UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________ .
Commission file number 0-18015
CUPERTINO NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0060898
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20230 STEVENS CREEK BOULEVARD, CUPERTINO, CALIFORNIA, 95014
(Address of principal executive offices) (Zip Code)
(408) 996-1144
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
--- ---
Outstanding shares of Common Stock, no par value, as of July 31, 1996:
1,901,352.
This report contains a total of 19 pages.
1 of 19
CUPERTINO NATIONAL BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995........................ 3
Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1996 and 1995..................................... 4
Consolidated Statements of Cash Flows
for the Three Months and Six Months Ended
June 30, 1996 and 1995..................................... 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 7
PART II. OTHER INFORMATION
Items 1-3,
Item 5. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders........ 17
Item 6. Exhibits and Reports on Form 8-K........................... 18
Signatures................................................. 18
Index to Exhibits.......................................... 19
2 of 19
PART I. FINANCIAL INFORMATION
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited....dollars in thousands)
June 30, December 31,
1996 1995
------------------------
ASSETS
Cash and due from banks $ 16,419 $ 16,207
Federal funds sold 11,000 12,900
-------- --------
Cash and cash equivalents 27,419 29,107
Investment securities:
Held to maturity (Market value $46,853
at June 30, 1996; 47,322 52,571
$53,001 at December 31, 1995)
Available for sale (Cost $1,003 at June 30, 1996;
$3,504 at December 31, 1995) 1,003 3,509
Other securites 1,002 969
-------- --------
Total investment securities 49,327 57,049
Loans:
Commercial 96,973 88,646
Real estate-construction and land 25,744 23,889
Real estate-term 32,131 23,026
Consumer and other 31,542 28,666
Deferred loan fees and discounts (915) (851)
-------- --------
Loans 185,475 163,376
Allowance for loan losses (3,043) (2,683)
-------- --------
Total loans 182,432 160,693
Premises and equipment, net 3,232 1,917
Accrued interest receivable and other assets 11,986 10,333
-------- --------
Total assets $274,396 $259,099
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand, noninterest-bearing $ 66,263 $ 58,986
NOW 11,514 10,158
Money Market Demand Accounts 124,059 114,021
Savings 8,748 7,995
Other time certificates 13,669 17,830
Time certificates, $100 and over 25,886 27,104
-------- --------
Total deposits 250,139 236,094
Accrued interest payable and other liabilities 1,274 1,333
Subordinated debentures 3,000 3,000
-------- --------
Total liabilities 254,413 240,427
Shareholders' equity:
Preferred stock, no par value: 4,000,000 shares
authorized; none issued -- --
Common stock, no par value: 6,000,000 shares
authorized; shares outstanding; 1,900,342 at
June 30, 1996 and 1,808,828 at December 31, 1995 18,196 17,680
Retained earnings 1,787 992
-------- --------
Total shareholders' equity 19,983 18,672
-------- --------
Total liabilities and shareholders' equity $274,396 $259,099
======== ========
See notes to consolidated financial statements
3 of 19
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited....dollars in thousands, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------------------- --------------------
INTEREST INCOME:
Interest on loans $4,696 $ 4,021 $ 9,212 $7,820
Interest on investment securities:
Taxable 844 920 1,748 1,837
Non-taxable -- 18 -- 36
------ ------ ------- ------
Total Investment securities 844 938 1,748 1,873
Other interest income 151 108 239 137
------ ------ ------- ------
Total interest income 5,691 5,067 11,199 9,830
INTEREST EXPENSE:
Interest on deposits 1,844 1,625 3,748 2,991
Other interest expense 87 288 191 655
------ ------ ------- ------
Total interest expense 1,931 1,913 3,939 3,646
------ ------ ------- ------
Net interest income 3,760 3,154 7,260 6,184
PROVISION FOR LOAN LOSSES 265 85 465 516
------ ------ ------- ------
Net interest income after provision
for loan losses 3,495 3,069 6,795 5,668
OTHER INCOME:
Gain on sale of mortgage loans -- 51 -- 137
Other loan fees 34 29 49 48
Trust Fees 344 135 653 291
Gain on sale of SBA loans 123 45 253 150
Depositor service fees 121 98 219 138
Other 185 49 262 137
------ ------ ------- ------
Total other income 807 407 1,436 901
OPERATING EXPENSES:
Compensation and benefits 1,998 1,600 3,698 3,236
Occupancy and equipment 489 392 962 788
Legal settlement & costs -- 1,700 -- 1,700
Professional services 248 230 441 435
FDIC insurance and regulatory assessments 21 135 41 260
Client services 95 91 215 179
Other real estate, net 6 (7) 30 34
Other 642 459 1,264 896
------ ------ ------- ------
Total operating expenses 3,499 4,600 6,651 7,528
------ ------ ------- ------
INCOME (LOSS) BEFORE INCOME TAX 803 (1,124) 1,580 (959)
Income tax expense (benefit) 289 (470) 593 (411)
------ ------ ------- ------
Net income (loss) $ 514 $ (654) $ 987 $ (548)
====== ====== ======= ======
Net income (loss) per common and
common equivalent share $ 0.25 $ (0.35) $ 0.49 $(0.30)
====== ====== ======= ======
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4 of 19
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited....dollars in thousands)
Six Months Ended
June 30,
-------------------
1996 1995
-------- --------
CASH FLOWS--OPERATING ACTIVITIES:
Net income (loss) $ 987 $ (548)
Reconciliation of net income to net cash from operations:
Provision for loan losses 465 516
Depreciation and amortization 344 293
Accrued interest receivable and other assets (1,468) (894)
Accrued interest payable and other liabilities (60) 1,023
Net change in deferred loan fees and discounts 64 (247)
Proceeds from sales of loans held for sale 3,501 16,364
Origination of loans held for sale (3,501) (10,981)
Other real estate owned, net -- 17
-------- --------
Operating cash flows, net 332 5,543
CASH FLOWS--INVESTING ACTIVITIES:
Maturities of investment securities:
Held-to-maturity 8,293 6,237
Available-for-sale 2,500 --
Purchase of investment securities:
Held-to-maturity (2,994) (2,045)
