% of total deposits at December 31, 1995, and 28% for the same period of
1994.
New Accounting Pronouncements
The Company is required to adopt SFAS No. 123, Accounting for Stock-Based
Compensation, in 1996. SFAS No. 123 establishes accounting and disclosure
requirements using a fair value-based method of accounting for stock-based
employee compensation plans. Under SFAS No. 123, the Company may either adopt
the new fair value-based accounting method or continue the intrinsic value-based
method and provide pro forma disclosures of net income and earnings per share as
if the accounting provisions of SFAS No. 123 had been adopted. The Company
plans to adopt only the disclosure requirements of SFAS No. 123; therefore, such
adoption will have no effect on the Company's consolidated net earnings or cash
flows.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995. This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The financial statement
impact of adopting SFAS No. 121 is not expected to be material.
Asset-Liability Management
Asset-liability management is a process whereby the Bank, through its Asset
and Liability Committee, monitors the maturities and repricing opportunities of
the various components of the balance sheet and initiates strategies designed to
maximize the net interest margin, while minimizing vulnerability to large
fluctuations in interest rates. The Bank is currently moving towards a policy
of maintaining a relative balance of asset and liability maturities within
similar time frames, while permitting a moderate amount of short-term interest
rate risk based on current interest rate projections, customers' credit demands
and deposit preferences.
At December 31, 1995, the Company's assets repricing in one year exceeded
its liabilities repricing in one year by $15,348,000, or 15%, of total assets.
This compares to $14,328,000, or 17% of total assets in 1994. The excess of
assets repricing over liabilities repricing means that if interest rates
decline, the Company's return on assets would be expected to decline more
quickly than its cost of funds, thereby reducing the Company's net interest
margin. However, as interest rates increase, the Company's return on assets
would be expected to increase more quickly than its cost of funds.
The following table represents the interest rate sensitivity profile of the
Company's consolidated assets, liabilities and shareholders' equity as of
December 31, 1995. Assets, liabilities ad shareholders' equity are classified
by the earliest possible repricing opportunity or maturity date, whichever first
occurs. Assumptions used in constructing the table include the following: The
loans that are in the "Interest Rate Sensitivity Over One
Year But Within 5 Years" and "Nonrate Sensitive or Over 5 Years" columns are all
fixed-rate loans and therefore mature in those time frames. The Bank's
certificates of deposits are substantially all fixed-rate, therefore they are in
the columns which represent the time frames in which they mature. All other
interest-bearing accounts reprice overnight and are therefore in the "Interest
Rate Sensitivity 0-90 Days" column. Included in noninterest bearing liabilities
is $18,040,000 in demand deposit accounts.
Interest Rate Sensitivity Nonrate
0-90 91-180 181-365 Over 1 Year Sensitive
Days Days Days But Within Or Over
(0-3 mo) (3-6 mo) (6-12 mo) 5 Yrs 5 Yrs Total
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Time deposits-other
financial
institutions $ 990 $ 1,287 $2,079 $ $ $ 4,356
Federal funds sold 14,780 14,780
Investments 1,235 197 1,432
Loans 58,830 5,181 5,420 4,904 364 74,699
Noninterest-earning
assets net of loan
loss reserve 9,584 9,584
TOTAL ASSETS $75,835 $ 6,468 $7,499 $4,904 $10,145 $104,851
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Time deposits over
$100,000 $ 5,721 $ 1,553 $ 1,554 $ 621 $ $ 9,449
All other interest-
bearing deposits 40,365 16,167 9,094 2,609 68,235
Total interest-bearing
deposits 46,086 17,720 10,648 3,230 77,684
Noninterest-bearing
liabilities 19,720 19,720
Shareholders' equity 7,447 7,447
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $46,086 $17,720 $10,648 $ 3,230 $27,167 $104,851
INTEREST RATE SENSITIVITY
GAP (1) $29,749 $ (11,252) $(3,140) $ 1,674 $(17,022)
CUMULATIVE INTEREST RATE
SENSITIVITY GAP $29,749 $18,497 $15,348 $17,022
- --------------------
1 Interest rate sensitivity gap is the difference between interest rate
sensitive assets and interest rate liabilities within the above time frames.
