<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
--- Act of 1934 for the quarterly period ended June 30, 1997
-------------
Transition report under Section 13 or 15(d) of the Securities Exchange
--- Act of 1934 (No fee required) for the period from to
------- --------
Commission File Number 0-27666
NORTHERN CALIFORNIA BANCORP, INC.
----------------------------------
(Name of Small Business Issuer in its Charter)
Incorporated in the State of California
IRS Employer Identification Number 77-0421107
Address: 601 Munras Avenue, Monterey, CA 93940
Telephone: (408) 649-4600
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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
------ ------
As of August 1, 1997, the Corporation had 879,465 shares of common stock
outstanding.
<PAGE>
NORTHERN CALIFORNIA BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30 DECEMBER 31
1997 1996
----------- ------------
ASSETS:
Cash and Cash Equivalents 2,655,500 9,820,100
Time deposits with financial institutions 0 0
Investment Securities, available for sale (Note 1) 470,300 299,800
Investment Securities, held to maturity (Note 1) 4,493,000 2,500,200
Federal Funds Sold 4,900,000 0
Loans Held for Sale 445,400 414,500
Gross Loans (Note 2) 25,401,200 24,931,800
Allowance for Possible Loan Losses (Note 3) (262,300) (253,500)
Deferred Origination Fees (38,000) (36,800)
----------- -----------
Net Loans 25,100,900 24,641,500
Bank Premises and Equipment, Net 1,891,600 1,664,200
Interest Receivable and Other Assets 1,314,900 1,458,800
----------- -----------
Total Assets 41,271,600 40,799,100
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Total Deposits (Note 4) 34,804,900 36,167,100
Interest Payable and Other Liabilities 3,382,200 1,733,800
----------- -----------
Total Liabilities 38,187,100 37,900,900
----------- -----------
----------- -----------
Shareholders' Equity:
Common Stock - No Par Value
Authorized: 2,500,000 in 1997 and 1996
Outstanding:879,465 in 1997 and 1996 2,779,600 2,779,600
Accumulated Earnings 249,000 118,600
Unrealized Gain (Loss) Available
for Sale Securities 55,900 0
----------- -----------
Total Shareholders' Equity 3,084,500 2,898,200
----------- -----------
Total Liabilities & Shareholders' Equity 41,271,600 40,799,100
----------- -----------
----------- -----------
Page 2
<PAGE>
NORTHERN CALIFORNIA BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---------------------- -------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans 674,400 685,600 1,337,400 1,298,800
Interest on Time Deposits with
Financial Institutions 0 0 0 3,800
Interest on Investment Securities 89,900 8,800 150,000 15,700
Interest on Gov't Guar SBA Loan Pools 0 0 0 (400)
Interest on Federal Funds 48,700 92,700 120,800 185,600
------- ------- --------- ---------
Total Interest Income 813,000 787,100 1,608,200 1,503,500
------- ------- --------- ---------
INTEREST EXPENSE:
Interest on Interest-Bearing
Transaction Accounts 29,900 25,700 58,200 52,000
Interest on Savings Accounts 11,200 18,600 24,200 36,600
Interest on Time Deposits 272,900 265,100 552,900 526,600
Interest on Other Borrowed Funds 22,000 22,800 34,000 45,600
------- ------- --------- ---------
Total Interest Expense 336,000 332,200 669,300 660,800
------- ------- --------- ---------
Net Interest Income 477,000 454,900 938,900 842,700
------- ------- --------- ---------
PROVISION FOR POSSIBLE LOAN LOSSES 30,000 25,000 60,000 25,000
------- ------- --------- ---------
Net Interest Income After
Provision for Possible Loan Losses 447,000 429,900 878,900 817,700
------- ------- --------- ---------
NONINTEREST INCOME:
Service Charges on Deposit Accounts 86,200 97,600 178,200 175,300
SBA Loan Sales & Servicing Income 65,100 111,900 117,600 179,800
Other Operating Income 289,500 89,400 550,000 472,600
------- ------- --------- ---------
Total Non-interest Income 440,800 298,900 845,800 827,700
------- ------- --------- ---------
NONINTEREST EXPENSE:
Salaries and Employee Benefits 310,000 285,300 613,500 577,400
Occupancy and Equipment Expense 65,700 67,600 118,100 130,700
Professional Fees 20,500 22,100 51,300 43,100
Data Processing 45,500 36,400 88,400 70,800
FDIC & State Assessments 6,300 2,800 11,000 5,700
Other Operating Expenses 363,900 158,700 711,700 633,700
------- ------- --------- ---------
Total Non-interest Expense 811,900 572,900 1,594,000 1,461,400
------- ------- --------- ---------
NET INCOME (LOSS) 75,900 155,900 130,700 184,000
------- ------- --------- ---------
------- ------- --------- ---------
