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 EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . . . . . . . . . . . . . .
Commission file number: 000-23257
BYL BANCORP
CALIFORNIA NO. 95-3389734
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
18206 Imperial Highway, Yorba Linda, California 92686
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 996-1800
Not applicable
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(c) of the Securities Exchange Act of
1934 during the preceding 12 months (of 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
On July 31, 1998, there were 2,526,236 shares of BYL Bancorp Common Stock
outstanding.
BYL BANCORP AND SUBSIDIARY
JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1 - Financial Statements
Consolidated Condensed Balance Sheet at June 30, 1998 and
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statement of Income for the three and six
months ended June 30, 1998 and 1997. . . . . . . . . . . . . . 4
Consolidated Condensed Statement of Changes in
Shareholders' Equity from January 1, 1996 through
June 30, 1998. . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Condensed Statement of Cash Flows for the
nine months ended June 30, 1998 and 1997 . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 7 - 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 12
Item 3 - Defaults upon Senior Securities . . . . . . . . . . . . . . . . . 12
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . 12
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 12
2
ITEM 1. FINANCIAL STATEMENTS
BYL BANCORP AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
June 30, December 31,
1998 1997*
-------- ------------
Cash and Due From Bank $ 18,139 $ 11,894
Interest-Bearing Deposits 2,335 3,419
Investment Securities 14,226 23,365
Loans Held For Sale 50,363 47,150
Loans 165,389 139,473
Allowance for Loan Losses (2,324) (1,923)
-------- --------
NET LOANS 163,065 137,550
Premises and Equipment 5,018 5,205
Other Real Estate Owned 1,050 924
Goodwill 1,506 1,567
Accrued Interest and Other Assets 8,998 7,012
-------- --------
$264,700 $238,086
-------- --------
-------- --------
Noninterest-Bearing Deposits $ 65,804 $ 56,143
Interest-Bearing Deposits 170,530 151,792
-------- --------
TOTAL DEPOSITS 236,334 207,935
Borrowed Funds 1,800 4,465
Accrued Interest and Other Liabilities 2,706 3,136
-------- --------
TOTAL LIABILITIES 240,840 215,536
Common Shares 12,735 12,623
Retained Earnings 11,163 9,955
Unrealized Loss on Investments
Available-for-Sale (38) (28)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 23,860 22,550
-------- --------
$264,700 $238,086
-------- --------
-------- --------
* Restated on a historical basis to reflect the May 29, 1998 acquisition of
DNB Financial on a pooling-of-interests basis.
3
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ------------------------
1998 1997* 1998 1997*
------ ------ ------- -------
Interest Income $6,009 $4,616 $11,264 $ 8,702
Interest Expense 2,022 1,443 3,836 2,676
------ ------ ------- -------
Net Interest Income 3,987 3,173 7,428 6,026
Provision for Loan Losses 270 115 540 195
------ ------ ------- -------
Net Interest Income after
Provision for Loan Losses 3,717 3,058 6,888 5,831
Noninterest Income 5,353 3,164 10,328 6,264
Noninterest Expense 7,644 5,158 14,521 10,054
------ ------ ------- -------
Income before Taxes 1,426 1,064 2,695 2,041
Income Taxes 763 431 1,271 824
------ ------ ------- -------
Net Income $ 663 $ 633 $ 1,424 $ 1,217
------ ------ ------- -------
------ ------ ------- -------
Per Share Data:
Net Income - Basic $ .26 $ 0.26 $ 0.57 $ 0.51
------ ------ ------- -------
------ ------ ------- -------
Net Income - Diluted $ .25 $ 0.25 $ 0.54 $ 0.49
------ ------ ------- -------
------ ------ ------- -------
* Restated on a historical basis to reflect the May 29, 1998 acquisition of
DNB Financial on a pooling-of-interests basis.
