FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ending MARCH 31, 1997
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Commission file number 0-27856
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CALIFORNIA COMMUNITY BANCSHARES CORPORATION
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 68-0366324
- ------------------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 Mason Street, Suite 280, Vacaville, CA 95688-4612
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(Address of principal executive offices) (ZIP Code)
(707) 448-1200
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,000,317
Transitional Small Business Disclosure Format (check one): YES [ ] NO [ X ]
INDEX
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION 3
Item 1 - Financial Statements 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Statements of Cash Flows 5
Condensed Consolidated Statement of Changes in Shareholders' Equity 6
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
And Results of Operations 7
Overview 7
Condensed Comparative Income Statement 9
Net Interest Income / Net Interest Margin 9
Analysis of Changes in Net Interest Margin on Average
Earning Assets 11
Analysis of Volume and Rate Changes on Net Interest Income
and Expense 12
Provision for Loan Losses 13
Noninterst Income 13
Noninterst Expense 13
Net Income 13
Loans 14
Securities 14
Nonperforming Assets 14
Allowance for Loan Losses 15
Liquidity 16
Equity 17
PART II - OTHER INFORMATION 18
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports of Form 8-K 19
SIGNATURES 19
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
California Community Bancshares Corporation
(In Thousands, except share information)(Unaudited)
-------- --------
ASSETS 03/31/97 12/31/96
-------- --------
Cash and due from banks $ 10,349 $ 10,825
Federal funds sold 4,325 6,115
-------- --------
Total cash and cash equivalents 14,674 16,940
Available for sale securities, at fair value 50,757 52,569
Loans receivable: 116,369 113,625
Less: Allowance for loan losses 1,137 1,101
Deferred loan fees 588 599
-------- --------
Net loans receivable 114,644 111,925
Premises and equipment, net of accumulated depr. 2,285 2,284
Investments in real estate development 4,454 4,483
Other real estate owned 150 150
Goodwill 531 540
Accrued interest receivable and other assets 2,877 2,938
-------- --------
TOTAL ASSETS $190,372 $191,829
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non interest bearing $ 27,071 $ 26,882
Interest bearing:
Transaction 23,164 21,467
Savings 59,434 61,298
Time:
$100,000 or more 21,309 20,881
Other time 38,734 39,815
-------- --------
Total deposits 169,712 170,343
Repurchase agreements 322 992
Other borrowed funds 2,650 2,650
Accrued interest payable and other liabilities 500 785
Convertible subordinated debentures 3,675 3,690
-------- --------
TOTAL LIABILITIES $176,859 $178,460
SHAREHOLDERS' EQUITY
Preferred Stock, no par value, Series A,
authorized 1,000,000 shares; none outstanding 0 0
Common stock, $.10 par value, authorized
4,000,000 shares; Outstanding, 1,000,317 at
March 31, 1997 and 994,519 at December 31, 1996 11,199 11,135
Retained earnings 2,724 2,510
Unrealized loss on available for sale
securities (net of tax) ( 410) ( 276)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 13,513 13,369
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $190,372 $191,829
======== ========
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
California Community Bancshares Corporation
(In Thousands, Except Earnings per Common Share)(Unaudited)
---------------------
For the Three Months
Ended March 31,
---------------------
1997 1996
--------- ---------
INTEREST INCOME:
Loans and Loan Fees $ 2,638 $ 2,623
Securities:
Taxable 720 353
Exempt from Federal Tax 60 93
Federal Funds Sold 29 14
--------- ---------
Total Interest Income $ 3,447 $ 3,083
INTEREST EXPENSE:
Time Deposits $100,000 or More $ 278 $ 254
Other Deposits 1,123 905
Federal Funds and Repurchase
Agreements Purchased 7 15
Other Borrowed Funds 56 1
Convertible Subordinated Debentures 74 80
--------- ---------
Total Interest Expense 1,538 1,255
--------- ---------
NET INTEREST INCOME 1,909 1,828
PROVISION FOR LOAN LOSSES 89 114
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,820 1,714
--------- ---------
NONINTEREST INCOME:
Service Charges on Deposit Accounts 216 193
Net Gain on Sale of AFS Securities 42 1
Other Fees and Charges 82 190
--------- ---------
Total Noninterest Income 340 384
--------- ---------
NONINTEREST EXPENSES:
Salaries and Employee Benefits 832 820
Occupancy 300 289
Other 460 412
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Total Noninterest Expenses 1,592 1,521
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INCOME BEFORE PROVISION INCOME TAXES 568 577
PROVISION FOR INCOME TAXES 204 215
--------- ---------
NET INCOME $ 364 $ 362
========= =========
NET INCOME PER COMMON
AND EQUIVALENT SHARE:
Primary $ 0.35 $ 0.36
========= =========
Fully Diluted $ 0.30 $ 0.31
========= =========
Weighted Average Shares Used to
Compute Income Per Common and
Equivalent Shares:
Primary 1,052,807 1,004,138
Fully Diluted 1,341,043 1,319,432
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
STATEMENTS OF CASH FLOWS
California Community Bancshares Corporation
(In Thousands)(Unaudited)
-----------------------
Three Months Ended
March 31,
-----------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 364 $ 362