Available-for-sale -- (2,495)
Net change in loans (22,485) (12,400)
Sale of other real estate owned -- 358
Purchase of life insurance policies -- (2,257)
Purchase of premises and equipment, net (1,703) (397)
Other, net (5) 5
-------- --------
Investing cash flows, net (16,394) (12,994)
CASH FLOWS--FINANCING ACTIVITIES:
Net change in noninterest-bearing deposits 14,045 7,206
Net change in interest-bearing deposits -- 21,223
Net change in short-term borrowings -- (8,603)
Stock purchased by employees and stock options exercised 516 289
Cash dividends (187) (160)
-------- --------
Financing cash flows, net 14,374 19,955
-------- --------
Net increase (decrease) in cash and cash equivalents (1,688) 12,504
Cash and cash equivalents at beginning of period 29,107 19,726
-------- --------
CASH AND CASH EQUIVALNETS AT END OF PERIOD $ 27,419 $ 32,230
======== ========
CASH FLOWS--SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest on deposits and other borrowings $ 4,192 $ 3,459
Income taxes 870 175
Non-cash transactions:
Additions to other real estate owned 217 --
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5 of 19
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Cupertino National Bancorp ("CUNB" or the "Company") and its
subsidiary, Cupertino National Bank & Trust (the "Bank" or "CNB"). These
financial statements reflect, in management's opinion, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of CUNB's financial position and the results of its operations and cash flows
for the periods presented. Certain amounts for prior periods have been
reclassified to conform to current period presentation. The results for the
three months and six months ended June 30, 1996 are not necessarily indicative
of the results expected for any subsequent period or for the entire year ending
December 31, 1996. These financial statements should be read in conjunction
with the financial statements included in the 1995 Annual Report to
Shareholders.
2. SHARE AND PER SHARE AMOUNTS
Earnings per common and common equivalent share are calculated based upon the
weighted average number of shares outstanding during the period, plus equivalent
shares representing the effect of dilutive stock options. The number of shares
used to compute earnings per share were 2,013,481 and 1,855,810 for the three
months ended June 30, 1996 and 1995, respectively and 2,007,922 and 1,841,400
for the six months ended June 30, 1996 and 1995, respectively.
6 of 19
CUPERTINO NATIONAL BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CUNB reported net income for the second quarter of 1996 of $514,000, or $.25 per
common and common equivalent share, compared to a net loss of $654,000, or $.35
per common and common equivalent share, reported in the second quarter of last
year. The net loss in the 1995 second quarter was due to the settlement of
litigation that was pending against CUNB. Return on average assets and return
on average common equity annualized for the second quarter of 1996 were 0.77%
and 10.47%, respectively.
The earnings for the second quarter of 1995 were adversely effected by an
accrual of $1,020,000 (net of tax) for the settlement of trust department
litigation and related costs. The Company believes, based on the advice of
counsel, that it is probable that insurance coverage for a significant portion
of the settlement amount is available under its director and officer insurance
policy and its professional liability insurance policy, as well as the errors
and omissions policy of its insurance agent. The Company's insurance company
has denied the Company's claim for coverage under these policies, and the
Company has initiated litigation against the insurance companies who issued the
policies as well as the agent from whom the Company obtained such policies.
Excluding this charge, second quarter 1995 earnings would have been $366,000.
For the six months ended June 30, 1996, the Company posted net income of
$987,000, or $.49 per common and common equivalent share, compared to a net
loss of $548,000, or $.30 per common and common equivalent share, for the
comparable period in 1995. The annualized return on average assets and return
on average equity for the first six months of 1996 were 0.75% and 10.22%,
respectively. Net income for the first quarter of 1995 included approximately
$275,000 in non-recurring expenses (net of tax) related to the closing of the
Bank's mortgage operations, the costs incurred related to canceled merger
discussions, and severance payments to a former executive officer. Excluding
the legal settlement charge and related costs, as well as the non-recurring
charges from the first quarter, the net income for the six months ended June 30,
1995 would have been $747,000.
Non-performing assets (including nonaccruing loans, loans 90 days past due and
other real estate owned ("OREO")) totaled $3.5 million at June 30, 1996,
compared to $3.3 million at December 31, 1995 and $3.6 million at June 30, 1995.
The ratio of non-performing assets to total assets was 1.29% at June 30, 1996,
compared to 1.29% at December 31, 1995 and 1.47% at June 30, 1995. The Bank's
portfolio of classified assets increased to $11.3 million, or 4.29% of total
assets at June 30, 1996, from $7.9 million or 3.06% of total assets at December
31, 1995 and $8.7 million or 3.57% of total assets at June 30, 1995. The
increase during the first half of 1996 was primarily due to the classification
of $2.7 million of commercial and technology loans of three borrowers.
The reserve for loan losses was $3.0 million at June 30, 1996, compared with
$2.7 million at December 31, 1995 and $2.5 million at June 30, 1995. The
provision for loan losses was $265,000 for the second quarter of 1996, compared
to $200,000 recorded in the first quarter of 1996, and $85,000 recorded in the
second quarter of 1995. For the first six months of 1996, the provision for
loan losses was $465,000, a decrease of $51,000 from the first half of 1995.
Net charge-offs were $105,000 for the first six months of 1996, compared to
$980,000 for the first half of 1995. The ratio of the reserve for loan losses
to non-performing assets was 86.1% at June 30, 1996 compared with 80.3% at
December 31, 1995 and 68.3% at June 30, 1995.
