UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the QUARTER ENDED SEPTEMBER 30, 1997 Commission file number: 0-11090
NAPA NATIONAL BANCORP
(Exact name of Small Business Issuer as specified in its charter)
CALIFORNIA 94-2780134
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
901 MAIN STREET, NAPA, CALIFORNIA 94559
(Address of principal executive offices) (Zip Code)
(707) 257-2440
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
--- ---
The number of shares of the registrant's Common Stock, no par value, outstanding
as of November 1, 1997, was 776,000.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
1
NAPA NATIONAL BANCORP
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets:
September 30, 1997
December 31, 1996
Statements of Income:
Three Months ended September 30, 1997
Three Months ended September 30, 1996
Nine Months ended September 30, 1997
Nine Months ended September 30, 1996
Statements of Cash Flows:
Nine Months ended September 30, 1997
Nine Months ended September 30, 1996
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The following interim consolidated financial statements of Napa National Bancorp
and its subsidiary Napa National Bank are unaudited and prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. 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 and are normal and
recurring.
Results for the period as presented are not necessarily indicative of results to
be expected of the year as a whole.
3
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in 000's)
September 30, December 31,
1997 1996
---- ----
ASSETS
Cash and due from banks $ 8,005 $ 7,929
Federal funds sold 17,595 16,550
Time deposits with other financial institutions 3,267 4,158
Investment securities: Held to Maturity 1,824 1,723
Federal Reserve and Federal Home Loan Bank Stock 582 554
Loans, less allowance for loan losses of $1,530
and $1,447 at September 30, 1997 and
December 31, 1996 83,474 78,290
Premises, furniture, fixtures and equipment,net 2,624 2,519
Accrued interest receivable 800 647
Other real estate owned 607 328
Other assets 1,161 1,129
----------- -----------
TOTAL ASSETS $ 119,939 $ 113,827
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand $ 30,447 $ 25,728
Interest-bearing:
Savings 10,903 11,965
Transaction 31,489 29,317
Time certificates 38,014 38,407
----------- -----------
Total deposits 110,853 105,417
Accrued interest payable and other liabilities 710 439
----------- -----------
TOTAL LIABILITIES 111,563 105,856
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized; no shares outstanding 0 0
Common stock, no par value, 20,000,000 shares
authorized; 776,000 and 754,500 shares
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 7,086 6,915
Retained earnings 1,290 1,056
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,376 7,971
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 119,939 $ 113,827
=========== ===========
4
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in 000's, except earnings per share)
Three Months Ended
September 30,
--------------------
1997 1996
---- ----
Interest income:
Interest and fees on loans $ 2,223 $ 2,124
Interest on federal funds sold 256 136
Interest on time deposits with other
financial institutions 55 58
Interest and dividends on investment
securities 34 27
--------- --------
Total interest income 2,568 2,345
Interest expense on deposits 773 703
--------- --------
Net interest income 1,795 1,642
Provision for loan losses 102 129
--------- --------
Net interest income after
provision for loan losses 1,693 1,513
--------- --------
Non-interest income:
Service charges on deposit accounts 117 82
Mortgage loan service fees 18 2
Other 127 105
--------- --------
Total non-interest income 262 189
--------- --------
Non-interest expense:
Salaries and employee benefits 811 712
Occupancy 120 120
Furniture, fixtures and equipment 121 110
Other 448 350
--------- --------
Total non-interest expense 1,500 1,292
--------- --------
Income before income taxes 455 410
Income taxes 184 166
--------- --------
Net income $ 271 $ 244
========= ========
Net income per share $ 0.29 $ 0.27
========= ========
Weighted average common shares outstanding used
to compute net income per share 930,200 903,300
========= ========
5
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in 000's, except earnings per share)
Nine Months Ended
September 30,
--------------------
1997 1996
---- ----
Interest income:
Interest and fees on loans $ 6,253 $ 6,309
Interest on federal funds sold 694 360
Interest on time deposits with other
financial institutions 172 173
Interest on investment securities 96 81
---------- ---------
Total interest income 7,215 6,923
Interest expense on deposits 2,287 2,087
---------- ---------
Net interest income 4,928 4,836
Provision for loan losses 306 308
---------- ---------
Net interest income after
provision for loan losses 4,622 4,528
---------- ---------
Non-interest income:
Service charges on deposit accounts 310 268
Mortgage loan service fees 47 43
Other 371 289
---------- ---------
Total non-interest income 728 600
---------- ---------
Non-interest expense:
Salaries and employee benefits 2,495 2,043
Occupancy 345 345
Furniture, fixtures and equipment 363 324
Other 1,271 1,031
---------- ---------
Total non-interest expense 4,474 3,743
---------- ---------
Income before income taxes 876 1,385
Income taxes 356 561
---------- ---------
Net income $ 520 $ 824
========== =========
Net income per share $ 0.56 $ 0.91
========== =========
Weighted average common shares outstanding used
