UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) (x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996 or: ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number: 0-11090 NAPA NATIONAL BANCORP Exact name of registrant as specified in its charter) California 94-2780134 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 901 Main Street, Napa, California 94559 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(707) 257-2440 Not Applicable (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 As of August 10, 1996, the number of shares outstanding of the registrant's Common Stock, without par value, was 754,500. Fully diluted shares outstanding at this date were 904,300. PART I FINANCIAL INFORMATION Item 1. Financial Statements The following interim consolidated financial statements are unaudited. However, they reflect all adjustments (which included only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations, and cash flows for the interim periods presented. This information should be read in conjunction with the information presented in the Company's annual Form 10-K filing. Results for the two quarters as presented are not necessarily indicative of results to be expected of the year as a whole. NAPA NATIONAL BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In 000s) June 30, December 31, 1996 1995 (Unaudited) ASSETS Cash and due from banks $ 5,800 $ 7,106 Federal funds sold 5,370 14,780 Time deposits with other financial institutions 4,158 4,356 Investment securities: Held to maturity 1,725 1,235 Federal Reserve and FHLB Stock 530 197 Loans, less allowance for loan losses of $1,449 and $1,325 at June 30, 1996 and December 31, 1995 78,497 73,374 Premises, furniture, fixtures and equipment, net 2,415 2,489 Accrued interest receivable 737 666 Other assets 574 648 TOTAL ASSETS $99,806 $104,851 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing demand $17,857 $ 19,068 Interest-bearing: Savings 13,208 12,305 Transaction 26,233 28,060 Time certificates 34,357 37,319 Total deposits 91,655 96,752 Accrued interest payable and other liabilities 312 652 TOTAL LIABILITIES 91,967 97,404 SHAREHOLDERS' EQUITY Preferred stock, no par value, 1,000,000 shares authorized; no outstanding 0 0 Common stock, no par value, 20,000,000 shares authorized; 754,500 shares issued and outstanding at June 30, 1996 and December 31, 1995 6,915 6,915 Retained Earnings 924 532 TOTAL SHAREHOLDERS' EQUITY 7,839 7,447 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $99,806 $104,851 NAPA NATIONAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (000s omitted, except earnings per share data) Quarter Ended June 30, 1996 1995 Interest income: Interest and fees on loans $2,177 $1,842 Interest on federal funds sold 70 165 Interest on time deposits with other financial institutions 54 64 Interest on investment securities 29 20 Total interest income 2,330 2,091 Interest expense: Interest on deposits 649 685 Total interest expense 649 685 Net interest income 1,681 1,406 Provision for loan losses 107 75 Net interest income after provision for loan losses 1,574 1,331 Non-interest income: Service charges on deposit accounts 131 115 Other customer fees and charges 84 58 Mortgage loan origination and service fees (1) (1) Total non-interest income 214 172 Non-interest expense: Salaries and employee benefits, net 671 571 Occupancy 116 89 Furniture, fixtures and equipment 105 85 Marketing and business development 44 27 Other 304 324 Total non-interest expense 1,240 1,096 Income before income taxes 548 407 Income taxes 220 178 Net income $ 328 $ 229 Net income per share $0.36 $0.26 Weighted average common shares outstanding used to compute net income per share 904,300 874,300 NAPA NATIONAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (000s omitted, except earnings per share data) Six Months Ended June 30, 1996 1995 Interest income: Interest and fees on loans $4,185 $3,538 Interest on federal funds sold 224 267 Interest on time deposits with other financial institutions 115 123 Interest on investment securities 54 40 Total interest income 4,578 3,968 Interest expense: Interest on deposits 1,384 1,183 Total interest expense 1,384 1,183 Net interest income 3,194 2,785 Provision for loan losses 179 124 Net interest income after provision for loan losses 3,015 2,661 Non-interest income: Service charges on deposit accounts 262 225 Other customer fees and charges 147 129 Mortgage loan origination and service fees 2 1 Total non-interest income 411 355 Non-interest expense: Salaries and employee benefits, net 1,331 1,084 Occupancy 225 180 Furniture, fixtures and equipment 214 195 Marketing and business development 69 52 Other 612 597 Total non-interest expense 2,451 2,108 Income before income taxes 975 908 Income taxes 395 385 Net income $ 580 $ 523 Net income per share $ 0.64 $ 0.60 Weighted average common shares outstanding used to compute net income per share 904,300 