Shareholders' equity increased $1.3 million to $20.0 million, or 7.29% of
assets, at June 30, 1996 from $18.7 million, or 7.21% of assets, at December 31,
1995. The increase was due to net earnings, stock purchased by directors and
employees through stock option plans and stock purchased through the Employee
Stock Purchase Plan, and was partially offset by a cash dividend payment of $.10
per common share, totaling $187,000, made to shareholders during the second
quarter of 1996.
7 of 19
CUNB's Tier 1 and total risk-based capital ratios were 8.62% and 11.17% at June
30, 1996, respectively, compared with 9.18% and 11.91% at December 31, 1995,
respectively. The leverage ratio declined to 7.52% at June 30, 1996 from 7.78%
at December 31, 1995. The decline in capital ratios is due to asset growth
during 1996. At June 30, 1996, CUNB's risk-based capital and leverage ratios,
as well as those of the Bank, exceeded the ratios for a well-capitalized
financial institution as defined in FDICIA under the prompt corrective action
guidelines. The Company will seek to maintain its well capitalized position to
ensure flexibility in its operations.
CUNB's common stock closed at $14.50 per share on June 30, 1996, representing
138% of the $10.52 book value per common share, compared with $13.50 per share
and 129% of the $10.45 book value per common share at March 31, 1996.
MERGER
Cupertino National Bancorp signed an Amended and Restated Agreement and Plan of
Reorganization and Merger dated June 26, 1996 (the "Agreement") whereby
Cupertino National Bancorp will merge, in a merger of equals, with and into Mid-
Peninsula Bancorp and Mid-Peninsula Bancorp will change it's name to Greater Bay
Bancorp ("GBB"). The merger will result in the formation of the largest multi-
bank holding company based in the San Francisco Peninsula/South Bay region, and
the third-largest publicly traded independent bank holding company in the San
Francisco Bay area, with total assets of approximately $500 million and equity
of over $40 million. Mid-Peninsula Bank ("MPB") and Cupertino National Bank &
Trust ("CNB") will operate as wholly-owned subsidiaries of Greater Bay Bancorp
and will focus on serving the greater Bay area, including the Peninsula and
South Bay markets, through their seven office locations.
The terms of the Agreement provide for Cupertino National Bancorp shareholders
to receive 0.81522 of a share of Mid-Peninsula Bancorp stock for each share of
Cupertino National Bancorp in a tax-free exchange to be accounted for as a
"pooling-of-interests." As part of the Agreement, Mid-Peninsula will list its
shares on the Nasdaq National Market, and concurrent with closing, will be
renamed Greater Bay Bancorp. Following the merger, the shareholders of Mid-
Peninsula Bancorp will own approximately 51% of the combined company and the
shareholders of Cupertino National Bancorp will own approximately 49% of the
combined company, giving effect to all outstanding options.
Greater Bay Bancorp's new Board of directors will consist of five directors from
Cupertino National Bancorp and five from Mid-Peninsula Bancorp, with Duncan L.
Matteson (Chairman of Mid-Peninsula Bancorp) and John M. Gatto (Chairman of
Cupertino National Bancorp) serving as co-Chairman. David L. Kalkbrenner, who
will serve as President and Chief Executive Officer of Greater Bay Bancorp, will
continue as President and Chief Executive Officer of MPB and C. Donald Allen
will remain as Chairman and Chief Executive Officer of CNB. Steven C. Smith,
the Chief Operating Officer of CNB, will serve as Chief Operating Officer and
Chief Financial Officer of GBB. David R. Hood, Executive Vice President and
Senior Loan Officer of CNB, will serve as Executive Vice President and Senior
Credit Officer of GBB.
In connection with the Agreement, Cupertino National Bancorp and Mid-Peninsula
Bancorp have granted each other options to purchase up to 19.0% of the
outstanding shares of each other's common stock under certain circumstances in
the event the transaction is terminated. The merger is expected to be completed
in the fourth quarter of 1996, subject to shareholder and regulatory approvals.
8 of 19
RESULTS OF OPERATIONS
NET INTEREST INCOME
The following table presents the Company's average balance sheet, net interest
income and interest rates for the quarterly periods presented:
Three Months Ended Three Months Ended Three Months Ended
June 30, 1996 March 31, 1996 June 30, 1995
-------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance (1) Interest Rate Balance (1) Interest Rate Balance (1) Interest Rate
--------------------------------------------------------------------------------------------------------
(Dollars In thousands)
- ----------------------
Interest-earning assets:
Loans (2) (4) $ 176,030 $ 4,696 10.70% $ 169,650 $ 4,517 10.68% $ 145,249 $ 4,021 11.10%
Investment securities,
short term investments
and cash equivalents 64,660 995 6.17% 62,913 991 6.32% 67,948 1,046 6.17%
---------- ------- ------- --------- ------- ------ -------- ------- -------
Total interest-earning
assets 240,690 5,691 9.48% 232,563 5,508 9.50% 213,197 5,067 9.53%
Noninterest-earning assets 27,079 26,259 17,068
---------- ---------- ---------
Total Assets $ 267,769 $ 258,822 $ 230,265
========== ========== =========
Interest-bearing
liabilities:
Deposits:
NOW and MMDA $ 126,485 1,147 3.64% $ 122,248 1,176 3.86% $ 88,998 903 4.07%
Savings deposits 12,106 115 3.81% 11,720 107 3.66% 4,759 42 3.54%
Time deposits 44,824 582 5.21% 47,122 622 5.29% 49,188 680 5.54%
--------- ------- ------- --------- --------- ------ -------- ------- -------
Total Deposits 183,415 1,844 4.03% 181,090 1,905 4.22% 142,945 1,625 4.56%
Borrowings 3,113 87 11.15% 3,504 103 11.79% 18,414 288 6.27%
--------- ------- ------- --------- --------- ------ -------- ------- -------
Total interest-bearing
liabilities 186,528 1,931 4.15% 184,594 2,008 4.36% 161,359 1,913 4.76%
--------- ------- ------- --------- --------- ------ -------- ------- -------
Noninterest-bearing deposits 60,088 54,092 49,365
Other noninterest-bearing
liabilities 1,456 1,095 1,202
--------- --------- --------
Total noninterest-bearing
liabilities 61,544 55,187 50,567
Shareholders' equity 19,697 19,041 18,339
--------- --------- --------
Total liabilities and
shareholders' equity $ 267,769 $ 258,822 $ 230,265
========= ========= =========
Net interest income; interest
rate spread $ 3,760 5.33% $ 3,500 5.14% $ 3,154 4.78%
======= ======= ========= ====== ======= =======
Net interest-earning assets;
net yield (3) $ 54,162 6.27% $ 47,969 6.04% $ 51,838 5.93%
========= ======= ========= ====== ========= =======
(1) Average balances are computed using an average of the daily balances during
the period.
