SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED September 30, 1996
Commission File Number 2-76003
BAY AREA BANCSHARES
California #94-2779021
900 Veterans Blvd., Redwood City, CA 94063
Telephone (415) 367-1600
The registrant (1) has filed all reports required by Section 13 or 15(d)
of the Securities Exchange Act during the preceding 12 months, and
x Yes No
(2) has been subject to such filing requirements for the past 90 days.
x Yes No
837,138 Shares of Common Stock Outstanding as of September 30, 1996
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
ASSETS 9/30/96 12/31/95
Cash and due from banks $11,948 $8,276
Federal Funds Sold 9,000 9,800
________ _______
Cash and cash equivalents 20,948 18,076
Time deposits with other financial institutions 100 103
Investment securities available for sale
(market value approximates book value) 2,585 3,111
Investment securities held to maturity
(market value of $12,067 in 1996 and $10,269 in 1995) 11,886 10,133
Loans, net of reserve for possible loan losses
of $1,447 in 1996 and $1,516 in 1995 64,185 59,209
Loans held for sale 976 772
Premises and equipment, net 800 948
Real estate owned 100 0
Interest receivable and other assets 2,626 1,463
________ ________
Total assets $104,206 $93,815
LIABILITIES AND SHAREHOLDERS' EQUITY
- -
Deposits
Demand $27,339 $22,998
Interest-bearing transaction 42,540 40,480
Savings 5,285 4,376
Time 18,744 16,125
________ ________
Total Deposits 93,908 83,979
Interest payable and other liabilities 1,316 758
Federal funds purchased 0 1,000
Federal Home Loan Bank advances 0 0
_________ ________
Total liabilities 95,224 85,737
_________
Shareholders' equity:
Preferred stock, $10 stated value; 6% Series A, convertible and redeemable:
Authorized - 10,000,000 shares; issued &
outstanding- none in 1996 and 1,000 in 1995 0 10
Common stock, no par value:
Authorized - 20,000,000 shares; issued & 4,125 4,053
outstanding- 837,138 in 1996 and 821,829 in 1995
Unrealized (loss) gain on securities held for sale (7) 10
Retained earnings 4,864 4,005
________ _______
Total shareholders' equity 8,982 8,078
_________ ________
Total liabilities and shareholders' equity $104,206 $93,815
_________ ________
(1)
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)
Three Months Three Months
Ended Ended
9/30/96 9/30/95
_____________ _____________
Interest Income:
Interest and fees on loans $1,815 $1,584
Interest on investment securities 211 171
Interest on federal funds sold 123 171
Interest on time deposits with other financial 1 2
institutions
_______________ _______________
Total Interest Income 2,150 1,928
Interest Expense: _______________ ________________
Interest on interest-bearing transaction amounts 338 328
Interest on savings deposits 55 51
Interest on time deposits 251 206
Interest on short-term borrowing 7 0
Interest on notes payable and redeemable 0 0
debentures
________________ ________________
Total Interest Expense 651 585
Net interest income 1,499 1,343
Provision for possible loan losses 150 15
________________ ________________
Net interest income after provision for 1,349 1,328
possible loan losses
Noninterest income: ________________ _________________
Service charges on deposit accounts 56 64
Net loss on sales of securities 0 (16)
Net gain on disposal of assets 0 8
Net gain on sale of loans held for sale 56 133
Other Mortgage Banking Revenue 26 51
ATM network revenue 532 437
Other 32 43
_______________ _________________
Total noninterest income 702 720
Noninterest expense: _______________ _________________
Salaries and related benefits 635 685
Occupancy 95 93
Equipment 139 137
Professional fees 65 74
Stationery and supplies 26 31
Other 457 399
________________ ________________
Total noninterest expense 1,417 1,419
________________ ________________
Income before provision for income taxes 634 629
Provision for income taxes 261 266
________________ ________________
Net Income $373 $363
________________ ________________
Earnings per share:
Average common and equivalent shares outstanding- 940,000 878,000
Primary
________________ ________________
Average common and equivalent shares outstanding- 940,000 919,000
Fully Diluted
________________ _________________
Primary Net income per share $0.40 $0.41
________________ _________________
Fully Diluted Net income per share $0.40 $0.39
________________ _________________
(2)
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)
Nine Months Nine Months
Ended Ended
9/30/96 9/30/95
_____________ ______________
Interest Income:
Interest and fees on loans $5,429 4,662
Interest on investment securities 611 464
Interest on federal funds sold 229 389
Interest on time deposits with other financial 4 5
institutions _______
Total Interest Income 6,273 5,520
Interest Expense: ______ ______