874,300 NAPA NATIONAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In 000s) Six Months Ended June 30, 1996 1995 Cash flows from operating activities: Net income $ 580 $ 523 Reconciliation of net income to net cash provided by operating activities: Depreciation on premises and equipment 219 134 Amortization of deferred loan fees and discounts/premiums on investment securities (398) (235) Provision for loan losses 179 124 (Increase) in accrued interest receivable (71) (149) Decrease (increase) in other assets, net 74 (140) (Decrease) in accrued interest payable and other liabilities (340) (415) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 243 (158) Cash flows from investing activities: Loan originations net of collections (4,907) (4,655) Net decrease in time deposits with other financial institution 198 1 Activity in securities held to maturity Purchases (1,724) (16) Maturities 1,237 475 Increase in other real estate 0 (678) Capital expenditures (145) (843) Purchase of FRB and FHLB stock (333) 0 NET CASH USED BY INVESTING ACTIVITIES (5,674) (5,716) Cash flows from financing activities: Net (decrease) increase in deposits (5,097) 6,501 Cash dividends paid to Shareholders (188) 0 NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,285) 6,501 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,716) 627 Cash and cash equivalents at beginning of period 21,886 16,219 Cash and cash equivalents at end of period $ 11,170 $16,846 (Continued on following page) NAPA NATIONAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In 000s) Six Months Ended June 30, 1996 1995 CASH AND CASH EQUIVALENTS AT JUNE 30 CONSIST OF: Cash and due from banks $ 5,800 $ 5,921 Federal funds sold 5,370 10,925 $11,170 $16,846 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 1,614 $ 989 Cash paid for income taxes $ 435 $ 1,038 (Concluded) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The following should be read in conjunction with the unaudited consolidated financial statements presented elsewhere in this Form 10-Q. Since Napa National Bancorp (the Company) is a holding company whose principal asset is, and is expected to be, the capital stock of Napa National Bank (the Bank), the following relates principally to the financial condition and results of operations of the Bank. All dollar amounts are rounded and expressed in thousands except earnings per share data. Summary of Financial Results The Company recorded net income of $328, or $0.36 per share, during the second quarter of 1996, as compared to net income of $229, or $0.26 per share, for the second quarter of 1995. The Company recorded net income of $580, or $0.64 per share, for the first six months of 1996, as compared to net income of $523, or $0.60 per share, for the same period of 1995. The Company's year-to- date 1996 net income was $57 above the results for the same period in 1995 for the following reasons. Net interest income for the first two quarters of 1996 was $409 above the results for the similar period of 1995. This increase was partially offset by an increase in the provision for loan losses for the first six months of 1996 of $55 over 1995's total. Additionally, the increase in non- interest income of $56 in 1996 over 1995, was offset by a $343 increase in non- interest expenses for the same period. The Company recorded $395 in income tax expense for the first six months of 1996, only $10 more than the same period of 1995. 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". For both the second quarter and first six months of 1996, total interest income was $239 and $610, respectively, higher than the same periods of 1995. These increases were due to growth in earning assets during the prior twelve months and increases in rates paid on loans and investments during the latter half of 1995. For the first six months of 1996, total average earning assets were approximately $92,306, an increase of approximately $11,612, or 14%, over total average earning assets ($80,694) during the same period in 1995. This increase in average assets for the first two quarters of 1996 as compared to the same period of 1995, contributed significantly to the increase of $610 in total interest income between the two periods. During the second quarter of 1996, total interest expense decreased over the same period of 1995 by $36. In March 1995, the Bank offered a limited time, one year, 7% certificate of deposit product. This product caused the Bank's cost of funds to increase dramatically during the next twelve months. In March 1996, these higher paying certificate of deposits matured and were replaced with deposits paying 100 to 200 basis points lower (See "Deposits" herein), thus immediately bringing down the Bank's overall cost of funds. This lower cost of funds was directly responsible for the decrease in total interest expense during the second quarter of 1996 over the same period of 1995. Net interest expense for the first six months of 1996 was $201 higher than the same period of 1995. This increase represents a combination of the higher cost of funds from the first quarter, coupled with the lower interest rates paid during the second quarter of 1996. Additionally, total interest bearing deposits increased during the prior twelve months bringing with it a natural growth in interest expense. Interest bearing deposits for the first six months of 1996 were $73,798, an increase of $3,669, or 5%, over 1995's total of $70,129. 