(2) Non-accrual loans are included in the average balance column; however, only
collected interest is included in the column.
(3) The net yield on interest-earning assets during the period equals
annualized net interest income divided by average interest-earning assets
for the period.
(4) Loan fees totaling $338, $316 and $209 are included in loan interest income
for the periods ended June 30, 1996, March 31, 1996 and June 30, 1995,
respectively.
9 of 19
The following table presents the dollar amount of certain changes in interest
income and expense for each major component of interest-earning assets and
interest-bearing liabilities and the difference attributable to changes in
average rates and volumes for the quarterly periods indicated:
Three months ended June 30, 1996 Three months ended June 30, 1996
compared with March 31, 1996 compared with June 30, 1995
favorable (unfavorable) favorable (unfavorable)
----------------------- -----------------------
(Dollars in thousands) Volume Rate Total Volume Rate Total
- ---------------------- ---- ---- ---- ----- ----- -----
Interest income on loans $170 $ 9 $179 $ 826 $(151) $ 675
Interest on investment securities, short-term
investments and cash equivalents 27 (23) 4 (51) -- (51)
---- ---- ---- ----- ----- -----
Change in total interest income 197 (14) 183 775 (151) 624
Interest expense on deposits
NOW and MMDA (39) 68 29 (348) 104 (244)
Savings deposits (4) (4) (8) (70) (3) (73)
Time deposits 30 10 40 58 40 98
---- ---- ---- ----- ----- -----
(13) 74 61 (360) 141 (219)
Interest expense on borrowings 11 5 16 336 (135) 201
---- ---- ---- ----- ----- -----
Change in total interest expense (2) 79 77 (24) 6 (18)
---- ---- ---- ----- ----- -----
Increase (decrease) in net interest income $195 $ 65 $260 $ 751 $(145) $ 606
==== ==== ==== ===== ===== =====
(1) In the analysis, the change due to both rate and volume has been allocated
proportionately.
CUNBs net interest income for the second quarter of 1996 was $3.8 million, a
$260,000 increase over the first quarter of 1996, and a $606,000 increase over
the second quarter of 1995. When compared to the first quarter of 1996, average
earning assets increased by $8.1 million, and the net yield on earning assets
increased from 6.04% in the first quarter of 1996 to 6.27% in the second quarter
of 1996. This was primarily due to the combined impacts of an increase in the
volume of interest-earning assets and a decrease in the average rates paid on
interest-bearing liabilities. In addition, a portion of the asset growth during
the second quarter was funded by noninterest-bearing deposits which resulted in
a more favorable effective yield.
Compared to the second quarter of 1995, average earning assets during the second
quarter of 1996 increased by $27.5 million. This was due to increased loan
demand since the previous years second quarter. Average loans in the second
quarter of 1996 increased by $30.8 million, or 21.2%, over the second quarter of
1995. As the Companys average interest-bearing deposits grew $40.5 million and
noninterest-bearing deposits grew by $10.7 million since the 1995 second
quarter, the mix of funding sources shifted away from higher cost short-term
borrowings in the latter half of 1995. This reduced the cost of funds by 61
basis points from the second quarter of 1995.
10 of 19
The following tables present the Company's average balance sheet, net interest
income and interest rates for the six-month periods presented, as well as the
analysis of variances due to rate and volume:
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
--------------------------------------- -----------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance (1) Interest Rate Balance (1) Interest Rate
- ---------------------- --------------------------------------- -----------------------------------------
Interest-earning assets:
Loans (2) (4) $174,219 $ 9,212 10.60% $143,414 $7,820 10.94%
Investment securities, short term
investments and cash equivalents 63,786 1,987 6.25% 65,533 2,010 6.15%
-------- ------- ------ -------- ------ ------
Total interest-earning assets 238,005 11,199 9.44% 208,947 9,830 9.43%
Noninterest-earning assets 24,919 15,270
-------- --------
Total Assets $262,924 $224,217
======== ========
Interest-bearing liabilities:
Deposits:
NOW and MMDA $124,366 2,314 3.73% $ 84,665 1,678 3.97%
Savings deposits 11,914 222 3.73% 5,247 90 3.44%
Time deposits 45,973 1,212 5.29% 45,731 1,223 5.36%
-------- ------- ------ -------- ------ ------
Total Deposits 182,253 3,748 4.12% 135,643 2,991 4.42%
Borrowings 3,309 191 11.59% 21,433 655 6.13%
-------- ------- ------ -------- ------ ------
Total interest-bearing
liabilities 185,562 3,939 4.26% 157,076 3,646 4.66%
-------- ------- ------ -------- ------ ------
Noninterest-bearing deposits 57,090 47,722
Other noninterest-bearing liabilities 903 1,082
-------- --------
Total noninterest-bearing liabilities 57,993 48,804
Shareholders' equity 19,369 18,339
-------- --------
Total liabilities and shareholders'
equity $262,924 $224,219
======== ========
Net interest income; Interest rate spread $ 7,260 5.18% $6,184 4.78%
======= ====== ====== ======
Net interest-earning assets; net yield (3) $ 52,443 6.12% $ 51,871 5.94%
======== ====== ======== ======
(1) Average balances are computed using an average of the daily balances during
the period.
