<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 March 31, 2000
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: (831) 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 April 28, 2000, the Corporation had 1,112,641 shares of common
stock outstanding.
<PAGE>
NORTHERN CALIFORNIA BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
---------------------- -----------------------
ASSETS:
<S> <C> <C>
Cash and Cash Equivalents 6,459,600 10,745,200
Due From Bank - Time Deposits 100,000 200,000
Trading Assets 177,900 135,000
Investment Securities, available for sale (Note 1) 2,578,600 1,723,100
Investment Securities, held to maturity (Note 1) 10,090,000 9,290,300
Other Investments 40,000 40,000
Loans Held for Sale 976,800 665,300
Gross Loans (Note 2) 41,327,300 38,601,500
Allowance for Possible Loan Losses (Note 3) (424,300) (400,000)
Deferred Origination Fees (44,900) (49,400)
---------------------- -----------------------
Net Loans 40,858,100 38,152,100
Bank Premises and Equipment, Net 1,828,500 1,849,100
Interest Receivable and Other Assets 2,510,200 2,414,300
---------------------- -----------------------
Total Assets 65,619,700 65,214,400
====================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Total Deposits (Note 4) 55,984,400 55,562,600
Short-term Borrowing 800,000 750,000
Federal Home Loan Bank Borrowed Funds 4,000,000 4,000,000
Interest Payable and Other Liabilities 770,900 908,800
---------------------- -----------------------
Total Liabilities 61,555,300 61,221,400
---------------------- -----------------------
Shareholders' Equity:
Common Stock - No Par Value
Authorized: 2,500,000 in 2000 and 1999
Outstanding:1,112,641 in 2000 and 1,038,142 in 1999 3,395,400 3,395,400
Retained Earnings 719,400 659,600
Accumulated Other Comprehensive Income (Loss) (50,400) (62,000)
---------------------- -----------------------
Total Shareholders' Equity 4,064,400 3,993,000
---------------------- -----------------------
Total Liabilities & Shareholders' Equity 65,619,700 65,214,400
====================== =======================
</TABLE>
2
<PAGE>
NORTHERN CALIFORNIA BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 31
2000 1999
------------ ------------
INTEREST INCOME:
<S> <C> <C>
Interest and Fees on Loans 1,020,800 755,600
Interest on Time Deposits with
Financial Institutions 3,000 1,300
Interest on Investment Securities 175,500 99,300
Interest on Federal Funds 41,700 107,200
------------ ------------
Total Interest Income 1,241,000 963,400
------------ ------------
INTEREST EXPENSE:
Interest on Interest-Bearing
Transaction Accounts 27,000 28,200
Interest on Savings Accounts 13,400 18,900
Interest on Time Deposits 428,600 291,500
Interest on Other Borrowed Funds 80,500 60,500
------------ ------------
Total Interest Expense 549,500 399,100
------------ ------------
Net Interest Income 691,500 564,300
PROVISION FOR LOAN LOSSES 25,000 10,000
------------ ------------
Net Interest Income After
Provision for Possible Loan Losses 666,500 554,300
------------ ------------
NONINTEREST INCOME:
Service Charges on Deposit Accounts 107,500 93,100
SBA Loan Sales & Servicing Income 69,300 64,000
Other Operating Income 443,200 331,600
------------ ------------
Total Noninterest Income 620,000 488,700
------------ ------------
NONINTEREST EXPENSE:
Salaries and Employee Benefits 466,900 403,400
Occupancy and Equipment Expense 73,300 69,000
Professional Fees 19,400 18,500
Data Processing 62,100 50,100
FDIC & State Assessments 4,900 2,900
Other Operating Expenses 502,400 400,500
Income Tax Expense 35,900 22,100
------------ ------------
Total Non-interest Expense 1,164,900 966,500
------------ ------------
NET INCOME (LOSS) 121,600 76,500
============ ============
Earnings per common share
Primary 0.109 0.081
Diluted 0.095 0.065
</TABLE>
3
<PAGE>
NORTHERN CALIFORNIA BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
NET INCOME 121,600 76,500
Adjustments to net income:
Depreciation and amortization expense 31,000 36,900
Amortization/Accretion on investments (400) 1,900
Provision for possible loan losses 25,000 10,000
Increase in deferred servicing premium (5,900) 2,800
Amortization of deferred servicing premium 12,600 100
Amortization of deferred income (500) (1,200)
Increase (decrease) in accrued expenses (72,600) (219,900)
(Increase) decrease in other assets 1,221,800 (326,500)
Increase (decrease) in interest payable (64,900) (120,300)
(Increase) decrease in interest receivable 64,000 33,400
---------------- ----------------
Total adjustments to net income 1,210,100 (582,800)
================ ================
Net cash provided (used) by operations 1,331,700 (506,300)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of due from time 0 100,000
Proceeds from maturity of due from time 100,000 0
Proceeds from maturity of investments 100,000 0
Principal payments on investments 151,700 0
Purchase of securities (1,849,400) (1,007,300)
Net (increase) decrease in loans (3,155,300) (658,100)
(Increase) decrease in loans held for sale (311,500) 137,000
Capital expenditures (10,400) (16,200)
Stock Repurchase 0 (4,400)
---------------- ----------------
Net cash provided (used) in investing activities (5,074,900) (1,549,000)
================ ================
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 421,900 2,849,400
Net increase (decrease) in borrowed funds 50,000 0
---------------- ----------------
Net cash provided (used) by financing activities 471,900 2,849,400
================ ================
Net increase (decrease) in cash & cash equivalents (3,221,500) 794,100
Cash & cash equivalents - beginning of year 10,745,200 12,529,900
================ ================
Cash & cash equivalents - end of period 7,523,700 13,324,000
</TABLE>
4
See Note 5 for supplemental disclosures
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
----------------- ------------------
(NOTE 1) INVESTMENT SECURITIES:
<S> <C> <C>
Available for sale:
U.S. Government Agencies 1,974,800 967,600
Other Securities 643,800 755,500
================= ==================
2,618,600 1,723,100
Held to maturity:
US Government Securities 2,499,400 2,499,400
State and Local Agency Securities 7,590,600 6,790,900
----------------- ------------------
10,090,000 9,290,300
================= ==================
(NOTE 2) GROSS LOANS:
Commercial and Industrial 11,046,200 10,718,500
Construction 3,452,100 3,459,000
Real Estate - Mortgage 26,306,900 23,787,600
Installment 378,900 491,500
Government Guaranteed Loans Purchased 143,200 144,900
----------------- ------------------
Gross Loans 41,327,300 38,601,500
(NOTE 3) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Balance at Beginning of Period 400,000 336,200
Recoveries 2,100 18,100
Provision for Possible Loan Losses 25,000 174,200
Loans Charged Off (2,800) (128,500)
----------------- ------------------
Balance at End of Period 424,300 400,000
(NOTE 4) DEPOSITS:
Demand 13,426,800 11,792,700
Interest-Bearing Transaction 10,481,500 9,519,200
Savings 2,202,800 2,470,900
Time Under $100,000 18,848,400 19,143,100
Time Equal to or Greater than $100,000 11,024,900 12,636,700
----------------- ------------------
55,984,400 55,562,600
(NOTE 5) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Payments during the period ending: 3/31/00 3/31/99
----------------- ------------------
Interest 549,500 399,100
</TABLE>
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 had no activities other than its
organization.
For the three months ended March 31, 2000 net income was $121,600,
compared to $76,500 for the same period in 1999. For the three months ended
March 31, 2000 interest income after provision for loan losses increased
$112,200, non-interest income increased $131,300, while non-interest expense
increased $198,400.
6
<PAGE>
The following table sets forth certain selected financial ratios of the
Corporation at and for the three months ended, March 31, 2000 and 1999.