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 "Allowance for Loan Losses" herein, management takes many factors into consideration when determining the provision. In addition to the factors described in the "Allowance for Loan Losses" section, management also considers loan portfolio growth in establishing the provision. During the second quarter of 1996, the provision for loan losses was $107 as compared to $75 during the same period in 1995. For the first six months of 1996, the provision was $179 compared to $124 for the same period of 1995. Gross loans totaled $79,946 as of June 30, 1996, an increase of $11,913, or 18%, over the June 30, 1995, balance of $68,033. The increase in the provision during the first six months of 1996 over 1995, was due primarily to an increase in outstanding loan balances, projected loan growth for the remainder of the year, and management's ongoing assessment of the adequacy of the allowance for loan losses (See "Loans and Nonaccrual Loans" herein). Non-Interest Income Non-interest income consists primarily of service charges on deposit accounts and fees charged for other banking services. Non-interest income for both the second quarter and first six months of 1996 showed increases over earnings during similar periods of 1995 ($42 and $56, respectively). This growth can be attributed to the continued increase in number of deposit accounts subject to service charges during the period under review. Additionally, the Bank's merchant card processing program has shown strong grains throughout 1995 and into 1996, contributing to the growth in the non-interest income during the first two quarters of 1996. Non-Interest Expense For the second quarter of 1996, non-interest expenses increased by $144 over the same period of 1995. Total non-interest expenses for the six months ending June 30, 1996 were $2,451, representing an increase of $343 over 1995's total of $2,108. Salaries and employee benefit expense increased by $100 in the second quarter of 1996 as compared to the same quarter of 1995. The 1996 year to date salary related expenses increased by $247 over the first six months of 1995. This increase can be primarily attributed to an addition of approximately seven full time equivalent employees during the previous twelve months. 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, annual Company wide salary increases for 1995, which began in March, were approximately 5%. Occupancy and furniture, fixtures and equipment expenses increased a combined total of $47 during the second quarter of 1996 over the same period of 1995. Expenses for the first six months of 1996 were $64 higher than the same period of 1995. During 1995, the Bank closed and relocated a branch, relocated its head quarters, moved the bulk of its lending and loan administrative staff, remodeled its North Napa office and relocated the EDP and Customer Service Departments. The bulk of these moves and costs were incurred during the second and third quarters of 1995. These moves increased the Company's total occupied rental space by approximately 7,500 square feet. This increase in square footage and associated costs, contributed materially to the increase in 1996 verse 1995 totals. The Company increased its marketing and business development costs by $17 during the second quarter of 1996 over the same period of 1995. For the first six months of 1996 marketing and business development costs increased by $17 over the six months of 1995. This increase in the two time periods under review is due primarily to a focused and high profile marketing campaign started late in the first quarter. Other non-interest expenses decreased by $20 during the second quarter of 1996 over the second quarter of 1995. For the six months ended June 1996, other non-interest expenses increased by $15 over the same period of 1995. As discussed above, the activity in the second and third quarters of 1995 resulted in a high volume of one time expenses that did not reoccur in 1996. The growth of $15 for the first six months is due primarily to overall growth in the Company of over 7% during the last twelve months. Income Taxes Income tax expense was 41% of pre-tax income for the six months ending June 30, 1996 and 1995. Loans and Nonaccrual Loans Gross loans totaled $79,946 at June 30, 1996, an increase of $5,247 and $11,913, over loan totals as of December 31, 1995 and June 30, 1995, respectively. The increase in the Company's loan portfolio over the last twelve months, resulted from new loan generation by the Bank's loan officers, a concentrated marketing plan, and current changes in the Company's service area. As of June 30, 1996, nonperforming loans were $1,705, as compared to $2,105 at March 31, 1996 and $1,447, at December 31, 1995. Nonperforming loans at June 30, 1995, were $592. Accruing loans past due 90 days or more were $296 at June 30, 1996 and $0 at December 31, 1995. 