Liquidity
Liquidity refers to the Company's ability to maintain cash flow adequate to
fund operations and meet obligations and other commitments on a timely basis.
As shown in the Consolidated Statements of Cash Flows ("Statement") for the
years ended December 31, 1995, 1994 and 1993, the Company's usual and primary
source of funds has been customer deposits and cash flow generated from
operating activities. While the usual and primary sources are expected to
continue to provide significant amounts of funds in the future, their mix,
as well as those from other sources, will depend on future economic and other
market conditions.
In 1995, the Statement shows that operations and financing activities were
sources of net cash inflows ($1,000,000 and $17,374,000, respectively) for the
year. These sources were significant enough to increase the overall ending cash
and cash equivalents from $16,291,000 at December 31, 1994 to $21,887,000 for
the same period of 1995.
In 1994, the Statement shows that operations and financing activities were
sources of net cash inflows ($1,247,000 and $7,915,000, respectively) for the
year. These sources however, were not quite significant enough to keep the
overall ending cash and cash equivalents from decreasing from $17,284,000 at
December 31, 1993 to $16,219,000 for the same period of 1994.
In 1993, the Statement shows that operations and financing activities were
sources of net cash inflow ($630,000 and $13,220,000 respectively) for the year.
These sources were the primary reason for the overall increase in ending cash
and cash equivalents from $13,070,000 at December 31, 1992 to $17,284,000 for
the same period of 1993.
The Bank faces intense competition in its deposit market area from other
banks, savings and loan associations, and other financial institutions. The
potential impact of current laws and regulations such as FIRREA and the FDIC
Improvement Act, and emerging political and regulatory trends on this aspect of
the Bank's business is not known at this time; however, competitive pressures on
banks in general, and on the Bank in particular, are expected to increase. In
anticipation of possible liquidity needs in 1996 resulting from these pressures,
management has a number of options available to raise the necessary liquidity.
The Bank can slow or stop loan growth, raise rates on deposits to attract more
funds, as well as utilizing up to $5,500,000 in short-term lines of credit
available to it from its correspondent banks. In addition, as a last resort,
the Bank is able to attract out of area certificates of deposits.
The Company's primary source of income is interest income earned on its
liquid investments. Liquid assets invested by the Company in the Bank during
the year ended December 31, 1995, were approximately $278,000. The Company's
yearly income is expected to exceed operating income by $2,000 in 1996.
Liquidity is measure by various ratios, the most common being the liquidity
ratio of cash less reserves, time deposits with other financial institutions,
federal funds sold, and unpledged investment securities compared to total
deposits. At December 31, 1995, this ratio was 26% as compared to 25% at
December 31, 1994.
Capital Adequacy
The Federal Reserve Bank and the Comptroller of the Currency have specified
guidelines for the purpose of evaluating the capital adequacy of bank holding
companies and banks. The table below summarizes the current requirements for
1995 and the Company's and the Bank's compliance therewith. The requirement for
the ratio of regulatory capital to risk-weighted assets for an "adequately
capitalized" institution is 8.00%.
Minimum Tier 1 Risk Total Risk
Leverage Based Capital Based Capital
Ratio Ratio Ratio
Regulatory Requirements
for 1995 4.00% 4.00% 8.00%
Consolidated Company Ratio
at December 31, 1995 7.45% 9.51% 11.20%
Bank Ratio at
December 31, 1995 7.16% 9.14% 10.40%
The capital levels of both the Bank and the Company at December 31, 1995
exceeded all minimum regulatory requirements. Management anticipates that both
the Company and the Bank will continue to exceed the regulatory minimums in the
foreseeable future. Therefore, management believes the Company and the Bank
have adequate capital in order to expand in the future, either through loan
generation or other means of expansion.