(2) Non-accrual loans are included in the average balance column; however, only
collected interest is included in the interest column.
(3) The net yield on interest-earning assets during the period equals annualized
net interest income divided by average interest-earning assets for the
period.
(4) Loan fees totaling $704 and $395 are included in loan interest income for
the periods ended June 30, 1996 and June 30, 1995, respectively.
Six months ended June 30, 1996
compared with June 30, 1995
favorable (unfavorable)
-----------------------------------------------
(Dollars in thousands) Volume Rate Total
- ---------------------- -------------- --------- ---------
Interest income on loans $ 1,635 $ (243) $ 1,392
Interest on investment securities,
short-term investments and
cash equivalents (55) 32 (23)
-------------- -------- -------
Change in total interest income 1,580 (211) 1,369
Interest expense on deposits
NOW and MMDA (745) 109 (636)
Savings deposits (124) (8) (132)
Time deposits (6) 17 11
-------------- -------- -------
(875) 118 (757)
Interest expense on borrowings 795 (331) 464
-------------- -------- -------
Change in total interest expense (80) (213) (293)
-------------- -------- -------
Increase (decrease) in net interest income $ 1,500 $ (424) $ 1,076
============== ======== =======
11 of 19
For the six month period ended June 30, 1996, the Company experienced an
increase in net interest income of $1.1 million when compared to the first half
of 1995. This increase was mainly due to the increased volume in the loan
portfolio, the decreased volume in short-term borrowings, and the decreased
average rate paid on deposits, partially offset by reduced yields on loans, the
increased average rate paid on other borrowings, and the increased volume of
interest-bearing deposits. For the first half of 1996, average other borrowings
primarily consisted of $3.0 million of subordinated debt which was issued at
11.5% in the Fall of 1995 and qualifies as Tier 2 regulatory capital. For the
six months ended June 30, 1996, the Companys net interest spread of 5.18%
reflected an increase from 4.78% for the same period in 1995. This was primarily
due to the reduction in the Companys cost of deposits.
The trend of interest rates in the economy has remained flat during 1996;
however, there are indications that inflation may be increasing slightly. An
increase in inflation will put pressure on the Federal Reserve to increase
interest rates. If interest rates rise, CNBs interest rate margin is likely to
increase, thereby increasing net interest income.
The Company provides client services to several of its noninterest-bearing
demand deposit customers. The amount of credit available to clients is based on
a calculation of their average noninterest-bearing deposit balance, adjusted for
float and reserves, multiplied by an earnings credit rate, generally the 90-day
Treasury Bill rate. The credit can be utilized to pay for services including
messenger service, account reconciliation and other similar services. If the
cost of the services provided exceeds the available credit, the customer is
charged for the difference.
The impact of this expense on the Companys net interest spread and net yield on
interest earning assets was as follows:
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
--------------------------- -------------------------
Average noninterest-bearing demand deposits $ 60,088 $49,365 $ 57,090 $ 47,722
Client Service expense 95 91 215 161
Client Service cost annualized 0.63% 0.74% 1.51% 1.35%
Impact on Net Yield
- -------------------
Net yield on interest earning assets 6.27% 5.93% 6.12% 5.94%
Impact of client services (0.15)% (0.17)% (0.17)% (0.16)%
-------- ------- -------- --------
Adjusted net yield 6.12% 5.76% 5.95% 5.78%
======== ======= ======== ========
The negative impact on the net yield on interest-earning assets is caused by the
reduction of net interest income by the cost of client service expenses, which
reduces the yield on interest-earning assets. The cost for client service
expense has been relatively stable, and reflects the Companys efforts in the
management of client service expense.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is measured as the difference between the volumes of
assets and liabilities in the Bank's current portfolio that are subject to
repricing at intervals of (a) one day or immediate, (b) two days to six months,
(c) seven to twelve months, (d) one to three years, (e) three to five years,
(f) over five years and (g) on a cumulative basis. Allocations of assets and
liabilities, including noninterest-bearing sources of funds, to specific periods
are based upon management's assessment of contractual or anticipated repricing
characteristics. The differences between the volumes of assets and liabilities
in these intervals are known as sensitivity gaps. The following table shows
interest sensitivity gaps for different intervals at June 30, 1996:
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INTEREST SENSITIVITY ANALYSIS
Repricing Periods
Total
Immediate 2 Days To 7-12 >1 Year >3 Yrs Total Rate Non-rate
(Dollars in thousands) One Day 6 Months Months to 3 Yrs to 5 Yrs >5 Yrs Sensitive Sensitive Total
-----------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ - $ - $ - $ - $ - $ - $ - $ 16,419 $ 16,419
Short term investments 11,000 - - - - - 11,000 - 11,000
Investment securities - 9,004 - 11,263 8,022 20,036 48,325 1,002 49,327
Loans 139,769 2,800 2,089 8,471 4,524 25,516 183,169 3,221 186,390
Loan loss reserve/unearned
fees - - - - - - - (3,958) (3,958)
Other assets - - - - - - - 15,218 15,218
-------- --------- --------- -------- ------- ------- -------- --------- --------
Total assets $150,769 $ 11,804 $ 2,089 $ 19,734 $12,546 $45,552 $242,494 $ 31,902 $274,396
======== ========= ========= ======== ======= ======= ======== ========= ========
Liabilities and Equity:
Deposits
Demand $ - $ - $ - $ - $ - $ - $ - $ 66,263 $ 66,263
NOW, MMDA, and savings 144,321 - - - - - 144,321 - 144,321
