SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Quarterly period ended September 30, 1995 or
------------------------
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-25034
---------------------------------------------
MID-PENINSULA BANCORP
----------------------------------------------------
Exact name of registrant as specified in its charter
California 77-0387041
- - - -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 Cowper Street, Palo Alto, CA 94301
- - - ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 323-5150
--------------------
None
- - - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / x / No / /
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Class Shares Outstanding at September 30. 1995
- - - ------------ ----------------------------------------
Common Stock 1,556,557
Page 1 of 18 Pages
Exhibit Index @ Page 17
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(in thousands)
Assets: September 30, 1995 December 31, 1994
- - - ----------------------------------------- ------------------ -----------------
(unaudited) (audited)
Cash and due from banks $ 8,514 $ 6,996
Federal funds sold 27,000 28,200
Investment Securities:
Available-for-sale, at fair value 20,114 16,953
Held-to-maturity, at amortized cost 36,405 15,710
(fair value of $36,770 & $15,078)
Federal reserve bank stock 430 430
Loans:
Commercial 87,701 76,528
Real estate - construction 8,880 4,608
Real estate - other 21,049 27,835
Less deferred loan fees (359) (417)
--------- ---------
Total loans 117,271 108,554
Less allowance for possible loan losses (1,672) (1,426)
--------- ---------
Net loans 115,599 107,128
Premises and equipment, net 926 989
Accrued interest and other assets 5,224 2,064
--------- ---------
Total Assets $214,212 $178,470
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity
- - - ------------------------------------
Deposits:
Demand, noninterest-bearing $ 28,366 $ 27,137
Demand, interest-bearing 8,615 10,023
Savings and money market 106,971 85,310
Time certificates, $100,000 and over 41,415 28,934
Other time certificates 7,397 8,168
--------- ---------
Total deposits 192,764 159,572
Accrued interest and other liabilities 1,362 895
--------- ---------
Total liabilities 194,126 160,467
Shareholders' equity:
Common stock, no par value - 6,000,000 shares
authorized; 1,556,557 and 1,523,432 shares
issued and outstanding in 1995 & 1994, respectively 15,115 14,785
Unrealized loss on securities available-for-sale, net (1,101) (1,320)
Retained earnings 6,072 4,538
--------- ---------
Total Shareholders' equity 20,086 18,003
--------- ---------
Total Liabilities and Shareholders' equity $214,212 $178,470
--------- ---------
--------- ---------
See Notes to Consolidated Condensed Financial Statements
Page 2 of 18 Pages
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Income
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
1995 1994 1995 1994
--------------------------- -------------------------
Interest income:
Loans (including fees) $ 3,116 $ 2,472 $ 9,097 $ 6,796
Investment securities 856 631 2,224 1,668
Federal funds sold 378 163 1,177 425
-------- --------- --------- ---------
Total interest income 4,350 3,266 12,498 8,889
Interest expense:
Demand, interest-bearing 49 53 157 152
Savings and money market 1,061 727 3,069 1,983
Time certificates, $100,000 and over 486 263 1,305 643
Other time certificates 98 63 276 161
-------- --------- --------- ---------
Total interest expense 1,694 1,106 4,807 2,939
-------- --------- --------- ---------
Net interest income 2,656 2,160 7,691 5,950
Provision for possible loan losses 70 (22) 225 203
-------- ---------- --------- ---------
Net interest income after provision for
possible loan losses 2,586 2,182 7,466 5,747
Noninterest income 151 (218) 392 22
Noninterest expenses:
Salaries and employee benefits 882 746 2,563 2,088
Occupancy and equipment 246 216 713 626
Other 434 404 1,259 1,112
-------- --------- --------- ---------
Total noninterest expense 1,562 1,366 4,535 3,826
-------- --------- --------- ---------
Income before income taxes 1,175 598 3,323 1,943
Income taxes 481 387 1,328 859
-------- --------- --------- ---------
Net income $ 694 $ 211 $ 1,995 $ 1,084
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average common shares
outstanding 1,545,000 1,520,000 1,531,000 1,501,000
Earnings per weighted average share $ 0.44 $ 0.14 $ 1.29 $ 0.71
-------- --------- --------- ---------
-------- --------- --------- ---------
See Notes to Consolidated Condensed Financial Statements
Page 3 of 18 Pages
MID-PENINSULA BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended
September 30 September 30
1995 1994
--------------------------------
Cash flows from operating activities:
Net Income $ 1,995 $ 1,084
Adjustments to reconcile net income to net cash
provided by operating activities -
Loss (gain) on sale of called securities (11) 350
Provision for possible loan losses 225 203
Depreciation and amortization 216 105
Increase in interest receivable (338) (128)
Increase in other assets (2,822) (1,118)
Decrease in other liabilities 467 514
-------- --------
Net cash provided from operating activities (268) 1,010
-------- --------
Cash flows from investing activities:
Net increase in loans (8,696) (5,053)
Purchases of available-for-sale securities (5,457) (20,505)
Purchases of held-to-maturity securities (26,794) 0