INCOME (LOSS) PER COMMON SHARE 0.07 0.15 0.13 0.18
</TABLE>
Page 3
<PAGE>
NORTHERN CALIFORNIA BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
------- -------
NET INCOME 130,700 184,000
Adjustments to net income:
Depreciation and amortization expense 45,000 62,600
Amortization/Accretion on investments (300) 53,200
(Gain) loss on sale of securities 0 (5,700)
Provision for possible loan losses 60,000 25,000
Amortization of deferred servicing premium 6,600 6,100
Amortization of deferred income (2,200) (1,100)
Increase (decrease) in accrued expenses (179,300) (201,700)
(Increase) decrease in prepaid expenses 178,600 7,600
Increase (decrease) in interest payable (170,400) (8,800)
(Increase) decrease in interest receivable (41,300) 10,700
(Increase) decrease in loans held for sale (30,900) (11,000)
---------- ----------
Total adjustments to net income (134,200) (63,100)
---------- ----------
---------- ----------
Net cash provided (used) by operations (3,500) 120,900
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of investments 0 200,000
Proceeds from sale of investments 0 497,100
Principal payments on investments 1,500,000 78,600
Purchase of securities (3,663,000) (549,500)
Unrealized gain (loss) available for sale
securities 55,900 5,600
Net (increase) decrease in loans (519,400) (2,791,400)
Proceeds from sale of equipment 0 12,000
Capital expenditures (272,400) (23,400)
---------- ----------
Net cash provided (used) in investing activities (2,898,900) (2,571,000)
---------- ----------
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (1,362,200) 1,269,200
Net increase (decrease) in borrowed funds 2,000,000 0
---------- ----------
Net cash provided (used) by financing activities 637,800 1,269,200
---------- ----------
---------- ----------
Net increase (decrease) in cash & cash equivalents (2,264,600) (1,180,900)
Cash & cash equivalents - beginning of year 9,820,100 10,328,900
---------- ----------
---------- ----------
Cash & cash equivalents - end of period 7,555,500 9,148,000
Page 4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30 DECEMBER 31
1997 1996
------- -----------
(NOTE 1) INVESTMENT SECURITIES:
Available for sale:
Federal Home Loan Bank Stock 320,400 299,800
Pacific Coast Bankers Bank Stock 149,900 0
----------- -----------
----------- -----------
470,300 299,800
Held to maturity:
US Treasury Securities 499,700 499,600
US Agency Securities 3,993,300 2,000,600
----------- -----------
4,493,000 2,500,200
----------- -----------
----------- -----------
(NOTE 2) GROSS LOANS:
Commercial and Industrial 9,987,000 9,705,400
Real Estate - Mortgage 14,623,900 14,335,900
Installment 494,600 583,200
Government Guaranteed Loans Purchased 295,700 307,300
----------- -----------
Gross Loans 25,401,200 24,931,800
----------- -----------
----------- -----------
(NOTE 3) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Balance at Beginning of Period 253,500 224,800
Recoveries 1,200 20,700
Loans Charged Off (52,400) (44,500)
----------- -----------
Provision for Possible Loan Losses 60,000 52,500
Balance at End of Period 262,300 253,500
----------- -----------
----------- -----------
(NOTE 4) DEPOSITS:
Demand 7,497,100 7,572,300
Interest-Bearing Transaction 6,708,300 6,792,200
Savings 2,176,000 2,598,400
Time Under $100,000 11,654,400 12,355,000
Time Equal to or Greater than $100,000 6,769,100 6,849,200
----------- -----------
34,804,900 36,167,100
----------- -----------
----------- -----------
(NOTE 5) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Payments during the period ending: 6/30/97 6/30/96
----------- -----------
Interest 635,300 615,200
Income Taxes 44,900 37,400
Page 5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
OVERVIEW
The following discussion reviews and analyzes the operating results and
financial condition of the Corporation, focusing on the Bank. It should be read
in conjunction with the financial statements and the other financial data
presented elsewhere herein. The Corporation has had no activities other than
its organization.
For the six months, ended June 30, 1997 net income was $130,700, a decrease
of $53,300 when compared to the same period in 1996. The decrease in earnings
during this period was the result of a $132,600 increase in non-interest
expense, partially offset by a $61,200 increase in net interest income after
provision for loan losses and a $18,100 increase in non-interest income.
Page 6
<PAGE>
The following table sets forth certain selected financial ratios of the
Corporation at and for the six months ended, June 30, 1997 and 1996.