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 194 166
Provision for Loan Losses 89 114
Net Gain on the Sale of Available
for Sale Securities ( 42) ( 1)
Gain on the Sale of Premises and Equipment ( 2) ( 7)
Effect of Changes in:
Interest Receivable and Other Assets 70 236
Interest Payable and Other Liabilities ( 285) ( 353)
-------- --------
Net Cash Provided by Operating Activities 388 517
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Available for Sale Securities ( 3,905) ( 535)
Proceeds from Sales of Available for Sale Securities 4,001 0
Proceeds from Maturities, Calls or Repayments of
Available for Sale Securities 1,572 541
Net Change in Loans Receivable ( 2,808) ( 80)
Purchases of Premises and Equipment ( 126) ( 172)
Proceeds from Sales of Premises and Equipment 14 14
Change in Investments in Real Estate Development 0 3
-------- --------
Net Cash Used in Investing Activities ( 1,252) ( 229)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Deposits:
Non-interest Bearing 189 3,044
Interest-bearing ( 820) ( 541)
Net Change in Repurchase Agreements ( 670) 424
Net Change in Other Borrowed Funds 0 750
Cash Dividends Paid ( 150) ( 121)
Cash Proceeds from Stock Options Exercised 49 10
-------- --------
Net Cash Provided by (used in) Financing Activities ( 1,402) 3,566
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 2,266) 3,854
CASH AND CASH EQUIVALENTS:
Beginning of Period 16,940 11,261
-------- --------
End of Period $ 14,674 $ 15,115
======== ========
ADDITIONAL INFORMATION:
Cash Payments
Income Tax Payments $ 100 $ 0
======== ========
Interest Payments $ 1,622 $ 1,365
======== ========
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF IN CHANGES IN SHAREHOLDERS' EQUITY
California Community Bancshares Corporation
(In Thousands, Except Number of Shares)(Unaudited)
------------------------------------------------------
Common Stock Unrealized
-------------------- Loss on
Investment
Number of Available Share -
Shares Retained For Sale holders'
Outstanding Amount Earnings Securities Equity
----------- ------- -------- ---------- -------
Balance at
December 31, 1996 994,519 $11,135 $ 2,510 ($ 276) $13,369
Stock Options Exercised 4,622 50 50
Common Stock issued on
Conversion of Debentures 1,176 14 14
Cash Dividend
on Common Stock ( 150) ( 150)
Net Change in Unrealized
Loss - On available
for sale securities ( 134) ( 134)
Net Income,
364 364
----------- ------- ------- ---------- -------
Balance at
March 31, 1997 1,000,317 $11,199 $ 2,724 ($ 410) $13,513
=========== ======= ======= ========== =======
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of California Community Bancshares Corporation (the Company) include the
accounts of the Company and its subsidiary Bank, Continental Pacific Bank.
Significant intercompany items and transactions have been eliminated. Such
financial statements have been prepared in accordance with generally
accepted accounting principles and pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC) and, in Management's opinion,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of results for such interim periods.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principals have been omitted pursuant to SEC rules or regulations; however,
the Company believes that the disclosures made are adequate to make the
information presented not misleading. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the fiscal year ended December 31, 1996.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
NOTE B - ACCOUNTING PRONOUNCEMENTS
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standard No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. This standard is based on consistent
application of a financial - components approach that focuses on control.
Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. The Company has
determined that the adoption of this standard does not have a material effect
on the company's financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the fourth quarter
of fiscal 1997 and will restate at that time earnings per share (EPS) data for
prior periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $.36 and $.37 for the quarters ended March 31, 1997
and 1996. Diluted EPS under SFAS 128 would not have been significantly
different than fully diluted EPS currently reported for the periods.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this Quarterly Report on Form 10-QSB include
forward-looking information within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the "safe harbor" created by those
sections. These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. Such risks and uncertainties include, but
are not limited to, the following factors: competitive pressure in the banking
industry increases significantly; changes in the interest rate environment
reduce margins; general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in, among other things, a
deterioration in credit quality and an increase in the provision for possible
loan losses; changes in the regulatory environment; changes in business
conditions, particularly in Solano and Contra Costa Counties; volatility of
rate sensitive deposits; operational risks including data processing system
failures or fraud; asset / liability matching risks and liquidity risks; and
changes in the securities markets.
Therefore, the information set forth therein should be carefully
considered when evaluating the business prospects of the Company and the Bank.
