1
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 SEPTEMBER 30, 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:
1,096,164
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [ X ]
2
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
Condensed Statements of Cash Flows 5
Condensed Consolidated Statement of Changes in Shareholders' Equity 6
Notes to Condensed Consolidated Financial Statements 7
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 14
Analysis of Volume and Rate Changes on Net Interest Income
and Expense 18
Provision for Loan Losses 19
Non Interest Income 20
Non Interest Expense 20
Provision for Income Taxes and Net Income 21
Loans 21
Securities 22
Nonperforming Assets 22
Allowance for Loan Losses 24
Liquidity 24
Equity 26
PART II - OTHER INFORMATION 27
Item 1 - Legal Proceedings 27
Item 2 - Changes in Securities 27
Item 3 - Defaults Upon Senior Securities 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
Item 5 - Other Information 27
Item 6 - Exhibits and Reports of Form 8-K 27
SIGNATURES 28
3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
California Community Bancshares Corporation
(In Thousands, except share information)(Unaudited)
-------- --------
ASSETS 09/30/97 12/31/96
-------- --------
Cash and due from banks $ 11,519 $ 10,825
Federal funds sold 0 6,115
-------- --------
Total cash and cash equivalents 11,519 16,940
Available for sale securities, at fair value 51,161 52,569
Loans receivable: 121,141 113,625
Less: Allowance for loan losses 1,220 1,101
Deferred loan fees 511 599
-------- --------
Net loans receivable 119,410 111,925
Premises and equipment, net of accumulated depr. 2,154 2,284
Investments in real estate development 4,401 4,483
Other real estate owned 196 150
Goodwill 513 540
Accrued interest receivable and other assets 2,889 2,938
-------- --------
TOTAL ASSETS $192,243 $191,829
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non interest bearing $ 29,646 $ 26,882
Interest bearing:
Transaction 23,268 21,467
Savings 58,652 61,298
Time:
$100,000 or more 21,536 20,881
Other time 37,322 39,815
-------- --------
Total deposits 170,424 170,343
Repurchase agreements 324 992
Other borrowed funds 2,650 2,650
Accrued interest payable and other liabilities 896 785
Convertible subordinated debentures 2,503 3,690
-------- --------
TOTAL LIABILITIES $176,797 $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, 1,096,164 at
Sept 30, 1997 and 994,519 at December 31, 1996 12,339 11,135
Retained earnings 3,296 2,510
Unrealized loss on available for sale
securities (net of tax) ( 189) ( 276)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 15,446 13,369
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $192,243 $191,829
======== ========
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
California Community Bancshares Corporation
(In Thousands, except share information)(Unaudited)
--------------------- ---------------------
For the Three Months For the Nine months
Ended Sept 30, Ended Sept 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
INTEREST INCOME:
Loans and Loan Fees $ 2,836 $ 2,702 $ 8,181 $ 8,044
Securities:
Taxable 714 462 2,148 1,205
Exempt from Federal Tax 59 87 179 273
Federal Funds Sold 23 19 92 73
--------- --------- --------- ---------
Total Interest Income $ 3,632 $ 3,270 $ 10,600 $ 9,595
INTEREST EXPENSE:
Time Deposits $100,000 or More $ 288 $ 263 $ 858 $ 759
Other Deposits 1,124 948 3,360 2,783
Federal Funds and Repurchase
Agreements Purchased 10 13 25 41
Other Borrowed Funds 59 55 167 92
Convertible Subordinated Debentures 45 78 173 234
--------- --------- --------- ---------
Total Interest Expense 1,526 1,357 4,583 3,909
--------- --------- --------- ---------
NET INTEREST INCOME 2,106 1,913 6,017 5,686
PROVISION FOR LOAN LOSSES 75 69 244 276
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,031 1,844 5,773 5,410
--------- --------- --------- ---------
NON INTEREST INCOME:
Service Charges on Deposit Accounts 227 222 663 623
Net Gain on Sale of AFS Securities 0 5 42 8
Other Fees and Charges 134 90 324 407
Income from Real Estate Development 131 130 395 390
--------- --------- --------- ---------
Total Non Interest Income 492 447 1,424 1,428
--------- --------- --------- ---------
NON INTEREST EXPENSES:
Salaries and Employee Benefits 883 787 2,528 2,436
Occupancy 368 333 1,093 1,010
Other Expense 481 452 1,367 1,330
Real Estate Development Expenses 78 76 226 215
--------- --------- --------- ---------
Total Non Interest Expenses 1,810 1,648 5,214 4,991
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 713 643 1,983 1,847
PROVISION FOR INCOME TAXES 264 254 729 711
--------- --------- --------- ---------
NET INCOME $ 449 $ 389 $ 1,254 $ 1,136
========= ========= ========= =========
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
Primary $ 0.38 $ 0.38 $ 1.12 $ 1.12
========= ========= ========= =========
Fully Diluted $ 0.35 $ 0.33 $ 1.00 $ 0.96
========= ========= ========= =========
Weighted Average Shares Used to