<TABLE>
<CAPTION>
THE THREE MONTHS THE THREE MONTHS
ENDED MARCH 31, 2000 ENDED MARCH 31, 1999
------------------------ ---------------------
(Dollars in thousands except per share data)
Summary of Operating
Results:
<S> <C> <C>
Total interest income 1,241 963
Total interest expense 550 399
---------------- ----------------
Net interest income 692 564
Provision for possible
loan losses 25 10
--------------- ----------------
Net interest income after
provision for loan loss 667 554
Total other income 620 489
Total other expense 1,129 944
--------------- ---------------
Income (loss) before taxes 158 98
Provision for income tax 36 22
--------------- ---------------
Net income (loss) 122 76
Per Common Share
Data:
Net income - Primary (1) 0.109 0.073
Net income - Diluted (2) 0.095 0.060
Book value, end of period (3) 3.65 3.73
Avg shares outstanding (4) 1,112,641 1,039,138
Balance Sheet
Data:
Total loans, net of
unearned income (5) 42,259 28,721
Total assets 65,620 53,677
Total deposits 55,987 47,701
Stockholders' equity (6) 4,064 3,502
</TABLE>
7
<PAGE>
<TABLE>
THE THREE MONTHS THE THREE MONTHS
ENDED MARCH 31, 2000 ENDED MARCH 31, 1999
------------------------ ---------------------
Selected Financial Ratios (4):
<S> <C> <C>
Return on average assets (5) 0.76% 0.47%
Return on average
stockholders' equity (5) 12.03% 7.56%
Net interest spread 4.63% 4.25%
Net interest margin 5.30% 4.95%
Avg shareholders' equity
to average assets 6.28% 6.28%
Risked-Based capital ratios
Tier 1 9.46% 9.29%
Total 10.33% 10.11%
Total loans to total deposits
at end of period 75.48% 60.21%
Allowance to total loans
at end of period 1.00% 1.03%
Nonperforming loans to total
loans at end of period 0.21% 0.44%
Net charge-offs to
average loans 0.01% 0.19%
</TABLE>
(1) Primary earnings per share amounts were computed on the basis of the
weighted average number of shares of common stock outstanding during the
year. The weighted average number of common shares used for this
computation was 1,112,641 and 1,039,137 for March 31, 2000 and 1999,
respectively.
(2) Diluted 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
director/employee stock options. The weighted average number of shares used
for this computation was 1,279,668 and 1,274,696 for March 31, 2000 and
1999, respectively.
(3) Includes loans being held for sale.
(4) Averages are of daily balances.
(5) March 31, 2000 calculated on an annualized basis.
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 three months ended March 31, 2000 was
$691,500 compared to $564,300 for the same period in 1999. The increase of
$127,200 resulted from total interest income increasing $277,600, while total
interest expense increased $150,400. Average interest earning assets increased
$6,808,000 (14.91%), while the average rate earned decreased 70 basis points.
Average interest bearing liabilities increased $8,849,000 (23.27%), while the
average rate paid increased 40 basis points, reflecting decreases in certificate
of deposit rates.
The following table shows the components of the Bank's net interest
income, setting forth, for each the three months ended March 31, 2000 and 1999,
(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 computed on a tax-equivalent basis,
resulting in adjustments to interest earned on non-taxable securities of $47,300
and $32,300 for the three months ended March 31, 2000 and 1999, respectively.
Non-accrual loans and overdrafts are included in average loan balances. Average
loans are presented net of unearned income.
