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
- --- AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- AND EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
Commission file number 0-18015
CUPERTINO NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 33-0060898
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20230 Stevens Creek Boulevard, Cupertino, California, 95014
(Address of principal executive offices) (Zip Code)
(408) 996-1144
(Registrant's telephone number, including area code)
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
--- ---
Outstanding shares of Common Stock, no par value, as of October 31, 1995:
1,635,266
This report contains a total of 18 pages.
1 of 18
CUPERTINO NATIONAL BANCORP
INDEX
DESCRIPTION PAGE
PART I. FINANCIAL INFORMATION 3
ITEM 1. CONSOLIDATED BALANCE SHEETS AS OF
September 30, 1995 AND December 31, 1994......... 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
September 30, 1995 AND 1994...................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
September 30, 1995 AND 1994...................... 5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............. 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................ 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.......................................... 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................. 18
SIGNATURES....................................... 18
2 of 18
PART I. FINANCIAL INFORMATION
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited...Dollars in thousands)
September 30, December 31,
1995 1994
- --------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 12,634 $ 9,326
Federal funds sold 15,500 10,400
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents 28,134 19,726
Other short-term investments -- --
Investment securities
Held to maturity 51,232 59,573
(Market value $52,391 at September 30, 1995;
$57,257 at December 31, 1994)
Available for sale
(Cost 2,494 at September 30, 1995) 2,495
Other securities 960 933
- --------------------------------------------------------------------------------------------------
Total investment securities 54,687 60,506
Loans:
Commercial 81,027 81,695
Real estate-construction and land 20,664 18,117
Real estate-term 18,310 13,133
Consumer and other 30,213 21,059
Deferred loan fees and discounts (708) (847)
- --------------------------------------------------------------------------------------------------
Loans 149,506 133,157
Allowance for credit losses (2,522) (2,918)
- --------------------------------------------------------------------------------------------------
Loans, net 146,984 130,239
Loans held for sale ---- 5,383
- --------------------------------------------------------------------------------------------------
Total loans 146,984 135,622
Premises and equipment, net 1,642 1,434
Accrued interest receivable and other assets 8,427 5,856
- --------------------------------------------------------------------------------------------------
TOTAL $239,874 $223,144
==================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest-bearing $ 54,245 $ 53,880
NOW 9,193 8,331
Money Market Demand Accounts 95,687 73,623
Savings 5,976 5,951
Other time certificates 18,926 19,417
Time certificates, $100 and over 23,678 25,520
- --------------------------------------------------------------------------------------------------
Total deposits 207,705 186,722
Short-term borrowings 11,053 17,256
Accrued interest payable and other liabilities 449 1,129
Subordinated debentures 2,475 --
- --------------------------------------------------------------------------------------------------
Total liabilities 221,682 205,107
Shareholders' equity:
Preferred stock, no par value:
4,000,000 shares authorized; none issued -- --
Common stock, no par value: 6,000,000 shares
authorized; shares outstanding: 1,631,667 at
September 30, 1995 and 1,557,008 at December 31, 1994 15,357 14,901
Retained earnings 2,835 3,136
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 18,192 18,037
- --------------------------------------------------------------------------------------------------
TOTAL $239,874 $223,144
==================================================================================================
See notes to consolidated financial statements
3 of 18
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited...dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------------
Interest income:
Interest on loans $4,065 $3,233 $11,884 $9,098
Interest on investment
securities:
Taxable 840 847 2,677 1,580
Non-taxable 7 20 43 76
- -------------------------------------------------------------------------------------
Total Investment securities 847 867 2,720 1,656
Other interest income 186 26 323 137
- -------------------------------------------------------------------------------------
Total interest income 5,098 4,126 14,927 10,891
Interest expense:
Interest on deposits 1,755 1,096 4,746 2,662
Other interest expense 73 106 728 154
- -------------------------------------------------------------------------------------
Total interest expense 1,828 1,202 5,474 2,816
- -------------------------------------------------------------------------------------
Net interest income 3,270 2,924 9,453 8,075
Provision for loan losses 75 450 591 835
- -------------------------------------------------------------------------------------
Net interest income after
provision
for loan losses 3,195 2,474 8,862 7,240
Other income:
Gain on sale of mortgage loans -- 222 138 775
Other loan fees 51 28 99 188
Trust Fees 178 163 469 447
Gain on sale of SBA loans 63 151 213 342
Depositor service fees 78 69 215 203
Other 81 68 219 217
- -------------------------------------------------------------------------------------
Total other income 451 701 1,353 2,172
Operating expenses:
Compensation and benefits 1,694 1,397 4,930 4,454
Occupancy and equipment 430 362 1,217 1,030
Legal settlement & costs -- -- 1,700 --
Professional services 277 109 712 354
FDIC insurance and
regulatory assessments 22 127 282 358
Client services 95 86 256 288
Other real estate, net 1 9 35 41
Other 463 418 1,377 1,145
- -------------------------------------------------------------------------------------
Total operating expenses 2,982 2,508 10,509 7,670
- -------------------------------------------------------------------------------------
Income before income tax expense 664 667 (294) 1,742
Income tax expense (benefit) 260 226 (150) 606
- -------------------------------------------------------------------------------------
Net income (loss) $ 404 $ 441 $ (144) $1,136
=====================================================================================
Net income (loss) per common and
