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, 1998
Commission File Number 2-76003
BAY AREA BANCSHARES
California #94-2779021
900 Veterans Blvd., Redwood City, CA 94063
Telephone (650) 562-3238
Theregistrant (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
982,528 Shares of Common Stock Outstanding as of March 31, 1998
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
ASSETS 3/31/98 12/31/97
Cash and due from banks $12,007 $11,464
Federal Funds Sold 9,400 7,500
Cash and cash equivalents 21,407 18,964
Investment securities available for sale
(market value approximates book value) 1,105 1,106
Investment securities held to maturity
(market value of $14,209 in 1998 and $14,683 in 1997) 14,055 14,482
Loans, net of reserve for possible loan losses
of $1,732 in 1998 and $1,638 in 1997 87,500 84,374
Premises and equipment,net 585 653
Real estate owned 0 0
Interest receivable and other assets 2,592 2,506
Total assets $127,244 $122,085
=
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $28,449 $28,248
Interest-bearing transaction 44,014 41,758
Savings 7,182 6,399
Time 32,484 31,021
Total Deposits 112,129 107,426
Interest payable and other liabilities 1,720 1,671
Federal funds purchased 0 0
Federal Home Loan Bank advances 1,000 1,000
Total liabilities 114,849 110,097
Shareholders' equity:
Common stock, no par value:
Authorized - 20,000,000 shares; issued & outstanding 4,756 4,736
982,528 in 1998 and 977,035 in 1997
Unrealized (loss) gain on securities held for sale 0 (2)
Additonal paid in capital 640 0
Retained earnings 6,999 7,254
Total shareholders' equity 12,395 11,988
Total liabilities and shareholders' equity $127,244 $122,085
(1)
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS)
Three Months Three Months
Ended Ended
3/31/98 3/31/97
Interest Income:
Interest and fees on loans $2,248 $1,856
Interest on investment securities 232 227
Interest on federal funds sold 135 111
Interest on time deposits with other financial institutions 0 1
Total Interest Income 2,615 2,195
Interest Expense:
Interest on interest-bearing transaction amounts 299 339
Interest on savings deposits 70 58
Interest on time deposits 438 264
Interest on short-term borrowing 16 0
Interest on notes payable and redeemable debentures 0 0
Total Interest Expense 823 661
Net interest income 1,792 1,534
Provision for possible loan losses 40 40
Net interest income after provision for possible loan losses 1,752 1,494
Noninterest income:
Service charges on deposit accounts 60 48
Net loss on sales of securities 0 0
Net gain on disposal of assets 0 0
Net gain on sale of loans held for sale 0 12
Other Mortgage Banking Revenue 49 24
ATM network revenue 451 481
Other 35 21
Total noninterest income 595 586
Noninterest expense:
Salaries and related benefits 672 637
Occupancy 124 110
Equipment 125 131
Professional fees 77 46
Stationery and supplies 25 28
Other 519 447
Total noninterest expense 1,542 1,399
Income before provision for income taxes 805 681
Provision for income taxes 330 289
Net Income $475 $392
Earnings per share:
Average common and equivalent shares outstanding- Primary 981,695 875,788
Average common and equivalent shares outstanding- Fully Diluted 1,009,460 982,000
Earnings Per Common Share $0.48 $0.45
Earnings Per Common Share - Assuming Dilution $0.47 $0.40
(2)
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
Three Months Three Months
Ended Ended
3/31/98 3/31/97
Cash flows from operating activities:
Net Income $475 $392
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 90 97
Provision for possible loan losses 40 40
Net gain loss on sale of assets 0 0
Funding of loans held for sale 0 (947)
Proceeds from the sale of loans held for sale 0 1,682
Net gain on sale of loans held for sale 0 (12)
Net loss on sale of investment securities 0 0
Net ammortization and accretion of investment premiums and discount 30 40
Net decrease in interest receivable and other assets (86) (29)
Net increase in interest payable and other liabilities 49 140
Net increase (decrease) in deferred loan fees 31 (52)
Total adjustments 154 959
Net cash provided by operating activities 629 1,351
Cash flows from investing activities:
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held for sale 0 0
Proceeds from the maturity of investment securities
held to maturity 500 500
Mortgage backed securities principal payments 316 95
Purchase of investment securities held to maturity (440) (754)
Purchase of investment securities held for sale 0 0
Net increase in gross loans (3,165) (398)
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (22) (44)
Net cash used in investing activities (2,811) (601)
Cash flows from financing activities:
Net increase in demand deposits,transaction and savings 3,240 2,498
Net increase in time deposits 1,463 1,111
Repayment of Federal Funds Purchased 0 0
Net proceeds of Federal Home Loan Bank advances 0 0
Proceeds from stock warrants and options exercised 20 34
Cash Dividends paid (98) (76)
Net cash provided by financing activities 4,625 3,567
Net increase in cash and cash equivalents 2,443 4,317
Cash and cash equivalents,beginning of period 18,964 17,861
Cash and cash equivalents,end of period $21,407 $22,178
There were $0 and $499 in loans transferred to Real Estate Owned in 1998 and
1997 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, 1998, results of
operations for the three month period ended March 31, 1998 and the statement of
cash flows for the three month period ended March 31, 1998 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, 1997.