For the six months For the six months
Ended June 30, 1997 Ended June 30, 1996
-------------------- --------------------
(Dollars in thousands except per share data)
Summary of Operating Results:
Total interest income 1,608 1,504
Total interest expense 669 661
------- -------
Net interest income 939 843
Provision for possible
loan losses 60 25
------- -------
Net interest income after
provision for loan loss 879 818
Total other income 846 519
Total other expense 1,547 1,116
------- -------
Income (loss) before taxes 178 221
Provision for income tax 47 37
------- -------
Net income (loss) 131 184
Per Common Share Data:
Net income (1) 0.13 0.18
Book value, end of period 3.51 3.37
Avg. shares outstanding (2) 879,465 879,465
Balance Sheet Data:
Total loans, net of
unearned income (3) 25,809 25,303
Total assets 41,272 37,905
Total deposits 34,805 32,457
Stockholders' equity 3,085 2,965
Page 7
<PAGE>
For the six months For the six months
Ended June 30, 1997 Ended June 30, 1996
-------------------- --------------------
Selected Financial Ratios (4):
Return on average assets(5) 0.66% 1.00%
Return on average
stockholders' equity(5) 8.69% 12.94%
Net interest spread 4.88% 5.22%
Net interest margin 5.54% 5.79%
Avg shareholders' equity
to average assets 7.59% 7.73%
Risked-Based capital ratios
Tier 1 10.64% 11.83%
Total 11.59% 12.85%
Total loans to total deposits
at end of period 74.15% 77.96%
Allowance to total loans
at end of period 1.02% 1.01%
Non-performing loans to total
loans at end of period 1.48% 0.32%
Net charge-offs to
average loans (0.21)% (0.03)%
(1) Earnings (loss) per share amounts were computed on the basis of the
weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock equivalents include
employee stock options. The weighted average number of shares used for this
computation was 1,029,893 and 1,023,723 for June 30, 1997 and 1996,
respectively.
(2) Weighted average common shares.
(3) Includes loans being held for sale.
(4) Averages are of daily balances.
(5) June 30, 1997 calculated on an annualized basis.
Page 8
<PAGE>
NET INTEREST INCOME
Net interest income, the difference between (a) interest and fees earned on
interest-earning assets and (b) interest paid on interest-bearing liabilities,
is the most significant component of the Bank's earnings. Changes in net
interest income from period to period result from increases or decreases in the
average balances of interest earning assets portfolio, the availability of
particular sources of funds and changes in prevailing interest rates.
Net interest income for the six-month period ended June 30, 1997 was
$938,900 compared to $842,700 for the same period in 1996. The increase of
$96,200 resulted from total interest income increasing $104,700, while total
interest expense increased $8,500. Average interest earning assets increased
$2,542,000 (8.08%), while the average rate earned decreased 11 basis points.
The decrease in the average interest rate earned was due to a 45 basis points
decrease in the interest rate earned on loans, partially off-set by a 98 basis
points increase in the interest rate earned on investments. Average interest
bearing liabilities increased $1,234,000 (4.43%), while the average rate paid
decreased 15 basis points.
The following table shows the components of the Bank's net interest income,
setting forth, for each the six months ended June 30, 1997 and 1996 and for the
twelve months ended December 31, 1996, (i) average assets, liabilities and
investments, (ii) interest income earned on interest-earning assets and interest
expense paid on interest-bearing liabilities, (iii) average yields earned on
interest-earning assets and average rates paid on interest-bearing liabilities,
(iv) the net interest spread (i.e., the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities) and (v)the
net interest yield on average interest-earning assets (i. e., net interest
income divided by average interest-earning assets). Yields are not computed on
a tax-equivalent basis. Non-accrual loans and overdrafts are included in
average loan balances. Average loans are presented net of unearned income.