Compute Income Per Common and
Equivalent Shares:
Primary 1,169,240 1,025,539 1,116,276 1,013,305
Fully Diluted 1,365,554 1,326,715 1,349,767 1,319,841
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
5
CONDENSED STATEMENTS OF CASH FLOWS
California Community Bancshares Corporation (In Thousands)(Unaudited)
-----------------------
Nine Months Ended
September 30,
-----------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,254 $ 1,136
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 598 476
Provision for Loan Losses 244 276
Net Gain on the Sale of Available
for Sale Securities ( 42) ( 8)
Gain on the Sale of Premises and Equipment ( 6) ( 7)
Effect of Changes in:
Interest Receivable and Other Assets and Goodwill( 11) ( 79)
Interest Payable and Other Liabilities 111 ( 79)
-------- --------
Net Cash Provided by Operating Activities 2,148 1,715
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Available for Sale Securities ( 12,380) ( 8,621)
Proceeds from Sales of Available for Sale Securities 6,015 0
Proceeds from Maturities, Calls or Repayments of
Available for Sale Securities 7,734 2,598
Net Change in Loans Receivable ( 7,729) ( 3,260)
Change in Other Real Estate Owned ( 46) 32
Purchases of Premises and Equipment ( 222) ( 338)
Proceeds from Sales of Premises and Equipment 14 14
Change in Investments in Real Estate Development ( 4) 7
-------- --------
Net Cash Used in Investing Activities ( 6,618) ( 9,568)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Deposits:
Non-interest Bearing 2,764 2,998
Interest-bearing ( 2,683) 4,278
Net Change in Repurchase Agreements ( 668) 425
Net Change in Other Borrowed Funds 0 2,650
Cash Dividends Paid ( 468) ( 414)
Cash Proceeds from Stock Options Exercised 104 14
-------- --------
Net Cash Provided (Used) by Financing Activities ( 951) 9,951
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 5,421) 2,098
CASH AND CASH EQUIVALENTS:
Beginning of Period 16,940 11,261
-------- --------
End of Period $ 11,519 $ 13,359
======== ========
ADDITIONAL INFORMATION:
Common stock issued on conversion of debentures
net of debenture offering costs of $70,000 and
$13,000 in 1997 and 1996. $ 1,100 $ 160
======== ========
Transfer of foreclosed loans from loans receivable
to other real estate owned $ 263 $ 0
======== ========
Cash Payments
Income Tax Payments $ 793 $ 513
======== ========
Interest Payments $ 4,596 $ 4,010
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
6
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
=========== ======= ======= ========== =======
Stock Options Exercised 1,000 28 28
Common Stock issued on
Conversion of Debentures 19,607 233 233
Cash Dividend
on Common Stock ( 162) ( 162)
Net Change in Unrealized
Loss - On available
for sale securities 123 123
Net Income, 449 449
----------- ------- ------- ---------- -------
Balance at
Sept 30, 1997 1,096,164 $12,339 $ 3,296 ($ 189) $15,446
=========== ======= ======= ========== =======
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See Notes to Condensed Consolidated Financial Statements (Unaudited)
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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 for interim financial information 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 at that time will restate
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.
8
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been $.41 and $.38 for the quarters
ended September 30, 1997 and 1996 and $1.19 and $1.16 for the nine
months ended September 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.
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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 nine month
periods ended September 30, 1997. Net income for the three months
ended September 30, 1997 was $449,000, up 15.4% from the $389,000
posted in the third 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 nine months ended September
30, 1997, was $1,254,000, up 10.4% from the $1,136,000 reported for
the same period in the prior year. Year to date fully diluted
earnings per share increased to $1.00 from $.96 for the prior
period.
In the third quarter of 1997, both net interest income and non
interest income increased 10.1%, improving by $193,000 and $45,000,
respectively. These improvements were offset by a $162,000 or a
9.8% increase in non interest expense.
In the first nine months of 1997, net income was improved by a
$331,000 or a 5.8% increase in net interest income offset by a
$4,000 (less than a 1.0%) decline in non interest income and a
$223,000 or a 4.5% increase in non interest expense.
Assets of the Company totalled $192.2 million at September 30,
1997, a $.4 million increase over the 1996 end of year figure.
Loans increased $7.5 million, while investments declined $1.4
million and cash and cash equivalents declined $5.4 million. On
the liabilities side of the ledger, total borrowings declined by
$1.9 million, while shareholders equity increased by $2.1 million.