California Community Bancshares Corporation and subsidiary (the
"Company") became the holding company for Continental Pacific Bank (the
"Bank"), a California state-chartered non-member Bank, as of February 29,
1996. The following discussion of the Company's financial condition and
results of operations is designed to provide a better understanding of the
changes and trends related to the Company's financial condition, liquidity and
capital resources. The discussion should be read in conjunction with the
Consolidated Financial Statements of the Company. The Company has not
commenced any business operations independent of the Bank, therefore the
following discussion pertains primarily to the Bank. Average balances are
generally comprised of daily balances.
OVERVIEW
The Company earned $364,000 in the first quarter of 1997. The most
recent quarter's income was 1% higher than the $362,000 reported in the same
quarter last year. Fully diluted earnings per share decreased to $.30 from
$.31 in the same quarter the prior year.
Despite a $57,000 decline in fee income from the sale of Small Business
Administration (SBA) loans and a modest increase of $71,000 in noninterest
expense, earnings for the current quarter were equivalent to those of the same
period last year. An increase in net interest income was a key factor
contributing to this income level. Net interest income increased $81,000 or
4.4% due to a higher level of average earning assets over average interest
bearing liabilities partially offset by lower average rates earned on loans.
Net interest margin for the first quarter of 1997 was 4.55% versus 5.26%
in the first quarter of 1996. Noninterest income decreased $44,000 or 11.5%,
primarily as a result of the decrease in fees from the sale of SBA loans.
Noninterest expense increased $71,000 or 4.7% to $1,592,000. Of this amount,
$78,000 was attributed to the Bank's new Concord Branch which was purchased in
the fourth quarter of 1996. Without these additional expenses total
noninterest expense would have shown an overall decline.
Assets of the Company totalled $190.4 million at March 31, 1997, a
$1.4 million decrease from the previous quarter's total. Reductions in
Deposits and Repurchase Agreements in the first quarter 1997 of $1.3 million
combined with a $2.7 million increase in Net Loans was funded by a $2.3
million reduction in Cash and Federal Funds Sold as well as a $1.8 decrease in
available for sale securities.
Return on Average Assets (ROA) was .78% and Return on Average Equity
(ROE) was 10.86% in the first quarter of 1997. For the same period in
1996, these ratios were .92% and 11.62%, respectively. Although earnings were
$2,000 higher than the same quarter last year, average assets in the first
quarter of 1997 were $30.3 million or 19% higher than the same quarter last
year and average equity was $.9 million or 7% higher, lowering each ratio. At
March 31, 1997, the Company had a leverage ratio of 7.17%, a Tier 1 risk-based
capital ratio of 10.0% and total risk based capital ratio of 13.59%. These
compare to 7.04%, 9.92% and 13.55%, respectively at December 31, 1996.
The following tables provide a summary of the major elements of income
and expense for the first quarter of 1997 compared with the first quarter of
1996.
CONDENSED COMPARATIVE INCOME STATEMENT
California Community Bancshares Corporation
(In Thousands, Except Earnings per Common Share)(unaudited)
------------------ -------------------
Three Months Percentage Change
Ended March 31, Increase (Decrease)
------------------ -------------------
1997 1996
------ ------
Interest Income $3,447 $3,083 11.8%
Interest Expense 1,538 1,255 22.5
------ ------
Net Interest Income 1,909 1,828 4.4
Provision for Loan Losses 89 114 (21.9)
------ ------
Net Interest Income after
Provision for Loan Losses 1,820 1,714 6.2
Other Operating Income 340 384 (11.5)
Other Operating Expenses 1,592 1,521 4.7
------ ------
Income Before Income Taxes 568 577 ( 1.6)
Provision for Income Taxes 204 215 ( 5.1)
------ ------
Net Income $ 364 $ 362 0.6
====== ======
Primary Earnings per Share $ 0.35 $ 0.36 ( 2.8)
Fully Diluted Earnings per Share $ 0.30 $ 0.31 ( 3.2%)
- -----------------------------------------------------------------------------
NET INTEREST INCOME / NET INTEREST MARGIN
Net interest income represents the excess of interest and fees earned on
interest-earning assets over the interest paid on deposits and borrowed funds.
Net interest margin is net interest income expressed as a percentage of
average interest earning assets. Net interest income comprises the major
portions of the Company's revenue.