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 and Investments) increased $2.0 million
or 5.8% to $36.6 million over the three month period from December 31, 1997 to
March 31, 1998. At year-end, total liquid assets as a percentage of total assets
was 28.3%, whereas on March 31, 1998 it had increased slightly to 28.8%.
Cash & due from banks increased $543,000 over the first three months of 1998 to
$12.0 million at March 31, 1998. During the first three months of 1998 cash and
due from banks averaged $10.2 million. The portion of the total cash & due from
banks representing ATM ("Automatic Teller Machine") network cash inventory has
averaged approximately $2.6 million during 1998 and averaged approximately $3.7
in the first quarter of 1997.
The increase in total liquid assets, during the first three months of 1998, was
primarily a result of an increase in deposits and advances of $4.7 million or
4.4%, offset in part by an increase in gross loans of $3.2 million or 3.7%.
Deposits have averaged $108.7 million in the first quarter of 1998 while they
averaged $94.9 million during the three month period ending March 31, 1997.
Gross loans outstanding have averaged $86.5 million in the first quarter of 1998
as compared to $69.3 million averaged in the first quarter of 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 $501,000 in the first three
months of 1998 from $13.6 million or 11.16% of total gross assets at December
31, 1997 to $14.1 million or 11.1% of total gross assets at March 31, 1998.
Bank capital plus reserves totaled $12.9 million on March 31, 1998 or 10.07% of
total adjusted assets as compared to capital plus reserves of $12.3 million or
10.03% of total adjusted assets at December 31, 1997. At March 31, 1998 the Bank
maintained a tier one capital ratio of 11.7% and a tier two capital ratio of
12.9% the same levels maintained at December 31, 1997.
(5)
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 declared no in dividends to the Parent company in the first three
months of 1998 and the Company declared cash dividends to common shareholders of
$.10 per share in March of 1998. The first quarter dividend represents twenty
six consecutive quarterly cash dividends declared by the Parent company to
shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $475,000 ($.47 per common share assuming
dilution vs. $.40 in the prior year) for the first quarter of 1998, the highest
first quarter earnings in the Company's history. This represents a $83,000 or
21.2% increase over the first quarter of 1997 when net income was $392,000.
The increase in first quarter earnings in 1998 versus the first quarter of 1997
is a result of an increase in pretax earnings of $124,000 which is comprised of
an increase in net interest income of $258,000 and a increase in other income
$9,000, offset in part by a increase in noninterest expense of $143,000.
The growth in net interest income of 16.8% in the first quarter of 1998 is
primarily a result of growth in total earning assets offset in part by a
decrease in net interest margin. Average earning assets in the first quarter of
1998 were $111.4 million, a $18.7 million or 20.1% increase over the first
quarter of 1997 when earning assets averaged $92.7 million. Net interest margin
in the first quarter of 1998 was approximately 6.43% as compared to 6.62% in the
first quarter of 1997.
The decline in net interest margin was a result of a decline in the yield on
earning assets and an increase in the cost of deposits and advances. The yield
on earning assets declined in the first quarter of 1998 to 9.39% as compared to
9.47% in the first quarter of 1997. The cost of the Bank's deposits and advances
(including demand deposits ) which averaged $109.7 million in the first quarter
of 1998 rose to 3.00% as compared to 2.79% in the first quarter of 1997 when the
deposits and advances averaged $94.9 million.