common equivalent share $0.24 $0.27 $(0.08) $.70
- -------------------------------------------------------------------------------------
See notes to consolidated financial statements
4 of 18
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited...dollars in thousands)
Nine Months Ended
September 30
------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------
Cash Flows-Operating Activities:
Net income $ (144) $ 1,136
Reconciliation of net income to net
cash from operations:
Provision for credit losses 591 835
Depreciation and amortization 446 392
Accrued interest receivable and other assets (565) (417)
Accrued interest, expenses and other liabilities (680) 285
Net change in deferred loan fees 139 (33)
Proceeds from sales of loans held for sale 16,364 94,438
Origination of loans held for resale (10,981) (97,062)
Other real estate owned, net 17 31
- ------------------------------------------------------------------------------------------------------
Operating cash flows, net 5,187 (395)
Cash Flows - Investing Activities:
Maturities of investment securities
Held-to-maturity 16,349 7,847
Available-for-sale -- --
Purchase of investment securities Held-to-maturity (8,035) (28,461)
Available-for-sale (2,492) --
Net change in loans (17,475) 1,547
Sale of other real estate owned 358 381
Purchase of life insurance policies (2,381) --
Purchase of premises and equipment (654) (354)
Other net -- 81
- ------------------------------------------------------------------------------------------------------
Investing cash flows, net (14,330) (22,428)
Cash Flows - Financing Activities:
Non-interest bearing deposits, net 365 (11,043)
Interest bearing deposits, net 20,618 1,738
Short-term borrowings, net (6,203) 31,152
Subordinated debt issuance 2,475 --
Stock issued to employees 456 386
Cash dividends (160) (3)
- ------------------------------------------------------------------------------------------------------
Financing cash flows, net 17,551 22,230
- ------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 8,408 (593)
Cash and cash equivalents at beginning of period 19,726 14,350
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 28,134 $ 13,757
======================================================================================================
See notes to consolidated financial statements
5 of 18
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Cupertino National Bancorp ("CUNB" or the "Company") and its
subsidiary, Cupertino National Bank & Trust (the "Bank"). These financial
statements reflect, in management's opinion, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of CUNB's
financial position and the results of its operations and cash flows for the
periods presented. Certain amounts for prior periods have been reclassified to
conform to current period presentation. The results for the three months and
nine months ended September 30, 1995 are not necessarily indicative of the
results expected for any subsequent quarter or for the entire year ending
December 31, 1995. These financial statements should be read in conjunction
with the financial statements for 1994 included in the Annual Report to
Shareholders for 1994.
2. ADOPTION OF ACCOUNTING PRONOUNCEMENT
The Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, on January 1, 1995. Under this new standard, a loan is considered
impaired if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Since most of the Company's loans are
collateral dependent, the calculation of the impaired loans is generally based
on the fair value of the collateral. The adoption of SFAS No. 114 did not
result in any additional provision for credit losses at January 1, 1995.
Income recognition on impaired loans conforms to the method the Company uses for
income recognition on nonaccrual loans. At September 30, 1995, the recorded
investment in loans for which impairment has been recognized in accordance with
SFAS No. 114 totaled $2.5 million, with a corresponding valuation allowance of
$509,000. For the quarter and nine months ended September 30, 1995, the average
recorded investment in impaired loans was approximately $2.5 million and $2.8
million, respectively. The Company did not recognize interest on impaired loans
during the third quarter or the nine months ended September 30, 1995.
3. SHARE AND PER SHARE AMOUNTS
Earnings per common and common equivalent share are calculated based upon the
weighted average number of shares outstanding during the period, plus equivalent
shares representing the effect of dilutive stock options. The number of shares
used to compute earnings per share were 1,716,300 and 1,633,300 for the three
months ended September 30, 1995 and 1994, respectively and 1,702,400 and
1,620,000 for the nine months ended September 30, 1995 and 1994, respectively.
4. SUBORDINATED DEBENTURES
The Company issued $3,000,000 in 11.5% subordinated debentures, $2,475,000 on
September 27, 1995 and $525,000 on October 31, 1995, with a maturity date of
September 15, 2005. The private placement offering was increased to $3.0
million from its original $2.5 million level when it was oversubscribed. The
debentures may be redeemed by the Company beginning October 1998 with a
redemption premium of 5% which declines accordingly to 0% by October 2003. The
funds will be utilized to support asset growth and maintain the well capitalized
status at the Company's subsidiary (the Bank).
6 of 18
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CUNB reported net income for the third quarter of 1995 of $404,000 or $0.24 per
common and common equivalent share, compared to net income of $441,000 or $0.27
per common and common equivalent share, reported in the third quarter of last
year. Return on average assets annualized for the third quarters of 1995 and
1994 were .70% and .85% respectively, while return on average common equity
annualized was 9.00% for the third quarter of 1995, compared with 10.00% for the
third quarter of 1994.
The earnings for the third quarter of 1995 were slightly below the results for
the comparable quarter in 1994 due primarily to lower gains on mortgage and SBA
loan sales, higher professional service expenses and compensation expense due to
the investment of resources in expanding the Bank's trust business in the Palo
Alto marketplace. The decline in the mortgage loan sales will continue, as the
Bank closed its mortgage operations during the first quarter of 1995. SBA loan
sales should increase during the balance of 1995 and into 1996, as the Small
Business Administration received funding from the U.S. Government to continue
its operations. The professional services expense will continue to be higher
than prior years, as will compensation and benefits due to the continued growth
of the Bank.