During this period $1.2 million of convertible subordinated
debentures were converted to common stock.
Return on Average Assets (ROA) was .93% and Return on Average
Equity (ROE) was 11.98% in the third quarter of 1997. For the same
quarter in 1996, these ratios were .93% and 12.22%, respectively.
At September 30, 1997, the Company had a leverage capital ratio of
7.90%, a Tier 1 risk based capital ratio of 10.98% and a total
risk-based capital ratio of 13.68%. These compare to 7.04%, 9.92%
and 13.55%, respectively at December 31, 1996.
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ROA was .88% and ROE was 11.79% in the first nine months of 1997.
For the same period in 1996, these ratios were .93% and 12.03%,
respectively.
The following tables provide a summary of the major elements of
income and expense for the third quarter of 1997 compared with the
third 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 Sept 30, Increase (Decrease)
------------------ -------------------
1997 1996
------ ------
Interest Income $3,632 $3,270 11.1%
Interest Expense 1,526 1,357 12.5
------ ------
Net Interest Income 2,106 1,913 10.1
Provision for Loan Losses 75 69 8.7
------ ------
Net Interest Income after
Provision for Loan Losses 2,031 1,844 10.1
Non Interest Income 492 447 10.1
Non Interest Expenses 1,810 1,648 9.8
------ ------
Income Before Income Taxes 713 643 10.9
Provision for Income Taxes 264 254 3.9
------ ------
Net Income $ 449 $ 389 15.4%
====== ======
Primary Earnings per Common
and Equivalent Share $ 0.38 $ 0.38 0.0%
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)
------------------ -------------------
Nine Months Percentage Change
Ended Sept 30, Increase (Decrease)
------------------ -------------------
1997 1996
------- ------
Interest Income $10,600 $9,595 10.5%
Interest Expense 4,583 3,909 17.2
------- ------
Net Interest Income 6,017 5,686 5.8
Provision for Loan Losses 244 276 (11.6)
------- ------
Net Interest Income after
Provision for Loan Losses 5,773 5,410 6.7
Non Interest Income 1,424 1,428 ( 0.3)
Non Interest Expenses 5,214 4,991 4.5
------- ------
Income Before Income Taxes 1,983 1,847 7.4
Provision for Income Taxes 729 711 2.5
------- ------
Net Income $ 1,254 $1,136 10.4%
======= ======
Primary Earnings per Common
and Equivalent Share $ 1.12 $ 1.12 0.0%
Fully Diluted Earnings per
Common and Equivalent Share $ 1.00 $ 0.96 4.2%
- -----------------------------------------------------------------------------
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
revenues and expenses.
In the quarter ended September 30, 1997, interest income
increased $362,000 or 11.1% to $3,632,000 from the $3,270,000
reported in the same period last year. Increased average total
securities balances and average loan balances were the main factors
contributing to this increase as average rates earned on total
securities and loans each declined by approximately 9 basis points.
Average total securities were $15.8 million or 42% higher than the
average in the same period a year ago resulting in a $242,000
increase in interest income. Slight changes in rates earned on
securities reduced interest income by $14,000. In the most recent
quarter total securities (taxable securities, securities exempt
from federal tax and federal funds sold) averaged $54.0 million
compared to $38.1 million in the year ago period. Net loan
balances averaged $118.6 million in the third quarter of 1997, $6.4
million higher than average loan balances of $112.2 in the third
quarter of 1996. Increased loan volume contributed an additional
$160,000 in interest income. This increase in interest income was
offset by a 9 basis point reduction in the rate earned on loans,
declining from 9.58% in the third quarter of 1996 to 9.49% in the
current quarter. This lower rate reduced interest income by
$26,000.
12
In the third quarter of 1997, interest expense increased by
$169,000 or 12.5% to $1,526,000 from the $1,357,000 recorded in
same period last year, as average interest-bearing liabilities
increased by $17.9 million. Interest paid on time deposits
increased by $162,000 or 26% as average time deposit balances
increased by $11.0 million and average interest rates paid
increased from 5.09% in the third quarter of 1996 to 5.22% in the
current quarter. While higher rates paid on time deposits
increased interest expense by $17,000, the higher volume accounted
for an increase of $145,000. Average savings deposits and money
market account balances increased by $4.0 million in the third
quarter of 1997 compared to the figures in the same period last
year while the rate paid declined by 6 basis points to 3.76%. This
increase in average balances offset partially by lower rates paid
on these accounts accounted for a net increase of $29,000 in
interest expense. A $1.2 million reduction in average convertible
subordinated debentures reduced interest expense by $33,000.
Changes in volume and rates paid in all other categories accounted
for $11,000 net increase in interest expense. Changes in average
balances within these categories were mixed, lower cost NOW
accounts and Federal Funds purchased increased by $4.4 million and
$.3 million respectively while security repurchase agreements
declined by $.7 million.
