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 March 31, 1997
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
846,088 Shares of Common Stock Outstanding as of March 31, 1997
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
ASSETS 3/31/97 12/31/96
Cash and due from banks $12,378 $11,011
Federal Funds Sold 9,800 6,850
_______ _______
Cash and cash equivalents 22,178 17,861
Time deposits with other financial institutions 100 100
Investment securities available for sale
(market value approximates book value) 2,596 2,588
Investment securities held to maturity
(market value of $12,273 in 1997 and $12,203 in 1996) 12,180 12,081
Loans, net of reserve for possible loan losses
of $1,540 in 1997 and $1,493 in 1996 67,006 67,012
Loans held for sale 0 723
Premises and equipment,net 758 811
Real estate owned 499 0
Interest receivable and other assets 2,040 2,011
______ _______
Total assets $107,357 $103,187
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits
Demand $25,601 $23,599
Interest-bearing transaction 44,971 44,493
Savings 5,569 5,551
Time 20,436 19,325
------ ------
Total Deposits 96,577 92,968
Interest payable and other liabilities 1,078 938
Federal funds purchased 0 0
Federal Home Loan Bank advances 0 0
------ ------
Total liabilities 97,655 93,906
------ ------
Shareholders' equity:
Common stock, no par value:
Authorized - 20,000,000 shares; issued & outstanding 4,177 4,143
846,088 in 1997 and 839,638 in 1996
Unrealized (loss) gain on securities held for sale (8) (5)
Retained earnings 5,533 5,143
----- -----
Total shareholders' equity 9,702 9,281
----- -------
Total liabilities and shareholders' equity $107,357 $103,187
======= =======
(1)
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
3/31/97 3/31/96
Interest Income:
Interest and fees on loans $1,856 1,822
Interest on investment securities 227 205
Interest on federal funds sold 111 37
Interest on time deposits with other financial institutions 1 2
----- -----
Total Interest Income 2,195 2,066
Interest Expense: ----- -----
Interest on interest-bearing transaction amounts 339 320
Interest on savings deposits 58 56
Interest on time deposits 264 219
Interest on short-term borrowing 0 2
Interest on notes payable and redeemable debentures 0 0
----- ----
Total Interest Expense 661 597
----- -----
Net interest income 1,534 1,469
Provision for possible loan losses 40 85
----- -----
Net interest income after provision for possible loan 1,494 1,384
losses
Noninterest income: ----- -----
Service charges on deposit accounts 48 53
Net loss on sales of securities 0 0
Net gain on disposal of assets 0 2
Net gain on sale of loans held for sale 12 150
Other Mortgage Banking Revenue 24 47
ATM network revenue 481 398
Other 21 48
----- ----
Total noninterest income 586 698
Noninterest expense: ----- ----
Salaries and related benefits 637 716
Occupancy 110 98
Equipment 131 134
Professional fees 46 64
Stationery and supplies 28 33
Other 447 444
----- -----
Total noninterest expense 1,399 1,489
----- -----
Income before provision for income taxes 681 593
Provision for income taxes 289 250
----- -----
Net Income $392 $343
===== =====
Earnings per share:
Average common and equivalent shares outstanding- Primary 960,000 920,000
======= =======
Average common and equivalent shares outstanding- Fully Diluted 960,000 920,000
======= =======
Primary Net income per share $0.41 $0.37
======= =======
Fully Diluted Net income per share $0.41 $0.37
======= =======
(2)
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
3/31/97 3/31/96
Cash flows from operating activities:
Net Income $392 $343
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 97 108
Provision for possible loan losses 40 85
Net gain loss on sale of assets 0 (2)
Funding of loans held for sale (947) (5,732)
Proceeds from the sale of loans held for sale 1,682 5,076
Net gain on sale of loans held for sale (12) (150)
Net loss on sale of investment securities 0 0
Net ammortization and accretion of investment premiums and 40 15
discounts
Net decrease in interest receivable and other assets (29) (37)
Net increase in interest payable and other liabilities 140 150
Net (decrease) increase in deferred loan fees (52) 27
----- -----
Total adjustments 959 (460)
----- -----
Net cash provided by (used in) operating activities 1,351 (117)
Cash flows from investing activities:
Net decrease in time deposits with other financial institutions 0 3
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held to maturity 500 500
Mortgage backed securities principal payments 95 50
Purchase of investment securities held to maturity (754) (722)
Purchase of investment securities held for sale 0 0
Net decrease in gross loans (398) (5,945)
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (44) (69)
----- ------
Net cash used in investing (601) (6,183)
activities
Cash flows from financing activities:
Net increase (decrease) in demand deposits,transaction and 2,498 (116)
savings
Net increase in time deposits 1,111 1,355
Repayment of Federal Funds Purchased 0 0
Net proceeds of Federal Home Loan Bank advances 0 0
Proceeds from stock warrants and options exercised 34 38
Cash Dividends paid (76) (67)
----- -----
Net cash provided by financing 3,567 1,210
activities
----- -----
Net increase (decrease) in cash and cash equivalents 4,317 (5,090)
Cash and cash equivalents,beginning of period 17,861 18,076
------ -------
Cash and cash equivalents,end of period $22,178 $12,986
====== ======
There were $499 and $0 in loans transferred to Real Estate Owned in 1997 and
1996 respectively.
(3)
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 March 31, 1997, results of
operations for the three month period ended March 31, 1997 and the statement of
cash flows for the three month period ended March 31, 1997 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, 1996.
All references to the "Bank" are in reference to the Company's sole, and wholly
owned, subsidiary Bay Area Bank.