Principal payments on available-for-sale securities 26 139
Maturities of available-for-sale securities 2,500 16,886
Maturities/calls of held-to-maturity securities 6,099 138
Additional investment in other real estate owned 0 0
Purchase of Federal Reserve Bank stock 0 (36)
Capital (purchase) and sales (153) 5
-------- --------
Net cash used by investing activities (32,475) (8,426)
-------- --------
Cash Flows from financing activities:
Net increase in deposits 33,192 13,919
Dividends paid (461) (222)
Stock options exercised 330 572
-------- --------
Net cash provided by (used) by financing activities 33,061 14,269
-------- --------
Net increase in cash and equivalents 318 6,853
Cash and cash equivalents at beginning of period 35,196 24,869
-------- --------
Cash and cash equivalents at end of period $35,514 $31,722
-------- --------
-------- --------
Supplemental disclosures:
Income taxes paid $ 1,360 $ 574
Interest paid $ 4,727 $ 2,883
See Notes to Consolidated Condensed Financial Statements
Page 4 of 18 Pages
MID-PENINSULA BANCORP AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
September 30, 1995
(unaudited)
Note 1 - BASIS OF PRESENTATION
The consolidated financial statements of Mid-Peninsula Bancorp (the "Company")
include its subsidiary, Mid-Peninsula Bank (the "Bank"). All material
intercompany transactions and balances are eliminated in consolidation. Certain
amounts in the accompanying 1994 consolidated condensed financial statements
have been reclassified to conform with the 1995 consolidated condensed financial
statements presentation.
In the opinion of the Company, the unaudited consolidated financial statements,
prepared on the accrual basis of accounting, contain all adjustments (consisting
of only normal recurring adjustments) which are necessary to present fairly the
financial position of the Company and subsidiary at September 30, 1995 and
December 31, 1994, and the results of its operations for the three month and
nine month periods ended September 30, 1995 and 1994. Certain information and
footnote disclosures normally presented in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
These interim financial statements should be read in conjunction with the
Company's 1994 Annual Report to Shareholders and Consolidated Financial
Statements and Notes thereto. The results of operations for the periods ended
September 30, 1995 are not necessarily indicative of the operating results for
the full year ending December 31, 1995.
Note 2 - PER SHARE DATA
Earnings per common share are calculated on a fully dilutive basis by dividing
net income by the weighted average shares of common stock outstanding during the
period plus shares issuable assuming exercise of all employee stock options. The
weighted average shares outstanding for the quarters ended September 30, 1995
and 1994 were 1,545,000 and 1,520,000, respectively, and for the nine months
ended September 30, 1995 and 1994, were 1,531,000 and 1,501,000, respectively.
Weighted average shares outstanding and all per share amounts included in the
consolidated condensed financial statements and notes thereto are based upon the
increased number of shares giving retroactive effect to the merger transaction
among San Mateo County Bancorp, Mid-Peninsula Bank and WestCal National Bank at
a 1.0617 conversion ratio.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
- - - -------
Mid-Peninsula Bancorp is a California corporation organized in 1984 under the
name San Mateo County Bancorp ("San Mateo") to act as the bank holding company
of San Mateo County National Bank which subsequently changed its name to WestCal
National Bank ("WestCal") in 1991. In 1994, WestCal was merged with and into
Mid-Peninsula Bank, a California state licensed bank organized in 1987 (the
"Bank") in a transaction in which the Bank survived and became the wholly-owned
subsidiary of San Mateo, and San Mateo concurrently changed its name to Mid-
Peninsula Bancorp (the "Company").
The headquarters of the Company and the Bank is located in Palo Alto, California
and the Bank conducts its banking business through its offices in Palo Alto, San
Mateo and San Carlos,
Page 5 of 18 Pages
California. Other than holding the shares of the Bank, the Company conducts no
significant activities, although it is authorized, with the prior approval of
the Board of Governors of the Federal Reserve System (the "Board of Governors"),
the Company's principal regulator, to engage in a variety of activities which
are deemed closely related to the business of banking.
The Bank engages in general commercial banking emphasizing small and medium-
sized businesses, and professionals located in its market area in and adjacent
to the San Francisco Peninsula from Los Altos and Mountain View on the South to
Daly City on the North and offers a full range of commercial banking services,
including the acceptance of demand, savings and time deposits, and the making of
commercial loans, including short-term loans for businesses and professionals,
personal loans, and real estate secured loans, which generally do not include
long-term mortgage loans. The Bank offers traveler's checks, safe deposit boxes,
notary public, customer courier and other customary bank services. The Bank is a
member of the STAR System ATM network and, through this system, offers ATM
access at numerous locations.