The combined effect of the increase in interest income and the
increase in interest expense in the third quarter of 1997 versus
the third quarter of 1996 was a $193,000 increase in net interest
income which totalled $2,106,000 for the current quarter.
Increased volume, which improved net interest income by $230,000,
was offset by a $37,000 reduction due to rate changes. The net
interest margin decreased 22 basis points from 5.06% to 4.84%.
In the nine months ended September 30, 1997, interest income
increased $1,005,000 or 10.5% to $10,600,000 from the $9,595,000
for the same period last year. Increased average total securities
balances and average loan balances were the major factors
contributing to this increase somewhat offset by lower rates earned
on loans, while average rates earned on total securities remained
consistent. Average total securities were $19.7 million or 56%
higher than the average for the same period in the prior year
resulting in a $880,000 increase in interest income. Slight
changes in rates earned on these securities reduced interest income
by $12,000. Year to date, 1997, total securities (taxable
securities, securities exempt from federal tax and federal funds
sold) averaged $54.7 million compared to $35.0 million in the year
ago period. Average net loan balances were $115.8 million in the
first nine months of 1997, $5.0 million higher than average loan
balances of $110.8 million in the first nine months of 1996. This
increased loan volume contributed $229,000 in additional interest
income but was offset by a 25 basis point reduction in the average
rate earned on loans. Average loan yields declined from 9.70% in
the first nine months of 1996 to 9.45% in the first nine months of
1997 reducing interest income by $92,000.
13
In the first nine months of 1997, interest expense increased by
$674,000 or 17.2% to $4,583,000 from the $3,909,000 obtained in the
same period last year as average interest-bearing liabilities
increased by $21.5 million. Interest paid on time deposits
increased by $537,000 or 30% as average time deposit balances
increased by $13.3 million and average interest rates paid
increased from 5.14% to 5.21%. The increased volume in time
deposits contributed $526,000 in additional interest expense, while
the increased rates contributed $11,000. Average savings and
monthly market account balances also increased in the first nine
months of 1997 compared to the same period last year rising by $4.5
million, while the rate paid fell by 3 basis points to 3.76%. The
increase in average savings balances resulted in a $110,000
increase in interest expense. Average NOW accounts and total
average borrowings increased $4.0 million and $0.6 million,
respectively over the prior period's average. These increased
volumes increased interest expense $33,000 and $54,000,
respectively, while changes in the average rates paid resulted in
another $1,000. Due to the timing of the $1,187,000 in convertible
subordinated debentures that converted to common stock in the first
nine months of 1997, interest expense on debentures declined by
$61,000.
The combined effect of the increase in interest income and the
increase in interest expense in the first nine months of 1997
versus the first nine months of 1996 resulted in an increase of
$331,000 in net interest income totalling $6,017,000. Overall
increased volume improved net interest income by $440,000 while net
rate changes reduced net interest income by $109,000. The net
interest margin decreased 49 basis points from 5.21% to 4.72%.
14
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 nine months ended September
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 September 30,
-----------------------------------------------------
1997 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 $ 1,679 $ 23 5.43% $ 1,511 $ 19 5.00%
Investment Securities:
Taxable <F2> 47,688 714 5.94 30,169 462 6.09
Exempt From Federal Taxes<F3> 4,597 59 5.09 6,427 87 5.39
Loans, Net <F4><F5> 118,595 2,836 9.49 112,210 2,702 9.58
-------- ------ ----- -------- ------ -----
Total Interest Earning Assets 172,559 3,632 8.35 150,317 3,270 8.65
Cash and Due from Banks 9,567 8,576
Premises and Equipment, net 2,218 2,106
Investment in Real Estate
Development 4,415 4,526
Accrued Interest Receivable
and Other Assets 3,171 1,778
-------- --------
TOTAL AVERAGE ASSETS $191,930 $167,303
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 24,097 74 1.22 19,667 64 1.29
Savings Deposits and MMDA 19,895 121 2.41 17,768 101 2.26
Money Management 39,031 436 4.44 37,176 427 4.57
Time Deposits 38,064 493 5.14 28,458 356 4.98
Time Deposits over $100,000 21,296 288 5.37 19,899 263 5.26
Federal Funds Purchased 344 6 6.91 22 0 0.00
Security Repurchase Agreements 330 4 4.80 1,027 13 5.04
Other Borrowed Funds 2,650 59 8.83 2,650 55 8.26
Convertible Subordinated
Debentures 2,690 45 6.64 3,858 78 8.04
-------- ------ ----- -------- ------ -----
Total Average Interest-
Bearing Liabilities 148,397 1,526 4.08 130,525 1,357 4.14
Non interest-Bearing DDA's 27,675 23,722
Accrued Interest Payable and
Other Liabilities 886 334
-------- ------ ----- -------- ------ -----
Total Average Liabilities $176,958 $1,526 3.42% $154,581 $1,357 3.49%
======== ========
Total Equity 14,972 12,722
Total Average Liabilities and
Shareholders' Equity 191,930 167,303
Net Interest Spread <F6> 4.27% 4.51%
Net Interest Income $2,106 $1,913
Net Interest Margin <F7> 4.84% 5.06%
- -----------------------------------------------------------------------------
<FN>
<F1> Average balances are computed principally on the basis of
daily balances.