Time deposits - 29,310 9,844 380 11 10 39,555 - 39,555
Subordinated debt 3,000 - - - - - 3,000 - 3,000
Other liabilities - - - - - - - 1,274 1,274
Shareholders' equity - - - - - - - 19,983 19,983
-------- --------- --------- -------- ------- ------- -------- --------- --------
Total liabilities and
equity $147,321 $ 29,310 $ 9,844 $ 380 $ 11 $ 10 $186,876 $ 87,520 $274,396
======== ========= ========= ======== ======= ======= ======== ========= ========
Gap $ 3,448 $(17,506) $ (7,755) $ 19,354 $12,535 $45,542 $ 55,618 $(55,618) $ -
Cumulative Gap $ 3,448 $(14,058) $(21,813) $(2,459) $10,076 $55,618 $ 55,618 $ - -
Cumulative Gap/total assets 1.27% (5.16)% (8.01)% (0.90)% 3.70% 20.42% 20.42% 0% -
- -----------------------------------------------------------------------------------------------------------------------------------
The management of interest rate sensitivity, or interest rate risk management,
is a function of the repricing characteristics of the Bank's portfolio of assets
and liabilities. These repricing characteristics are subject to changes in
interest rates either at replacement, repricing or maturity during the life of
the instruments. Interest rate risk management focuses on the maturity
structure of assets and liabilities and their repricing characteristics during
periods of changes in market interest rates. Effective interest rate risk
management seeks to ensure that both assets and liabilities respond to changes
in interest rates within an acceptable time frame, thereby reducing the effect
of interest rate movements on net interest income.
Changes in the mix of earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing of
both the asset and its supporting liability can remain the same, thus impacting
net interest income. This characteristic is referred to as "basis risk" and,
generally, relates to the repricing characteristics of short-term funding
sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities which are not reflected in the interest
sensitivity table above. These prepayments may have significant effects on the
Bank's net interest margin. Because of these factors, the interest sensitivity
gap report may not provide a complete assessment of the Bank's exposure to
changes in interest rates.
13 of 19
NON-INTEREST INCOME
The following table provides details of non-interest income for the previous
five quarters.
Quarter Ended
----------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
------------ ----------- -------------- --------------- --------
Loan fees $ 34 $ 15 $ 11 $ 51 $ 29
Trust fees 344 309 241 178 135
Gain on sale of SBA loans 123 130 153 63 45
Depositor service fees 121 98 92 92 98
Gain on sale of mortgage loans - - - - 51
Other 185 77 54 67 49
----- ----- ----- ----- -----
Total other income $ 807 $ 629 $ 551 $ 451 $ 407
===== ===== ===== ===== =====
Non-interest income was $807,000 for the second quarter of 1996, an increase of
$178,000 from the first quarter of 1996, and of $400,000 from the second
quarter of 1995. The increase in the 1996 second quarter from the first quarter
of 1996 and from the second quarter of 1995 was primarily due to an increase in
trust fee income and to $95,000 in gains realized on warrants received in
connection with CNBs Venture Lending group. In the past year, the Company has
increased its focus on these two business lines.
The increase of $535,000 in total noninterest income from the first half of 1995
to the first half of 1996 was also due to increased trust fee income and warrant
income.
NON-INTEREST EXPENSE
The following table provides details of non-interest expense for the previous
five quarters:
Quarter Ended
------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
-------------- ----------- ------------- -------------- ---------
Compensation and benefits $1,998 $1,700 $1,774 $1,694 $1,600
Occupancy and equipment 489 473 470 430 392
Professional services 248 193 269 277 230
Legal settlement and costs - - - - 1,700
FDIC insurance and assessments 21 20 62 22 135
Supplies, telephone and postage 160 130 117 109 108
Data processing 38 50 42 39 30
Client services 95 120 81 95 91
Other real estate, net 6 24 - 1 (7)
Other 444 442 366 315 321
------ ------ ------ ------ ------
Total operating expenses $3,499 $3,152 $3,181 $2,982 $4,600
====== ====== ====== ====== ======
Total non-interest expenses were $3.5 million for the second quarter of 1996, an
increase of $347,000 from the first quarter of 1996, and a decrease of $1.1
million from the second quarter of 1995. The significant decline from the
previous years second quarter, as well as from the first half of 1995, is due to
the $1.7 million legal settlement expense recorded in the second quarter of
1995.
Compensation and benefits expense for the second quarter increased by $298,000
when compared to the first quarter of 1996, and by $398,000 from the comparable
quarter of 1995. The increase in compensation, occupancy and supplies expense
during the second quarter of 1996 and the first half of 1996, from the 1995
second quarter and the 1995 first half, respectively, is primarily due to the
opening of the new downtown Palo Alto branch office in June 1996. The decline
in FDIC assessment expense of $114,000 from the second quarter of 1995 to the
comparable quarter in 1996 reflects the change in assessment rates for banks
insured by the Bank Insurance Fund of the FDIC. Total FDIC insurance and
assessments declined by $219,000 from the first half of 1995 to the first half
of 1996 for the same reason.
14 of 19
INCOME TAX
The provision for income taxes for the second quarter of 1996 of $289,000
reflects an effective tax rate for the quarter of approximately 36%, compared to
a tax benefit recorded for the second quarter of 1995 of $470,000 with an
effective tax rate of 42%. The difference was primarily due to the operating
loss experienced by the Company in the second quarter of 1995 due to the
litigation settlement. CUNB did not require a valuation allowance related to
its deferred tax asset.
