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 JUNE 30, 1997
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Commission file number 0-27856
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CALIFORNIA COMMUNITY BANCSHARES CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 68-0366324
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(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:
1,075,557
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 8
Overview 9
Condensed Comparative Income Statement 10
Net Interest Income / Net Interest Margin 11
Analysis of Changes in Net Interest Margin on Average
Earning Assets 13
Analysis of Volume and Rate Changes on Net Interest Income
and Expense 17
Provision for Loan Losses 18
Non Interest Income 19
Non Interest Expense 19
Provision for Income Taxes and Net Income 20
Loans 20
Securities 21
Nonperforming Assets 21
Allowance for Loan Losses 23
Liquidity 23
Equity 25
PART II - OTHER INFORMATION 26
Item 1 - Legal Proceedings 26
Item 2 - Changes in Securities 26
Item 3 - Defaults Upon Senior Securities 26
Item 4 - Submission of Matters to a Vote of Security Holders 26
Item 5 - Other Information 26
Item 6 - Exhibits and Reports of Form 8-K 26
SIGNATURES 27
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
California Community Bancshares Corporation
(In Thousands, except share information)(Unaudited)
-------- --------
ASSETS 06/30/97 12/31/96
-------- --------
Cash and due from banks $ 8,990 $ 10,825
Federal funds sold 4,580 6,115
-------- --------
Total cash and cash equivalents 13,570 16,940
Available for sale securities, at fair value 52,443 52,569
Loans receivable: 117,595 113,625
Less: Allowance for loan losses 1,187 1,101
Deferred loan fees 521 599
-------- --------
Net loans receivable 115,887 111,925
Premises and equipment, net of accumulated depr. 2,251 2,284
Investments in real estate development 4,429 4,483
Other real estate owned 336 150
Goodwill 522 540
Accrued interest receivable and other assets 3,153 2,938
-------- --------
TOTAL ASSETS $192,591 $191,829
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non interest bearing $ 29,616 $ 26,882
Interest bearing:
Transaction 22,943 21,467
Savings 58,682 61,298
Time:
$100,000 or more 21,655 20,881
Other time 38,458 39,815
-------- --------
Total deposits 171,354 170,343
Repurchase agreements 323 992
Other borrowed funds 2,650 2,650
Accrued interest payable and other liabilities 736 785
Convertible subordinated debentures 2,753 3,690
-------- --------
TOTAL LIABILITIES $177,816 $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, 1,075,557 at
June 30, 1997 and 994,519 at December 31, 1996 12,078 11,135
Retained earnings 3,009 2,510
Unrealized loss on available for sale
securities (net of tax) ( 312) ( 276)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 14,775 13,369
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $192,591 $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 share information)(Unaudited)
--------------------- ---------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
INTEREST INCOME:
Loans and Loan Fees $ 2,707 $ 2,719 $ 5,345 $ 5,342
Securities:
Taxable 714 390 1,434 743
Exempt from Federal Tax 60 93 120 186
Federal Funds Sold 40 40 69 54
--------- --------- --------- ---------
Total Interest Income $ 3,521 $ 3,242 $ 6,968 $ 6,325
INTEREST EXPENSE:
Time Deposits $100,000 or More $ 292 $ 242 $ 570 $ 496
Other Deposits 1,113 929 2,236 1,833
Federal Funds and Repurchase
Agreements Purchased 8 13 15 28
Other Borrowed Funds 52 36 108 37
Convertible Subordinated Debentures 54 77 128 158
--------- --------- --------- ---------
Total Interest Expense 1,519 1,297 3,057 2,552
--------- --------- --------- ---------
NET INTEREST INCOME 2,002 1,945 3,911 3,773
PROVISION FOR LOAN LOSSES 80 93 169 207
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,922 1,852 3,742 3,566
--------- --------- --------- ---------
NON INTEREST INCOME:
Service Charges on Deposit Accounts 220 208 436 401
Net Gain on Sale of AFS Securities 0 2 42 3
Other Fees and Charges 108 127 190 317
Income from Real Estate Development 129 130 264 260
--------- --------- --------- ---------
Total Non Interest Income 457 467 932 981
--------- --------- --------- ---------
NON INTEREST EXPENSES:
Salaries and Employee Benefits 813 829 1,645 1,649
Occupancy 362 327 725 677
Other 428 466 886 878
Expenses from Real Estate Development 74 70 148 139
--------- --------- --------- ---------
Total Non Interest Expenses 1,677 1,692 3,404 3,343
--------- --------- --------- ---------
INCOME BEFORE PROVISION INCOME TAXES 702 627 1,270 1,204
PROVISION FOR INCOME TAXES 261 242 465 457
--------- --------- --------- ---------
NET INCOME $ 441 $ 385 $ 805 $ 747
========= ========= ========= =========
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
Primary $ 0.39 $ 0.38 $ 0.74 $ 0.74
========= ========= ========= =========
Fully Diluted $ 0.35 $ 0.33 $ 0.66 $ 0.64
========= ========= ========= =========
Weighted Average Shares Used to
Compute Income Per Common and
Equivalent Shares:
Primary 1,125,729 1,013,593 1,089,476 1,008,866
Fully Diluted 1,341,651 1,316,731 1,341,554 1,318,082
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
STATEMENTS OF CASH FLOWS
California Community Bancshares Corporation (In Thousands)(Unaudited)
-----------------------
Six Months Ended
June 30,
-----------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 805 $ 747
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 389 316
Provision for Loan Losses 169 207
Net Gain on the Sale of Available
for Sale Securities ( 42) ( 3)
Gain on the Sale of Premises and Equipment ( 6) ( 7)
Effect of Changes in:
Interest Receivable and Other Assets and Goodwill( 267) ( 115)
Interest Payable and Other Liabilities ( 49) ( 340)
-------- --------
Net Cash Provided by Operating Activities 999 805
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Available for Sale Securities ( 6,940) ( 8,573)
Proceeds from Sales of Available for Sale Securities 4,009 0
Proceeds from Maturities, Calls or Repayments of
Available for Sale Securities 2,956 1,489
Net Change in Loans Receivable ( 4,131) ( 2,998)
Change in Other Real Estate Owned ( 186) 0
Purchases of Premises and Equipment ( 199) ( 185)
Proceeds from Sales of Premises and Equipment 14 14
Change in Investments in Real Estate Development ( 4) 4
-------- --------
Net Cash Used in Investing Activities ( 4,481) ( 10,249)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Deposits:
Non-interest Bearing 2,734 3,548
Interest-bearing ( 1,723) 80
Net Change in Repurchase Agreements ( 669) 226
Net Change in Other Borrowed Funds 0 2,650
Cash Dividends Paid ( 306) ( 268)
Cash Proceeds from Stock Options Exercised 76 11
-------- --------
Net Cash Provided by Financing Activities 112 6,247
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DECREASE IN CASH AND EQUIVALENTS ( 3,370) ( 3,197)
CASH AND CASH EQUIVALENTS:
Beginning of Period 16,940 11,261
-------- --------
End of Period $ 13,570 $ 8,064
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ADDITIONAL INFORMATION:
Common stock issued on conversion of debentures
net of debenture offering costs of $70,000 and
$13,000 in 1997 and 1996. $ 867 $ 160
======== ========
Transfer of foreclosed loans from loans receivable
to other real estate owned $ 186 $ 0
======== ========
Cash Payments
Income Tax Payments $ 383 $ 373
======== ========
Interest Payments $ 3,072 $ 2,580
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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
=========== ======= ======= ========== =======
Stock Options Exercised 2,928 26 26
Common Stock issued on
Conversion of Debentures 72,312 853 853
Cash Dividend
on Common Stock ( 156) ( 156)
Net Change in Unrealized
Loss - On available
for sale securities 98 98
Net Income, 441 441
----------- ------- ------- ---------- -------
Balance at
June 30, 1997 1,075,557 $12,078 $ 3,009 ($ 312) $14,775
=========== ======= ======= ========== =======
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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 inter company 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 principles 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 did 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 it 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 $.41 and $.39 for the quarters
ended June 30, 1997 and 1996 and $.78 and $.77 for the six months
ended June 30, 1997 and 1996. Diluted EPS under SFAS 128 would not
have been significantly different from fully diluted EPS currently
reported for the periods.
In June 1997, the FASB adopted SFAS No. 130 "Reporting
Comprehensive Income," which requires that an enterprise report, by
major components and as a single total, the change in its net
assets during the period from nonowner sources; and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related
Information," which establishes annual and interim reporting
standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and
major customers. Adoption of these statements will not impact the
Company's financial position, results of operations or cash flows,
and any effect will be limited to the form and content of its
disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application
permitted.
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.
MOREOVER, WHENEVER PHRASES SUCH AS, OR SIMILAR TO, "IN
MANAGEMENT'S OPINION", "MANAGEMENT BELIEVES", OR "MANAGEMENT
CONSIDERS" ARE USED, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE
KNOWLEDGE OF MANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TO CHANGE
BY THE PASSAGE OF TIME AND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY
SUCH STATEMENTS ARE SUBJECT TO THE SAME RISKS AND UNCERTAINTIES
NOTED ABOVE WITH RESPECT TO FORWARD-LOOKING STATEMENTS.
California Community Bancshares Corporation and subsidiary (the
"Company") is a single bank holding company for Continental Pacific
Bank (the "Bank"), a California state-chartered nonmember Bank,
which has one subsidiary, Conpac Development Corporation. 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 posted record earnings for the three and six month
periods ended June 30, 1997. Net income for the three months ended
June 30, 1997 was $441,000 up 14.5% from the $385,000 posted in the
second quarter of 1996. Fully diluted quarterly earnings per share
increased to $.35 from $.33 recorded in the same period last year.
Net income for the six months ended June 30, 1997, was $805,000, up
7.8% from the $747,000 reported for the same period in the prior
year. Year to date fully diluted earnings per share increased to
$.66 from $.64 for the prior period.
In the second quarter of 1997, net interest income increased
$57,000 or 2.9% over the same quarter's performance the prior year
while noninterest income and noninterest expense declined by
$10,000 or 2.1% and $15,000 or 0.9%, respectively.
In the first half of 1997, net income was improved by a $138,000
or 3.7% increase in net interest income offset by a $49,000 or 5.0%
decline in noninterest income and a $61,000 or 1.8% increase in
noninterest expense.
Assets of the Company totalled $192.6 million at June 30, 1997 a
$.8 million increase over the 1996 end of year figure. A $1.0
million increase in deposits along with $3.3 million reduction in
cash and cash equivalents funded the $4.0 million increase in
loans.