Interest on interest-bearing transaction amounts 982 919
Interest on savings deposits 167 154
Interest on time deposits 715 545
Interest on short-term borrowing 16 0
Interest on notes payable and redeemable 0 0
debentures
Total Interest Expense 1,880 1,618
______ ______
Net interest income 4,393 3,902
Provision for possible loan losses 385 95
_______ _______
Net interest income after provision for 4,008 3,807
possible loan losses
Noninterest income: _______ ________
Service charges on deposit accounts 162 196
Net loss on sales of securities 0 (16)
Net gain on disposal of assets 2 7
Net gain on sale of loans held for sale 364 368
Other Mortgage Banking Revenue 118 154
ATM network revenue 1,374 1,124
Other 107 101
______ _______
Total noninterest income 2,127 1,934
Noninterest expense: _______ ________
Salaries and related benefits 2,004 1,963
Occupancy 290 281
Equipment 407 422
Professional fees 178 183
Stationery and supplies 90 107
Other 1,343 1,233
________ _________
Total noninterest expense 4,312 4,189
_________ __________
Income before provision for income taxes 1,823 1,552
Provision for income taxes 761 646
_________ __________
Net Income $1,062 $906
__________ __________
Earnings per share:
Average common and equivalent shares outstanding- 940,000 878,000
Primary
_________ ____________
Average common and equivalent shares outstanding- 940,000 919,000
Fully Diluted
________ _________
Primary Net income per share $1.13 $1.03
_________ __________
Fully Diluted Net income per share $1.13 $0.99
_________ __________
(3)
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
Nine Months Nine Months
Ended Ended
9/30/96 9/30/95
___________ ___________
Cash flows from operating activities:
Net Income $1,062 $906
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of premises and equipment 336 319
Provision for possible loan losses 385 95
Net gain loss on sale of assets (2) (7)
Funding of loans held for sale (11,192) (11,746)
Proceeds from the sale of loans held for sale 11,020 10,554
Net gain on sale of loans held for sale (376) (368)
Net loss on sale of investment securities 0 16
Net ammortization and accretion of investment
premiums and discounts 50 35
Net decrease in interest receivable and other
assets (1,163) (70)
Net increase in interest payable and other liabilities 558 259
Net increase (decrease) in deferred loan fees 35 (37)
__________ _______________
Total adjustments (349) (950)
__________ _______________
Net cash provided by (used in) operating 713 (44)
activities
Cash flows from investing activities:
Net decrease in time deposits with other financial
institutions 3 95
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held to maturity 1,755 2,054
Mortgage backed securities principal payments 899 216
Purchase of investment securities held to maturity (3,952) (3,595)
Purchase of investment securities held for sale 0 (499)
Net (increase) decrease in gross loans (4,976) 1,653
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (188) (275)
____________ __________
Net cash (used in) provided by investing activities (6,459) (351)
Cash flows from financing activities:
Net increase in demand deposits,transaction and savings 7,310 9,948
Net increase in time deposits 2,619 2,024
Repayment of Federal Funds Purchased (1,000) 0
Net proceeds of Federal Home Loan Bank advances 0 0
Proceeds from stock warrants and options exercised 62 51
Cash Dividends paid (134) (118)
______________ ____________
Net cash provided by financing activities 8,857 11,905
______________ ____________
Net increase in cash and cash equivalents 3,111 11,510
Cash and cash equivalents,beginning of period 18,076 14,761
______________ ___________
Cash and cash equivalents,end of period $21,187 $26,271
_____________ ___________
There were $136 and $0 in loans transferred to Real Estate Owned in 1996 and
1995 respectively.
(4)
BAY AREA BANCSHARES & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All adjustments, which in the opinion of management are necessary for a fair
statement of the Company's financial condition at September 30, 1996, results of
operations for the three and six month periods ended September 30, 1996 and the
statement of cash flows for the nine month period ended September 30, 1996 have
been included. These adjustments are of a normal and recurring nature. The
results of operations and statement of cash flows are not necessarily indicative
of the results for a full year's activity.
The accompanying unaudited financial statements have been prepared on a basis
consistent with the accounting principles and policies reflected in the
Company's Annual Report for the year ended December 31, 1995.
All references to the "Bank" are in reference to the Company's sole, and wholly
owned, subsidiary Bay Area Bank.