OVERVIEW OF CHANGES IN THE FINANCIAL STATEMENTS
Total assets were $214,212,000 at September 30, 1995, an increase of $35,742,000
or 20.03% over total assets of $178,470,000 at December 31, 1994. From
December 31, 1994 to September 30, 1995, total loans increased $8,717,000
(8.03%), held-to-maturity securities increased $20,695,000 (131.73%), available-
for-sale securities increased $3,161,000 (18.65%), federal funds sold declined
$1,200,000 (4.26%), while cash, premises and other assets had a net increase of
$4,615,000 (45.92%). The substantial increase in investment securities was due
in part to the modest increase in total loans and the Company's desire to
stabilize the overall level of federal funds sold. The increase in asset size
was funded primarily from a $33,192,000 (20.80%) increase in deposits, a
$467,000,000 (52.18%) increase in other liabilities, and a $2,083,000 (11.57%)
increase in shareholders' equity. The Bank's loan to deposit ratio declined
from 67.1% at December 31, 1994 to 60.0% at September 30, 1995.
LOANS
Total outstanding commercial loans were $87,701,000 at September 30, 1995
compared to $76,528,000 at December 31, 1994, an increase of $11,173,000
(14.60%). Real estate construction loans increased $4,272,000 (92.71%) to
$8,880,000 at September 30, 1995 compared to $4,608,000 at December 31, 1994,
while other real estate loans declined $6,786,000 (24.38%) to $21,049,000 at
September 30, 1995 compared to $27,835,000 at December 31, 1994. The Company
lends primarily to small to medium-sized businesses within its market area which
is the San Francisco Peninsula limited by Mountain View to the south and Daly
City to the north.
The Company follows the policy of discounting the accrual of interest income and
reversing any accrued and unpaid interest when the payment of principal or
interest is 90 days past due, unless the loan is both well-secured and in the
process of collection.
At September 30, 1995, the Company had $222,000 in non-accrual loans compared to
$424,000 at December 31, 1994. As of September 30, 1995, and at December 31,
1994, the Company had no other real estate owned. The Company had a small loan
of under one thousand dollars that was 90 or more days past due at September 30,
1995. There were no loans 90 or more days past due at December 31, 1994. The
ratio of non-performing assets to total assets was 0.10% at September 30, 1995
compared to 0.23% at December 31, 1994. The Company does not have any troubled
debt restructured loans. The Company does not currently expect to sustain
losses from any of the non-performing loans in excess of that specifically
provided for in the allowance for possible 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 extended
and the creditworthiness of the borrower. To reflect the estimated risks of
loss associated with its loan portfolio, additions were made to the Company's
allowance for possible loan losses. As an integral part of this process, the
allowance for possible loan losses is subject to review and possible adjustment
as a result of regulatory examinations conducted by governmental agencies and
through management assessments of risk. The Company's entire allowance
Page 6 of 18 Pages
is a valuation allocation; that is, it has been created by direct charges
against operations through the provision for possible loan losses, modified by
loan charge-offs and loan recoveries.
The provision for possible loan losses charged against operations is based upon
the actual net loan losses incurred plus an amount for other factors, which in
management's judgment deserve recognition in estimating possible loan losses.
The Company evaluates the adequacy of its allowance for possible loan losses on
an ongoing basis. Periodically, the Company has contracted with outsiders to
perform an independent loan review. Both internal and external evaluations take
into account the following specific loan conditions as determined by management,
the historical relationship between charge-offs and the level of the allowance,
the estimated future loss in all significant loans, known deterioration in
concentrations of credit, certain classes of loans or pledged collateral,
historical loss experience based on volume and types of loans, the results of
any independent review or evaluation of the loan portfolio quality conducted by
or at the direction of Company management or by the bank regulatory agencies,
trends in delinquencies and non-accruals, lending policies and procedures
including those for charge-off, collection and recovery, national and local
economic conditions and their effect on specific local industries, and the
experience, ability and depth of lending management and staff. These factors are
essentially judgmental and may not be reduced to a mathematical formula.
The ratio of the allowance for possible loan losses to total loans was 1.43% at
September 30, 1995 compared to 1.31% at December 31, 1994. The Company provided
$75,000 during the first quarter; $80,000 during the second quarter; and $70,000
during the third quarter of 1995 as an additional hedge against possible loan
losses in a larger loan portfolio. There were no charge-offs during each of the
first three quarters and recoveries of $21,000 during the third quarter. The
Company evaluates the allowance for possible loan losses based upon an analysis
of specific categories of loans. The adequacy of the allowance is determinable
only on an approximate basis since estimates as to the magnitude and timing of
loan losses are not predictable because of the impact of external events.