FINANCIAL CONDITION
CAPITAL RATIOS
The Company's and the Bank's leverage ratio (Tier 1 capital to average quarterly
assets) and total risk-based capital ratios were as follows:
June 30, 1996 December 31, 1995
------------------------------------------------------------------------------------------
Tier 1 Capital to Total Capital to Tier 1 Capital to Total Capital to
Average Risk-weighted Average Risk-Weighted
Quarterly Assets Assets Quarterly Assets Assets
------------------------------------------------------------------------------------------
BALANCE % BALANCE % BALANCE % BALANCE %
(Dollar in thousands)
- ---------------------
CNB $18,483 6.98% $24,341 10.66% $17,650 7.36% $23,180 11.41%
Well capitalized requirement 13,234 5.00% 22,838 10.00% 11,989 5.00% 20,318 10.00%
------------------------------------------------------------------------------------------
Excess capital $ 5,249 1.98% $ 1,503 0.66% $ 5,661 2.36% $ 2,862 1.41%
==========================================================================================
Cupertino National Bancorp $19,923 7.52% $25,814 11.17% $18,672 7.78% $24,213 11.91%
Well capitalized requirement 13,243 5.00% 23,115 10.00% 12,000 5.00% 20,331 10.00%
------------------------------------------------------------------------------------------
Excess capital $ 6,680 2.52% $ 2,699 1.17% $ 6,672 2.78% $ 3,882 1.91%
==========================================================================================
In addition, the Company's and the Bank's Tier 1 risk-based capital ratios were
8.62% and 8.09% at June 30, 1996, respectively, compared with 9.18% and 8.69%,
respectively, at December 31, 1995, and 9.63% and 9.13%, respectively, at
June 30, 1995.
To be considered well capitalized, as defined under the regulatory framework for
prompt corrective action, an institution must have a Tier 1 risk-based capital
ratio of 6% or greater, a total risk-based capital ratio of 10% or greater and a
leverage ratio of 5% or greater. To be considered adequately capitalized, as
defined under the regulatory framework for prompt corrective action, an
institution must have a Tier 1 risk-based capital ratio of 4% or greater, a
total risk-based capital ratio of 8% or greater and a leverage ratio of 3% or
greater. All of the Company's and the Bank's risk-based capital and leverage
ratios exceed the ratios for a well capitalized financial institution for all
periods presented above.
LIQUIDITY
Liquidity is defined as the ability of a company to convert assets into cash or
cash equivalents without significant loss, and to raise additional funds by
increasing liabilities. Liquidity management involves maintaining the Bank's
ability to meet the day-to-day cash flow requirements of the Bank's clients who
either want to withdraw funds or require funds to meet their credit needs.
Through an Asset/Liability Management Committee, the Bank actively monitors its
commitments to fund loans, as well as the composition and maturity schedule of
its loan and deposit portfolios. To manage its liquidity, the Bank maintains
$20 million in inter-bank Fed Fund purchase lines, as well as $100 million in
institutional deposit or brokered deposit lines, and $35 million in reverse
repurchase lines.
15 of 19
PROVISION AND RESERVE FOR LOAN LOSSES
The following schedule details the activity in the Bank's reserve for loan
losses and related ratios for each of the last five quarters:
Quarter ended
--------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
- ----------------------
--------------------------------------------------------------------------
Reserve for loan losses at
beginning of period $2,907 $2,683 $2,522 $2,454 $2,359
Provision charged to operations 265 200 90 75 85
Loans charged off (165) - (54) (15) (4)
Loan recoveries 36 24 125 8 14
------ ------ ------ ------ ------
Reserve for loan losses at
end of period $3,043 $2,907 $2,683 $2,522 $2,454
====== ====== ====== ====== ======
Ratio of:
Reserve for loan losses to loans 1.63% 1.67% 1.64% 1.69% 1.70%
Reserve for loan losses to
nonperforming assets 86.08% 84.95% 80.26% 85.67% 68.32%
- -------------------------------------------------------------------------------------------------------------
The provision for loan losses was $265,000 in the second quarter of 1996,
compared to $200,000 in the first quarter of 1996, and to $85,000 in the second
quarter of 1995. The provision for loan losses for the first half of 1996 was
$465,000 compared to $516,000 in the comparable period in 1995.
Management considers changes in the size and character of the loan portfolio,
changes in non-performing and past due loans, historical loan loss experience,
and the existing and prospective economic conditions when determining the
adequacy of the loan loss reserve. The reserve for loan losses was $3.04 million
at June 30, 1996, compared with $2.91 million at March 31, 1996, and $2.68
million at December 31, 1995.
The ratio of the reserve for loan losses to total loans was 1.63% at June 30,
1996, compared with 1.64% at December 31, 1995, and 1.70% at June 30, 1995.
The ratio of the reserve for loan losses to total nonperforming assets,
including foreclosed real estate, was 86.08% at June 30, 1996, compared to
80.26% at December 31, 1995 and 68.32% at June 30, 1995.