15
<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 7.39% and 7.83% 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 $126,000
in 1997 and $89,000 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>
16
ANALYSIS OF CHANGES IN NET INTEREST MARGIN ON AVERAGE EARNINGS ASSETS
California Community Bancshares Corporation
(In Thousands)
Nine Months Ended September 30,
-----------------------------------------------------
1997 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 $ 2,465 $ 92 4.99% $ 1,935 $ 73 5.04%
Investment Securities:
Taxable <F2> 47,641 2,148 6.03 26,344 1,205 6.11
Exempt From Federal Taxes<F3> 4,621 179 5.18 6,745 273 5.41
Loans, Net <F4><F5> 115,775 8,181 9.45 110,805 8,044 9.70
-------- ------ ----- -------- ------ -----
Total Interest Earning Assets 170,502 10,600 8.31 145,829 9,595 8.79
Cash and Due from Banks 9,731 8,561
Premises and Equipment, net 2,272 2,158
Investment in Real Estate
Development 4,441 4,562
Accrued Interest Receivable
and Other Assets 2,864 1,933
-------- --------
TOTAL AVERAGE ASSETS $189,810 $163,043
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 23,214 215 1.24 19,180 186 1.30
Savings Deposits and MMDA 19,641 354 2.41 17,185 299 2.32
Money Management 39,432 1,307 4.43 37,450 1,252 4.47
Time Deposits 38,560 1,484 5.15 27,872 1,046 5.01
Time Deposits over $100,000 21,590 858 5.31 19,024 759 5.33
Federal Funds Purchased 243 11 6.06 106 4 5.04
Security Repurchase Agreements 373 14 5.01 980 37 5.04
Other Borrowed Funds 2,650 167 8.43 1,628 92 7.55
Convertible Subordinated
Debentures 3,176 173 7.28 3,950 234 7.91
-------- ------ ----- -------- ------ -----
Total Average Interest-
Bearing Liabilities 148,879 4,583 4.12 127,375 3,909 4.10
Non Interest-Bearing DDA's 26,029 22,889
Accrued Interest Payable and
Other Liabilities 743 188
-------- ------ ----- -------- ------ -----
Total Average Liabilities $175,651 $4,583 3.49% $150,452 $3,909 3.47%
======== ========
Total Equity 14,159 12,591
Total Average Liabilities and
Shareholders' Equity 189,810 163,043
Net Interest Spread <F6> 4.20% 4.69%
Net Interest Income $6,017 $5,686
Net Interest Margin <F7> 4.72% 5.21%
- -----------------------------------------------------------------------------
<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.
17
<F3> The tax equivalent yield on investment securities exempt from
federal taxes was 7.51% and 7.86% 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 $302,000
in 1997 and $344,000 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>
18
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE
California Community Bancshares Corporation
(In Thousands)
-------------------------------------
Three Months Ended
September 30, 1997 over 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $ 2 $ 2 $ 4
Taxable Investment Securities 263 ( 11) 252
Investment Securities Exempt from
Federal Taxes ( 23) ( 5) ( 28)
Loans, Net <F1><F2> 160 ( 26) 134
------ ---------- -----
Total Interest Income 402 ( 40) 362
Interest-bearing Now Accounts 14 ( 4) 10
Savings Deposits and MMDA 13 7 20
Money Management 21 ( 12) 9
Time Deposits 125 12 137
Time Deposits over $100,000 20 5 25
------ ---------- -----
Total Interest Expense on Deposits 193 8 201
Federal Funds Purchased 6 0 6
Security Repurchase Agreements ( 8) ( 1) ( 9)
Other Borrowed Funds 0 4 4
Convertible Subordinated Debentures ( 19) ( 14) ( 33)
------ ---------- -----
Total Interest Expense 172 ( 3) 169
------ ---------- -----
Net Interest Income $ 230 ($ 37) $ 193
====== ========== =====
- -----------------------------------------------------------------------------
<FN>
<F1> Nonaccrual loans are included.
<F2> Interest income on loans includes fee income on loans of
$126,000 in 1997 and $89,000 in 1996.
<F3> Changes not due solely to rate change have been allocated to
volume.