(5)
BAY AREA BANCSHARES & SUBSIDIARIES
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 2A Financial Condition
Liquidity
Liquid assets (Cash, Federal Funds Sold, Time Deposits with other Financial
Institutions and Investments) increased $4.1 million or 13% to $35.5 million
over the nine month period from December 31, 1995 to September 30, 1996. At
year-end, total liquid assets as a percentage of total assets was 33.5% whereas
on September 30, 1996 it had increased to 34.1%. The increase in percentage of
liquid assets to total assets was tempered by an increase of $10.4 million or
11.1% in total assets.
Cash & due from banks increased $3.7 million over the first nine months of 1996
to $11.9 million at September 30, 1996. During the first nine months of 1996
cash and due from banks averaged $10.5 million. The portion of the total cash &
due from banks representing ATM ("Automatic Teller Machine") network cash
inventory has averaged approximately $3.3 million during 1996 and at September
30, 1996 ATM cash was approximately $3.5 million . At December 31, 1995, there
was approximately $2.7 in ATM network cash inventory. This increase in ATM cash
can be attributed to an 10% (approximate) increase in the number of ATM machines
since year end to 59 machines and a seasonal cash increase during the summer
months in which peak demand occurs.
The increase in total liquid assets, during the first nine months of 1996, was a
result of an increase in deposits of $9.9 million or 11.9% offset in part by
anincrease in total net loans outstanding (including loans held for sale) of
$5.2million (8.6%) to $65.2 million at September 30, 1996. Deposits have
averaged $87.1 million thus far in 1996 while they averaged $74.6 million during
the first nine months of 1995. Gross loans outstanding have averaged $65.9
million thus far in 1996 as compared to $53.6 million averaged in the first nine
months of 1995.
Management believes current liquid assets and current available credit lines are
adequate to cover the working capital requirements of the Company and any
reasonable needs arising from deposit withdrawals.
Capital
Consolidated equity capital plus reserves increased $835,000 in the first nine
months of 1996 from $9.6 million or 10.06% of total gross assets at December
31, 1995 to $10.4 million or 9.87% of total gross assets at September 30, 1996.
Bank capital plus reserves totaled $10.4 million on September 30, 1996 or 9.85%
of total adjusted assets as compared to capital plus reserves of $9.6 million or
10.03% of total adjusted assets at December 31, 1995. At September 30, 1996 the
Bank maintained a tier one capital ratio of 12.30% and a tier two capital ratio
of 13.55% as compared to a tier one capital ratio of 12.44% and a tier two
capital ratio of 13.69% at December 31, 1995. The decrease in the percentage is
due to the increase in total assets during the period, offset in part by an
increase in retained earnings.
(6)
The Bank's capital level continues to exceed State and Federal Deposit Insurance
Corporation requirements and satisfies the Federal Reserve Board's current
risk-based capital Guidelines.
The Bank has declared $175,000 in dividends to the Parent company in the first
nine months of 1996 and the Company also declared cash dividends to common
shareholders of $.08 per share in each of March, June and September of 1996.
The third quarter dividend represents twenty consecutive quarterly cash
dividends declared by the Parent company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $373,000 ($.40 per fully diluted share vs.
$.39 in the prior year) for the third quarter of 1996, the highest third quarter
in the company's history. This represents a $10,000 or 2.8% increase over the
third quarter of 1995. Consolidated operating profits were $1,062,000 ($1.13 per
fully diluted share vs. $.99 in the prior year) for the first nine months of
1996, the highest first nine months in the company's history. This represents a
$156,000 or 17% increase over the first nine months of 1995.
The increase in third quarter earnings in 1996 versus the third quarter of 1995
is comprised of: an increase in net interest income of $156,000, a decrease in
noninterest expense of $2,000; offset in part by a decrease in non interest
income of $18,000 and an increase in loan loss provisions of $135,000.
The increase in earnings in the first nine months of 1996 versus the first nine
of 1995 is a result of an increase in pretax earnings of $271,000 comprised of:
an increase in net interest income of $491,000, an increase in non interest
income of $193,000; offset in part by a an increase in noninterest expense of
$123,000 and an increase in loan loss provisions of $290,000.
The growth in net interest income of 11.6% in the third quarter of 1996 as
compared to the third quarter of 1995 is primarily a result of growth in total
earning assets throughout 1996, offset in part by a decrease in net interest
margin. Average earning assets in the first nine months of 1996 were $85.4
million, a $12.2 million or 16.7% increase over the first nine months of 1995
when earning assets averaged $73.1 million. The $156,000 increase in net
interest margin for the third quarter of 1996, as compared to the 3rd quarter of
1995, was comprised of a $222,000 increase in interest income offset in part by
a $66,000 increase in interest expense. Year to date net interest income to
total average earning assets (net interest margin) has been 6.86% in the first
nine months of 1996 as compared to 7.11% in the first nine months of 1995. The
interest margin compression has been primarily caused by increasing competition
for quality loans and the resulting pricing concessions the Bank has made to
grow the loan portfolio in this competitive environment.