to compute net income per share 927,350 903,300
========== =========
6
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in 000's)
Nine Months Ended
September 30,
--------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 520 $ 824
Reconciliation of net income to net cash
provided by operating activities:
Depreciation on premises and equipment 358 325
Amortization of deferred loan fees and
discounts/premiums on securities 21 (396)
Provision for loan losses 306 308
Gain on sale of other real estate owned (21) 0
(Increase) in accrued interest receivable (153) (42)
(Increase) in other assets, net (32) (346)
Increase(decrease) in accrued interest
payable and other liabilities 271 (205)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,270 468
------- -------
Cash flows from investing activities:
Loan originations, net of repayments (5,899) (4,608)
Proceeds from maturities of time deposits with
other financial institutions 891 198
Activity in securities held to maturity:
Purchases (1,798) (2,725)
Maturities 1,697 2,237
Purchases of Federal Reserve and Federal Home
Loan Bank stock (28) (352)
Proceeds from sale of other real estate owned 130 0
Capital expenditures (463) (349)
------- -------
NET CASH (USED) BY INVESTING ACTIVITIES (5,470) (5,599)
------- -------
Cash flows from financing activities:
Net increase in deposits 5,436 1,039
Cash dividends (286) (283)
Exercise of incentive stock options 171 0
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,321 756
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 1,121 (4,375)
Cash and cash equivalents at beginning of
period 24,479 21,886
------- -------
Cash and cash equivalents at end of period $25,600 $17,511
======= =======
(continued)
7
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in 000's)
Nine Months Ended
September 30,
--------------------
1997 1996
---- ----
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30:
Cash and due from banks $ 8,005 $ 6,881
Federal funds sold 17,595 10,630
-------- --------
$ 25,600 $ 17,511
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,413 $ 2,306
Cash paid for income taxes 65 815
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 principal subsidiary, Napa National Bank (the "Bank"), was
organized as a national banking association in 1982. The following discussion
and analysis by the Company's management compares the results of the Company's
operations for the nine months ended September 30, 1997 and 1996 and the
financial condition and liquidity of the Company as of September 30, 1997 and
December 31, 1996.
Certain matters discussed in this report are forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Such risks
and uncertainties include, but are not limited to, the competitive environment
and its impact on the Company's net interest margin, changes in interest rates,
asset quality risks, concentrations of credit and the economic health of Napa
County (particularly the health of the wine industry), volatility of rate
sensitive deposits, asset/liability matching risks, the dilutive impact which
might occur upon the issuance of new shares of common stock, and liquidity
risks. Therefore, the matters set forth below should be carefully considered
when evaluating the Company's business and prospects. For additional information
concerning these risks and uncertainties, please refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
Financial Condition
The Company's assets increased approximately $6.1 million during the first nine
months of 1997 as compared to the period ended December 31, 1996. Total assets
were $119.9 million at September 30, 1997 compared with $113.8 million at
December 31, 1996. Total deposits increased to $110.8 million at September 30,
1997 compared with $105.4 million at December 31, 1996.
The loan portfolio of $85.0 million at September 30, 1997 increased $5.3 million
compared to the December 31, 1996 total of $79.7 million. The allowance for loan
losses on September 30, 1997 was $1,530,000 or 1.80% of total gross loans
outstanding. Net loan charge-offs for the first nine months of 1997 were
$181,000. In the opinion of management, the allowance for loan losses was
considered adequate at September 30, 1997 based on management's analysis of the
risks inherent in the loan portfolio.
The Company's investment portfolio and stock in the Federal Reserve and Federal
Home Loan Bank are classified as "held to maturity securities" in accordance
with SFAS No. 115. At September 30, 1997, the investment portfolio's fair market
value was $1,815,000.
Results of Operations
The Company's after-tax earnings were $520,000 during the first nine months of
1997 compared with $824,000 during the same period in 1996.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded and primary earnings per share will be replaced by basic
earnings per share. The impact is expected to result in an increase in primary
earnings per share for the nine months ended September 30, 1997 and 1996 of
$0.12 and $0.18 per share, respectively. The Company has not yet determined what
the impact of Statement No. 128 will be on the calculation of fully diluted
earnings per share.
Net interest income, the principal source of the Company's earnings, represents
the difference between interest and fees earned from lending and investment
activities and the interest paid on deposits used to fund those activities.
Variations in the volume and mix of loans, investments, and deposits and their
relative sensitivity to movements in interest rates impact net interest income.