Page 9
<PAGE>
INTEREST SPREAD ANALYSIS:
<TABLE>
<CAPTION>
The Six Months The Twelve Months
Ended June 30, Ended December 31,
1997 1996 1996
-------------------------- ----------------------------- -------------------------
Int Avg Int Avg Int Avg
Avg Earn % Avg Earn % Avg Earn %
Bal Paid Rate Bal Paid Rate Bal Paid Rate
-------------------------- ----------------------------- -------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Int-bearing deposits
at other banks 0 0 0.00 99 4 8.08 71 5 7.04
Invest securities (1) 4,242 150 7.07 865 16 3.70 1,519 90 5.92
Federal funds sold 4,535 121 5.34 6,959 186 5.35 6,460 341 5.28
----------------- ------------------ -------------------------
Total investments 8,777 271 6.18 7,923 206 5.20 7,979 436 5.46
Loans
Real estate 14,129 721 10.21 12,092 606 10.02 13,138 1,368 10.41
Installment 537 33 12.29 725 46 12.69 686 80 11.66
Commercial 10,558 583 11.04 10,719 648 12.09 10,823 1256 11.61
----------------- ------------------ -------------------------
Total loans 25,224 1,337 10.60 23,536 1,300 11.05 24,647 2,704 10.97
Total Interest
earning assets 34,001 1,608 9.46 31,459 1,506 9.57 32,626 3,140 9.63
----------------- ------------------ -------------------------
----------------- ------------------ -------------------------
Interest Bearing Liabilities:
Int.-bearing demand 4,999 35 1.40 4,417 31 1.40 4,534 64 1.41
Money market savings 1,946 23 2.36 1,824 21 2.30 1,911 45 2.35
Savings deposits 2,208 24 2.17 2,503 37 2.96 2,541 70 2.75
Time deposits GREATER THAN $100M 6,752 194 5.75 5,453 171 6.27 5,698 338 5.93
Time deposits LESS THAN $100M 11,889 359 6.04 11,672 356 6.10 11,774 735 6.24
Other Borrowing 1,309 34 5.19 2,000 46 4.60 1,790 83 4.64
----------------- ------------------ -------------------------
Total interest
bearing liabilities 29,103 669 4.60 27,869 662 4.75 28,249 1,334 4.72
----------------- ------------------ -------------------------
----------------- ------------------ -------------------------
Net interest income 939 844 1,806
Net interest spread 4.86 4.82 4.91
Net yield on interest
earning assets 5.52 5.37 5.54
</TABLE>
(1) Yield in 1996 negatively affected by $9,800 write off of premium due to the
early payoff of an SBA Guaranteed Pool.
Page 10
<PAGE>
INTEREST SPREAD ANALYSIS (CONTINUED):
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended June 30, Ended December 31,
1997 vs 1996 1996 vs 1995
--------------------------------- -------------------------------
Increase(Decrease) Increase(Decrease)
Due To Changes Due To Changes
--------------------------------- -------------------------------
Avg Avg Avg Avg
Volume Rate Total Volume Rate Total
--------------------------------- -------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Int-bearing deposits
at other banks (4) 0 (4) (17) (2) (19)
Invest securities 62 72 134 21 (7) 14
Federal funds sold (65) (0) (65) 75 (13) 62
--------------------------------- -------------------------------
Total investments 22 43 65 85 (28) 57
Loans
Real estate 102 13 115 52 (55) (3)
Installment (12) (1) (13) (35) 3 (32)
Commercial (10) (55) (65) 89 78 166
--------------------------------- -------------------------------
Total loans 93 (56) 37 107 24 131
Total Interest Earning Assets 122 (20) 102 239 (49) 190
--------------------------------- -------------------------------
--------------------------------- -------------------------------
Interest Bearing Deposits:
Int.-bearing demand 0 0 0 (0) 3 3
Money market savings 0 0 0 1 2 3
Savings deposits 4 (0) 4 (8) (3) (11)
Time deposits > $100M 1 1 2 41 (5) 36
Time deposits < $100M (4) (9) (13) 121 9 130
Other Borrowing 41 (18) 23 (10) 1 (9)
--------------------------------- -------------------------------
Total interest bearing deposits 29 (22) 7 100 51 151
--------------------------------- -------------------------------
--------------------------------- -------------------------------
Net change in net interest 92 3 95 139 (100) 39
</TABLE>
Page 11
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is an expense charged against operating
income and added to the allowance for loan losses. The allowance for loan
losses represents amounts, which have been set aside for the specific purpose of
absorbing losses, which may occur in the Bank's loan portfolio.
The allowance for loan losses reflects management's ongoing evaluation of
the risks inherent in the loan portfolio, both generally and with respect to
specific loans, the state of the economy, and the level of net loan losses
experienced in the past. Management and the Board of Directors review the
results of the State Banking Department and FDIC examinations, independent
accountants' observations, and the Bank 's internal review as additional
indicators to determine if the amount in the allowance for loan losses is
adequate to protect against estimated future losses. It is the Bank 's current
practice, which could change in accordance with the factors mentioned above, to
maintain an allowance which is at least equal to the sum of the following
percentage of loan balances by loan category.
Loan Category Reserve %
Classified Loans:
Loans classified loss 100.00%
Loans classified doubtful 50.00%
Loans classified substandard
Real Estate Secured 5.00%
Non Real Estate Secured 20.00%
Unclassified Loans:
Real Estate - Loan to value 80% or less 0.10%
Real Estate - Loan to value over 80% 0.50%
Loans to Individuals 1.50%
Commercial 1.50%
SBA Loans - Unguaranteed portion 2.00%
SBA Loans - Guaranteed portion 0.00%
Cash Secured Loans 0.00%
Although no assurance can be given that actual losses will not exceed the
amount provided for in the allowance, Management believes that the allowance is
adequate to provide for all estimated credit losses in light of all known
relevant factors. At June 30, 1997 and 1996 the Bank's allowance stood at 1.01
percent. A provision of $60,000 was made to the allowance during the six months
ended June 30, 1997, compared to a provision of $25,000 in the same period in
1996. Charged off loans during the six months ended June 30, 1997 and 1996
totaled $52,400 and $5,400 respectively. Recoveries for the same periods were
$1,200 and $11,800, respectively.