Return on Average Assets (ROA) was .93% and Return on Average
Equity (ROE) was 12.53% in the second quarter of 1997. For the
same quarter in 1996, these ratios were .93% and 12.28%,
respectively. At June 30, 1997, the Company had a leverage capital
ratio of 7.68%, a Tier 1 risk based capital ratio of 10.80% and a
total risk-based capital ratio of 13.72%. These compare to 7.04%,
9.92% and 13.55%, respectively at December 31, 1996.
ROA was .85% and ROE was 11.68% in the first half of 1997. For
the same period in 1996, these ratios were .93% and 11.95%,
respectively.
The following tables provide a summary of the major elements of
income and expense for the second quarter of 1997 compared with the
second quarter of 1996 as well as 1997 year to date income
components compared to 1996 year to date figures.
CONDENSED COMPARATIVE INCOME STATEMENT
California Community Bancshares Corporation
(In Thousands, Except Earnings per Common and Equivalent Share)
------------------ -------------------
Three Months Percentage Change
Ended June 30, Increase (Decrease)
------------------ -------------------
1997 1996
------ ------
Interest Income $3,521 $3,242 8.6%
Interest Expense 1,519 1,297 17.1
------ ------
Net Interest Income 2,002 1,945 2.9
Provision for Loan Losses 80 93 (14.0)
------ ------
Net Interest Income after
Provision for Loan Losses 1,922 1,852 3.8
Non Interest Income 457 467 ( 2.1)
Non Interest Expenses 1,677 1,692 ( 0.9)
------ ------
Income Before Income Taxes 702 627 12.0
Provision for Income Taxes 261 242 7.9
------ ------
Net Income $ 441 $ 385 14.5%
====== ======
Primary Earnings per Common
and Equivalent Share $ 0.39 $ 0.38 2.6%
Fully Diluted Earnings per
Common and Equivalent Share $ 0.35 $ 0.33 6.1%
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CONDENSED COMPARATIVE INCOME STATEMENT
California Community Bancshares Corporation
(In Thousands, Except Earnings per Common and Equivalent Share)
------------------ -------------------
Six Months Percentage Change
Ended June 30, Increase (Decrease)
------------------ -------------------
1997 1996
------ ------
Interest Income $6,968 $6,325 10.2%
Interest Expense 3,057 2,552 19.8
------ ------
Net Interest Income 3,911 3,773 3.7
Provision for Loan Losses 169 207 (18.4)
------ ------
Net Interest Income after
Provision for Loan Losses 3,742 3,566 4.9
Non Interest Income 932 981 ( 5.0)
Non Interest Expenses 3,404 3,343 1.8
------ ------
Income Before Income Taxes 1,270 1,204 5.5
Provision for Income Taxes 465 457 1.8
------ ------
Net Income $ 805 $ 747 7.8%
====== ======
Primary Earnings per Common
and Equivalent Share $ 0.74 $ 0.74 0.0%
Fully Diluted Earnings per
Common and Equivalent Share $ 0.66 $ 0.64 3.1%
- -----------------------------------------------------------------------------
NET INTEREST INCOME / NET INTEREST MARGIN
Net interest income represents the excess of interest and fees
earned on interest-earning assets over 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 June 30, 1997, interest income increased
$279,000 or 8.6% to $3,521,000 from the $3,242,000 reported in the
same period last year. Increased average total securities balances
were the main factor contributing to this increase as average rates
earned on total securities remained consistent unchanged while
lower rates earned on loans were offset by increased average loan
balances. Average total securities were $19.2 million or 53%
higher than the average in the year ago period resulting in a
$296,000 increase in interest income. Slight changes in rates
earned on securities reduced interest income by $5,000. In the
most recent quarter total securities (taxable securities,
nontaxable securities and federal funds sold) averaged $55.1
million compared to $35.9 million in the year ago period. Loan
balances averaged $115.4 million in the second quarter of 1997,
$3.9 million higher than average loan balances of $111.5 in the
second quarter of 1996. This increased loan volume contributed an
additional $100,000 in interest income. This increase in interest
income was offset by a 40 basis point reduction in the rate earned
on loans, declining from 9.81% in the second quarter of 1996 to
9.41% in the current quarter. This lower rate reduced interest
income by $112,000.
In the second quarter of 1997, interest expense increased by
$222,000 or 17.1% to $1,519,000 from the $1,297,000 recorded in
same period last year, as average interest-bearing liabilities
increased by $20.5 million. Interest paid on time deposits
increased by $203,000 or 35% as average time deposit balances
increased by $14.4 million and average interest rates paid
increased from 5.06% in the second quarter of 1996 to 5.20% in the
current quarter. While higher rates paid on time deposits
increased interest expense by $16,000, the higher volume accounted
for an increase of $187,000. Average savings deposits and money
market account balances increased by $3.1 million in the second
quarter of 1997 compared to the figures in the same period last
year while the rate paid dropped by 5 basis points to 3.76%. This
increase in average balances offset somewhat by lower rates paid on
these accounts accounted for an additional $23,000 in interest
expense. Changes in volume and rates paid in all other categories
accounted for $4,000 net reduction in interest expense. Changes in
average balances within these categories were mixed, lower cost NOW
accounts and other borrowings increased by $3.8 million and $.5
million respectively while security repurchase agreements and
subordinated debentures each declined by $.7 million.
The combined effect of the increase in interest income and the
increase in interest expense in the second quarter of 1997 versus
the second quarter of 1996 was a $57,000 increase in net interest
income which totalled $2,002,000 for the current quarter.