</FN>
19
-------------------------------------
Nine Months Ended
September 30, 1997 over 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $ 19 ($ 0) $ 19
Taxable Investment Securities 950 ( 7) 943
Investment Securities Exempt from
Federal Taxes ( 89) ( 5) ( 94)
Loans, Net <F1><F2> 229 ( 92) 137
------ ---------- -----
Total Interest Income 1,109 ( 104) 1,005
Interest-bearing Now Accounts 33 ( 4) 29
Savings Deposits and MMDA 50 5 55
Money Management 59 ( 4) 55
Time Deposits 426 12 438
Time Deposits over $100,000 100 ( 1) 99
------ ---------- -----
Total Interest Expense on Deposits 668 8 676
Federal Funds Purchased 7 0 7
Security Repurchase Agreements ( 23) 0 ( 23)
Other Borrowed Funds 70 5 75
Convertible Subordinated Debentures ( 53) ( 8) ( 61)
------ ---------- -----
Total Interest Expense 669 5 674
------ ---------- -----
Net Interest Income $ 440 ($ 109) $ 331
====== ========== =====
- -----------------------------------------------------------------------------
<FN>
<F1> Nonaccrual loans are included.
<F2> Interest income on loans includes fee income on loans of
$302,000 in 1997 and $344,000 in 1996.
<F3> Changes not due solely to rate change have been allocated to
volume.
</FN>
PROVISION FOR LOAN LOSSES
In the third quarter of 1997, the Company provided $75,000 for
loan losses versus $69,000 in the same period last year. This
provision increased the 1997 year to date provision to $244,000
versus $276,000 for the first nine months of 1996. The year to
date provision offset the net loans charged off during the period
against the allowance and added $119,000 for growth in outstanding
loans balances as well as general economic factors. The allowance
for loan losses to loans receivable at September 30, 1997 was 1.01%
up from .98% at September 30, 1996. Management's ongoing analysis
of the loan portfolio determined that the balance of $1,220,000 in
the allowance for loan losses is expected to be adequate to absorb
losses inherent in the loan portfolio. The current quarter's
$75,000 provision for loan losses deducted from the $2,106,000 net
interest income results in net interest income after provision of
$2,031,000. This figure divided by average assets is a ratio of
4.23%, slightly above the Company's short term goal of 4.00%.
20
NON INTEREST INCOME
Total non interest income in the third quarter of 1997 increased
$45,000 or 10.1% from the same period last year and decreased
$4,000 or 0.3% for the first nine months of 1997 from the amount
reported for the first nine months of 1996.
Income from service charges on deposit accounts improved by 2.3%
from $222,000 obtained in the third quarter of 1996 to $227,000 in
the third quarter of 1997. Gain on sale of available for sale
securities declined from $5,000 in the third quarter of 1996 to
zero in the third quarter of 1997. Income from real estate
development was basically unchanged at $131,000 and $130,000 in the
third quarter of 1997 and 1996. Other fees and charges resulted in
the majority of the increase in non interest income, increasing by
$44,000 from the amount reported in the third quarter 1996. Fee
income on the sale of 1-4 family mortgages increased by $10,000
from $18,000 in the third quarter of 1996 to $28,000 in the current
quarter. Income from the sale of mutual funds and annuities
increased by $18,000 from $16,000 in the third quarter of 1996 to
$34,000 in the current period. Numerous other fees, such as fees
from the sale of credit card equipment and sale of assets increased
by $16,000 resulting in the net increase of $44,000 in other fees
and charges. The current quarters non interest income of $492,000
expressed as a ratio of average assets is 1.03%, slightly above the
Company's current short term goal of 1.00%.
Income from services charges on deposit accounts improved from
$623,000 in the first nine months of 1996 to $663,000 in the first
nine months of 1997. Gain on sale of available securities
increased from $8,000 in the first nine months of 1996 to $42,000
in the first nine months of 1997. Income from real estate
development was basically unchanged with income of $395,000 and
$390,000 in the first nine months of 1997 and 1996, respectively.
Significant decreases occurred in other fees and charges. The sale
and servicing of SBA loans generated fee income of $105,000 in the
first nine months of 1996 versus $22,000 in 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 $52,000 from $120,000 in the first nine
months of 1996 to $68,000 in the current year to date period.
Income increased by $52,000 in various other fees and services
categories resulting in an overall decline in other fees and
charges of $83,000 for the first nine months of 1997 compared to
the first nine months of 1996.