In the quarter ended March 31, 1997, interest income increased $364,000
or 11.8% over the amount earned in the same period last year. Loan interest
comprises the major portion of interest income and is also the highest
yielding category. Increases in average balances of taxable security and loans
offset by lower rates earned on these amounts were the main factors
contributing to the increase in interest income. Average taxable security
balances were $24.7 million (106%) higher than last year resulting in an
increase of $369,000 in interest income. This increase was reduced by $2,000
due a decline in average rates earned. Average rates earned on taxable
securities were 6.10%, 4 basis points lower than the 6.14% earned in the same
period last year. Average loan balances were $4.6 million higher than the
same quarter last year resulted in an increase of $85,000 to interest income
but a decline in loan yields offset $70,000 of this amount for a net increase
in loan interest income of $15,000. Average rates earned on loans were 9.45%
in the first quarter of 1997, 25 basis points or 2.6% lower than the 9.70%
earned in the first quarter of 1996. Average securities exempt from federal
taxes declined by $2.3 million while average federal funds sold increased by
$1.5 million. The net effect of these changes in volume reduced interest
income by $13,000. Average rates earned on securities exempt from federal
taxes were 5.22%, 16 basis points lower than the 5.38% earned in the same
period last year. The lower rates earned on the assets reduced interest
income by another $5,000 resulting in the overall increase of $364,000.
In the first quarter of 1997, interest expense increased by $283,000 or
22.5% to $1,528,000 from the $1,255,000 reported in the year earlier period.
Interest paid on time deposits increased $172,000 or 28.4%. These deposits
increased $14.4 million or 31.2% from $46.2 million in the first quarter of
1996 to $60.6 million in the current quarter. The increased volume in time
deposits increased interest expense by $180,000. Rates paid on these deposits
declined from 5.27% in 1996 to 5.20% in 1997 reducing the effect on interest
expense on time deposits by $8,000. Average savings and money market deposit
increased $6.3 million (11.7%) from $53.5 million in the first quarter of 1996
to $59.8 million in quarter ending March 31, 1997. The increased volume
increased interest expense by $48,000. The average rate paid on these
deposits, which increased slightly from 3.73% in 1996 to 3.77% in 1997, added
another $11,000 to interest expense. The only other significant change in
interest bearing liabilities was an increase in borrowed funds from $37,000 in
the first quarter of 1996 to $2,650,000 in the current quarter. These long
term fixed rate funds, which the Bank borrowed from the Federal Home Loan Bank
to match fund fixed rate loans, increased interest expense by $55,000. The
$11,000 increase in interest expense provided by the $3.9 million increase in
interest bearing transaction accounts was offset by a $14,000 reduction in
interest expense from Federal Funds Purchases, Repurchase Agreements and
Subordinated Debentures due to lower average balances.
The combined effect of the increase in interest income and the increase
in interest expense in the first quarter of 1997 versus the first quarter of
1996 resulted in an increase of $81,000 in net interest income to $1,909,000.
Net interest margin decreased 71 basis points from 5.26% to 4.55%. Net
interest income divided by quarterly average assets resulted in a ratio of
4.07%.
The following table provide summaries of the components of interest
income, interest expense and net interest margins on earning assets for the
quarter ended March 31, 1997 versus the same period in 1996.
ANALYSIS OF CHANGES IN NET INTEREST MARGIN ON AVERAGE EARNINGS ASSETS
California Community Bancshares Corporation
(In Thousands)
Three Months Ended
-----------------------------------------------------
March 31, 1997 March 31, 1996
------------------------ -------------------------
Int. Avg. Int. Avg.
Average Earned Yield Average Earned Yield
Balance<F1>/Paid /Rate Balance<F1>/Paid /Rate
-------- ------ ----- -------- ------ -----
ASSETS:
INTEREST EARNING ASSETS
Federal Funds Sold $ 2,521 $ 29 4.67% $ 1,016 $ 14 5.42%
Investment Securities:
Taxable <F2> 47,902 720 6.10 23,159 353 6.14
Exempt From Federal Taxes<F3> 4,664 60 5.22 6,959 93 5.38
Loans, Net <F4><F5> 113,254 2,638 9.45 108,711 2,623 9.70
-------- ------ ----- -------- ------ -----
Total Interest Earning Assets 168,341 3,447 8.30 139,845 3,083 8.87
Cash and Due from Banks 9,454 8,216
Premises and Equipment, NET 2,303 2,200
Investment in Development
Ventures 4,467 4,592
Accrued Interest Receivable
And Other Assets 2,698 2,133
-------- --------
TOTAL AVERAGE ASSETS $187,263 $156,986
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 22,027 68 1.25 18,149 57 1.26
Savings Deposits and MMDA 19,813 115 2.35 16,677 97 2.34
Money Management 39,992 441 4.47 36,850 400 4.36
Time Deposits 39,179 499 5.17 27,601 351 5.12
Time Deposits over $100,000 21,407 278 5.27 18,582 254 5.50
Federal Funds Purchased 100 1 5.27 210 3 5.55
Security Repurchase Agreements 469 6 4.93 934 12 5.34
Other Borrowings 2,650 56 8.57 37 1 6.52
Subordinated Debentures 3,686 74 8.14 4,025 80 8.03
-------- ------ ----- -------- ------ -----
Total Average Interest-
Bearing Liabilities 149,323 1,538 4.18 123,065 1,255 4.10
Noninterest-Bearing DDA's 23,962 21,262
Accrued Interest Payable and
Other Liabilities 574 188
-------- ------ ----- -------- ------ -----
Total Average Liabilities $173,859 $1,538 3.59% $144,515 $1,255 3.49%
======== ========
Total Equity 13,404 12,471
Total Average Liabilities and
Shareholders' Equity 187,263 156,986
Net Interest Spread <F6> 4.13% 4.77%
Net Interest Income $1,909 $1,828
Net Interest Margin <F7> 4.55% 5.26%
<FN>
- -----------------------------------------------------------------------------
<F1> Average balances are computed principally on the basis of daily
balances.