Increased volume, which improved net interest income by $180,000,
was offset by a $123,000 reduction due to rate changes. The net
interest margin decreased 60 basis points from 5.31% to 4.71%.
In the six months ended June 30, 1997, interest income increased
$643,000 or 10.2% to $6,968,000 from the $6,325,000 for the same
period last year. Increased average total securities balances were
the major factor contributing to this increase as average rates
earned on total securities remained consistent while lower rates
earned on loans were offset by increased average loan balances.
Average total securities were $21.6 million or 64% higher than the
average for the same period in the prior year resulting in a
$653,000 increase in interest income. Slight changes in rates
earned on these securities reduced interest income by $13,000.
Year to date, 1997, total securities (taxable securities,
nontaxable securities and federal funds sold) averaged $55.1
million compared to $33.5 million in the year ago period. Average
loan balances were $114.3 million in the first six months of 1997,
$4.2 million higher than average loan balances of $110.1 million in
the first half of 1996. This increased loan volume contributed
$186,000 in interest income but was offset by a 33 basis point
reduction in the average rate earned on loans. This rate declined
from 9.76% in the first half of 1996 to 9.43% in the first half of
1997 reduced interest income by $183,000.
In the first half of 1997, interest expense increased by $505,000
or 19.8% to $3,057,000 from the $2,552,000 obtained in the same
period last year as average interest-bearing liabilities increased
by $21.5 million. Interest paid on time deposits increased by
$375,000 or 32% as average time deposit balances increased by $14.4
million and average interest rates paid remained consistent at
5.20% and 5.17%, respectively. The increased volume in time
deposits resulted in $366,000 of increased interest expense.
Average savings and monthly market account balances also increased
in the first half of 1997 compared to the same period last year
rising by $4.7 million, while the rate paid fell by 1 basis points
to 3.76%. The increase in average savings balances resulted in a
$77,000 increase in interest expense. Average NOW accounts and
average other borrowings increased $2.1 million and $1.5 million,
respectively over the prior period's average. These increased
volumes increased interest expense $14,000 and $63,000,
respectively, while increases in the average rates paid resulted in
another $13,000. Due to the timing of the $937,000 in subordinated
debentures that converted to common stock in the first half of
1997, interest expense on debentures declined by $30,000. Other
minor changes in volume and rate accounted for a $6,000 net
increase in interest expense.
The combined effect of the increase in interest income and the
increase in interest expense in the first half of 1997 versus the
first half of 1996 resulted in an increase of $138,000 in net
interest income totalling $3,911,000. Overall increased volume
improved net interest income by $355,000 while net rate changes
reduced net interest income by $217,000. The net interest margin
decreased 63 basis points from 5.28% to 4.65%.
The following tables provide summaries of the components of
interest income, interest expense and net interest margins on
earning assets for the three months and six months ended June 30,
1997 versus the same periods in 1996.
ANALYSIS OF CHANGES IN NET INTEREST MARGIN ON AVERAGE EARNINGS ASSETS
California Community Bancshares Corporation
(In Thousands)
Three Months Ended
-----------------------------------------------------
June 30, 1997 June 30, 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 $ 3,192 $ 40 5.03% $ 3,308 $ 40 4.91%
Investment Securities:
Taxable <F2> 47,299 714 6.05 25,735 390 6.09
Exempt From Federal Taxes<F3> 4,602 60 5.23 6,851 93 5.45
Loans, Net <F4><F5> 115,424 2,707 9.41 111,469 2,719 9.81
-------- ------ ----- -------- ------ -----
Total Interest Earning Assets 170,517 3,521 8.28 147,363 3,242 8.85
Cash and Due from Banks 10,095 8,889
Premises and Equipment, net 2,295 2,168
Investment in Real Estate
Development Ventures 4,442 4,568
Accrued Interest Receivable
and Other Assets 2,748 1,849
-------- --------
TOTAL AVERAGE ASSETS $190,097 $164,837
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 23,500 73 1.25 19,718 65 1.33
Savings Deposits and MMDA 19,769 118 2.39 17,807 100 2.26
Money Management 38,722 430 4.45 37,624 425 4.55
Time Deposits 38,450 492 5.13 27,560 339 4.95
Time Deposits over $100,000 22,061 292 5.31 18,586 242 5.23
Federal Funds Purchased 282 4 5.97 89 1 3.62
Security Repurchase Agreements 323 4 5.09 979 12 4.81
Other Borrowed Funds 2,650 52 7.87 2,185 36 6.63
Convertible Subordinated
Debentures 3,170 54 6.83 3,903 77 7.96
-------- ------ ----- -------- ------ -----
Total Average Interest-
Bearing Liabilities 148,927 1,519 4.09 128,451 1,297 4.06
Noninterest-Bearing DDA's 26,416 23,657
Accrued Interest Payable and
Other Liabilities 674 185
-------- ------ ----- -------- ------ -----