As of the date of this report, management is not aware of any trends, events
or uncertainties that will have, or are reasonable likely to have a material
effect on the Company's liquidity, capital resources, or results of operations.
Additionally, the Company is under no current recommendations by any regulatory
authorities which, if implemented, would have such an effect.
Effects of Inflation
The impact of inflation on a financial institution differs significantly
from that exerted on an industrial concern, primarily because its assets and
liabilities consist largely of monetary items. The most direct effect of
inflation is higher interest rates. However, the Bank's earnings are affected
by the spread between the yield on earning assets and rates paid on interest-
bearing liabilities rather than the absolute level of interest rates.
Additionally, there may be some upward pressure on the Company's operating
expenses, such as adjustments in staff expense and occupancy expense, based upon
consumer price indices. In the opinion of management, inflation has not had a
material effect on the consolidated results of operations.
Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets as of December 31, 1995 and 1994, and
Consolidated Statements of Income, Statements of Shareholders' Equity and
Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 are incorporated herein in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
As permitted by General Instruction G93) to Form 10-K, the information
called for by this Item is incorporated by reference
from the section of the Registrant's 1996 definitive proxy statement entitled
"Election of Directors," which proxy statement will be filed no later than April
30, 1996.
Item 11. Executive Compensation.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference from the section of the
Registrant's 1996 definitive proxy statement entitled "Remuneration an Other
Information With Respect to Officers and Directors," which proxy statement will
be filed no later than April 30, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference from the section of the
Registrant's 1996 definitive proxy statement entitle "Security Ownership of
Certain Beneficial Owners and Management," which proxy statement will be filed
no later than April 30, 1996.
Item 13. Certain Relationships and Related Transactions.
As permitted by General Instruction G(3) to Form 10-K, the information
called for by this Item is incorporated by reference form the section of the
Registrant's 1996 definitive proxy statement entitled "Certain Relationships and
Related Transactions," which proxy statement will be filed no later than April
30, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
Reference
Selected Financial Date
Independent Auditors' Report
Consolidated Financial Statements of
Napa National Bancorp and Subsidiaries:
- Consolidated Balance Sheets as of
December 31, 1995 and 1994
- Consolidated Statements of Income
for the Years Ended December 31,
1995, 1994 and 1993
- Consolidated Statements of
Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993
- Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial
Statements
2. Financial Statement Schedules. In accordance with the rules of
Regulation S-X, schedules are not submitted because (a) they are not applicable
to or required of the Company, or (b) the information required to be set forth
therein is included in the financial statements or footnotes thereto.
3. Exhibits. See Index to Exhibits to this Form 10-K, which is
incorporated herein by reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of the period covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 26, 1996.
NAPA NATIONAL BANCORP
By /s/ Brian J. Kelly
President/COO
By /s/ Michael D. Irwin
Chief Financial Officer
(Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brian J. Kelly and Michael D. Irwin jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the date indicated.
March 26, 1996
/s/ William A. Bacigalupi
Director
March 26, 1996
/s/ Charles A. Carpy
Director
March 26, 1996
/s/ E. James Hedemark
Director
March 26, 1996
/s/ Michael D. Irwin
Director
Chief Financial Officer
(Principal Accounting Officer)
March 26, 1996
/s/ Brian J. Kelly
President and COO
Director
March 26, 1996
/s/ C. Richard Lemon
Secretary and Director
March 26, 1996
/s/ Joseph G. Peatman
Director
March 26, 1996
/s/ A. Jean Phillips
Director
March 26, 1996
/s/ George M. Schofield
Director
March 26, 1996
/s/ W. Clarke Swanson, Jr.
Chairman of the Board and CEO
INDEX TO EXHIBITS
Exhibit No. Description
13 Annual Financial Statements and
Accompanying Footnotes
27 Financial Data Schedule