Management then considers the adequacy of the allowance for possible loan losses
in relation to the total loan portfolio. Management believes that the
allowance for possible losses at September 30, 1995 is adequate, based on
information currently available. However, no prediction of the ultimate level of
loan charge-offs in future years can be made with any certainty.
OTHER ASSETS AND ACCRUED INTEREST
Other assets increased $3,160,000 from December 31, 1994 to September 30, 1995,
due primarily to the implementation of a salary continuation plan for the Bank's
executive officers in May 1995. The officers become eligible for benefits under
the plan if they reach normal retirement age while working for the Bank. The
costs of these benefits are accrued over the remaining expected service lives of
the officers covered using the present value method of accounting. Salary
continuation expense was approximately $31,200 in the quarter ended September
30, 1995.
The Bank has elected to fund its obligations under the plan described above with
life insurance contracts. The Bank acquired single premium life insurance
policies with cash surrender values totaling $2,275,000, which are included in
other assets at September 30, 1995. The policies are also expected to cover
plan expenses.
LIQUIDITY MANAGEMENT
Liquidity represents the ability of the Company to meet the requirements of
customer borrowing needs as well as fluctuations in deposit flows. Core
deposits, which include demand, interest bearing demand, savings, money market,
and time certificates of deposit under $100,000, provide a relatively stable
funding base. Core deposits represented 78.5% of total deposits at September
30, 1995 compared to 81.8% of total deposits at year-end 1994. The Company's
principal sources of asset liquidity are cash and due from banks, federal funds
sold, available-for-sale securities and federal funds lines with its
correspondent banks. At September 30, 1995 these sources totaled $71,628,000 or
37.2% of total deposits compared to $61,149,000 or 38.3% at year-end 1994. In
the opinion of management, there are sufficient resources to meet the liquidity
needs of the Company at present and foreseeable future levels.
Page 7 of 18 Pages
CAPITAL RESOURCES
Capital management is a continuous process of providing adequate capital for
current needs and anticipated future growth. Capital serves as a source of
funds for the acquisition of fixed and other assets and protects depositors
against potential losses. As the Company's assets increase, so do its capital
requirements.
The Board of Governors and the FDIC have adopted risk-based capital guidelines
for evaluating the capital adequacy of bank holding companies and banks. The
guidelines are designed to make capital requirements sensitive to differences in
risk profiles among banking organizations, to take into account off-balance
sheet exposures and to aid in making the definition of bank capital uniform
internationally. Under the guidelines, the Company and the Bank are required to
maintain capital equal to at least 8.0% of its assets and commitments to extend
credit, weighted by risk, of which at least 4.0% must consist primarily of
common equity (including retained earnings) and the remainder may consist of
subordinated debt, cumulative preferred stock, or a limited amount of loan loss
reserves. Assets, commitments to extend credit, and off-balance sheet items are
categorized according to risk, and certain assets considered to present less
risk than others permit maintenance of capital at less than the 8% ratio.
The guidelines establish two categories of qualifying capital: Tier 1 capital
comprising core capital elements, and Tier II comprising supplementary capital
requirements. At least one-half of the required capital must be maintained in
the form of Tier 1 capital. Tier 1 capital includes common shareholders' equity
and qualifying perpetual preferred stock. However, no more than 25% of the
Company's total Tier 1 capital may consist of perpetual preferred stock. The
definition of Tier 1 capital for the Bank is the same, except that perpetual
preferred stock may be included only if it is noncumulative. Tier 2 capital
includes, among other items, limited life (and in the case of banks, cumulative)
preferred stock, mandatory convertible securities, subordinated debt and a
limited amount of reserve for credit losses.
The risk-based capital guidelines establish minimum supervisory guidelines and
standards. They do not evaluate all factors affecting an organization's
financial condition. Factors which are not evaluated include (1) overall
interest rate exposure; (2) liquidity, funding and market risks; (3) quality and
level of earnings; (4) investment portfolio concentrations; (5) quality of loans
and investments; (6) the effectiveness of loan and investment policies; and (7)
management's overall ability to monitor and control other financial and
operating risks. The capital adequacy assessment of federal bank regulators
will, however, continue to include analysis of the foregoing considerations and,
in particular, the level and severity of problem and classified assets.
The Board of Governors also adopted a 3.0% minimum leverage ratio for banking
organizations as a supplement to the risk-weighted capital guidelines. The
leverage ratio is generally calculated using Tier 1 capital (as defined under
risk-based capital guidelines) divided by quarterly average net total assets
(excluding intangible assets and certain other adjustments).