NON INTEREST EXPENSE
Non interest expense for the third quarter of 1997 was
$1,810,000, $162,000 higher than the $1,648,000 reported in the
third quarter of 1996. Salaries and benefits increased $96,000 or
12.2%. Increased bonuses and commissions contributed $63,000 of
this increase while normal salary increases and the addition of a
new branch contributed $33,000. The new branch and the remodeling
of the Company's data processing department increased occupancy
cost by $35,000 or 10.5% over the amount reported in the same
quarter of 1996. Other expenses in the current quarter were
$29,000 higher than the same quarter last year. This increase was
mainly due to increase accounting and consulting expenses.
Expenses from real estate development were relatively consistent,
increasing from $76,000 in the third quarter of 1996 to $78,000 in
the current quarter. The current quarters non interest expenses
expressed as a ratio to average assets is 3.77%.
21
Non interest expense for the first nine months of 1997 was
$5,214,000, $223,000 or 4.5% higher than the $4,991,000 expensed in
the first nine months of 1996. Salaries and benefits increased by
$92,000 while occupancy expense was up $83,000 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 $37,000 and $11,000 respectively over the
figures reported in the prior year period.
PROVISION FOR INCOME TAXES AND NET INCOME
The Company recorded a $264,000 provision for income taxes in the
third quarter of 1997, $10,000 higher than the provision recorded
in the same quarter last year. For the first nine months of 1997,
the company provided for $729,000 in income taxes versus $711,000
in the first nine months of 1996. Taxes were higher in both
periods due to higher earnings as well as lower income from
securities exempt from federal tax. The current quarter and year
to date effective tax rate was 37.0% and 36.8% versus 39.5% and
38.5% in the same periods last year.
The $2,031,000 net interest income after provision for loan
losses plus non interest income of $492,000 and non interest
expense of $1,810,000 resulted in income before provision for
income taxes of $713,000 or 1.49% of average assets. This is
$70,000 higher than the figure reported in the same period last
year. After deducting the provision for income taxes, net income
was $449,000 or .93% return on average assets. It is the Company's
goal to increase this ratio to 1% as soon as possible.
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 September 30, 1997, total outstanding loan balances were $7.5
million higher than year end 1996 totals. The composition of loans
also changed significantly in the first nine months of 1997.
Construction and land development loans, equity loans and consumer
loans declined by $1.0 million, $0.4 million and $0.4 million,
respectively, while loans secured by 1-4 residential properties,
loans secured by multi family residential property loans, loans
secured by commercial real estate and commercial and industrial
loans increased by $1.8 million, $0.5 million, $5.4 million and
$1.6 million, respectively. The Bank's largest loan category, real
estate mortgage loans constituted 72.4% of total loans outstanding
at December 31, 1996 and 74.4% at September 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 third quarter
of 1997, outstanding loans had increased 6.6%, which in turn
increased these ratios to 71.1% and 70.3%.
22
SECURITIES
At September 30, 1997, available for sale securities had a fair
market value of $51,161,000 with an amortized cost basis of
$51,488,000. This represents a $1.4 million net decrease in the
fair value from the year end 1996 figure. The portfolio now
consists of approximately $11.0 million U.S. Treasuries, $14.3
million U.S. Agency bonds, $4.7 million in securities issued by
states and political subdivisions in the U.S., $20.6 million in
mortgage backed securities and $.6 million 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 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% decrease in interest rates, the
unrealized loss on securities available for sale decreased from
$276,000 at December 31, 1996 to $189,000 at September 30, 1997.
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 September 30, 1997, the Company did not have any investment
securities issued by a single issuer, with an aggregate book value
exceeding 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 $1,185,000 since year
end and $1,689,000 from a year ago but they have decreased by
$555,000 from the quarter ending June 30, 1997. Since year end
1996 nonaccrual loans increased by $881,000, accruing loans past
due 90 days or more decreased by $39,000 while restructured loans
increased by $297,000. One loan for $922,000 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 third quarter of 1997, the
Bank sold two other real estate owned (OREO) properties with
carrying value of $217,000 at a loss of $18,000. The Bank also
paid off the first lien on one of the remaining two OREO properties
increasing the Bank's carrying value by $77,000 to a total of
$196,000. Based on the value of these remaining properties the
Bank believes it will experience little to no loss when these
properties are sold. Non performing assets represent 1.27% of
total assets while the ratio of allowance for loan losses to
nonperforming loans is 54.22%. 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.
23
At September 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 $2,491,000 and
$2,648,000. The total allowance for loan losses related to these
loans was $475,000 and $278,000, respectively. For the quarter
ended September 30, 1997 and December 31, 1996, the average
recorded investment in loans for which impairment has been
recognized was approximately $2,544,000 and $2,652,000. During the
portion of the quarter that the loans were impaired, the Company
recognized interest income of approximately $24,000 and $52,000
from cash payments received in 1997 and 1996.
Additional 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 $35,000 in the
third quarter of 1997 and $107,000 for the first nine 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.