Page 12
<PAGE>
The Bank's non-performing (delinquent 90 days or more and non-accrual)
loans as a percentage of total loans was 1.20 percent at June 30, 1997 compared
with .32 percent at June 30, 1996 and 1.13 percent at December 31, 1996.
Based upon statistics released by Federal and state banking
authorities regarding banks of similar size or otherwise located in California,
Management believes that the Bank's ratios of delinquent and non performing
loans to total loans are far better than average. Prudent collection efforts,
and tighter lending controls, are responsible for the Bank's strong performance
on these measures of credit quality. However, no assurance can be given that
the Bank's loan portfolio will continue to measure well against its peers on
these ratios and quality measures, or that losses will not otherwise occur in
the future.
NON-INTEREST INCOME
Total non-interest income for the six months ended June 30, 1997 was
$845,800, compared with $827,700 for the same period in 1996. The increase of
$18,100 was the result of a $2,900 increase in service charges on deposit
accounts, while income from SBA loan sales and servicing decreased $62,200 and
income from other service charges, commissions and fees increased $77,400.
Merchant credit card discount fees increased $89,900 the primary factor in the
increase in other service charges, commissions and fees.
The sale of Small Business Administration (SBA) guaranteed loans is a
significant contributor to the Bank's income. SBA guaranteed loans yield up to
3 3/4% over the New York prime rate, and the guaranteed portions can be sold at
premiums, which vary with market conditions. SBA loans are guaranteed by the
full faith of the United States Government from 75 to 80 percent of the
principal amount. The guaranteed portion has risks comparable for an investor
to a U. S. Government security and can usually be sold in the secondary
financial market, either at a premium or at a yield which allows the Bank to
maintain a significant spread for itself.
There can be no assurance that the gains on sale will continue at, or
above, the levels realized in the past three years. In addition, increasing
competition among lenders for qualified SBA borrowers makes it difficult for the
Bank to continually expand its program in this area, and may limit the level of
premium that can be earned with regard thereto. Furthermore, the SBA recently
began requiring lenders to share a portion of premiums in excess of 10% earned
on the sale of the guaranteed portions, and to pay 50 basis points on the
outstanding guaranteed balance. Management cannot predict the impact these
changes will not have a significant impact on SBA income.
Page 13
<PAGE>
NON-INTEREST EXPENSE
Salary and benefits expense for the six months ended June 30, 1997
increased $36,100 compared with the same period in 1996. These increases were
primarily due to employee merit pay increases and an addition to staff resulting
from the opening of a branch office on April 14, 1997.
Total occupancy and equipment expense for the six months ended June
30, 1997 was $118,100 compared to $130,700 for the same period in 1996. The
decrease of $12,600 was due to a $5,200 decrease in equipment rental expense and
a $4,400 decrease in net merchant terminal expense.
For the six months ended June 30, 1997 professional fees increased $8,200
over the same period in 1996.
Data processing for the six months ended June 30, 1997 increased $17,600
compared to the same period in 1996. The increase was due to a 2.7% cost of
living increased, effective April 1997 and increased numbers of accounts and
transactions.
Other expenses for the six months ended June 30, 1997 totaled $711,700
compared with $633,700 for the same period in 1996. Significant changes
occurred in the following categories with increases in advertising expense
($18,100), donations ($3,000), FDIC & State assessments ($5,300), insurance
expense ($7,400), merchant credit card processing expense ($55,700), postage
expense ($4,300), subscriptions ($3,800), telephone expense ($3,200), travel
expense ($7,400); decreases in business development ($10,600), collection
expense ($12,800), miscellaneous expense ($11,600), SBA loan expense ($14,700).
LOANS
Loans represented 74.19% of average earning assets, and 63.64% of average
total assets for the six months ended June 30, 1997, compared with 74.87% and
64.12%, respectively during 1996. For the six months ended June 30, 1997
average loans increased 7.17% from $23,606,000 for the same period in 1996 to
$25,224,000. Average real estate loans increased $2,037,000 (16.87%),
installment loans decreased $188,000 (25.87%); while average commercial loans
decreased $161,000 (1.50%).