(4)
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 $4.4 million or 14% to $37.1 million
over the three month period from December 31, 1996 to March 31, 1997. At
year-end, total liquid assets as a percentage of total assets was 31.6%, whereas
on March 31, 1997 it had increased to 34.5%. The increase in percentage of
liquid assets to total assets was tempered by an increase of $4.2 million or
4.0% in total assets.
Cash & due from banks increased $1.4 million over the first three months of 1997
to $12.4 million at March 31, 1997. During the first three months of 1997 cash
and due from banks averaged $11.9 million. The portion of the total cash & due
from banks representing ATM ("Automatic Teller Machine") network cash inventory
has averaged approximately $3.7 million during 1997 and at March 31, 1997 ATM
cash was approximately $3.5 million.
The increase in total liquid assets, during the first three months of 1997, was
a primarily a result of an increase in deposits of $3.6 million or 3.9% and a
decrease of $729,000 or 1% in net loans outstanding. Deposits have averaged
$95.0 million thus far in 1997 while they averaged $88.1 million during the
twelve month period ending December 31, 1996. Gross loans outstanding have
averaged $69.4 million thus far in 1997 as compared to $66.2 million averaged
throughout 1997.
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 $422,000 in the first three
months of 1997 from $10.8 million or 10.3% of total gross assets at December 31,
1996 to $11.2 million or 10.3% of total gross assets at December 31, 1996.
Bank capital plus reserves totaled $11.2 million on March 31, 1997 or 10.32% of
total adjusted assets as compared to capital plus reserves of $10.8 million or
10.33% of total adjusted assets at December 31, 1996. At March 31, 1996 the Bank
maintained a tier one capital ratio of 12.75% and a tier two capital ratio of
14.00% as compared to a tier one capital ratio of 11.86%
(5)
and a tier two capital ratio of 13.11% at December 31, 1996.
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 $50,000 in dividends to the Parent company in the first
three months of 1997 and the Company also declared cash dividends to common
shareholders of $.09 per share in each of March of 1997. The first quarter
dividend represents twenty two consecutive quarterly cash dividends declared by
the Parent company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $392,000 ($.41 per fully diluted share vs.
$.37 in the prior year) for the first quarter of 1996, the highest first quarter
in the company's history. This represents a $49,000 or 14.2% increase over the
first quarter of 1996 in when net income was $343,000.
The increase in first quarter earnings in 1997 versus the first quarter of 1996
is a result of an increase in pretax earnings of $88,000 which is comprised of
an increase in net interest income of $64,000, a decrease in loan loss
provisions of $45,000, and a decrease in noninterest expense of $90,000; offset
in part by a decrease in non interest income of $112,000.
The growth in net interest income of 4.4% in the first quarter of 1997 as
compared to the first quarter of 1996 is primarily a result of growth in total
earning assets in the first quarter of 1997, offset in part by a decrease in net
interest margin. Average earning assets in the first three months of 1997 were
$92.7 million a $10.8 million or 13.2% increase over the first three months of
1996 when earning assets averaged $81.9 million. The $65,000 increase in net
interest margin in the first quarter of 1997 as compared to the first quarter of
1996 was comprised of a $129,000 increase in interest income offset in part by a
$64,000 increase in interest expense. Year to date net interest income to total
average earning assets (net interest margin) has been 6.62% in the first three
months of 1997 as compared to 7.18% in the first three months of 1996. The
interest margin compression has been primarily caused by an increase in lower
yielding liquid assets. In the first quarter of 1996 the Bank averaged just $2.9
million in Fed Funds Sold while in the first quarter of 1997 the average was
$8.0 million. Competition for quality loans and the resulting pricing
concessions the Bank has made to grow the loan portfolio also contributed to the
compression in net interest margin as the yield on loans was 11.2% in the first
quarter of 1996 and 10.7% in the first quarter of 1997.
(6)
The decrease in loan loss provisions in the first quarter of 1997 of $45,000 as
compared to the first quarter of 1996 is primarily a result of the Board's
current projection that the Bennet Leasing Assets (book value of $548,000
included in nonaccrual loans at March 31, 1997) will not require further
reserves. A proposed settlement is still being reviewed by the Bank's legal
counsel and will most likely require certain revisions if it is to be accepted
by the Bank.
Non performing assets at March 31, 1997 were $1.53 million or 1.43% of total
assets and 99% of loan loss reserves. Non performing assets at December 31, 1996
were $1.67 million or 1.61% of total assets and 112% of loan loss reserves.
There were no loans charged off during the first three months of 1996 as
compared to $68,000 during the first three months of 1996. Loan loss reserves of
$1.54 million at March 31, 1997 represent a ratio of 2.23% of gross loans
outstanding as compared to a loan loss reserve of $1.49 million or 2.14% of
gross loans at December 31, 1996.
The reduction in non interest income of $112,000 in the first quarter of 1997 as
compared to the first quarter of 1996 was primarily a result of the closing of
the Bank's mortgage department in February 1997. Mortgage Department revenues
were down $161,000 in the first quarter of 1997 as compared to the first quarter
of 1996. The department was closed primarily as a result of intense competition
which affected the profit margins for such loans sold in the marketplace. The
department never reached its budgeted performance goals or contributed a
satisfactory return given the risk of operations or the time that was committed
by Bank management.
The Bank's ATM revenues were up $83,000 or 21% to $481,000 in the first quarter
of 1997 as compared to the first quarter of 1996. The department has contributed
$96,000 to pretax profits in 1997 as compared to $36,000 in the first three
months of 1996.
Non interest expense was down $90,000 or 6.0% primarily as a result of the
closing of the Mortgage Department.
(7)
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: May 12, 1997
/s/Robert R. Haight
Robert R. Haight
President and Chief Executive Officer
/s/Anthony J. Gould
Anthony J. Gould
Chief Accounting Officer