<F2> The taxable securities yield is computed by dividing interest income
(annualized on an actual day basis) by average historical cost.
<F3> The tax equivalent yield on investment securities exempt from federal
taxes was 7.57% and 7.82% in 1997 and 1996. The tax equivalent yield is
calculated by dividing the adjusted yield by one minus the Federal Tax
rate. The adjusted yield is determined by subtracting the Tefra penalty
from the unadjusted tax exempt investment yield. The unadjusted tax exempt
investment yield is computed by dividing tax exempt interest income by
their average historical cost. The Tefra penalty is computed by dividing
total interest expense (annualized) by average assets and multiplying the
result by 20% (Tefra disallowance) and 34% (Federal Tax rate).
<F4> Allowance for loan losses and deferred loan fees are netted from loans
receivable which includes nonaccrual loan balances.
<F5> Interest income on loans includes fees on loans of $93,000 in 1997 and
$111,000 in 1996.
<F6> Net interest spread represents the average yield earned on interest -
earning assets less the average rate paid on interest-bearing liabilities.
<F7> Net interest margin is computed by dividing net interest income by
total average interest earning assets.
</FN>
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE
California Community Bancshares Corporation
(In Thousands)
-------------------------------------
Three Months Ended March 31, 1997
over March 31, 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $ 17 ($ 2) $ 15
Taxable Investment Securities 369 ( 2) 367
Nontaxable Investment Securities ( 30) ( 3) ( 33)
Loans, Net <F1><F2> 85 ( 70) 15
------ ---------- -----
Total Interest Income 441 ( 77) 364
Interest-bearing Now Accounts 11 0 11
Savings Deposits and MMDA 17 1 18
Money Management 31 10 41
Time Deposits 145 3 148
Time Deposits over $100,000 35 ( 11) 24
------ ---------- -----
Total Interest Expense on Deposits 239 3 242
Federal Funds Purchased ( 2) ( 0) ( 2)
Security Repurchase Agreements ( 5) ( 1) ( 6)
Other Borrowings 55 0 55
Subordinated Debentures ( 7) 1 ( 6)
------ ---------- -----
Total Interest Expense 280 3 283
------ ---------- -----
Net Interest Income $ 161 ($ 80) $ 81
====== ========== =====
<FN>
- -----------------------------------------------------------------------------
<F1> Nonaccrual loans are included.
<F2> Interest income on loans includes fee income on loans of
$93,000 in 1997 and $111,000 in 1996.
<F3> Changes not due solely to rate change have been allocated to volume.
</FN>
PROVISION FOR LOAN LOSSES
In the first quarter of 1997, the Company provided $89,000 for loan
losses versus $114,000 in the same period last year. This provision offset
the net loans charged off during the period against the allowance and added
$36,000 for growth in outstanding loan balances as well as general economic
factors. The allowance for loan losses was .98% of loans receivable at March
31, 1997 versus 1.06% at March 31, 1996. Management's ongoing analysis of the
loan portfolio determined that the balance of $1,137,000 in the allowance for
loan losses is expected to be adequate to absorb losses inherent in the loan
portfolio. The current $89,000 provision for loan losses deducted from the
$1,909,000 net interest income results in net interest income after provision
of $1,820,000. This figure divided by average assets is a ratio of 3.88%. It
is the immediate goal of management to increase this ratio to 4.00%.
NONINTEREST INCOME
Total noninterest income in the first quarter of 1997 decreased $44,000
or 11.5% from the same period in 1996. Income from service charges on deposit
accounts increased to $216,000 in the first quarter of 1997 from $193,000 in
the same period last year. Gain on Sale of securities increased from $1,000
in 1996 to $42,000 in 1997. The significant decreases occurred in other fees
and charges. In the fourth quarter of 1995, the Bank began selling the
guaranteed portion of SBA loans in the secondary market for a premium. Income
from this activity in the first quarter of 1996 generated $61,000. In the
first quarter of 1997 this activity generated $4,000 or $57,000 less than the
amount earned in same period the prior year. Fee income on sale of 1-4 family
mortgages also declined by $35,000 from $49,000 in 1996 to $14,000 in 1997.
Together these two areas accounted for $92,000 of the $108,000 decrease in
other fees and charges. No other individual item experienced significant
changes. For the current quarter noninterest income totalled $340,000 or .73%
of average assets. The Company's goal is to increase this ratio to 1% over
time.