4
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP
UNAUDITED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
Net
Unrealized
Appreciation
Common Shares (Depreciation)
on Available
Preferred Retained for-Sale
Stock Number Amount Earnings Securities Total
--------- --------- ------- -------- ------------- -----
Balance at January 1, 1996 $ 1,000 1,331,955 $ 4,219 $ 6,034 $ 20 $ 11,273
-------- --------- ------- ------- ------ --------
Net Income 1,916 1,916
Preferred Dividends (159) (150)
Dividends on Common (169) (169)
Options Exercised 4,120 23 23
Redemption of Preferred Stock (1,000) (20) (1,020)
Common Stock Retired (9,579) (55) (55)
Issuance of Common Stock
(Net of Related Costs) 1,073,333 7,759 7,759
Net Unrealized Depreciation
on Available-for Sale Securities (133) (113)
-------- --------- ------- ------- ------ --------
Balance at December 31, 1996 - 2,399,829 11,946 7,602 (133) (19,435)
Net Income 2,854 2,854
Exercise of Stock Option 104,166 683 683
Common Stock Retired (824) (6) (6)
Dividends on Common (501) (501)
Net Unrealized Appreciation
for Available-for-Sale Securities 85 85
-------- --------- ------- ------- ------ --------
Balance at December 31, 1997 - 2,503,171 12,623 9,955 (28) 22,550
Net Income 1,424 1,424
Exercise of Stock Option - 23,065 112 112
Dividends on Common (216) (216)
Net Unrealized Appreciation
for Available-for-Sale Securities (10) (10)
-------- --------- ------- ------- ------ --------
Balance at June 30, 1998 $ - 2,526,236 $ 12,735 $11,163 $ (38) $ 23,860
-------- --------- ------- ------- ------ --------
-------- --------- ------- ------- ------ --------
5
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
For the Nine Months Ended
June 30,
-------------------------------------
1998 1997*
--------- --------
OPERATING ACTIVITIES
Net Income $ 1,424 $ 1,217
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 558 475
Provision for Loan Losses 540 195
Net Change in Loans Held for Sale (3,213) (17,060)
Other Items - Net (2,310) 971
--------- --------
NET CASH USED BY
OPERATING ACTIVITIES (3,001) (14,202)
INVESTING ACTIVITIES
Change in Interest-Bearing Deposits (1,084) (669)
Purchases of Investment Securities (502) (1,752)
Maturities of Investment Securities 9,641 274
Net Change in Loans (26,055) (6,650)
Purchase of Premises and Equipment (426) (1,403)
Other Items - Net (126) 619
--------- --------
NET CASH USED
BY INVESTING ACTIVITIES (17,468) (8,912)
FINANCING ACTIVITIES
Decrease in Borrowed Funds (2,665) (500)
Net Change in Deposits 28,349 36,992
Redemption of Common Stock - (2)
Proceeds from Exercise of Options 112 -
Dividends (216) (242)
--------- --------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 28,245 36,748
--------- --------
INCREASE IN CASH
AND CASH EQUIVALENTS 12,465 6,245
Cash and Cash Equivalents at Beginning of Period 11,894 15,349
--------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 18,139 $ 27,814
--------- --------
--------- --------
* Restated on a historical basis to reflect the May 29, 1998 acquisition of DNB
Financial on a pooling-of-interests basis.
6
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial information has been prepared in accordance with
the Securities and Exchange Commission rules and regulations for quarterly
reporting and therefore does not necessarily include all information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles. This information
should be read in conjunction with the Company's Annual Report for the year
ended December 31, 1997.
Operating results for interim periods are not necessarily indicative of
operating results for an entire fiscal year. In the opinion of management,
the unaudited financial information for the three and six month periods ended
June 30, 1998 and 1997, reflect all adjustments, consisting only of normal
recurring accruals and provisions, necessary for a fair presentation thereof.
NOTE 2 - EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Accordingly, basic earnings per share are computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding during each period. The computation of diluted
earnings per share also considers the number of shares issuable upon the
assumed exercise of outstanding common stock options. All earnings per
common share amounts presented have been restated in accordance with the
provisions of this statement.