Total Average Liabilities $176,017 $1,519 3.46% $152,293 $1,297 3.43%
======== ========
Total Equity 14,080 12,544
Total Average Liabilities and
Shareholders' Equity 190,097 164,837
Net Interest Spread <F6> 4.19% 4.79%
Net Interest Income $2,002 $1,945
Net Interest Margin <F7> 4.71% 5.31%
- -----------------------------------------------------------------------------
<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 7.59% and 7.94% 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 $83,000 in
1997 and $185,000 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 CHANGES IN NET INTEREST MARGIN ON AVERAGE EARNINGS ASSETS
California Community Bancshares Corporation
(In Thousands)
Six Months Ended
-----------------------------------------------------
June 30, 1997 June 30, 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 $ 2,857 $ 69 4.87% $ 2,162 $ 54 5.02%
Investment Securities:
Taxable <F2> 47,600 1,434 6.08 24,447 743 6.11
Exempt From Federal Taxes<F3> 4,633 120 5.22 6,905 186 5.42
Loans, Net <F4><F5> 114,346 5,345 9.43 110,090 5,342 9.76
-------- ------ ----- -------- ------ -----
Total Interest Earning Assets 169,436 6,968 8.29 143,604 6,325 8.86
Cash and Due from Banks 9,795 8,553
Premises and Equipment, net 2,299 2,184
Investment in Real Estate
Development Ventures 4,455 4,580
Accrued Interest Receivable
and Other Assets 2,718 1,991
-------- --------
TOTAL AVERAGE ASSETS $188,703 $160,912
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 21,012 141 1.35 18,934 122 1.30
Savings Deposits and MMDA 19,512 233 2.41 17,242 196 2.30
Money Management 39,636 871 4.43 37,237 825 4.46
Time Deposits 38,810 991 5.15 27,581 690 5.03
Time Deposits over $100,000 21,739 570 5.29 18,584 496 5.37
Federal Funds Purchased 191 5 5.70 150 4 5.36
Security Repurchase Agreements 395 10 5.11 957 24 5.04
Other Borrowed Funds 2,650 108 8.22 1,111 37 6.70
Convertible Subordinated
Debentures 3,393 128 7.61 3,964 158 7.96
-------- ------ ----- -------- ------ -----
Total Average Interest-
Bearing Liabilities 147,338 3,057 4.18 125,760 2,552 4.08
Noninterest-Bearing DDA's 26,948 22,460
Accrued Interest Payable and
Other Liabilities 642 184
-------- ------ ----- -------- ------ -----
Total Average Liabilities $174,928 $3,057 3.52% $148,404 $2,552 3.46%
======== ========
Total Equity 13,775 12,508
Total Average Liabilities and
Shareholders' Equity 188,703 160,912
Net Interest Spread <F6> 4.11% 4.78%
Net Interest Income $3,911 $3,773
Net Interest Margin <F7> 4.65% 5.28%
- -----------------------------------------------------------------------------
<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 7.58% and 7.90% 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 $176,000
in 1997 and $296,000 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 June 30, 1997
over June 30, 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $( 1) $ 1 $ 0
Taxable Investment Securities 326 ( 2) 324
Investment Securities Exempt from
Federal Taxes ( 29) ( 4) ( 33)
Loans, Net <F1><F2> 100 ( 112) ( 12)
------ ---------- -----
Total Interest Income 396 ( 117) 279
Interest-bearing Now Accounts 12 ( 4) 8
Savings Deposits and MMDA 12 6 18
Money Management 14 ( 9) 5
Time Deposits 140 13 153
Time Deposits over $100,000 47 3 50
------ ---------- -----
Total Interest Expense on Deposits 225 9 234
Federal Funds Purchased 2 1 3
Security Repurchase Agreements ( 8) 0 ( 8)
Other Borrowed Funds 9 7 16
Convertible Subordinated Debentures ( 12) ( 11) ( 23)
------ ---------- -----
Total Interest Expense 216 6 222
------ ---------- -----
Net Interest Income $ 180 ($ 123) $ 57
====== ========== =====
- -----------------------------------------------------------------------------
<FN>
<F1> Nonaccrual loans are included.
<F2> Interest income on loans includes fee income on loans of
$83,000 in 1997 and $185,000 in 1996.
<F3> Changes not due solely to rate change have been allocated to
volume.
</FN>
-------------------------------------
Six Months Ended June 30, 1997
over June 30, 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $ 17 ($ 2) $ 15
Taxable Investment Securities 695 ( 4) 691
Investment Securities Exempt from
Federal Taxes ( 59) ( 7) ( 66)
Loans, Net <F1><F2> 186 ( 183) 3
------ ---------- -----
Total Interest Income 839 ( 196) 643
Interest-bearing Now Accounts 14 5 19
Savings Deposits and MMDA 27 10 37
Money Management 50 ( 4) 46
Time Deposits 285 16 301
Time Deposits over $100,000 81 ( 7) 74
------ ---------- -----
Total Interest Expense on Deposits 457 20 477
Federal Funds Purchased 1 0 1
Security Repurchase Agreements ( 14) 0 ( 14)
Other Borrowed Funds 63 8 71
Convertible Subordinated Debentures ( 23) ( 7) ( 30)
------ ---------- -----
Total Interest Expense 484 21 505
------ ---------- -----
Net Interest Income $ 355 ($ 217) $ 138
====== ========== =====
- -----------------------------------------------------------------------------
<FN>
<F1> Nonaccrual loans are included.
<F2> Interest income on loans includes fee income on loans of
$176,000 in 1997 and $296,000 in 1996.
<F3> Changes not due solely to rate change have been allocated to
volume.