NON-ACCRUING LOANS, RESTRUCTURED LOANS, ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AND FORECLOSED PROPERTIES
Quarter ended
--------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands) 1996 1996 1995 1995 1995
- ----------------------
--------------------------------------------------------------------------
Non-accruing loans $2,214 $2,325 $2,513 $2,539 $2,426
Restructured loans - - - - -
Accruing loans past due 90 days or more 1,104 880 830 405 1,166
----------------- ----------- ------------- -------------- ---------
Total nonperforming loans 3,318 3,205 3,343 2,944 3,592
OREO 217 217 - - -
----------------- ----------- ------------- -------------- ---------
Total nonperforming assets $3,535 $3,422 $3,343 $2,944 $3,592
================= =========== ============= ============== =========
Total nonperforming assets to total
assets 1.29% 1.34% 1.29% 1.23% 1.47%
- ------------------------------------------------------------------------------------------------------------------
Over the past year, total nonperforming assets have remained relatively stable
with totals of $3.5 million at June 30, 1996, compared with $3.3 million at
December 31, 1995, and $3.6 million at June 30, 1995. Nonperforming loans,
which include non-accruing loans, restructured loans, and accruing loans which
are past due 90 days or more, were
16 of 19
$3.3 million at June 30, 1996, compared with $3.3 million at December 31, 1995,
and $3.6 million at June 30, 1995.
It is the Bank's policy to discontinue the accrual of interest when the ability
of a borrower to repay principal or interest is in doubt, or when a loan is past
due 90 days or more, except when, in management's judgment, the loan is well
secured and in the process of collection.
The Bank has an active credit administration function which includes, in
addition to internal reviews, the regular use of an outside loan review firm to
review the quality of the loan portfolio. Senior management, and an internal
asset review committee review problem loans on a regular basis.
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on industrial concerns, primarily because its assets and
liabilities consist largely of monetary items. The most direct effect of
inflation on a financial institution is fluctuation in interest rates. However,
net interest income is affected by the spread between interest rates received on
assets and those paid on interest bearing liabilities, rather than the absolute
level of interest rates. Additionally, there may be some upward pressure on the
Companys operating expenses, such as increases in occupancy expenses based on
consumer price indices. In the opinion of management, inflation has not had
material effect on the operating results of the Company.
PART II. OTHER INFORMATION
ITEM 1 - ITEM 3, ITEM 5
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on May 16, 1996
and 1,174,865 shares were represented at the meeting in person or by proxy.
(b) The following 13 persons nominated by management were elected as directors
at the meeting:
For Withheld
--- --------
C. Donald Allen 1,153,260 21,605
David K. Chui 1,153,260 21,605
Carl E. Cookson 1,153,260 21,605
Jerry R. Crowley 1,153,260 21,605
Janet M. DeCarli 1,148,923 25,942
John M. Gatto 1,153,260 21,605
William H. Guengerich 1,153,260 21,605
James E. Jackson 1,153,260 21,605
Rex D. Lindsay 1,153,260 21,605
Glen McLaughlin 1,153,260 21,605
Norman Meltzer 1,153,260 21,605
Dick J. Randall 1,153,260 21,605
Dennis Whittaker 1,153,260 21,605
(c) A proposal to approve an amendment to the Company's 1989 Non-Qualified
Stock Option Plan to increase the number of shares of the Company's Common
Stock reserved for issuance thereunder by
17 of 19
35,000 shares, was approved by a vote of 896,616 shares in favor, 270,984
shares opposed and 7,265 shares abstaining or subject to broker non-votes.
(d) A proposal to approve an amendment to the Company's Employee Stock Purchase
Plan to increase the number of shares of the Company's Common Stock
reserved for issuance thereunder by 60,000 shares, was approved by a vote
of 937,401 shares in favor, 37,976 shares opposed and 199,488 shares
abstaining or subject to broker non-votes.
(e) A proposal to ratify the appointment of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the current fiscal year was approved
by a vote of 1,171,260 shares in favor, 2,554 shares opposed and 691
shares abstaining or subject to broker non-votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Report.
(a) Exhibits - Listed on Index to Exhibits
(b) Reports on Form 8-K for the quarter covered by this report
The Company filed a Report on Form 8-K on July 12, 1996 reporting, on Item 5.
Other Events, the signing of a definitive agreement for a merger of equals of
Registrant with and into Mid-Peninsula Bancorp and that Mid-Peninsula Bancorp
will change its name to Greater Bay Bancorp concurrent with closing of the
merger. The Amended and Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996 was filed as an exhibit to the Form 8-K and is
incorporated herein by reference.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CUPERTINO NATIONAL BANCORP
(REGISTRANT)
BY:
/s/ Steven C. Smith
- -------------------------
STEVEN C. SMITH
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER
/s/ Heidi R. Wulfe
- -------------------------
HEIDI R. WULFE
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
DATE: AUGUST 9, 1996
18 of 19
INDEX TO EXHIBITS
NUMBER EXHIBIT
------ -------
2.1 Amended and Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996 (filed as Exhibit 2.1 of
Registrant's report on Form 8-K dated July 12, 1996 and
incorporated herein by reference).
10.1 Cupertino Shareholder Agreement and Mid Peninsula Shareholder
Agreement, each dated as of June 26, 1996, pursuant to
Amended and Restated Agreement and Plan of Reorganization and
Merger dated June 26, 1996.
10.2 Form of Cupertino Affiliate Agreement and Mid-Peninsula
Affiliate Agreement with directors and certain officers,
pursuant to Amended and Restated Agreement and Plan of
Reorganization and Merger dated June 26, 1996.
10.3 Stock Option Agreement pursuant to Amended and Restated
Agreement and Plan of Reorganization and Merger dated
June 26, 1996.
10.4 Letter agreement, dated as of May 10, 1996, regarding the
rendering of a fairness opinion and Indemnity Agreement, dated
as of May 10, 1996, pursuant to Amended and Restated Agreement
and Plan of Reorganization and Merger dated June 26, 1996,
between Cupertino and Sutro & Co. Incorporated.
10.5 Letter agreement, dated as of June 5, 1996, regarding the
providing of financial advisory services pursuant to Amended
and Restated Agreement and Plan of Reorganization and Merger
dated June 26, 1996, between Cupertino and Hovde Financial,
Inc.
27 Financial Data Schedule
_____
19 of 19