9
During the first nine months of 1997, net interest income at $4,928,000 was
$92,000 ahead of the same period in 1996. The primary cause of the increase was
the growth in Federal Funds Sold income generated through the increase in
deposits. That increase was mitigated by the decrease in loan and fee income for
the first nine months of 1997 of $56,000 as compared to the same period in 1996.
The main reason for the decline, despite an increase in loan volume, was the
early payoff of a loan the Bank had purchased at a premium. At the time of early
payoff, the Bank charged off the remaining balance of the premium. In addition,
non-accrual loans averaged $3.50 million during the first nine months of 1997
compared with $2.1 million in the first nine months of 1996.
Non-interest income increased by $128,000 in the first nine months of 1997. This
increase resulted mainly from a recovery of expenses related to the Main Street
property sold to the County of Napa in 1992.
Non-interest expenses consist of salaries and benefits provided to employees of
the Bank, expenses related to premises and equipment, and operating expenses
associated with the continuing business affairs of the Company. Total
non-interest expenses increased $731,000 or 20% during the first nine months of
1997 when compared with the first nine months of 1996. Salaries and benefits
accounted for $452,000 of this increase as a result of additional employees and
salary increases to existing employees. Other non-interest expense increased
$240,000 for the first nine months of 1997 compared to the same period in 1996,
primarily, as a result of efforts related to collection of problem loans.
Capital Resources and Adequacy
Shareholders equity was $8.4 million or 7.0% of total assets at September 30,
1997 compared with $8.0 million or 7.0% of total assets at December 31, 1996.
The ratio of capital to risk-weighted assets at September 30, 1997 was 10.33%
for the Company and 10.31% for the Bank. Both ratios exceeded the regulatory
requirements for a "well-capitalized" institution. Management anticipates that
both the Company and the Bank will continue to exceed the regulatory minimums
for "well-capitalized"institutions in the foreseeable future. Therefore, in
management's opinion, the Company and the Bank have adequate capital in order to
support future growth.
Inflationary Factors
Since the assets and liabilities of the Bank are primarily monetary in nature,
the performance of the Bank is affected more by changes in interest rates than
by inflation.
10
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
As of September 30, 1997, the Company was not party to any significant
legal proceeding.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
There were no changes in the Company's securities during the quarter.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
No securities of this nature.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 17,1997, the Company held an annual meeting of shareholders (the
"Meeting") for the purpose of (i) electing ten persons to serve as the
Company's directors until the next annual meeting of shareholders and
until their respective successors shall be elected and qualified, and
(ii) ratifying the appointment of Ernst & Young LLP as the Company's
independent public accountants for the 1997 fiscal year.
All ten of management's nominees for directors were elected at the
Meeting, and there was no opposition to management's nominees as listed
in the Company's proxy statement first mailed to shareholders on April
30, 1997. The number of votes cast for and against, and the number of
abstentions and broker non-votes relating to, each of management's
nominees is set forth below:
Abstentions and
Name For Against Broker Non-Votes
---- --- ------- ----------------
William A. Bacigalupi 562,285 1,525 198,190
Dennis Groth 562,285 1,525 198,190
E. James Hedemark 562,185 1,625 198,190
Michael D. Irwin 562,185 1,625 198,190
Brian J. Kelly 562,510 1,300 198,190
C. Richard Lemon 562,003 1,807 198,190
Joseph G. Peatman 561,185 2,625 198,190
A. Jean Phillips 561,510 2,300 198,190
George M. Schofield 562,510 1,300 198,190
W. Clarke Swanson, Jr. 562,410 1,400 198,190
The appoinment of Ernst & Young LLP as the Company's independent public
accountants for the 1997 fiscal year was ratified by a majority vote of
the Company's shareholders. 562,610 votes were cast in favor of
ratification, 400 votes were cast against, and there were 800
abstentions and broker non-votes.
11
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See Index to Exhibits to this Form 10-SBQ, for a list of
the exhibits filed as a part of this report and incorporated herein by
reference.
(b) Reports on Form 8-K:
The Company did not file a report on Form 8-K during the third quarter
of 1997.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NAPA NATIONAL BANCORP
(Registrant)
Date: November 14, 1997 /s/ Brian J. Kelly
------------------
Brian J. Kelly
President / COO
Date: November 14, 1997 /s/ Michael D. Irwin
--------------------
Michael D. Irwin
Chief Financial Officer
13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3(i)* Articles of Incorporation of the Registrant, as amended.
3(ii)* Restated Bylaws of the Registrant.
4.1* A specimen copy of the certificates evidencing Common Stock.
10.1* Napa National Bancorp 1992 Stock Option Plan.
10.2* Form of Incentive Stock Option Agreement.
10.3* Form of Nonstatutory Stock Option Agreement.
27 Financial Data Schedule.
*Previously filed.
14