The Board of Governors emphasized that the leverage ratio constitutes a minimum
requirement for well-run banking organizations having diversified risk. Banking
organizations experiencing or anticipating significant growth, as well as those
organizations which do not exhibit the characteristics of a strong, well-run
banking organization above, will be required to maintain minimum capital ranging
generally from 100 to 200 basis points in excess of the leverage ratio. The
FDIC adopted a substantially similar leverage ratio for state non-member banks.
The following table sets forth the Company's and Bank's risk-weighted and
leverage capital ratios as of September 30, 1995 and December 31, 1994. As
indicated in the table, the Company's and the Bank's capital ratios
significantly exceeded the minimum capital levels required by current federal
regulations. Management believes that the Company and the Bank will continue to
meet their respective minimum capital requirements in the foreseeable future.
Page 8 of 18 Pages
RISK BASED CAPITAL RATIO
(unaudited)
MID-PENINSULA BANCORP
September 30, 1995 December 31, 1994
------------------ -----------------
Ratios (dollars in thousands) Amount Ratio Amount Ratio
- - - --------------------------------------------------------------------------------------------------
Tier 1 capital $ 20,086 14.41% $ 18,003 15.05%
Tier 1 capital minimum requirement $5,574 4.00% $ 4,786 4.00%
Total capital $ 21,758 15.61% $ 19,429 16.24%
Total capital minimum requirement $ 11,147 8.00% $ 9,572 8.00%
Total risk based assets $ 139,342 $119,644
MID-PENINSULA BANK
September 30, 1995 December 31, 1994
------------------ -----------------
Ratios (dollars in thousands) Amount Ratio Amount Ratio
- - - ---------------------------------------------------------------------------------------------------
Tier 1 capital $ 19,523 14.07% $ 17,770 14.88%
Tier 1 capital minimum requirement $ 5,551 4.00% $ 4,776 4.00%
Total capital $ 21,195 15.27% $ 19,196 16.08%
Total capital minimum requirement $ 11,102 8.00% $ 9,553 8.00%
Total risk based assets $138,779 $119,411
Leverage Capital Ratio
(unaudited)
MID-PENINSULA BANCORP
September 30, 1995 December 31, 1994
------------------ -----------------
Ratios (dollars in thousands) Amount Ratio Amount Ratio
- - - ---------------------------------------------------------------------------------------------------
Tier 1 capital to adjusted total assets $ 20,086 9.47% $ 18,003 10.51%
Quarterly average total assets $212,130 $171,267
MID-PENINSULA BANK
September 30, 1995 December 31, 1994
------------------ -----------------
Ratios (dollars in thousands) Amount Ratio Amount Ratio
- - - ---------------------------------------------------------------------------------------------------
Tier 1 capital to adjusted total assets $ 19,523 9.23% $ 17,770 10.39%
Quarterly average total assets $211,567 $171,034
RESULTS OF OPERATIONS - THIRD QUARTER 1995 AND 1994
Net income for the third quarter of 1995 was $694,000 or $.44 per share compared
to $211,000 or $.14 per share for the comparable period in 1994. The following
discussion highlights changes in certain items in the consolidated condensed
statements of income.
Page 9 of 18 Pages
NET INTEREST INCOME
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits, is the principal component of the
Bank's earnings. The components of net interest income are as follows:
MID-PENINSULA BANCORP AND SUBSIDIARY
Average Balance Sheet
Three Months ended September 30
(unaudited)
(in thousands, except percentages) 1995 1994
- - - ------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
- - - ------------------------------------------------------------------------------------------------------------------
Assets:
Loans $115,841 $3,116(2) 10.76% $103,561 $2,472(2) 9.55%
Taxable investments 47,046 727 6.18% 44,960 550 4.89%
Non-taxable investments 9,125 129 5.65% 5,609 81 5.78%
Fed funds sold and other 26,619 378 5.68% 14,905 163 4.37%
-------- ------ ------ -------- ------ -----
Total earning assets 198,631 $4,350 8.76% 169,035 $3,266 7.73%
------
Cash and due from banks 8,099 9,765
Premises and equipment, net 938 625
Other assets (3) 3,899 1,207
-------- -------
Total assets $211,567 $180,637
-------- -------
-------- -------
Liabilities and Shareholders' Equity
Demand with interest $10,470 $ 49 1.87% $ 10,316 $ 53 2.06%
Savings and money market 106,255 1,061 3.99% 92,428 727 3.15%
Time deposits > $100,000 38,689 486 5.02% 27,785 263 3.79%
Other time deposits 7,447 98 5.26% 6,898 63 3.65%
-------- ------- ------ -------- ------ -----
Total interest bearing 162,861 1,694 4.16% 137,427 1,106 3.22%
------- ------
Non-interest deposits 28,277 23,785
Other liabilities 1,015 859
-------- ------
Total liabilities 192,153 162,071
Shareholders' equity 19,414 18,561
-------- -------
Total liabilities and equity $211,567 $180,632
-------- -------
-------- -------
Net interest spread 4.60% 4.51%
Net interest income $2,656 5.35% $2,160 5.11%
and margin
- - - ------------------------------------------------------------------------------------------------------------------
1 Annualized
2 Loan interest income includes fee income of $140,000 and $128,000 for the
quarters ended September 30, 1995 and 1994, respectively
3 Includes the average allowances for loan losses of $1,528,000 and
$1,442,000 and average deferred loan fees of $346,000
and $389,000 for the quarters ended September 30, 1995 and 1994,
respectively
Net interest income for the quarter ended September 30, 1995 was $2,656,000,
representing an improvement of $496,000 or 22.96% over $2,160,000 for the
comparable period in 1994. As a percentage of average earning assets, interest
margin for the third quarter of 1995 improved to 5.35% from 5.11% in the same
period one year earlier. The increase in net interest margin is primarily due
to an increase in interest income.