The Bank's commercial and industrial loans are generally made for the
purpose of providing working capital, financing the purchase of equipment or
inventory, and other business purposes. Such loans generally have terms ranging
from one year to several years. Short-term business loans are generally
intended to finance current transactions and typically provide for monthly
interest payments with principal being payable at maturity or at 90-day
intervals. Term loans (usually for a term of two to five years) normally provide
Page 14
<PAGE>
for monthly installments of principal and interest. The Bank from time to time
utilizes accounts receivable and inventory as security for loans.
The Bank is a recognized leader for Small Business Administration lending
in Monterey County, and holds SBA's coveted Preferred Lender Status. Generally,
the SBA guarantees SBA loans for 75 to 80 percent of their principal amount,
which can be retained in portfolio or sold to investors. Such loans are made at
floating interest rates, but generally for longer terms (up to 25 years) than
are available on a conventional basis to small businesses. The unguaranteed
portion of the loans, although generally supported by collateral, is considered
to be more risky than conventional commercial loans because they may be based
upon credit standards the Bank would not otherwise apply, such as lower cash
flow coverage, or longer repayment terms.
The Bank's real estate loan portfolio consists both of real estate
construction loans and real estate mortgage loans. The Bank has initiated a
program to generate more commercial and industrial real estate loans, which
generally yield higher returns than normal commercial loans. The Bank has also
developed a broker program for generating residential real estate loans. The
Bank does not make real estate development loans. Real estate construction
loans are made for a much shorter term, and often at higher interest rates, than
conventional single family residential real estate loans. The cost of
administering such loans is often higher than for other real estate loans, as
principal is drawn on periodically as construction progresses.
The Bank also makes real estate loans secured by a first deed of trust on
single family residential properties and commercial and industrial real estate.
California commercial banks are permitted, depending on the type and maturity of
the loan, to lend up to 90 percent of the fair market value of real property (or
more if the loan is insured either by private mortgage insurers or governmental
agencies). In certain instances, the appraised value may exceed the actual
amount, which could be realized on foreclosure, or declines in market value
subsequent to making the loan can impair the Bank's security.
Consumer loans are made for the purpose of financing the purchase of
various types of consumer goods, home improvement loans, auto loans and other
personal loans. Consumer installment loans generally provide for monthly
payments of principal and interest, at a fixed rate. Most of the Bank's
consumer installment loans are generally secured by the personal property being
purchased. The Bank generally makes consumer loans to those customers with a
prior banking relationship with the Bank.
Page 15
<PAGE>
NONPERFORMING AND NONACCRUAL LOANS
The Bank's present policy is to cease accruing interest on loans which are
past due as to principal or interest 90 days or more, except for loans which are
well secured or when collection of interest and principal is deemed likely.
When a loan is placed on non-accrual, previously accrued and unpaid interest is
generally reversed out of income unless adequate collateral from which to
collect the principal of, and interest on, the loan appears to be available.
The following table presents information with respect to loans which, as of
the dates indicated, were past due 90 days or more or were placed on non-accrual
status (referred to collectively as "non-performing loans"):
Six Months Ended
June 30,
1997 1996
--------- --------
(Dollars in thousands)
Accruing,
past due 90 days or more:
- -------------------------
Real Estate 195 0
Commercial 0 0
Installment 0 0
Other 0 0
--------- --------
Total accruing 195 0
Nonaccrual loans:
- -----------------
Real Estate 63 0
Commercial 87 82
Installment 28 0
Other 0 0
--------- --------
Total non-accrual 178 82
Total non-performing 310 82
Total loans end of period 25,809 25,304
Ratio of non-performing loans
to total loans at end of period 1.45% 0.32%
Page 16
<PAGE>
The ratio of non-performing loans at June 30, 1997 was significantly
impacted by one loan that represented 52.28% of the total non-performing loans.
These ratios have been maintained as a result of a strengthening of underwriting
criteria, frequent review of new and delinquent loans and a firm collection
policy (with the assistance of outside legal counsel). The Bank does not have
any foreign loans or loans for highly leveraged transactions.
SUMMARY OF LOAN LOSS EXPERIENCE
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
-------------- --------------
(Dollars in thousands)
Average loans outstanding 25,186 23,576
Allowance, beginning of period 253 225
Loans charged off during period:
Commercial 51 1
Installment 1 4
Real Estate 0 0
Other 0 0
--------- --------
Total charge offs 52 5
Recoveries during period:
Commercial 0 1
Installment 1 11
Other 0 0
--------- --------
Total recoveries 1 12
Net Loans charged off
during the period 51 (7)
Additions to allowance for
possible loan losses 60 25
Allowance, end of period 262 257
Ratio of net loans charged off to
average Loans outstanding
during the period 0.20% (0.03)%
Ratio of allowance to total
at end of period 1.01% 1.01%
Page 17
<PAGE>
FUNDING SOURCES
Average deposits for the six months ended June 30, 1997 were $34,876,000 an
increase of 10.81% compared with the average balance for 1996. Average
certificates of deposit represented 53.45% of average deposits for the six
months ended June 30, 1997. Average interest bearing checking, money market and
savings accounts as a group were 26.24% of average deposits. Average demand
deposits represented 20.33% of average deposits.