For the nine months ended September 30, 1995, the Company posted a net loss of
($144,000) or ($0.08) per common and equivalent share, compared to net income of
$1.1 million or $0.70 per common and equivalent share for the same period in
1994. The annualized return on average assets and return on average equity for
the first nine months of 1995 were (.08)% and (1.06)% respectively, compared to
.82% and 9.03% for the comparable period in 1994. The 1995 year-to-date loss
included approximately $2,160,000 in non-recurring expenses ($1.3 million net of
tax) related to the legal settlement of $1,700,000 recorded in the second
quarter of 1995 and $460,000 in first quarter 1995 charges related to the
closing of the Bank's mortgage operations, the costs incurred related to
canceled merger discussions, and severance payments to a former executive
officer. Excluding these charges, net income for the nine months ended
September 30, 1995 would have been $1.2 million with an adjusted return on
average assets and shareholders equity of .72% and 9.54% respectively.
Non-performing assets (including nonaccrual loans, loans 90 days past due and
OREO) totaled $2.9 million at September 30, 1995, a decrease of $2.1 million
from December 31, 1994, and a decrease of $1.6 million from September 30, 1994.
The ratio of non-performing assets to loans plus foreclosed properties was 1.96%
at September 30, 1995, down from 3.60% at December 31, 1994 and 3.49% at
September 30, 1994. The Bank's portfolio of classified assets declined to $8.6
million, or 3.61% of total assets, at September 30, 1995, from $13.1 million or
5.86% of total assets at December 31, 1994 and $12.3 million or 5.69% of total
assets at September 30, 1994.
The reserve for loan losses was $2.5 million at September 30, 1995, compared
with $2.9 million at December 31, 1994 and $2.3 million at September 30, 1994.
The provision for loan losses was $75,000 for the third quarter of 1995, a
substantial decrease from the $450,000 recorded in the third quarter of 1994.
The reduced provision for the third quarter of 1995 was reflective of improved
credit quality, as the Company continued to experience reductions in classified
and non-performing assets. For the first nine months of 1995, the provision for
loan losses was $591,000, a decrease of $244,000 over the first nine months of
1994. Net charge-offs were $987,000 for the first nine months of 1995, compared
to $858,000 for the first nine months of 1994. The ratio of the reserve for
loan losses to non-performing assets was 85.66% at September 30, 1995, compared
with 58.47% at December 31, 1994 and 50.67% at September 30, 1994.
7 of 18
Shareholders' equity increased $155,000 to $18.2 million, or 7.6% of assets, at
September 30, 1995 from $18.0 million or 8.08% of assets at December 31, 1994.
The decline in the ratio was due to the growth in assets in the first nine
months of 1995, coupled with the legal settlement charge recorded in the second
quarter of 1995, and a dividend payment made to shareholders during the second
quarter, which were offset by core earnings and the exercise of stock options
during the year.
CUNB's Tier 1 and Total Risk-based capital ratios were 9.84% and 12.4% at
September 30, 1995, respectively, compared with 10.8% and 12.1% at December 31,
1994, respectively. The Leverage ratio declined to 7.9% at September 30, 1995,
from 8.4% at December 31, 1994. The decline in the leverage ratio reflects the
growth in assets. The increase in the risk based ratio reflect the issuance of
$2.5 million in subordinated debentures that occurred in September 1995. At
September 30, 1995, CUNB's Risk-based capital and Leverage ratios, as well as
those of the Bank, exceeded the ratios for a well-capitalized financial
institution as defined in FDICIA under the prompt corrective action regulations.
The Company will seek to maintain its well capitalized position to ensure
flexibility in its operations.
CUNB's common stock closed at $10.00 per share on September 30, 1995,
representing approximately 90% of the $11.15 book value per common share,
compared with $9.38 per share and 85% of the $11.02 book value per common share
at June 30, 1995.
NET INTEREST INCOME
The following are the Company's average balance sheet, net interest income and
interest rates for the periods presented:
Three Months Ended Three Months Ended Three Months Ended
September 30, 1995 June 30, 1995 September 30, 1994
----------------------------- --------------------------- --------------------------
Avg. Avg. Avg.
Avg. Yield/ Avg. Yield/ Avg. Yield/
($ in 000's) Bal. Int. Rate Bal. Int. Rate Bal. Int. Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Loans (2) (4) $145,729 $4,065 11.16% $145,249 $4,021 11.07% $129,223 $3,239 10.00%
Investment securities, short term
investments and cash equivalents 66,943 1,033 6.17% 67,948 1,046 6.16% 61,288 897 5.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets (3b) 212,672 5,098 9.59% 213,197 5,067 9.51% 190,511 4,136 8.68%
Noninterest-earning assets 18,433 17,068 15,869
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $231,105 $230,265 $206,380 $4,136
====================================================================================================================================
Interest bearing liabilities:
Deposits:
NOW and MMDA $107,446 $1,102 4.10% $ 88,998 $ 903 4.06% 77,798 590 3.03%
Savings deposits 5,639 48 3.40% 4,759 42 3.51% 7,464 54 2.89%
Time deposits 44,369 605 5.45% 49,188 680 5.53% 45,170 452 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 157,454 1,755 4.46% 142,945 1,625 4.55% 130,432 1,096 3.36%
Borrowings 4,948 73 5.90% 18,414 288 6.26% 8,896 106 4.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 162,402 1,828 4.50% 161,359 1,913 4.74% 139,328 1,202 3.45%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 50,119 49,365 48,609
Other noninterest-bearing liabilities 622 1,202 810
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing
liabilities 50,741 50,567 49,419
Shareholders' equity 17,962 18,339 17,633
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $231,105 $230,265 $206,380
======== ======== ========
Net interest income; interest
rate spread (3a) $3,270 5.09% $3,154 4.77% $2,934 5.23%
====== ====== ======
Net margin 6.10% 5.93% 6.11%
====================================================================================================================================
1) Average balances are computed using an average of the daily balances during
the period.