NONINTEREST EXPENSE
Noninterest expense increased by $71,000 or 4.7% in the first quarter of
1997 versus the same period last year. For the quarter, salaries and benefits
were up $12,000 or 1.5% due to the additional branch staff in our new Concord
Branch offset somewhat by reduced staff in our other branches. Occupancy
expense was up $11,000 over the same period in the prior year while other
expenses were up $48,000. For the current quarter noninterest expense
totalled $1,592,000 or 3.40% of average assets. Management continually
reviews and attempts to minimize these expenses. It is the goal of the
Company to reduce the overhead ratio to 3.25%.
NET INCOME
The Company recorded a $204,000 provision for income taxes in the first
quarter of 1997, which was $11,000 lower than the tax provision recorded in
the same quarter last year. The effective tax rate for the current period was
35.9%. The $1,820,000 net interest income after provision for loan losses
plus noninterest income of $340,000 and noninterest expense of $1,592,000
resulted in income before provision for income taxes of $568,000 or 1.21% of
average assets. This is $9,000 less than the figure reported in the same
period last year. After deducting the provision for income taxes net income
was $364,000 or .78% return on average assets. It is the Bank's goal to
increase this ratio to 1% as soon as possible. To accomplish this goal the
Bank needs to significantly increase noninterest income and net interest
income while continuing to improve the noninterest expense ratio.
Management is not aware of any trends, events or uncertainties that have
had or that are reasonably expected to have a material impact on liquidity,
capital resources, or revenues or income from continuing operations. The
company is also not aware of any current recommendations by any regulatory
authority which, if they were implemented, would have such an effect.
LOANS
A key to increasing net interest income is to increase the loan to
deposit ratio and the ratio of loans to total earning assets. At December 31,
1996, these ratios were 66.7% and 65.9%. In the first quarter of 1997, loans
increased by $2.7 million or 2.4% increasing these ratios to 68.5% and 67.8%.
It is the goal of the Company to continue to increase these ratios to a range
between 75% and 80%. The growth in loans was comprised of $.7 million in
construction and land loans, $1.5 million in loans secured by 1-4 first liens
on residential properties and $.5 million in loans secured by multifamily
residential properties. This growth increased the Bank's largest loan
category, real estate mortgage loans from 72% of total loans outstanding at
December 31, 1996 to 73% at March 31, 1997. While the economy in the Bank's
market area has remained relatively soft, the Bank has aggressively marketed
its loan products giving special attention to its SBA loan program and the new
Business Manager program. Loan underwriting standards have been maintained,
but pricing has been more competitive. Management believes continued loan
growth should continue through 1997.
SECURITIES
At March 31, 1997, available for sale securities had a fair market value
of $50,757,000 with an amortized cost basis of $51,464,000. This portfolio
consisted of $21,174,000 in mortgage-backed securities, $8,870,000 in U.S.
Treasury Securities, $15,656,000 in U.S. Government agency bonds and
$4,559,000 in securities issued by states and political subdivisions in the
U.S. as well as $498,000 in Federal Home Loan Bank stock. Approximately 53%
of the debt security portfolio is floating rate, tied to either the 11th
District Cost of Funds Index, the 1-year Constant maturity treasury index or
Prime rate. The fixed rate portfolio has an average maturity of four years.
This portfolio is a good source of both liquidity and income.
At March 31,1997, the Company did not have any investment securities
issued by a single issuer, which the aggregate book value of such securities
exceeded ten percent of stockholders' equity other than those issued by the
U.S. Government and U. S. Government agencies and corporations.
NONPERFORMING ASSETS
As shown in the following table, total nonperforming assets have
increased $1,826,000 since year end. Nonperforming assets have increased
$1,183,000 from a year ago. Since last quarter nonaccrual loans increased by
$1,156,000, accruing loans past due 90 days or more decreased by $52,000 while
restructured loans increased by $722,000. One loan for $931,000 secured by
commercial offices property was placed on nonaccrual in the first quarter of
1997, due to the increased vacancy which reduced cash flow. The Bank believes
the borrower will be able to fully debt service the loan under the original
terms at the time the property becomes approximately 90% occupied. The
increase in restructured loans consists of three loans to two borrowers each
of which is secured by commercial office properties. Once these properties
are fully leased the borrower is expected to be able to fully debt service the
loans under the original terms. Non performing assets represent 1.62% of
total assets while the ratio of allowance for loan losses to nonperforming
loans is 38.7%. Management is working closely with the above mentioned
borrowers to reduce the Bank's risk of loss as well as continuing to make a
concerted effort to reduce problem and potential problem loans.