</FN>
PROVISION FOR LOAN LOSSES
In the second quarter of 1997, the Company provided $80,000 for
loan losses versus $93,000 in the same period last year. This
provision increased the 1997 year to date provision to $169,000
versus $207,000 for the first six months of 1996. The year to date
provision offset the net loans charged off during the period
against the allowance and added $86,000 for growth in outstanding
loans balances as well as general economic factors. The allowance
for loan losses to loans receivable at June 30, 1997 was 1.01% up
from 1.00% at June 30, 1996. Management's ongoing analysis of the
loan portfolio determined that the balance of $1,187,000 in the
allowance for loan losses is expected to be adequate to absorb
losses inherent in the loan portfolio. The current quarter's
$80,000 provision for loan losses deducted from the $2,002,000 net
interest income results in net interest income after provision of
$1,922,000. This figure divided by average assets is a ratio of
4.04% slightly above the Company's short term goal of 4.00%. The
Company's next target level is 4.50%.
NON INTEREST INCOME
Total non interest income in the second quarter of 1997 decreased
$10,000 or 2.1% from the same period last year and decreased
$49,000 or 5.0% for the first six months of 1997 from the amount
reported for the first six months of 1996.
Income from service charges on deposit accounts improved by 5.8%
from $208,000 obtained in the second quarter of 1996 to $220,000 in
the second quarter of 1997. Gain on sale of available securities
declined from $2,000 in the second quarter of 1996 to none in the
second quarter of 1997. Income from real estate development
remained consistent at $129,000 and $130,000 in the second quarter
of 1997 and 1996. Other fees and charges resulted in the bulk of
the decrease, declining by $19,000 from the amount reported in the
second quarter 1996. Fee income on the sale of 1-4 family
mortgages decreased by $27,000 from $53,000 in the second quarter
of 1996 to $26,000 in the current quarter. Income from the sale and
servicing of SBA loans decreased by $29,000 from $35,000 in the
second quarter of 1996 to $6,000 in the current period. Numerous
other fees, such as fees from the sale of credit card equipment and
sale of assets increased by $37,000 resulting in the net decrease
of $19,000 in other fees and charges. The current quarters non
interest income of $457,000 expressed as a ratio of average assets
is .96%. The Company's current goal is to improve this ratio to
1.00%.
Income from services charges on deposit accounts improved
slightly from $401,000 in the first six months of 1996 to $436,000
in the first half of 1997. Gain on sale of available securities
increased from $3,000 in the first half of 1996 to $42,000 in the
first half of 1997. Income from real estate development was
basically unchanged with income of $264,000 and $260,000 in the
first six months of 1997 and 1996, respectively. The significant
decreases occurred in other fees and charges. The sale and
servicing of SBA loans generated fee income of $98,000 in the first
six months of 1996 versus $16,000 the current year as the Bank
reduced the volume of SBA loan sales, preferring to retain the
loans in its portfolio. Fee income on the sale of 1-4 family
mortgages decreased by $62,000 from $102,000 in the first half of
1996 to $40,000 in the current year to date period. Income
increased by $17,000 in various other fees and services categories
resulting in an overall decline in other fees and charges of
$127,000 for the first six months of 1997 compared to the first six
months of 1996.
NON INTEREST EXPENSE
Non interest expense for the second quarter of 1997 was
$1,677,000, $15,000 less than the $1,692,000 reported in the second
quarter of 1996. Salaries and benefits decreased $16,000 or 2%
despite the addition of a new branch in the fourth quarter of 1996.
The new branch and the remodeling of the Company's data processing
department increased occupancy cost by $35,000 or 11% over the
amount reported in the same quarter of 1996. Other expenses in the
current quarter were $38,000 less than the same quarter last year.
This reduction was mainly due to the higher than normal legal
expenses associated with the formation of the holding company and
the purchase of the Concord branch in the second quarter of 1996.
Expenses from real estate development were consistent, increasing
from $70,000 in the second quarter of 1996 to $74,000 in the
current quarter. The current quarters non interest expenses
expressed as a ratio to average assets is 3.53%. It is the
immediate goal of the Company to reduce this overhead ratio to
3.50%.
Non interest expense for the first half of 1997 was $3,404,000,
$61,000 or 1.8% higher than the $3,343,000 expensed in the first
half of 1996. Salaries and benefits declined by $4,000 while
occupancy expense was up $48,000 due to the new Concord branch and
the data processing office remodeling. Both other expenses and
expenses from real estate development were up slightly, increasing
by $8,000 and $9,000 respectively over the figures reported in the
prior year period.
PROVISION FOR INCOME TAXES AND NET INCOME
The Company recorded a $261,000 provision for income taxes in the
second quarter of 1997, $19,000 higher than the provision recorded
in the same quarter last year. For the first six months of 1997,
the company provided for $465,000 in income taxes versus $457,000
in the first six months of 1996. Taxes were higher in both periods
due to higher earnings as well as lower tax exempt income from
securities. The effective tax rate for the current period was
37.2% and 36.6% for the quarterly and year to date period versus
38.6% and 38.0% in the same periods last year.
The $1,922,000 net interest income after provision for loan
losses plus noninterest income of $457,000 and noninterest expense
of $1,677,000 resulted in income before provision for income taxes
of $702,000 or 1.47% of average assets. This is $75,000 higher
than the figure reported in the same period last year. After
deducting the provision for income taxes net income was $441,000 or
.93% return on average assets. It is the Company's goal to
increase this ratio to 1% as soon as possible. To accomplish this
goal the Company intends to 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
At June 30, 1997, total outstanding loan balances were $4.0
million higher than year end 1996 totals. The composition of loans
also changed significantly in the first half of 1997. Construction
and land development loans declined by $.7 million, while loans
secured by 1-4 first liens, loans secured by multi family
residential property loans, loans secured by commercial real
estate and commercial and industrial loans increased by $2.1
million, $0.5 million, $1.6 million and $0.5 million, respectively.