24
The following table presents information concerning the allowance
and provision for loan losses:
------------- ------------
September 30 December 31,
1997 1996
------------- ------------
Nonaccrual Loans $ 951 $ 70
Accruing Loans past Due 90 Days or More 28 67
Restructured Loans
(In Compliance with Modified Terms) 1,271 974
------------- ------------
Total Nonperforming Loans 2,250 1,111
Other Real Estate Owned 196 150
------------- ------------
Total Nonperforming Assets 2,446 1,261
============= ============
Total Loans, End of Period 121,141 113,625
Total Assets, End of Period 192,243 191,829
Allowance for Loan Losses $ 1,220 $ 1,101
Nonperforming Loans to Total Loans 1.86% 0.98%
Allowance for Loan Losses to Nonperforming Loans 54.22% 99.10%
Nonperforming Assets to Total Assets 1.27% 0.66%
Allowance for Loan Losses to Nonperforming Assets 49.88% 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.
------------- -------------
September 30, September 30,
1997 1996
------------- -------------
Balance, Beginning of Period $ 1,101 $ 1,158
Provision Charged to Operations 244 276
Loans Charged off 162 345
Recoveries of Loans Previously Charged off 37 27
------------- -------------
Balance, End of Period 1,220 1,116
Total Loans, End of Period $121,141 $113,909
Allowance for Loans Losses to
Loans, End of Period 1.01% 0.98%
- -----------------------------------------------------------------------------
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 September 30, 1997, this ratio was 30.1%.
25
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 September 30, 1997, the "ALX" model showed the Bank was
moderately liability sensitive with a NII exposure of -$103,000 or
- -1.2% for a 1% increase in the federal funds rate and a -$521,000
or -6.8% exposure in NII for a 2% increase. Both of these figures
are within policy.
At September 30, 1997, market risk for a 3% increase in market
rates, as measured by the model, was -11.63% of equity capital,
which is within policy. The market risk adjusted leverage and risk
based capital ratios were 6.22% and 12.25%, respectively, which are
also within policy.
When the Company is liability sensitive, as it was at September
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
securities 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.
26
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 $1,254,000 earned in first nine months of
1997, combined with the $1,204,000 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 $468,000 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) $ 18,845 13.68% $11,019 8.0%
Tier One Capital
(to risk weighted assets) $ 15,122 10.98% $ 5,509 4.0%
Tier One Capital
(to average assets) $ 15,122 7.90% $ 7,657 4.0%
Risk Weighted Assets $137,735
Quarterly Average
Assets (Adjusted) $191,417
- -----------------------------------------------------------------------------
Bank:
As a result of the $1,294,000 earned in first nine months of 1997
and the payment of $450,000 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) $ 18,407 13.39% $10,997 8.0% $13,746 10.0%
Tier One Capital
(to risk weighted assets) $ 13,519 9.83% $ 5,498 4.0% $ 8,248 6.0%
Tier One Capital
(to average assets) $ 13,519 7.08% $ 7,643 4.0% $ 9,554 5.0%
Risk Weighted Assets $137,460
Quarterly Average
Assets (Adjusted) $191,075
- ---------------------------------------------------------------------------------------
27
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
NONE
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 Company during the quarter ending
September 30, 1997.
28
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 11/12/97 /s/ Walter O. Sunderman
------------------ ----------------------------
Walter O. Sunderman
President and
Chief Executive Officer
----------------------------
Date 11/12/97 /s/ ANDREW S. POPOVICH
------------------ ----------------------------
Andrew S. Popovich
Executive Vice President and
Chief Administrative Officer
29
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
30
EXHIBIT 11 - STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
(Unaudited)(In Thousands, Except Earnings per Share)
--------------------- ---------------------
For the Three Months For the Nine Months
Ended Sept 30, Ended Sept 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Weighted Average Shares
Used to Compute Common
and Equivalent Shares:
Primary 1,169,240 1,025,539 1,116,276 1,013,305
Fully Diluted 1,365,554 1,326,715 1,349,767 1,319,841
========= ========= ========= =========
Net Income Used in the
Computation of Income
per Common Share:
Net Income, as Reported
Used to Compute Primary
Income per Share $ 449 $ 389 $ 1,254 $ 1,136
========= ========= ========= =========
Adjustment for after Tax
Effect of Interest Paid
on Convertible Debentures 26 44 100 136
--------- --------- --------- ---------
Net Income, as Adjusted Used
to Compute Fully Diluted
Income per Share $ 475 $ 433 $ 1,354 $ 1,272
========= ========= ========= =========
Income per Common and
Equivalent Share:
Primary $ 0.38 $ 0.38 $ 1.12 $ 1.12
Fully Diluted $ 0.35 $ 0.33 $ 1.00 $ 0.96
========= ========= ========= =========