At March 31, 1997 and December 31, 1996, the recorded investment in loans
for which impairment has been recognized in accordance with SFAS No. 114 was
approximately $3,014,000 and $2,648,000. The total allowance for loan losses
related to these loans was $354,000 and $278,000, respectively. For the
quarter ended March 31, 1997 and December 31, 1996, the average recorded
investment in loans for which impairment has been recognized was approximately
$2,898,000 and $2,652,000. During the portion of the quarter that the loans
were impaired, the Company recognized interest income of approximately $19,000
and $52,000 from cash payments received in 1997 and 1996.
Interest income on impaired loans which would have been recognized if all
such loans had been current in accordance with their original terms totalled
approximately $39,000 in the first quarter of 1997.
Changes in general or local economic conditions or specific industry
segments, rising interest rates, declines in real estate values and acts of
nature could have an adverse effect on the ability of borrowers to repay
outstanding loans and the value of real estate and other collateral securing
such loans.
Other than the loans discussed above, management is not aware of any
loans that represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources; or represent material credits about which management is
aware of information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
------------- ------------
March 31 December 31,
1997 1996
------------- ------------
Nonaccrual Loans $ 1,226 $ 70
Accruing Loans past Due 90 Days or More 15 67
Restructured Loans
(In Compliance with Modified Terms) 1,696 974
------------- ------------
Total Nonperforming Loans 2,937 1,111
Other Real Estate Owned 150 150
------------- ------------
Total Nonperforming Assets 3,087 1,261
============= ============
Total Loans, End of Period 116,369 113,625
Total Assets, End of Period 190,372 191,829
Allowance for Loan Losses $ 1,137 $ 1,101
Nonperforming Loans to Total Loans 2.52% 0.98%
Allowance for Loan Losses to Nonperforming Loans 38.71% 99.10%
Nonperforming Assets to Total Assets 1.62% 0.66%
Allowance for Loan Losses to Nonperforming Assets 36.83% 87.31%
- -----------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
The Bank maintains its allowance for loan losses at a level considered
by management to be adequate to cover the risk of loss in the loan portfolio
at a particular point in time. This determination includes an evaluation and
analysis of historical experience, current loan mix and volume, as well as
current and projected economic conditions.
The following table presents information concerning the allowance and
provision for loan losses.
------------- -------------
March 31, March 31,
1997 1996
------------- -------------
Balance, Beginning of Period $ 1,101 $ 1,158
Provision Charged to Operations 89 114
Loans Charged off 60 99
Recoveries of Loans Previously Charged off 7 2
------------- -------------
Balance, End of Period 1,137 1,175
Total Loans, End of Period $116,369 $111,039
Allowance for Loans Losses to
Loans, End of Period 0.98% 1.06%
- -----------------------------------------------------------------------------
LIQUIDITY
Liquidity is measured by various ratios, the most common being the
liquidity ratio of cash, time deposits in other banks, federal funds sold, and
investment securities as compared to total deposits. At March 31, 1997,
this ratio was 38.6%.
In the area of interest rate sensitivity management focuses on reducing
the impact movements in interest rates would have on interest income and the
economic value of the Company. The Company believes that keeping overall risks
at a low level achieves optimal performance. The objective is to control risks
and produce consistent, high quality earnings independent of fluctuating
interest rates. The Board of Directors and the Board Asset / Liability
Committee ("ALCO") oversees the establishment of appropriate internal controls
which are designed to ensure that implementation of the Asset / Liability
strategies remain consistent with Asset / Liability Management Policy
objectives. The ALCO consists of all Senior Management and is charged with
implementing these strategies.
A major tool used by this Committee and the Board ALCO is the ALX Asset /
Liability computer model. This model, which is run quarterly, measures a
number of risks, including liquidity risk, capital adequacy risk, interest
rate risk and market risk. The model analyzes the mix and repricing
characteristics of interest rate sensitive assets and liabilities using
multipliers (the degree interest rates change when federal funds change) and
lags (the time it takes rates to change after federal funds rate change). The
model simulates the effects of net interest income and market risk when
federal funds change. The ALCO committee then uses this information, in
conjunction with, current and projected economic conditions and the outlook
for interest rates to set loan strategies, investment strategies and funding
strategies, which include loan and deposit pricing, volume and mix of each
asset and liability category and proposed changes to the maturity distribution
of assets and liabilities. The Asset / Liability policy states that the Bank
will monitor and limit interest rate risk as follows:
For a 1% change in the federal funds rate, net interest income (NII)
should not change by more than 5% and for a 2% change in the federal funds
rate, NII should not change by more that 10%. The policy further states that
the Bank will monitor and limit market risk (in a market where interest rates
have risen 3%) to 25% of equity capital while maintaining "well capitalized"
leverage and risk based capital ratios.
At March 31, 1997, the "ALX" model showed the Bank was moderately
liability sensitive with a NII exposure of $70,000 or 0.9% for a 1% increase
in the federal funds rate and a $427,000 or 5.6% exposure in NII for 2%
increase. Both of these figures are within policy.