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 unless they are on nonaccrual status or delinquent over 90 days. 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 June 30, 1996, the Company had approximately $2,001 in loans considered to be impaired. These loans were evaluated for impairment based on fair value of the underlying collateral and required an allowance for credit losses measured in accordance with SFAS No. 114 of $253. The average recorded investment in the impaired loans during the six months ended June 30, 1996, was $972: the related amount of interest income recognized during the period that such loans were impaired was $42, 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 $24. 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. While these factors are essentially judgmental and may not be reduced to a mathematical formula, it is management's view that the $1,449 allowance at June 30, 1996, approximately 1.81% of total loans, was adequate as an allowance against foreseeable losses in the portfolio. At June 30, 1995, the $1,168 allowance was approximately 1.72% of total loans. There can be no assurance that in any given period the Bank may not sustain charge- offs which are substantial in relation to the size of the allowance. The allowance is increased by charges to the provision for loan losses and reduced by net charge-offs. The activity in the allowance for loan losses was as follows: 1996 1995 (in 000's) Balance at January 1 $1,325 $1,050 Provision for loan losses 179 124 Recoveries 0 0 Charge-offs (55) (6) Balance at June 30 $1,449 $1,168 Investments The Bank's classification of its investment in debt and equity securities according to the provisions of SFAS 115 are as follows: June 30, 1996 - 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 $1,725 $2 $0 $1,727 Federal Reserve Stock $ 215 $0 $0 $ 215 Federal Home Loan Bank $ 315 $0 $0 $ 315 Deposits Deposits totaled $91,655 at June 30, 1996, a decrease of $5,097, from December 31, 1995's balance of $96,752. The decrease in the first six months of 1996 was spread throughout all of the deposit categories except for savings. Savings accounts have shown slight growth in the last six months. During the last twelve months, deposits have grown by $7,685, or 10%, over June 30, 1995's total of $85,879. Management attributes the 7% growth over the last twelve months to changes in the Company's current service market, enhancements to the sales staff and an advertisement plan focused on deposit growth, primarily time certificates. Late in March 1996, the special 7% one year certificates of deposits offered a year ago, matured. The Bank conducted a special marketing promotion for these customers through an employee telephone campaign. These customers were offered certificate of deposits with maturities ranging from 12 to 24 months. Interest rates offered on these certificate of deposits were tiered dependent on the certificate of deposit's term and ranged 100 to 200 basis points below the previous 7% rate. The rates offered were similar to rates offered for similar products at other financial institutions in the Bank's service area. The Bank's program was successful in maintaining the bulk of these maturities at a substantially lower cost of funds, as evidenced in only a $2,962 drop in certificate of deposits from $37,319 at December 31, 1995 to $34,357 at June 30, 1996. Non-interest bearing demand deposits were 19% of total deposits at June 30, 1996, as compared to 18% at June 30, 1995. Time certificates of deposit were 37% of total deposits at June 30, 1996, and 41% at June 30, 1995. New Accounting Pronouncements The Company was required to adopt SFAS No. 123, Accounting for Stock-Based Compensation, on January 1, 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 has adopted only the disclosure requirements of SFAS No. 123. 