The Bank's largest loan category, real estate mortgage loans
constituted 72.4% of total loans outstanding at December 31, 1996
and 73.7% at June 30, 1997. Loan growth is an integral component
of improved earnings. 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%. At the end of the second quarter of 1997,
outstanding loans had increased 3.5%, which in turn increased
these ratios to 68.6% and 67.3%. It is the goal of the Company to
continue to increase these ratios to a range between 75% and 80%.
Management is continually marketing its loan products.
SECURITIES
At June 30, 1997, available for sale securities had a fair market
value of $52,443,000 with an amortized cost basis of $52,981,000.
This represents a $126,000 decrease in the fair value from the year
end 1996 figure. The portfolio now consists of approximately
$10.9 million U.S. Treasuries, $15.5 million U.S. Agency bonds,
$4.6 million in securities issued by states and political
subdivision in the U.S., $20.8 million in mortgage backed
securities and $.6 million in Federal Home Loan Bank stock.
Approximately 50% of the debt security portfolio is floating rate,
tied to either the 11th District Cost of Funds Index, the one-year
constant maturity treasury index or prime rate. The fixed rate
portfolio has an average maturity of 3 1/2 years. As a result of
an approximate .25% increase in interest rates, the unrealized loss
on securities available for sale increased from $276,000 to
$312,000 at June 30, 1997 compared to December 31, 1996. Although
the tax affected unrealized loss is a component of shareholders'
equity, this figure is excluded from the calculation of regulatory
capital ratios. The security portfolio is a good source of both
liquidity and income.
At June 30, 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 shareholder's
equity other than those issued by the U.S. Government and U. S.
Government agencies and corporations.
NONPERFORMING ASSETS
Total nonperforming assets have increased $1,880,000 since year
end and $1,527,000 from a year ago. Since year end 1996 nonaccrual
loans increased by $1,032,000, accruing loans past due 90 days or
more decreased by $49,000 while restructured loans increased by
$711,000. One loan for $928,000 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,
which also occurred in the first quarter of 1997, 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. Also in the second quarter of 1997, the
Bank added three properties totalling $186,000 to other real estate
owned. Due to the value of these properties the Bank believes it
will experience little to no loss when these properties are sold.
Non performing assets represent 1.63% of total assets while the
ratio of allowance for loan losses to nonperforming loans is
42.32%. 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 June 30, 1997 and December 31, 1996, the recorded investment
in loans for which impairment has been recognized in accordance
with SFAS No. 114 was approximately $3,022,000 and $2,648,000. The
total allowance for loan losses related to these loans was $372,000
and $278,000, respectively. For the quarter ended June 30, 1997
and December 31, 1996, the average recorded investment in loans for
which impairment has been recognized was approximately $3,118,000
and $2,652,000. During the portion of the quarter that the loans
were impaired, the Company recognized interest income of
approximately $32,000 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 $40,000 in the second
quarter of 1997 and $72,000 for the first six months 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.
The following table presents information concerning the allowance
and provision for loan losses:
------------- ------------
June 30 December 31,
1997 1996
------------- ------------
Nonaccrual Loans $ 1,102 $ 70
Accruing Loans past Due 90 Days or More 18 67
Restructured Loans
(In Compliance with Modified Terms) 1,685 974
------------- ------------
Total Nonperforming Loans 2,805 1,111
Other Real Estate Owned 336 150
------------- ------------
Total Nonperforming Assets 3,141 1,261
============= ============
Total Loans, End of Period 117,595 113,625
Total Assets, End of Period 192,591 191,829
Allowance for Loan Losses $ 1,187 $ 1,101
Nonperforming Loans to Total Loans 2.39% 0.98%
Allowance for Loan Losses to Nonperforming Loans 42.32% 99.10%
Nonperforming Assets to Total Assets 1.63% 0.66%
Allowance for Loan Losses to Nonperforming Assets 37.79% 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.
------------- -------------
June 30, June 30,
1997 1996
------------- -------------
Balance, Beginning of Period $ 1,101 $ 1,158
Provision Charged to Operations 169 207
Loans Charged off 102 228
Recoveries of Loans Previously Charged off 19 4
------------- -------------
Balance, End of Period 1,187 1,141
Total Loans, End of Period $117,595 $113,783
Allowance for Loans Losses to
Loans, End of Period 1.01% 1.00%
- -----------------------------------------------------------------------------
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 unpledged investment securities as a percentage of
total deposits. At June 30, 1997, this ratio was 31.8%.
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 risk 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 the federal funds rate changes) and lags
(the time it takes rates to change after the federal funds rate
changes). The model simulates the effects on net interest income
and market risk when the federal funds rate changes. 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 June 30, 1997, the "ALX" model showed the Bank was moderately
liability sensitive with a NII exposure of -$60,000 or -0.7% for a
1% increase in the federal funds rate and a -$460,000 or -5.7%
exposure in NII for 2% increase. Both of these figures are within
policy.
At June 30, 1997, market risk, as measured by the model, for a 3%
increase in market rates, was -17.17% of equity capital, within
policy, and the market risk adjusted leverage and risk based
capital ratios were 5.76% and 11.73%, respectively, also within
policy.