Interest income recognized in the quarter ended September 30, 1995 was
$4,350,000 representing an increase of $1,084,000 or 33.2% over $3,266,000 for
the third quarter of 1994. The increase in interest income was primarily due to
increases in the value of average earning assets. Earning assets averaged
$198,631,000 in the quarter ended September 30, 1995 compared to $169,035,000 in
the same period in 1994, representing an increase of $29,596,000 or 17.5%. The
increase in average earning assets included increases in average loan,
investment and Federal funds sold balances of $12,280,000, $5,602,000 and
$11,714,000 or 11.9%, 11.1% and 7.9%, respectively. Loan fees recognized during
the third quarter of 1995 were $140,000 compared to $128,000 one year earlier,
as a result of the increase in average loans outstanding.
Page 10 of 18 Pages
Partially offsetting the increase in taxable equivalent interest income was an
increase in the cost of liabilities funding the growth in average earning
assets. Interest expense for the three months ended September 30, 1995 was
$1,694,000 and represented an increase of $588,000 or 53.2% over $1,106,000 for
the third quarter of 1994. During the three months ended September 30, 1995,
the average rate paid by the Bank on interest-bearing liabilities was 4.2%
compared to 3.2% for the same period in 1994. In addition to the increase in
rates, interest expense was impacted by an increase in the volume of average
interest-bearing liabilities. Average interest-bearing liabilities were
$162,861,000 in the quarter ended September 30, 1995 compared to $137,427,000
for the same period in 1994, an increase of $25,434,000 or 18.5%. The increase
in average noninterest-bearing demand deposits also contributed to the
improvement in net interest income during the quarter. Average noninterest-
bearing demand deposits were $28,277,000 for the quarter ended September 30,
1995 compared to $23,785,000 for the same quarter in 1994.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is based upon management's evaluation of
the adequacy of the existing allowance for possible loan losses in relation to
total loans and the inherent risk in the loan portfolio. Management's
evaluation takes into consideration such factors as changes in the composition
of the portfolio, overall portfolio quality, loan concentrations, specific
problem loans and current and anticipated economic conditions that may affect
borrowers' ability to repay.
In the third quarter of 1995, the Bank increased its provision for possible loan
losses through a charge to earnings of $70,000. The provision compares to a
credit adjustment of $22,000 for the same period in 1994. The modest addition
in loan loss provision for the quarter is primarily attributed to the ongoing
low level of classified and nonperforming loans.
NONINTEREST INCOME AND EXPENSE
Noninterest income consists primarily of service charges on deposit accounts,
fees for miscellaneous services and securities gains and losses. Total
noninterest income was $151,000 for the third quarter of 1995 as compared to a
loss of $218,000 for the third quarter of 1994. Growth in other income
primarily resulted from increases in deposit-related service charges reflecting
an increase in the number of deposit accounts served by the Bank and exclusive
of the one-time loss of $350,000 due to the dissolution of the Community Asset
Management Fund in which the Bank and numerous other banks in California and
other states had invested funds.
Noninterest expense increased $196,000 or 14.3% to $1,562,000 in the quarter
ended September 30, 1995 from $1,366,000 in the same period one year earlier.
As a percentage of average earning assets, other expenses, on an annualized
basis, declined to 3.1% in the third quarter of 1995 from 3.2% in the third
quarter of 1994. Increases in noninterest expense are attributed primarily to
increases in salary and benefit expense and other operating expense.
Salary and benefits expense was $882,000 in the quarter ended September 30, 1995
compared to $746,000 in the same period one year earlier. The increase in
salary and benefits expense is primarily due to increased staff as a result of
increased level of business.
Occupancy and equipment expense was $246,000 in the quarter ended September 30,
1995, compared to $216,000 in the same period one year earlier. The increased
expense reflects the costs to equip, remodel, repair and refurbish the San Mateo
and San Carlos facilities.