NOTE 3 - STOCK SPLIT
During 1997, the Company declared a four for three stock split to
stockholders. This resulted in the issuance of 383,644 shares of common stock.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BYL Bancorp (the "Company") has one wholly owned subsidiary, BYL Bank Group,
formerly the Bank of Yorba Linda (the "Bank"). The Bank's operations are the
only significant operations of the Company. The accompanying financial
information should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Statements contained in this Report on Form 10Q that are not purely
historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements regarding the Company's expectations,
intentions, beliefs or strategies regarding the future. All forward-looking
statements included in this document are based on information available to
the Company on the date thereof, and the Company assumes no obligation to
update any such forward-looking statements. It is important to note that the
Company's actual results could differ materially from those in such
forward-looking statements. Factors that could cause actual results to
differ materially from those in such forward-looking statements are included
in the discussions below.
ACQUISITIONS
On May 29, 1998, the Company completed the acquisition with DNB Financial
("DNBF"), parent company of De Anza National Bank on a pooling-of-interests
basis , and, accordingly, the Company's historical consolidated results have
been restated. Under the terms of the Agreement and Plan of Reorganization,
each share of DNBF Common Stock was exchanged for 4.12 shares of the
Company's Common Stock. A total of 956,641 shares of the Company's Common
Stock was issued to DNBF shareholders. Also, on May 29, 1998, De Anza
National Bank, DNBF's only subsidiary, merged with and into BYL Bank Group.
The following summarizes the separate results of the combined entities for
the periods shown prior to the combination (in thousands, except per share
data):
Restated
BYL Combined
Bancorp DNBF Results
--------- -------- -------------
Three Months Ended June 30, 1997
Net Interest Income $ 2,311 $ 862 $ 3,173
Net Income 453 180 633
Earnings Per Share:
Basic 0.30 0.87 0.26
Diluted 0.28 0.82 0.25
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
ACQUISITIONS - CONTINUED
Restated
BYL Combined
Bancorp DNBF Results
----------- --------- ------------
Six Months Ended June 30, 1997
Net Interest Income $ 4,306 $ 1,720 $ 6,026
Net Income 893 324 1,217
Earnings Per Share:
Basic 0.58 1.52 0.51
Diluted 0.55 1.52 0.49
As of December 31, 1997
Total Assets $ 164,667 $ 73,419 $ 238,086
Total Shareholders' Equity 14,830 7,720 22,550
On June 13, 1996, the Bank acquired 100% of the outstanding common stock of
Bank of Westminster (BOW) for $6,174,000 in cash. BOW had total assets of
approximately $54,923,000. The acquisition was accounted for using the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16. "Business Combinations". Under this method of accounting,
the purchase price was allocated to the assets acquired and deposits and
liabilities assumed based on their fair values as of the acquisition date.
The financial statements include the operations of BOW from the date of the
acquisition. Goodwill arising from the transaction totaled approximately
$1,717,000 and is being amortized over fifteen years on a straight-line basis.
OVERVIEW
For the three months ended June 30, 1998, the Company reported net income of
$663,000, or $0.25 per share compared to a net income of $633,000, or $0.25
per share for the same three month period in 1997. During this quarter, the
Company incurred approximately $542,000 in one-time costs associated with the
merger of DNBF.
For the first half of 1998, the Company reported net income of $1.4 million
compared to $1.2 million in 1997. The annualized return on average assets
was 1.10% for 1998 compared to 1.21% in 1997. Annualized return on
shareholders equity was 12.23% in 1998 compared to 12.18% in 1997. These
amounts and ratios were also impacted by the merger costs discussed above.
9
FINANCIAL CONDITION
Total assets as of June 30,1998, increased 11.2% to $264.7 million in
comparison to total assets of $238.0 million as of December 31, 1997. The
majority of this asset growth was centered in the Bank's held-for-investment
loan portfolio which increased by $26 million. This growth was funded by a
$28.4 million increase in deposits, a portion of which was utilized to
partially pay down short term borrowings of $4 million that were outstanding
at December 31, 1997.
ASSET QUALITY
The Company's asset quality has declined slightly in 1998 as evidenced by an
increase in the ratio of nonperforming loans to total loans which rose to
1.26% at June 30, 1998 from 0.93% at December 31, 1997. Management believes
the loans creating this increase are adequately secured and will not result
in significant losses to the Company. In response to this increase, and
other factors, the Company added $540,000 to the ALLL for the six months
ended June 30, 1998 as compared to $195,000 for the same period in 1997. The
ALLL at June 30, 1998 was 1.41% of total loans and 85.5% of non-performing
loans compared to 1.38% and 150.4%, respectively, at December 31, 1997.