(7)
The increase in loan loss provisions in 1996 as compared to 1995 is primarily a
result of loan growth of $5.2 million or 8.6%, an increase in nonperforming
assets and an increase in loan charge-offs. Non performing assets (consisting
entirely of nonaccrual loans) at September 30, 1996 were $1.0 million or 1.54%
of total gross loans and 70% of loan loss reserves. Non performing assets at
December 31, 1995 were $495,000 or .81% of total gross loans and 33% of loan
loss reserves. Loans charged off during the first nine months of 1996 have
totaled $467,000 as compared to $167,000 during the first nine months of 1995.
Loan loss reserves of $1.48 million at September 30, 1996 represent a ratio of
2.16% of gross loans outstanding as compared to a loan loss reserve of $1.52
million or 2.47% of gross loans at December 31, 1995.
The increase in nonperforming assets and loan charge-offs in the first nine
months of 1996 is primarily attributable to $837,000 in lease receivables and
notes reclassified as nonperforming assets during March of 1996. In September of
1996, $313,000 (67% of 1996 charge-offs to date) of these assets were charged
against the Company's allowance for loan loss reserve. These assets are
collateralized by approximately 150 lease receivables purchased in 1994 from
Bennett Group Funding Inc. ("Bennett"), which declared chapter 11 bankruptcy in
March of 1996.
The Company continues to vigorously seek collection of these funds. While
the Bank's management believes that the Bank will ultimately prevail in this
case, it reclassified all Bennett assets to nonperforming status and charged off
a portion of such assets, given the potential protracted nature of such
litigation and the potential for recovery of less than the full face amount of
the receivables. While the Bank is not currently receiving any payments with
respect to these assets, it has been informed by the bankruptcy trustee that as
of September 30, 1996, approximately 70% of the underlying assets which support
the Bank's notes and receivables from Bennett were current, 5% were less than 30
days delinquent, 10% were 30 to 90 days delinquent and 15% were greater than 91
days delinquent. The payments are being held by order of the bankruptcy court in
an escrow account. However, the Bank does not know whether or when it will
ultimately be able to recover the underlying assets, and whether such assets
will continue to have value.
Non interest expense is up 2.9% thus far in 1996 but was down slightly in
the third quarter as compared to the prior year. The decrease in noninterest
income of $18,000 in the third quarter was primarily a result of the Bank's
mortgage department.
The Bank's Electronic Funds Transfer (EFT) department operates
approximately 60 ATM's throughout the state. The Bank's ATM revenues were up
$95,000 or 21.7%, to $532,000 in the third quarter, and were up $250,000 or 22%,
to $1,374,000, for the first nine months of 1996. The department has contributed
$158,000 to pretax profits in 1996 as compared to $101,000 in the first nine
months of 1995.
The Bank's mortgage department revenues for the first nine months of 1996
totaled $747,000 (which includes $252,000 in interest income) as compared to
$719,000 (including $152,000 in interest income) in the first nine months of
1995. Revenues in the third quarter of 1996 were $160,000 as compared to
$236,000 in the third quarter of 1995 primarily as a result of a management
transition in the department.
Part 2, Item 4
(a) The 1996 Annual Meeting of the Shareholders of the Registrant was held
on May 21, 1996.
(b) The following table shows the votes for, against or withheld, and the
broker nonvotes as to each candidate for director. Each candidate was elected.
Name Votes For Votes Against or Withheld Broker Nonvotes
Mario A. Biagi 488,458 33,307 0
John O. Brooks 521,765 0 0
Gary S. Goss 521,205 560 0
Robert R. Haight 487,898 33,867 0
Stanley A. Kangas 521,765 0 0
David J. MacDonald 487,619 34,146 0
Thorwald A. Madsen 521,765 0 0
Dennis W. Roger 521,765 0 0
(8)
ITEM 6
(a) Exhibits.
3.1 Restated Articles of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
3.2 Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989).
3.3 Bylaws of the Company, as
amended (incorporated by reference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987).
3.4 Amendment to
Bylaws of Company (incorporated by reference to Exhibit 3.3 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987).
27 Financial Data Schedule (filed herewith)
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.
BAY AREA BANCSHARES
Registrant
Dated: November 12, 1996
/s/Robert R. Haight
- ----------------------------------------
Robert R. Haight
President and Chief Executive Officer
/s/Anthony J. Gould
- ----------------------------------------
Anthony J. Gould
Chief Accounting Officer
(9)