Page 11 of 18 Pages
The Company also experienced an increase in other operating expenses to $434,000
in the quarter ended September 30, 1995 from $404,000 during the quarter ended
June 30, 1994. The increase reflects a general increase in activity and outside
services.
RESULTS OF OPERATIONS - FIRST NINE MONTHS 1995 AND 1994
Net income for the first nine months of 1995 was $1,995,000 or $1.29 per share
compared to $1,084,000 or $.71 per share for the comparable period in 1994. The
following discussion highlights changes in certain items in the consolidated
condensed statements of income.
NET INTEREST INCOME
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits, is the principal component of the
Bank's earnings. The components of net interest income are as follows:
MID-PENINSULA BANCORP AND SUBSIDIARY
Average Balance Sheet
Nine months ended September 30
(unaudited)
(in thousands, except percentages) 1995 1994
- - - ------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate(2) Balance Interest Rate(2)
- - - ------------------------------------------------------------------------------------------------------------------------
ASSETS:
Loans $112,718 $9,097(2) 10.76% $101,667 $6,796(2) 8.91%
Taxable investments 41,624 1,912 6.12% 41,503 1,431 4.60%
Non-taxable investments 7,436 312 5.59% 5,509 237 5.74%
Fed funds sold and other 27,300 1,177 5.75% 14,948 425 3.79%
------- ------ ------- ------ -----
Total earning assets 189,078 12,498 8.81% 163,627 8,889 7.24%
------- ------
Cash and due from banks 7,682 9,986
Premises and equipment, net 929 675
Other assets(3) 2,301 640
------- -------
Total assets $199,990 $174,928
-------- --------
-------- --------
Liabilities & Shareholders' Equity
Demand with interest $ 10,698 157 1.96% $ 10,181 152 1.99%
Savings and money market 99,197 3,069 4.13% 90,075 1,983 2.94%
Time deposits > $100,000 35,418 1,305 4.91% 25,289 643 3.39%
Other time deposits 7,392 276 4.98% 6,580 161 3.26%
------- ----- ----- -------- ------ -----
Total interest bearing 152,705 4,807 4.20% 132,125 2,939 2.97%
----- ------
Non-interest deposits 27,514 23,857
-------
Other liabilities 1,027 756
------- -------
Total liabilities 181,246 156,738
Shareholders' equity 18,744 18,190
------- -------
Total liabilities and equity $199,990 $174,928
------- --------
------- --------
Net interest spread 4.62% 4.28%
Net interest income
and margin
$7,691 5.42% $5,950 4.85%
------ ------
------ ------
1 Annualized
2 Loan interest income includes fee income of $443,000 and $430,000 for the
period ended September 30, 1995 and 1994, respectively
3 Includes the average allowances for loan losses of $1,528,000 and $1,413,000
and average deferred loan fees of $350,000 and $387,000 for the period ended
September 30, 1995 and 1994, respectively
Net interest income for the nine months ended September 30, 1995 was $7,691,000,
representing an improvement of $1,741,000 or 29.3% over $5,950,000 for the
comparable period in 1994. As a percentage of average earning assets, net
interest margin for the first nine months of 1995 improved to
Page 12 of 18 Pages
5.4%o from 4.9% in the same period one year earlier. The increase in net
interest margin is primarily due to an increase in interest income.
Interest income for the nine months ended September 30, 1995 was $12,498,000
representing an increase of $3,609,000 or 40.1% over $8,889,000 for the first
nine months of 1994. The increase in interest income was primarily due to
increases in the value of average earning assets. Earning assets averaged
$189,078,000 in the nine months ended September 30, 1995 compared to
$163,627,000 in the same period in 1994, representing an increase of $25,451,000
or 15.6%. The increase in average earning assets included increases in average
loan, investment, Federal funds sold balances of $11,051,000, $2,048,000 and
$12,352,000 or 10.9%, 4.4% and 82.6%, respectively. Loan fees recognized during
the first nine months of 1995 were $443,000 compared to $430,000 one year
earlier.
Partially offsetting the increase in taxable equivalent interest income was an
increase in the cost of liabilities funding the growth in average earning
assets. Interest expense for the nine months ended September 30, 1995 was
$4,807,000 and represented an increase of $1,868,000 or 63.6% over $2,939,000
for the first nine months of 1994. During the nine months ended September 30,
1995, the average rate paid by the Bank on interest-bearing liabilities was 4.2%
compared to 3.0% for the same period in 1994. In addition to the increase in
rates, interest expense was impacted by an increase in the volume of average
interest-bearing liabilities. Average interest-bearing liabilities were
$152,705,000 in the nine months ended September 30, 1995 compared to
$132,125,000 for the same period in 1994, an increase of $20,580,000 or 15.6%.