LIQUIDITY
The Bank's liquidity is impacted significantly by the origination and sale of
its wholesale loan products. The loan to deposit ratio at June 30, 1998 was
90.3%. Had the Bank actually sold all of the loans it held for sale, this
ratio would have declined to 70.0%.
CAPITAL RESOURCES
The Company and its bank subsidiary are subject to risk-based capital
regulations adopted by the federal banking regulators. These guidelines are
used to evaluate capital adequacy and are based upon an institution's risk
profile and off-balance sheet exposures, such as unused loan commitments and
letters of credit. At June 30, 1998, the Bank's Tier 1 leverage capital
ratio was 8.19% compared to 8.63% at December 31, 1997. Management is not
aware of any trends, events, uncertainties or recommendations by regulatory
authorities that will have or that are likely to have material effects on the
liquidity, capital resources or operations of the Company.
10
ANALYSIS OF NET INTEREST INCOME AND MARGIN
Net interest income was $4.0 and $7.4 million for the second quarter and
first six months of 1998 compared to $3.2 and $6.0 million for the same
periods in 1997. These increases are primarily the result of significant
increases in average interest-earning assets as shown by the following table
(in thousands):
June 30, 1998
-------------------------------- Year Ended
Quarter Six Months December 31,
Ended Ended 1997
----------- ----------- -------------
Interest Income $ 6,009 $ 11,264 $ 18,455
Interest Expense 2,022 3,836 6,057
---------- ---------- -----------
Net Interest Income $ 3,987 $ 7,428 $ 12,398
---------- ---------- -----------
---------- ---------- -----------
Average Earning Assets $ 236,482 $ 228,691 $ 191,909
Net Interest Margin 6.74% 6.50% 6.46%
NONINTEREST INCOME
Noninterest income was $5.4 million for the quarter ended June 30, 1998
compared to $3.2 million for the same period in 1997. Similarly for the first
half of 1998, noninterest income was $10.3 million compared to $6.3 million
for the same period in 1997. These increases are attributable to the
continued expansion of the Bank's wholesale loan divisions. These
departments have expanded by adding new products as well as entering new
geographic markets.
NONINTEREST EXPENSE
Noninterest expense was $7.6 million for the quarter ended June 30, 1998 and
$14.5 million for the first six months of 1998 compared to $5.2 million and
$10.0 million for the same periods in 1997. A portion of the increase in the
second quarter of 1998 was related to the one time costs of $542,000
associated with the DNBF merger. The majority of the increases were
attributable to the continued expansion of the Bank's wholesale loan
divisions.
11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Subsidiary Bank is
at times party to various legal actions; all such actions are of a
routine nature and arise in the normal course of business of the
Subsidiary Bank.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on May 20, 1998 at which time
the shareholders approved the merger with DNB Financial and elected
the three directors nominated by the Board of Directors.
Item 6 - Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit No. Exhibit
------------ -----------
2.1 Plan of Reorganization and Merger Agreement - Annex 1 of
Written Consent Statement/Prospectus*
3.1 Articles of Incorporation of Registrant*
3.2 Amendment to Articles of Incorporation of Registrant*
3.3 Amendment to Articles of Incorporation of Registrant*
3.4 Bylaws of the Registrant*
10.1 Form of Indemnification Agreement*
10.3 Form of Written Consent*
* All documents listed are incorporated by reference and can be found in
the Registration Statement of the Company filed on Form S-4.
B) Reports on Form 8-K
1) May 29, 1998 - to report in Item 2 the acquisition of DNB
Financial.
2) July 16, 1998 - to amend the Form 8-K filed on May 29, 1998 and
include all required financial statement and pro forma financial
information.
12
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BYL BANCORP
Date: August 14, 1998 /s/ Robert Ucciferri
Robert Ucciferri
President and
Chief Executive Officer
Date: August 14, 1998 /s/ Barry J. Moore
Barry J. Moore
Chief Operating Officer and
Senior Executive Vice President
13