The Bank has a line of credit with the Federal Home Loan Bank of San
Francisco. Two advances from the Federal Home Loan Bank with initial terms of
more than one year totaled $3,000,000 at June 30, 1997. Each advance is for
$1,000,000 with interest rates of 4.88%, 6.53% and 6.81% and maturity dates of
October 1998, June 2000 and June 2004. Management believes that these advances
provide funds of medium duration at a lower cost than comparable deposits. The
Bank did not utilize any short-term borrowings in 1997, 1996 or 1995.
CAPITAL RESOURCES
The Bank maintains capital to comply with legal requirements, to provide a
margin of safety for its depositors and stockholders, and to provide for future
growth and the ability to pay dividends. At June 30, 1997, stockholders' equity
was $3,084,500 versus $2,898,200 at December 31, 1996. The Company paid a cash
dividend of $0.11 per share in 1996. The Bank paid cash dividends of $0.10 per
share in both 1995 and 1994.
The FDIC and Federal Reserve Board have adopted capital adequacy guidelines
for use in their examination and regulation of banks and bank holding companies.
If the capital of a bank or bank holding company falls below the minimum levels
established by these guidelines, it may be denied approval to acquire or
establish additional banks or non-bank businesses, or the FDIC or Federal
Reserve Board may take other administrative actions. The guidelines employ two
measures of capital: (1) risk-based capital and (2) leverage capital.
Under current rules, all banks were required to maintain Tier 1 capital of
at least 4 percent and total capital of 8.0% of risk-adjusted assets. The Bank
had a Tier 1 risk-based capital ratio of 10.64% and a total risk-based capital
ratio of 11.59% at June 30, 1997 well above the minimum regulatory
requirements.
The leverage capital ratio guidelines require a minimum leverage capital
ratio of 3% of Tier 1 capital to total assets less goodwill. The Bank had a
leverage capital ratio of 7.46% at June 30, 1997.
Page 18
<PAGE>
LIQUIDITY
Liquidity represents a bank's ability to provide sufficient cash flows or
cash resources in a manner that enables it to meet obligations in a timely
fashion and adequately provides for anticipated future cash needs. For the
Bank, liquidity considerations involve the capacity to meet expected and
potential requirements of depositors seeking access to balances and to provide
for the credit demands of borrowing customers. In the ordinary course of the
Bank's business, funds are generated from the repayment of loans, maturities
within the investment securities portfolio and the acquisition of deposit
balances and short-term borrowings. In addition, the Bank has a line of credit
from the Federal Home Loan Bank of San Francisco of approximately $3,350,000 to
meet temporary liquidity requirements.
As a matter of policy, the Bank seeks to maintain a level of liquid assets,
including marketable investment securities, equal to a least 15 percent of total
assets ("primary liquidity"), while maintaining sources of secondary liquidity
(borrowing lines from other institutions) equal to at least an additional 10
percent of assets. In addition, it seeks to generally limit loans to not more
than 90 percent of deposits. Within these ratios, the Bank generally has excess
funds available to sell as federal funds on a daily basis, and is able to fund
its own liquidity needs without the need of short-term borrowing. The Bank's
primary liquidity at June 30, 1997 was 29.29 percent, while its average loan to
deposit ratio for the six months ended June 30, 1997 was 72.33 percent. The
high level of liquidity has an adverse impact on interest income.
The following table sets forth the interest rate sensitivity distribution
of the Bank's interest-earning assets and interest-bearing liabilities as of
June 30, 1997, the Bank's interest rate sensitivity gap ratio (i.e., the
difference between interest rate sensitive assets and interest rate sensitive
liabilities divided by total assets) and the Bank's cumulative interest rate
sensitivity gap ratio. For purposes of the table, except for savings deposits
and money market, an asset or liability is considered rate sensitive within a
specified period when it matures or could be repriced within such period in
accordance with its contractual terms. More than all of the Bank's interest
rate sensitivity gap is offset by non-interest bearing sources of funds (demand
deposits and capital). Generally, a bank with a positive rate sensitivity gap
ratio can anticipate that increases in market rates of interest will have a
favorable impact on net interest income, while decreases will have unfavorable
impact. Banks with a negative interest rate sensitivity gap will experience the
reverse. The Bank's one year cumulative interest sensitivity gap of (3.17)
percent is within the generally accepted guideline of plus/(minus) 10 to 15
percent.