The increase in average noninterest-bearing demand deposits also contributed to
the improvement in net interest margin during the first half. Average
noninterest-bearing demand deposits were $27,514,000 for the nine months ended
September 30, 1995 compared to $23,857,000 for the same period in 1994.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is based upon management's evaluation of
the adequacy of the existing allowance for possible loan losses in relation to
total loans and the inherent risk in the loan portfolio. Management's evaluation
takes into consideration such factors as changes in the composition of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and current and anticipated economic conditions that may affect the
borrowers' ability to repay.
The Bank's loans are virtually all made within its defined market area of San
Mateo and northern Santa Clara counties. Real estate construction loans
represented 7.6% of total loans at September 30, 1995, the majority of which are
for the construction of single family properties. In addition, 17.9% of the
Bank's loans were other real estate loans. These loans were primarily made to
Bank depositors secured by commercial and residential properties. Commercial
loans comprise 74.5% of total loans at September 30, 1995.
In the first nine months of 1995, the Bank increased its provision for possible
loan losses through a charge to earnings of $255,000. This compares to $203,000
for the same period in 1994. The modest change in loan loss provision for the
nine months is primarily attributed to the ongoing low level of classified and
nonperforming loans. At September 30, 1995, the allowance for possible loan
losses was $1,672,000 or 1.43% of total loans compared to $1,426,000 or 1.31% at
December 31, 1994.
Management believes that the allowance for possible loan losses is maintained at
an adequate level for known and anticipated future risks inherent in the loan
portfolio; however, the Company's loan portfolio, particularly the real estate
related segments, may be adversely affected if California's economic conditions
and Santa Clara and San Mateo Counties real estate markets weaken. In that
event, the level of nonperforming loans, the provision for possible loan losses
and the level of the allowance for possible loan losses could increase.
Page 13 of 18 Pages
NONINTEREST INCOME AND EXPENSE
Noninterest income consists primarily of service charges on deposit accounts,
fees for miscellaneous services and gains and losses on securities. Noninterest
income was $392,000 for the first nine months of 1995 as compared to $22,000 for
the same period in 1994. Growth in noninterest income primarily resulted from
increases in deposit-related service charges reflecting an increase in the
number of deposit accounts served by the Bank and exclusive of the one-time
securities loss of $350,000 due to the dissolution of the Community Asset
Management Fund in which the Bank and numerous other banks in California and
other states had invested funds.
Noninterest expense increased $709,000 or 18.5% to $4,535,000 in the nine months
ended September 30, 1995 from $3,826,000 in the same period one year earlier. As
a percentage of average earning assets, noninterest expense, on an annualized
basis, increased to 3.2% in the first nine months of 1995 from 3.1% in the same
period in 1994. Increases in noninterest expense are attributed primarily to
increases in salary and benefits expense and other operating expense.
Salary and benefits expense was $2,563,000 in the nine months ended September
30, 1995 compared to $2,088,000 in the same period one year earlier. The
increase in salary and benefits expense is primarily due to increased staff to
service the increased level of business.
Occupancy and equipment expense was $713,000 in the period ended September 30,
1995, compared to $626,000 in the same period one year earlier. The increased
expense reflects the costs to equip, remodel, repair and refurbish the San Mateo
and San Carols facilities.
The Company also experienced an increase in other operating expenses to
$1,259,000 in the nine months ended September 30, 1995 from $1,112,000 during
the same period ended September 30, 1994. The increase reflects a general
increase in activity and outside services.
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily because
its assets and liabilities are largely monetary. In general, inflation primarily
affects the Company indirectly through its effect on market rates of interest,
and thus the ability of the Bank to attract loan customers. Inflation affects
the growth of total assets by increasing the level of loan demand, and
potentially adversely affects the Company's capital adequacy because loan growth
in inflationary periods can increase at rates higher than the rate that capital
grows through retention of earnings which the Company may generate in the
future. In addition to its effects on interest rates, inflation directly affects
the Company by increasing the Company's operating expenses. The effect of
inflation upon the Company's results of operations was not material for the
periods covered by this report.
Page 14 of 18 Pages
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) (3) Exhibits
(27.1) Financial Data Schedule
Page 15 of 18 Pages
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
MID-PENINSULA BANCORP
November 7, 1995 By: /s/David L. Kalkbrenner
-------------------- -------------------------
Date David L. Kalkbrenner
President and
Chief Executive Officer
(Principal Executive Officer)
November 7, 1995 By: /s/Carol H. Rowland
-------------------- ------------------------
Date Carol H. Rowland
First Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 16 of 18 Pages
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NUMBER
- - - -------- ----------- -----------
27.1 Financial Data Schedule 18
Page 17 of 18 Pages