2) Nonaccrual loans are included in the average balance column; however, only
collected interest on such loans is included in the interest column.
3) The net margin on interest-earning assets during the period equals (3a) the
difference between the interest income on interest-earning assets and
interest expense on interest-bearing liabilities, divided by (3b) average
interest-earning assets for the period,
4) Loan fees totaling $249, $209 and $235 are included in loan interest income
for the periods ended September 30, 1995, June 30, 1995 and September 30,
1994, respectively.
8 of 18
Three months ended September 30, 1995 Three months ended September 30, 1995
compared with June 30, 1995 compared with September 30, 1994
favorable (unfavorable) favorable (unfavorable)
(Dollars in thousands) Volume Rate Net Volume Rate Net
- ---------------------------------------------------------------------------------------------------------------------
Interest income
Loans $ 13 $ 31 $ 44 $ 461 $ 376 $ 826
Investments
Cash equivalents (16) 3 (13) 87 49 136
- ---------------------------------------------------------------------------------------------------------------------
Total interest income on
interest earning assets: (3) 34 31 548 425 962
Interest expense
NOW and MMDA (189) (10) (199) (304) (208) (512)
Savings deposits (7) 1 (6) 16 (10) 6
Time Deposits 65 10 75 11 (164) (153)
- ---------------------------------------------------------------------------------------------------------------------
Total Deposits (131) 1 (130) (277) (382) (659)
Interest expense on borrowings 199 16 215 58 (25) 33
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense on
interest bearing liabilities 68 17 85 (219) (407) (626)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
interest income $ 65 $ 51 $ 116 $ 329 $ 18 $ 336
===== ==== ===== ===== ===== =====
(1) In the analysis, the change due to the volume rate variance has been
allocated to volume
CUNB's net interest income for the third quarter of 1995 was $3.3 million, a
$100,000 increase over the second quarter of 1995. When compared to the second
quarter of 1995, average earning assets (primarily investment securities),
decreased by $525,000, while the net yield on earning assets increased slightly
from 9.51% in the second quarter of 1995 to 9.59% in the third quarter of 1995.
This was mainly due to improved pricing on loan products. The average yield on
loans for the third quarter of 1995 was also affected to some extent by non-
accruing loans and higher accrued loan fees.
Compared to the third quarter of 1994, average earning assets during the third
quarter of 1995 increased by $22.2 million. This was primarily due to an
increase in loan portfolio coupled with a $5.7 million increase in the
investment security portfolio. Average loans in the third quarter of 1995
increased by $16.5 million, 12.77% over the third quarter of 1994.
9 of 18
The following are the Company's average balance sheet, net interest income and
interest rates for the periods presented:
Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1994
------------------ ------------------
Avg. Avg.
Avg. Yield/ Avg. Yield/
($ in 000's) Bal. Int. Rate Bal. Int. Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Loans (2) (4) $143,710 $11,884 11.03% $128,439 $ 9,096 9.44%
Investment securities, short term
investments and cash equivalents 66,007 3,043 6.15% 48,242 1,795 4.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (3b) 209,717 14,927 9.52% 176,681 10,891 8.24%
Noninterest-earning assets 16,852 16,521
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $226,569 $193,202
====================================================================================================================================
Interest bearing liabilities:
Deposits:
NOW and MMDA $ 92,343 $ 2,780 4.01% $ 72,403 $ 1,484 2.73%
Savings deposits 5,379 138 3.41% 6,529 124 2.54%
Time deposits 45,271 1,828 5.38% 39,666 1,054 3.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 142,993 4,746 4.43% 118,598 2,662 2.99%
Borrowings 15,877 728 6.11% 4,724 154 4.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 158,870 5,474 4.59% 123,322 2,816 3.04%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 48,526 52,410
Other noninterest-bearing liabilities 963 428
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities 49,489 52,838
Shareholders' equity 18,210 17,042
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $226,569 $193,202
======== ========
Net interest income; interest rate spread (3a) $9,453 4.93% $ 8,075 5.20%
====== =======
Net margin 6.04% 6.11%
====================================================================================================================================
1) Average balances are computed using an average of the daily balances during
the period.
2) Nonaccrual loans are included in the average balance column; however, only
collected interest on such loans is included in the interest column.
3) The net margin on interest-earning assets during the period equals (3a) the
difference between the interest income on interest-earning assets and interest
expense on interest-bearing liabilities, divided by (3b) average interest-
earning assets for the period,
4) Loan fees totaling $644 and $677 are included in loan interest income for
the periods ended September 30, 1995, and September 30, 1994, respectively.
Nine months ended September 30, 1995
compared with September 30, 1994
favorable (unfavorable)
(Dollars in thousands) Volume Rate Net
- --------------------------------------------------------------------------------
Interest income on loans $ 1,263 $ 1,525 $ 2,788
Interest on investment
securities, short-term
investments and cash equivalents 819 429 1,248
- --------------------------------------------------------------------------------
2,082 1,954 4,036
Interest expense on deposits
NOW and MMDA (600) (696) (1,296)
Savings deposits 30 (43) (14)
Time Deposits (226) (548) (774)
- --------------------------------------------------------------------------------
(796) (1,287) (2,084)
Interest expense on borrowings (511) (63) (574)
- --------------------------------------------------------------------------------
Total interest expense on interest bearing
liabilities (1,307) (1,350) (2,658)
- --------------------------------------------------------------------------------
Increase (decrease) in net
interest income $ 775 $ 604 $ 1,378
======= ======= =======
(1) In the analysis, the change due to the volume rate variance has been
allocated to volume
10 of 18
For the nine month period ended September 30, 1995, the company experienced an
increase in net interest income of $1.4 million when compared to the comparable
period of 1994. This increase was mainly due to the increased volume in the
lending and securities portfolios, and higher interest rates received on these
assets, partly offset by higher interest expense rates on increased volumes of
deposits and other short term borrowings. For the nine months ended September
30, 1995, the Company's net interest margin of 6.03% reflected a decline from
6.11% for the same period in 1994. This again was due to the shift in the
Company's asset and liability mix as discussed above, as well as increased
competition for deposits and loans.