Page 19
<PAGE>
<TABLE>
<CAPTION>
After After
Three One
Months Year
But But
Within Within Within After
Three One Five Five
Months Year Years Years
------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest Earning Assets:
------------------------
Investment securities 500 --- --- 3,493
Federal Funds Sold 4,900 --- --- ---
Loans 11,323 2,049 7,885 4,212
------- ------- ------- -------
Total 16,723 2,049 7,885 7,705
Interest-Bearing Liabilities:
-----------------------------
Savings deposits 2,176 --- --- ---
Money Market accounts 6,708 --- --- ---
Certificates over $100,000 3,054 1,381 2,334 ---
Other time deposits 1,872 4,887 4,895 ---
Other Borrowings --- --- 2,000 1,000
------- ------- ------- -------
Total 13,811 6,269 9,228 1,000
Total Assets 41,272
Interest rate sensitivity gap 2,912 (4,220) (1,343) 6,705
Cumulative interest sensitivity gap 2,912 (1,308) (2,651) 4,054
Interest rate sensitivity gap ratio 7.06% (10.22)% (3.25)% 16.25%
Cumulative interest rate
sensitivity gap ratio 7.06% (3.17)% (6.42)% 9.82%
</TABLE>
Except as noted the table above indicates the time periods in which
interest-earning assets and interest-bearing liabilities will theoretically
mature or are otherwise subject to re-pricing in accordance with their
contractual terms. However, this table does not necessarily indicate the impact
of general interest rate movements on the Bank's net interest yield because the
re-pricing of various categories or assets and liabilities is discretionary and
is subject to competitive and other pressures. Therefore, various assets and
liabilities indicated as re-pricing within the same period may, in fact,
re-price at different times and at different interest rate levels.
Page 20
<PAGE>
The Corporation has no sources of revenues or liquidity other than
dividends, tax equalization payments or management fees from the Bank. The
ability of the Bank to pay such items to the Corporation is subject to
limitations under state and Federal law.
INVESTMENT SECURITIES
The following table sets forth the book and market value of the Bank's
investment securities at June 30, 1997:
INVESTMENT PORTFOLIO MIX
Book Market
value value
------ ------
(Dollars in thousands)
Available for sale:
Equity Securities 470 470
Held to maturity:
U.S. Treasury securities 500 500
U.S. Agency securities 3,993 3,958
------ ------
Total 4,963 4,928
The following table summarizes the maturity of the Bank's investment
securities at June 30, 1997:
INVESTMENT PORTFOLIO MATURITIES
(Dollars in thousands)
over 1 over 3 over 5
1 year through through through over
or less 3 years 5 years 15 years 15 years
--------- -------- -------- -------- --------
U.S. Treasury securities --- 500 --- --- ---
U.S. Agency securities --- --- --- 3,493 500
Equity Securities 470 --- --- --- ---
--------- -------- -------- -------- --------
Total 470 500 --- 3,493 500
Page 21
<PAGE>
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.
NORTHERN CALIFORNIA BANCORP, INC.
Date: August 6, 1997 By: /s/ Charles T. Chrietzberg, Jr.
-------------- --------------------------------
Charles T. Chrietzberg, Jr.
Chief Executive Officer
and President
Date: August 6, 1997 By: /s/ Bruce N. Warner
-------------- --------------------------------
Bruce N. Warner
Chief Financial Officer and
Principal Accounting Officer
Page 22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FROM
THE COMPANY FORM 10QSB FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,655,500
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 470,300
<INVESTMENTS-CARRYING> 4,493,000
<INVESTMENTS-MARKET> 4,458,000
<LOANS> 25,806,600
<ALLOWANCE> 262,300
<TOTAL-ASSETS> 41,271,600
<DEPOSITS> 34,804,900
<SHORT-TERM> 0
<LIABILITIES-OTHER> 382,200
<LONG-TERM> 3,000,000
0
0
<COMMON> 2,779,600
<OTHER-SE> 304,900
<TOTAL-LIABILITIES-AND-EQUITY> 41,271,600
<INTEREST-LOAN> 1,337,400
<INTEREST-INVEST> 270,800
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,608,200
<INTEREST-DEPOSIT> 635,300
<INTEREST-EXPENSE> 669,300
<INTEREST-INCOME-NET> 938,900
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,594,000
<INCOME-PRETAX> 175,600
<INCOME-PRE-EXTRAORDINARY> 175,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,700
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<YIELD-ACTUAL> 9.46
<LOANS-NON> 178,000
<LOANS-PAST> 195,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 484,400
<ALLOWANCE-OPEN> 253,500
<CHARGE-OFFS> 52,400
<RECOVERIES> 1,200
<ALLOWANCE-CLOSE> 262,300
<ALLOWANCE-DOMESTIC> 52,100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 210,200
</TABLE>