At March 31, 1997 market risk, as measured by the model, for a 3%
increase in market rates, was 21.4 % of equity capital, within policy, and the
market risk adjusted leverage and risk based capital ratios were 5.4% and
11.2%, respectively, also within policy.
When the Bank is liability sensitive, as it was at March 31, 1997,
management will discontinue or limit the use of longer lagging indexes such as
the 11th District Cost of Funds (COFI) for loan pricing and switch to more
market sensitive indexes. In the security portfolio, the Bank will switch from
fixed rate investments, as well as investment tied to lagging indexes, to
short term securities and/or to securities tied to more market sensitive
indexes. The Bank will also use interest rate swaps, when appropriate, to
reposition the Bank's interest rate risk.
EQUITY
The Company and the Bank are each subject to various regulatory Capital
requirements administered by federal banking agencies.
As a result of the $364,000 earned in first quarter of 1997, the $64,000
sale of common stock from the exercise of stock options, conversion of
debentures, and the payment of $150,000 in dividends, the Company had the
following capital levels and ratios. The following table also includes the
regulatory minimums for capital adequacy purposes:
Company: For Capital
Actual Adequacy Purposes
------------------- ---------------------
Minimum Minimum
Amount Ratio Amount Ratio
(000) (000)
------------------- ---------------------
Total Capital
(to risk weighted assets) $ 18,204 13.59% $10,714 8.0%
Tier One Capital
(to risk weighted assets) $ 13,392 10.00% $ 5,357 4.0%
Tier One Capital
(to average assets) $ 13,392 7.17% $ 7,469 4.0%
Risk Weighted Assets $133,920
Average Assets $186,732
- -----------------------------------------------------------------------------
As a result of the $377,000 earned in first quarter of 1997 and the
payment of $150,000 in dividends, the Bank had the following capital levels
and ratios. The following table also includes the regulatory minimums for
capital adequacy purposes and regulatory minimums to be categorized as "Well
Capitalized" under prompt corrective action provisions:
Bank: To be Categorized as
Well Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- ----------------------
Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
(000) (000) (000)
---------------- ----------------- ----------------------
Total Capital
(to risk weighted assets) $ 17,689 13.23% $10,693 8.0% $13,366 10.0%
Tier One Capital
(to risk weighted assets) $ 12,884 9.64% $ 5,346 4.0% $ 8,020 6.0%
Tier One Capital
(to average assets) $ 12,884 6.91% $ 7,453 4.0% $ 9,316 5.0%
Risk Weighted Assets $133,661
Average Assets $186,328
- -----------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None of the Corporation, the Bank or Conpac is a party to or the subject
of, or is any of their property the subject of, any material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of the Corporation.
ITEM 2 - CHANGES IN SECURITIES
The rights of the holders of registered securities have not been
materially modified.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There has not been any material default in (1) payment of principal,
interest, a sinking or purchase fund installment, or (2) any other material
default not cured within 30 days, regarding any indebtedness exceeding 5% of
the total assets of the registrant or any of its significant subsidiaries.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has not been any matter submitted to a vote of security holders for
the first quarter ending March 31, 1997.
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS OF FORM 8-K
A) Exhibits
11 Statement regarding computation of per share earning.
27 Financial Data Schedule under Article 9
B) Reports on Form 8-K
No Form 8-K's were filed by the Corporation during the first quarter
ending March 31, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CALIFORNIA COMMUNITY
BANCSHARES CORPORATION
--------------------------------
Date MAY 14, 1997 /s/ Walter O. Sunderman
------------------ --------------------------------
Walter O. Sunderman
President and
Chief Executive Officer
--------------------------------
Date MAY 14, 1997 /s/ ANDREW S. POPOVICH
------------------ --------------------------------
Andrew S. Popovich
Executive Vice President and
Chief Administrative Officer
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Exhibits
to
FORM 10 - QSB
QUARTERLY REPORT
UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
__________
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
EXHIBIT 11 - STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
(Unaudited)(In Thousands, Except Earnings per Share)
---------------------
For the Three Months
Endded March 31,
---------------------
1997 1996
--------- ---------
Weighted Average Shares
Used to Compute Common
and Equivalent Shares:
Primary 1,052,807 1,004,138
Fully Diluted 1,341,043 1,319,432
========= =========
Net Income Used in the
Computation of Income
per Common Share:
Net Income, as Reported
Used to Compute Primary
Income per Share $ 364 $ 362
========= =========
Adjustment for after Tax
Effect of Interest Paid
on Convertible Debentures 42 47
--------- ---------
Net Income, as Adjusted Used
to Compute Fully Diluted
Income per Share $ 406 $ 409
========= =========
Income per Common and
Equivalent Share:
Primary $ 0.35 $ 0.36
Fully Diluted $ 0.30 $ 0.31
========= =========