The trend of interest rates in the economy has reversed, and it appears that
interest rates will level off or possibly decline slightly for the remainder of
1995, as the Federal Reserve attempts to control inflation, but achieve a "soft
landing". If the interest rates remain relatively flat, the Bank's net interest
margin should remain relatively stable.
The Company provides client services to several of its noninterest-bearing
demand deposit customers. The amount of credit available to clients is based on
a calculation of their average noninterest-bearing deposit balance, adjusted for
float and reserves, multiplied by an earnings credit rate, generally the 90-day
T-Bill rate. The credit can be utilized to pay for services including messenger
service, account reconciliation and other similar services. If the cost of the
services provided exceeds the available credit, the customer is charged for the
difference.
The impact of this expense on the Company's net interest spread and net yield on
interest earning assets was as follows:
Three Months Ended Nine Months Ended
-------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $50,119 $48,609 $48,526 $52,177
Client Service expense 95 86 256 288
Client Service cost annualized .76% .71% .70% .74%
Impact on Net Yield
- -------------------
Net yield on interest earning assets 6.10% 6.09% 6.01% 6.11%
Impact of client services (.18) (.18) .16 (.22)
---- ------- ------- -------
Adjusted net yield (1) 5.92% 5.91% 5.85% 5.89%
==== ======= ======= =======
(1) Noninterest-bearing liabilities are included in cost of funds calculation
to determine adjusted spread.
The negative impact on the net yield on interest earning assets is caused by
off-setting net interest income by the cost of client service expenses, which
reduces the yield on interest earning assets. The cost for client service
expense has been relatively stable, and reflects the Company's efforts in the
management of client service expense.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is measured as the difference between the volumes of
assets and liabilities in the Bank's current portfolio that are subject to
repricing at intervals of (1) one day or immediate, (2) two days to six months,
(3) seven to twelve months, (4) one to five years, (5) over five years and (6)
on a cumulative basis. Allocations of assets and liabilities, including
noninterest-bearing sources of funds, to specific periods are based upon
management's assessment of contractual or anticipated repricing characteristics.
The
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differences between the volumes of assets and liabilities are known as
"sensitivity gaps". The following table shows interest sensitivity gaps for
different intervals at September 30, 1995:
INTEREST SENSITIVITY REPORT
CUPERTINO NATIONAL BANK & TRUST Repricing Periods
====================================================================================================================================
(Dollars in thousands) Greater Greater Total Total
Day Months Months than 1 Year than Rate Non-Rate
One 1-6 7-12 to 5 Years 5 Years Sensitive Sensitive Total
====================================================================================================================================
Assets:
Cash & due from Banks $ -- $ -- $ -- $ -- $ -- $ -- $ 12,634 $ 12,634
Short term investments 15,500 -- -- -- -- -- -- 15,500
Investment securities 6,560 13,459 18,985 14,722 53,726 960 54,686
Loans 127,128 911 3,474 8,485 6,624 146,5 22 3,341 149,963
Other assets -- -- -- -- -- -- 10,047 10,047
Loan loss & unearned fees -- -- -- -- -- -- (3,230) (3,230)
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $142,628 $ 7,471 $16,933 $27,470 $21,346 $ 215,848 $ 23,752 $239,600
====================================================================================================================================
Liabilities & equity:
Deposits
Demand -- -- -- -- -- -- 54,803 54,803
NOW, MMDA, and Savings 111,258 -- -- -- -- 111,258 -- 111,258
Time deposits -- 29,415 7,604 5,397 58 42,474 -- 42,474
Other borrowed funds 11,053 -- -- -- -- 11,053 -- 11,053
Other liabilities -- -- -- -- -- -- 2,868 2,868
Shareholder's equity -- -- -- -- -- -- 17,144 17,144
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liability & Equity $122,311 $ 29,415 $ 7,604 $ 5,397 $ 58 $ 164,785 $ 74,815 $239,600
====================================================================================================================================
Total asset GAP
GAP $ 20,317 ($21,944) $ 9,329 $22,073 $21,288 $ 51,063 ($51,063) --
Cumulative GAP $ 20,317 ($1,627) $ 7,702 $29,775 $51,063 $ 41,063 $ 0 --
Cumulative GAP/Total assets 8.48% (.68)% 3.21% 12.43% 21.31% 21.31% 0% --
The management of interest rate sensitivity, or interest rate risk management,
is a function of the repricing characteristics of the Bank's portfolio of assets
and liabilities. These repricing characteristics are subject to changes in
interest rates either as replacement, repricing or maturity during the life of
the instruments. Interest rate risk management focuses on the maturity
structure of assets and liabilities and their repricing characteristics during
periods of changes in market interest rates. Effective interest rate risk
management seeks to ensure that both assets and liabilities respond to changes
in interest rates within an acceptable time frame, thereby reducing the effect
of interest rate movements on net interest income.
Changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing of
both the asset and its supporting liability can remain the same, thus impacting
net interest income. This characteristic is referred to as a "basis risk" and,
generally, relates to the repricing characteristics of short-term funding
sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities which are not reflected in the interest
sensitivity table above. These prepayments may have significant effects on the
Bank's net interest margin. Because of these factors, the interest sensitivity
gap report may not provide a complete assessment of the Bank's exposure to
changes in interest rates.
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NON-INTEREST INCOME Quarter Ended
- -------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(in thousands) 1995 1995 1995 1994 1994
- -------------------------------------------------------------------------------------------------------
Gain on sale of mortgage
loans $ -- $ 51 $ 85 $ 218 $ 222
Loan fees 51 22 20 78 39
Trust fees 178 135 156 146 163
Gain on sale of SBA loans 63 45 105 343 151
Depositor service fees 78 67 71 64 69
Other 81 87 56 59 57
- -------------------------------------------------------------------------------------------------------
Total other income $ 451 $ 407 $ 493 $ 908 $ 701
- -------------------------------------------------------------------------------------------------------
Non-interest income was $451,000 for the third quarter of 1995, an increase of
$44,000 from the second quarter of 1995, and a decrease of $250,000 from the
third quarter of 1994. The increase from the second quarter of 1995 was due to
the $43,000 increase in trust fees. It is anticipated this trend will continue
as the trust department increases their assets under management.
NON-INTEREST EXPENSE Quarter Ended
- ---------------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(in thousands) 1995 1995 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------------
Compensation and benefits $1,694 $1,600 $1,635 $1,270 $1,397
Occupancy and equipment 430 392 396 372 362
Professionals services 277 230 204 307 109
Legal settlement and costs -- 1,700 -- 250 --
FDIC insurance and
assessments 22 135 125 127 127
Supplies, telephone and
postage 109 108 128 119 110
Data processing 39 30 33 29 32
Client services 95 91 70 86 86
Other real estate, net 1 (7) 41 7 9
Other 315 321 295 208 276
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses $2,982 $4,600 $2,927 $2,775 $2,508
====== ====== ====== ====== ======
Non-interest expenses were $3.0 million for the third quarter of 1995, a
decrease of $1.6 million from the second quarter of 1995, and an increase of
$500,000 from the third quarter of 1994. The decrease from the second quarter
of 1995 is attributed to the one time charge of $1.7 million in the second
quarter of 1995 for legal settlement in the trust department. In addition the
third quarter of 1995 benefited from a refund of FDIC deposit insurance premium
of approximately $85,000. The Company's FDIC insurance premium will continue to
be lower than prior periods, as the FDIC insurance fund has been recapitalized
allowing all banks to benefit from lower premiums. The increase in the third
quarter of 1995, when compared to the third quarter of 1994, was primarily due
to increased compensation and benefits expense.
INCOME TAXES
CUNB's income tax expense was provided according to statutory ratios in effect
for the current year, offset by deductions for certain tax credits. CUNB did
not require a valuation allowance related to its deferred tax asset.
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FINANCIAL CONDITION
CAPITAL RATIOS
The Company's and the Bank's risk-based capital and leverage ratios were as
follows:
- --------------------------------------------------------------------------------------------------------
CAPITAL RATIOS September 30, June 30, March 31, December 31, September 30,
(in thousands) 1995 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------------
Consolidated Company
- --------------------
GAAP equity ratio:
GAAP equity $ 18,192 $ 17,622 $ 18,355 $ 18,037 $ 17,872
Total assets 239,874 243,579 233,261 223,144 216,318
Equity to assets ratio 7.58% 7.23% 7.87% 8.08% 8.26%
Leverage ratio:
GAAP equity $ 18,192 $ 17,622 $ 18,355 $ 18,037 $ 17,872
Average quarterly assets 231,105 230,265 223,093 214,889 206,467
Leverage capital ratio 7.87% 7.65% 8.23% 8.39% 8.66%
Minimum requirement 3.00% 3.00% 3.00% 3.00% 3.00%
Well capitalized requirement 5.00% 5.00% 5.00% 5.00% 5.00%
Risk-based Capital Ratios:
Tier I capital $ 18,192 $ 17,622 $ 18,355 $ 18,037 $ 17,872
Tier II capital allowed 4,785 2,288 2,268 2,082 2,086
- --------------------------------------------------------------------------------------------------------
Total risk-based capital $ 22,977 $ 19,910 $ 20,623 $ 20,119 $ 19,958
========================================================================================================
Risk-based assets 184,830 183,000 181,474 166,592 166,889
Tier I risk-based capital ratio 9.84% 9.63% 10.11% 10.83% 10.71%
Minimum requirement 4.00% 4.00% 4.00% 4.00% 4.00%
Well capitalized requirement 6.00% 6.00% 6.00% 6.00% 6.00%
Total Risk-based Capital Ratio 12.43% 10.88% 11.36% 12.08% 11.96%
Minimum requirement 8.00% 8.00% 8.00% 8.00% 8.00%
Well capitalized requirement 10.00% 10.00% 10.00% 10.00% 10.00%
========================================================================================================
Bank Only
- ---------
GAAP equity ratio:
GAAP equity $ 17,140 $ 16,732 $ 16,962 $ 16,851 $ 16,624
Total assets 239,597 243,579 233,205 222,839 216,312
Equity to assets ratio 7.15% 6.87% 7.27% 7.56% 7.69%
Leverage ratio:
GAAP equity $ 17,140 $ 16,732 $ 16,962 $ 16,851 $ 16,624
Regulatory Accounting
Adjustment 4 (30) (65) (65) (57)
- --------------------------------------------------------------------------------------------------------