When the Company is liability sensitive, as it was at June 30,
1997, management discontinues or limits the use of longer lagging
indexes such as the 11th District Cost of Funds (COFI) for loan
pricing and switchs to more market sensitive indexes. In the
security portfolio, the Company switchs from fixed rate
investments, as well as investments 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.
Company:
As a result of the $805,000 earned in first half of 1997,
combined with the $943,000 increase in capital raised through the
issuance of common stock pursuant to the exercise of employee stock
options and the conversion of debentures, and the payment of
$306,000 in dividends, the Company had the following capital levels
and ratios. The following table also includes the regulatory
minimums for capital adequacy purposes:
For Capital
Actual Adequacy Purposes
------------------- ---------------------
Minimum Minimum
Amount Ratio Amount Ratio
(000) (000)
------------------- ---------------------
Total Capital
(to risk weighted assets) $ 18,505 13.72% $10,787 8.0%
Tier One Capital
(to risk weighted assets) $ 14,565 10.80% $ 5,393 4.0%
Tier One Capital
(to average assets) $ 14,565 7.68% $ 7,583 4.0%
Risk Weighted Assets $134,833
Average Assets $189,575
- -----------------------------------------------------------------------------
Bank:
As a result of the $827,000 earned in first half of 1997 and the payment of
$300,000 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:
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) $ 18,048 13.41% $10,768 8.0% $13,460 10.0%
Tier One Capital
(to risk weighted assets) $ 13,193 9.80% $ 5,384 4.0% $ 8,076 6.0%
Tier One Capital
(to average assets) $ 13,193 6.97% $ 7,568 4.0% $ 9,460 5.0%
Risk Weighted Assets $134,601
Average Assets $189,208
- ------------------------------------------------------------------------------
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None of the Company, 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
The Annual Meeting of Shareholders of California Community
Bancshares Corporation was held on Thursday, May 15, 1997,
Shareholders of the Company approved the slate of directors as
proposed, and the ratification of Deloitte & Touche LLP as
independent public accountants for the Company. Results of the
election are presented in Exhibit 23.
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS OF FORM 8-K
A) Exhibits
11 Statement regarding computation of per share earning.
23 Annual Meeting of Shareholders Report
27 Financial Data Schedule under Article 9
B) Reports on Form 8-K
No Form 8-K's were filed by the Company during the quarter
ending June 30, 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 /s/ Walter O. Sunderman
------------------ ----------------------------
Walter O. Sunderman
President and
Chief Executive Officer
----------------------------
Date /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 For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Weighted Average Shares
Used to Compute Common
and Equivalent Shares:
Primary 1,125,729 1,013,593 1,089,476 1,008,866
Fully Diluted 1,341,651 1,319,731 1,341,554 1,318,081
========= ========= ========= =========
Net Income Used in the
Computation of Income
per Common Share:
Net Income, as Reported
Used to Compute Primary
Income per Share $ 441 $ 385 $ 805 $ 747
========= ========= ========= =========
Adjustment for after Tax
Effect of Interest Paid
on Convertible Debentures 32 45 74 91
--------- --------- --------- ---------
Net Income, as Adjusted Used
to Compute Fully Diluted
Income per Share $ 473 $ 430 $ 879 $ 838
========= ========= ========= =========
Income per Common and
Equivalent Share:
Primary $ 0.39 $ 0.38 $ 0.74 $ 0.74
Fully Diluted $ 0.35 $ 0.33 $ 0.66 $ 0.64
========= ========= ========= =========
EXHIBIT 23 - ANNUAL MEETING OF SHAREHOLDERS REPORT
ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1997
TOTAL SHARES OUTSTANDING: 1,000,150
-----------
TOTAL SHARES VOTING: 733,420.809
-----------
BY PROXY: 733,420.809
-----------
IN PERSON: 0
-----------
PERCENTAGE OF SHARES VOTED: 73.33%
-----------
1. TO ELECT DIRECTORS AS STATED IN THE PROXY STATEMENT
FOR AUTHORITY WITHHELD TOTAL
Dorce L. Daniel 732,252.809 1,168 733,420.809
------------ ------------------ ------------
William J. Hennig 731,337.809 2,083 733,420.809
------------ ------------------ ------------
Bernard E. Moore 700,012.809 33,408 733,420.809
------------ ------------------ ------------
Melvin M. Norman 732,106.809 1,314 733,420.809
------------ ------------------ ------------
Stephen R. Schwimer 732,252.809 1,168 733,420.809
------------ ------------------ ------------
Donald E. Sheahan 729,852.809 3,568 733,420.809
------------ ------------------ ------------
Gary E. Stein 732,142.787 1,278.022 733,420.809
------------ ------------------ ------------
Walter O. Sunderman 701,497.809 31,923 733,420.809
------------ ------------------ ------------
John C. Usnick 731,337.809 2,083 733,420.809
------------ ------------------ ------------
2. RATIFICATION OF DELOITTE & TOUCHE LLP
FOR AGAINST ABSTAIN TOTAL
725,673.809 0 7,747 733,420.809
----------- ------- -------- -----------
PERCENT
TOTAL SHARES VOTING BY PROXY: 733,420.809 100%
------------ -------
TOTAL SHARES VOTING IN PERSON: 0
------------ -------
TOTAL VOTES CAST: 733,420.809 100%
------------ -------