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 has not been material. Liquidity and Capital Resources Liquidity refers to the Company's ability to maintain a 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 six months ended June 30, 1996, cash and cash equivalents decreased $10,716. This was primarily due to the large drop in deposits (See "Deposits" herein). For the same period of 1995, the Company's primary sources of funds were customer deposits and loan principal repayments. The significant drop in cash and cash equivalents during the first two quarters of 1996 is not indicative of a trend and is not expected to continue. The usual sources of customer deposits is expected to provide significant amounts of funds in the future. However, the mix of deposits, as well as other sources of funds, will depend on future economic and other market conditions. The maturity and repricing profile of the Company's asset-liability mix is currently in an asset sensitive position. This means that when a declining interest rate environment exists, the returns on the Company's earning assets drops more quickly than the Company's cost of funds. This causes a narrowing of the net interest spread and a possible reduction to the overall earnings of the Company. As rates increase, the opposite effect occurs. The Company's management monitors the asset-liability position of the Company on a monthly basis and is continually assessing both the asset-liability mix and the products being offered to its customers. The 1996 Statement shows that operating activities were the only net source of cash inflows generating $243 for the period. Investing activities used a net $5,674 in cash, primarily for net loan originations which totaled $4,907. Financing activities used a net $5,285, primarily due to decreases in deposits. With these transactions, cash and cash equivalents for the first two quarters of the year decreased by $10,716. If the Bank's loan portfolio grows substantially, it might be necessary to raise deposits to support this growth. The Bank monitors its loan-to-deposit ratio (87% at June 30, 1996 as compared to 77% at December 31, 1995) on a daily basis. If the loan-to-deposit ratio indicates that a liquidity squeeze is possible, the Bank has a number of options available to raise the necessary liquidity. The Bank can raise rates on deposits to attract more funds, as well as having $6,500, in short-term lines of credit available to it from its correspondent banks. Liquidity is measured by various ratios, the most common being the liquidity ratio of cash, time deposits in other financial institutions, federal funds sold, securities held for sale and unpledged investment securities compared to total deposits. At June 30, 1996, this ratio was 16% as compared to 20% at March 30, 1996, and 26% at December 31, 1995. The drop in the liquidity ratio during the first six months of 1996 is not indicative of a trend and is not expected to continue. The Company's primary source of income is interest income earned on its liquid investments. The amounts invested by the Company in the Bank as of June 30, 1996 were approximately $91. The Company's yearly operating expenses are expected to exceed investment income by approximately $20 during 1996. During the first quarter of 1996, the Company declared and paid a cash dividend of twelve and a half cents ($.125) per share of outstanding stock. The first quarter dividend was based on 1995 earnings and amounted to $94. During the beginning of the second quarter of 1996, the Company declared another cash dividend of twelve and a half cents ($.125) per share. This second cash dividend was based on the first quarter earnings of 1996 and was also $94. If the Company continues with this cash pay out, the Bank will need to pay dividends to the Company by the end of the third quarter of 1996. Capital Adequacy The FRB and the Comptroller of the Currency have specified guidelines for the purpose of evaluating the capital adequacy of holding companies and banks. The table below summarizes the current requirements for 1995, and the Company's and the Bank's compliance therewith. The requirements for the ratio of regulatory capital to risk-weighted assets for an "adequately capitalized" institution is 8.00%. Capital as a Minimum Tier 1 % of Risk- Leverage Capital Weighted Assets Ratio Ratio --------------- -------- ------- Regulatory Requirements for 1996 8.00% 4.00% 4.00% Consolidated Company Ratio at June 30, 1996 11.50% 7.94 9.71% Bank Ratio at June 30, 1996 10.84% 7.83% 9.58% The capital levels of both the Bank and the Company currently exceed the regulatory requirements for a "well capitalized" institution. Management anticipates that both companies will continue to exceed the regulatory minimums in the foreseeable future. Therefore, the Company and the Bank have adequate capital in order to expand in the future, either through loan generation or other means of expansion. 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. INDEX TO EXHIBITS Exhibit No. Description ----------- ----------- 27 Financial Data Schedule PART II OTHER INFORMATION Item 1. Not applicable Item 2. Not applicable Item 3. Not applicable Item 4. Not applicable Item 5. Not applicable Item 6. Exhibits and Reports on Form 8-K. No Form 8-K reports filed in 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NAPA NATIONAL BANCORP Date: August 11, 1996 By: Brian J. Kelly President/COO By: Joan E. Heinitz Treasurer