Regulatory Equity $ 17,144 $ 16,702 $ 16,897 $ 16,786 $ 16,567
- --------------------------------------------------------------------------------------------------------
Average quarterly assets $230,911 $230,109 $222,901 $214,785 $206,367
Leverage capital ratio 7.42% 7.26% 7.58% 7.82% 8.03%
Minimum requirement 3.00% 3.00% 3.00% 3.00% 3.00%
Well capitalized requirement 5.00% 5.00% 5.00% 5.00% 5.00%
Risk-based Capital Ratios:
Tier I capital $ 17,144 $ 16,732 $ 16,897 $ 16,786 $ 16,567
Tier II capital 4,783 2,285 2,268 2,079 2,084
- --------------------------------------------------------------------------------------------------------
Total risk-based capital $ 21,927 $ 19,017 $ 19,165 $ 18,865 $ 18,651
========================================================================================================
Risk-based assets $184,607 $182,837 $181,417 $166,288 $166,691
Tier I risk-based capital ratio 9.29% 9.15% 9.31% 10.09% 9.94%
Minimum requirement 4.00% 4.00% 4.00% 4.00% 4.00%
Well capitalized requirement 6.00% 6.00% 6.00% 6.00% 6.00%
Total Risk-based Capital Ratio 11.88% 10.40% 10.56% 11.34% 11.19%
Minimum requirement 8.00% 8.00% 8.00% 8.00% 8.00%
Well capitalized requirement 10.00% 10.00% 10.00% 10.00% 10.00%
========================================================================================================
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The Bank's Tier 1 and Total Risk-based capital ratios were 9.29% and 11.88%
respectively, at September 30, 1995, compared with 10.09% and 11.34%,
respectively, at December 31, 1994, and 9.94% and 11.19% respectively, at
September 30, 1994. The leverage ratio, a measure of Tier 1 capital to average
quarterly assets, was 7.42% at September 30, 1995, compared to 7.82% at December
31, 1994 and 8.03% at September 30, 1994. To be considered well capitalized as
defined under the regulatory framework for prompt corrective action, an
institution must have a risk-based Tier 1 capital ratio of 6.0% or greater, a
risk-based total capital ratio of 10% or greater and a leverage ratio of 5.0% or
greater. The Bank's risk-based capital and leverage ratios have exceeded the
ratios for a well capitalized financial institution for all periods presented
above.
The Company issued $3,000,000 in 11.5% subordinated debentures, $2,475,000 on
September 27, 1995 and $525,000 on October 31, 1995, with a maturity date of
September 15, 2005. The private placement offering was increased to $3.0
million from its original $2.5 million level when it was oversubscribed. The
debentures may be redeemed by the Company beginning October 1998 with a
redemption premium of 5% which declines accordingly to 0% by October 2003. The
funds will be utilized to support asset growth and maintain the well capitalized
status at the Company subsidiary (the Bank).
The Company and the Bank seek to maintain capital ratios at levels that will
maintain their status as a well capitalized financial institution.
LIQUIDITY
Liquidity is defined as the ability of a company to convert assets into cash or
cash equivalents without significant loss, and to raise additional funds by
increasing liabilities. Liquidity management involves maintaining the Bank's
ability to meet the day-to-day cash flow requirements of the Bank's clients who
either want to withdraw funds or require funds to meet their credit needs.
Through an Asset Liability Management Committee, the Bank actively monitors its
commitments to fund loans, as well as the composition and maturity schedule of
its loan and deposit portfolios. To manage its liquidity, the Bank maintains
$20 million in inter-bank Fed Fund purchase lines, as well as $100 million in
institutional deposit or brokered deposit lines, and $60 million in reverse
repurchase lines.
PROVISION AND RESERVE FOR LOAN LOSSES
The following schedule details the activity in the Bank's reserve for loan
losses and related ratios for each of the last five quarters:
Quarter ended
- -----------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(in millions) 1995 1995 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------
Reserve for loan losses at
beginning of period $2,454 $2,359 $ 2,918 $2,286 $1,951
Provision charged to operations 75 85 431 785 450
Loans charged off 15 (4) (1,001) (153) (123)
Loan recoveries 8 14 11 -- 8
- -----------------------------------------------------------------------------------------------------------
Reserve for loan losses at
end of period $2,522 $2,454 $ 2,359 $2,918 $2,286
===========================================================================================================
Ratio of:
Reserve for loan losses to loans 1.69% 1.70% 1.60% 2.09% 1.66%
Reserve for loan losses to
Nonperforming assets 85.90% 68.33% 78.66% 58.47% 50.67%
- -----------------------------------------------------------------------------------------------------------
The provision for loan losses was $75,000 in the third quarter of 1995, down
slightly from the $85,000 in the second quarter of 1995, and significantly from
the $450,000 in the third quarter of 1994.
Management considers changes in the size and character of the loan portfolio,
changes in non-performing and past due loans, historical loan loss experience,
and the existing and prospective economic conditions when
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determining the adequacy of the loan loss reserve. The reserve for loan losses
was $2.5 million at September 30, 1995, compared with $2.3 million at September
30, 1994.
The ratio of the reserve for loan losses to total loans was 1.69% at September
30, 1995, compared with 1.70% at June 30, 1995, and 1.66% at September 30,
1994. The ratio of the reserve for loan losses to total nonperforming assets,
including foreclosed real estate, was 85.90% at September 30, 1995, compared to
68.33% at June 30, 1995 and 50.67% at September 30, 1994.