Loan loss provisions were $40,000 in the first quarter of 1998 and 1997. Non
performing assets at March 31, 1998 were $173,000 or .14% of total assets and
10% of loan loss reserves. Non performing assets at December 31, 1997 were
$373,000 or .31% of total assets and 22% of loan loss reserves. There have been
$33,000 in loans charged off during the three months of 1998 and $86,000 in
recoveries of loans previously charged off as compared to no loans charged off
and $7,000 in recoveries in the first quarter of 1997. Loan loss reserves of
$1.73 million at March 31, 1998 represent a ratio of 1.94% of gross loans
outstanding as compared to a loan loss reserve of $1.64 million or 1.90% of
gross loans at December 31, 1997.
The Bank's ATM revenues were down $35,000 or 5.5% in the first quarter of 1998
as compared to the first quarter of 1997. The decrease in revenues in the first
quarter can be attributed to a reduction in machines in operation. However,
average revenue per machine was up from $9,400 per machine in the first quarter
of 1997 to $9,600 per machine in the first quarter of 1998. There was an average
of 51 machines in operation in the first quarter of 1997 and 48 operating in the
first quarter of 1998. The reduction in machine was a result of certain
contracts that expired and certain unprofitable sites that were closed during
1997. The Bank hopes to find acceptable machines sites to redeploy some of the
excess machines in the coming months. The department contributed $71,000 to
pretax profits in the first three months of 1998 as compared to $96,000 in the
first three months of 1997.
(6)
Non interest expense was up $143,000 or 10.2% in the first quarter of 1998 as
compared to the first quarter of 1997. This increase was comprised primarily of
an increase of $35,000 in salaries and benefits, $31,000 in Professional (legal)
fees and $72,000 in other expenses.
PART II--OTHER INFORMATION
Item 5.
Other Information
Reference is made to the disclosure in the Company's Form 10-K for its fiscal
year ended December 31, 1997 at Part III, Item 11. The following provides
additional information concerning option grants in 1997:
Subject to the approval of the shareholders of Amendment No. 1 to the
Plan and other conditions, the Board granted options to employees on November
18, 1997. The following table shows the options granted to those officers of the
Bank listed in the Summary Compensation Table. All of the options listed below
were granted subject to a further condition that the officer agree to amend his
Salary Continuation Agreement to cap the appreciation under that agreement at
$24.00 per share.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number % of Total Options
of Securities Granted to
Underlying Employees in Exercise Price Expiration
Name Option Granted1 Fiscal Year ($/Share) Date
- ---- -------------- ----------- --------- ----
Frank M. Bartaldo 20,000 28.0% $24.00 11/18/07
Anthony J. Gould 15,000 21.3% $24.00 11/18/07
Mark V. Schoenstein 12,500 17.7% $24.00 11/18/07
William A. Peterson 10,000 14.2% $24.00 11/18/07
- ---------------------
1 Under the terms of the 1993 Stock Option Plan, as amended, terms of the
incentive stock options granted are as follows. The full amount of the
options granted to Mr. Bartaldo and Mr. Gould were 40% vested at the date
of the grant, and will vest 20% per year on each October 1st thereafter
until fully vested on October 1, 2000. An option to purchase 10,000 shares
granted to Mr. Schoenstein was 40% vested on the date of the grant and
will vest 20% per year on each June 30th thereafter until fully vested on
June 30, 2000. An option to purchase 2,500 shares granted to Mr.
Schoenstein and the full amount of the options granted to Mr. Peterson
vests 20% per year on the anniversary date of the grant of the option,
starting on the 1st year anniversary date, to be fully vested on the 5th
anniversary date. Each option has a term of 10 years. Additional terms of
the option are described below in the description of the 1993 Stock Option
Plan and Amendment No. 1 to the Plan.
(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)
(8)
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 11, 1998
/s/Robert R. Haight
Robert R. Haight
President and Chief Executive Officer
/s/Anthony J.Gould
Anthony J. Gould
Chief Accounting Officer