NON-ACCRUING LOANS, RESTRUCTURED LOANS, ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AND FORECLOSED PROPERTIES
- -----------------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(in millions) 1995 1995 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------
Non-accruing loans $2,539 $2,426 $2,743 $3,244 $3,162
Restructured loans -- -- -- -- --
Accruing loans past due 90 days or more 405 1,166 256 1,371 762
- -----------------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,944 3,592 2,999 4,615 3,924
OREO -- -- -- 375 587
------ ------ ------ ------ ------
Total nonperforming assets $2,944 3,592 $2,999 $4,990 $4,511
=================================================================================================================
Total nonperforming loans to total assets 1.22% 1.47% 1.29% 2.24% 2.08%
=================================================================================================================
Total nonperforming assets were $2.9 million at September 30, 1995, compared
with $3.6 million at June 30, 1995, and $4.5 million at September 30, 1994.
Nonperforming loans, which includes non-accruing loans, restructured loans, and
accruing loans which are past due 90 days or more, were $2.9 million at
September 30, 1995, compared with $3.6 million at June 30, 1995, and $3.9
million at September 30, 1994.
Accruing loans past due 90 days or more, which are well secured and in the
process of collection, were $405,000 at September 30, 1995, compared with $1.2
million at June 30, 1995, and $762,000 at September 30, 1994. It is the Bank's
policy to discontinue the accrual of interest when the ability of a borrower to
repay principal or interest is in doubt, or when a loan is past due 90 days or
more, except when, in management's judgment, the loan is well secured and in the
process of collection.
At September 30, 1995, the Bank had no foreclosed properties at the end of the
first three quarters of 1995, compared with $375,000 at December 31, 1994, and
$587,000 at September 30, 1994.
The Bank has an active credit administration function which includes, in
addition to internal reviews, the regular use of an outside loan review firm to
review the quality of the loan portfolio. Senior management, and an internal
asset review committee review problem loans on a regular basis.
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on industrial concerns, primarily because its assets and
liabilities consist largely of monetary items. The most direct effect of
inflation on a financial institution is fluctuation in interest rates. However,
net interest income is affected by the spread between interest rates received on
assets and those 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 increases in occupancy expenses based on
consumer price indices. In the opinion of management, inflation has not had
material effect on the operating results of the Company.
16 of 18
PART II. OTHER INFORMATION
In July 1995, the Bank entered into an agreement with Sumitomo Bank
("Sumitomo") to settle litigation brought against the Bank by Sumitomo, as
trustee for the California Dental Guild Mortgage Fund II, alleging that the Bank
did not perform its fiduciary duties as a trustee properly. Under the settlement
agreement, the Bank made a payment of $1,850,000 to fully settle the litigation
on July 21, 1995. The settlement amount had been accrued in the second quarter
of 1995.
The Company believes, based on the advice of counsel, that it is highly probable
that insurance coverage for a significant portion of this settlement amount is
available under its director and officer liability insurance policy and its
professional liability insurance policy, as well as the errors and omissions
policy of the insurance agent which sold the Company these policies. The
company's insurance company has denied the Company's claim for coverage under
these policies, and the Company has initiated litigation against the insurance
company as well as the agent from whom the Company obtained such policies.
However, due to the uncertainty associated with recovery under its claims, the
Company has reflected the expense of the legal settlement in second quarter 1995
earnings.
ITEM 6 - Exhibits and Reports on Form 8-K
The Exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Report.
(a) Exhibits
10.12 Litigation Settlement filed as Exhibit 10.12 of Registrant's
Exhibits
10.13 Emerson Lease filed as Exhibit 10.13 of Registrant's Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K for the quarter covered by this report
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CUPERTINO NATIONAL BANCORP
(Registrant)
By:
/s/ Steven C. Smith
- -------------------------------
Steven C. Smith
Executive Vice President, Chief Operating Officer
& Chief Financial Officer
Date: November 14, 1995
17 of 18
Index to Exhibits
Number Exhibit
- ------ -------
3.1 Amended Articles of Incorporation of Cupertino National
Bancorp - filed as Exhibit 4.1 of Registrant's Exhibits to
Form S-8 Registration Statement (N0. 33-36057), as filed with
the Securities and Exchange Commission (the "Commission") on
July 25, 1990 and incorporated herein by reference.
3.2 Bylaws of Cupertino National Bancorp--filed as Exhibit of
Registrant's Exhibits to Form S-8 Registration Statement (No.
33-36057), as filed with the Commission on July 25, 1990 and
incorporated herein by reference.
4.1 Specimen Stock Certificate filed as Exhibit 4.1 of
Registrant's Exhibits to Form S-2 Registration Statement (No.
33-30297), as filed with the Commission on August 2, 1989 and
incorporated herein by reference.
4.2 Form of Subordinated Debentures filed as Exhibit 1 of
Registrant's Exhibits to form 8-K as filed with the Commission
on October 25, 1995 and incorporated herein by reference.
10.12 Litigation Settlement filed as Exhibit 10.12 of Registrant's
Exhibits
10.13 Emerson Lease filed as Exhibit 10.13 of Registrant's Exhibits
10.14 1995 Stock Option Plan as Exhibit 10.14 of Registrant's Form
S-8 registration statement filed with Commission on
September 7, 1995 and incorporated herein by reference.
10.15 Cupertino National Bancorp 104(k) Profit Sharing Plan as
Exhibit 10.15 of Registrant's Form S-8 registration statement
filed with Commission on September 7, 1995 and incorporated
herein by reference.
10.16 Cupertino National Bancorp Employee Stock Purchase Plan as
Exhibit 10.16 of Registrant's Form S-8 registration statement
filed with Commission on September 7, 1995 and incorporated
herein by reference.
27 Financial Data Schedule
18