9
<PAGE>
INTEREST SPREAD ANALYSIS:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
2000 1999 1999
-------------------------- ---------------------- ------------------------
INT AVG INT AVG INT AVG
AVG EARN % AVG EARN % AVG EARN %
BAL PAID RATE BAL PAID RATE BAL PAID RATE
-------------------------- ---------------------- ------------------------
(Dollars in thousands)
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Int-bearing deposits
at other banks 179 3 6.63 131 2 5.19 183 9 5.08
Invest securities - Taxable 4,760 84 7.04 2,507 40 6.31 3,434 221 6.45
Invest securities - Non-Taxable 7,200 139 7.73 4,764 92 7.74 6,063 463 7.63
Federal funds sold 2,928 42 5.69 9,248 107 4.64 5,627 278 4.94
---------------------------- -------------------------- ----------------------------
Total investments 15,067 267 7.10 16,650 241 5.78 15,307 971 6.35
Loans
Construction 3399 81 9.50 730 23 12.40 1,977 175 8.86
Real estate 25,018 583 9.31 15,345 379 9.88 18,727 1,668 8.91
Installment 376 10 10.53 338 10 12.04 407 53 13.05
Commercial 11,976 348 11.61 12,582 344 10.93 13,004 1,317 10.12
---------------------------- -------------------------- ----------------------------
Total loans 40,768 1,021 10.02 28,993 733 10.11 34,115 3,213 9.42
Total Interest
earning assets 55,835 1,288 9.23 45,644 974 8.53 49,422 4,184 8.47
============================ ========================== ============================
Interest Bearing Liabilities:
Int-bearing demand 8,026 19 0.97 7,847 21 1.05 7,785 79 1.01
Money market savings 1,578 7 1.81 1,562 8 1.92 1,634 31 1.88
Savings deposits 2,718 13 1.97 3,718 19 2.04 3,463 68 1.95
Time deposits > $100M 11,548 162 5.61 8,213 114 5.55 9,404 524 5.57
Time deposits < $100M 19,025 267 5.61 12,686 178 5.60 14,682 815 5.55
Other Borrowing 4,778 80 6.67 4,000 60 6.05 4,438 273 6.14
---------------------------- -------------------------- ----------------------------
Total interest
bearing liabilities 47,674 548 4.60 38,026 399 4.20 41,404 1,788 4.32
============================ ========================== ============================
Net interest income 740 575 2,396
Net interest spread 4.63 4.33 4.15
Net yield on interest
earning assets 5.30 5.03 4.85
</TABLE>
10
<PAGE>
INTEREST SPREAD ANALYSIS (Continued):
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
2000 VS 1999 1999 VS 1998
---------------- ----------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES DUE TO CHANGES
---------------- ----------------
AVG AVG AVG AVG
VOLUME RATE TOTAL VOLUME RATE TOTAL
------------------------------ -----------------------------
(Dollars in thousands)
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Int-bearing deposits
at other banks 2 0 2 5 (2) 3
Invest securities 36 9 44 (14) (14) (28)
Federal funds sold (73) 8 (66) (8) (31) (39)
-------------------------- ------------------------------
Total investments (23) 50 27 85 (45) 40
Loans
Real estate 239 (35) 203 423 (271) 152
Installment 1 (1) (0) (12) 4 (8)
Commercial (17) 20 4 83 (145) (62)
-------------------------- ------------------------------
Total loans 298 (10) 288 722 (465) 257
Total Interest Earning Assets 217 97 315 748 (451) 297
========================== ==============================
Interest Bearing Deposits:
Int-bearing demand 0 (2) (1) 19 (12) 6
Money market savings 0 (0) (0) 0 (7) (7)
Savings deposits (5) (0) (6) 14 (9) 4
Time deposits > $100M 46 2 48 80 (28) 52
Time deposits < $100M 89 0 89 156 (53) 102
Other Borrowing 12 7 19 26 1 27
-------------------------- ------------------------------
Total interest bearing liabilities 101 48 149 306 (121) 185
========================== ==============================
Net change in net interest 116 49 165 442 (330) 112
</TABLE>
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 set aside for the specific purpose of absorbing losses that
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%
Real Estate - Construction 0.15%
Loans to Individuals 3.00%
Commercial 3.00%
SBA Loans - Unguaranteed portion 2.00%
Unfunded Loan Commitments .25%
SBA Loans - Guaranteed portion 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 March 31, 2000 and 1999 the Bank's allowance stood at 1.00
percent and 1.03 percent of gross loans, respectively. A provision of $25,000
was made to the allowance during the three months ended March 31, 2000, compared
with a provision of $10,000 due the same period in 1999. Loans charged off
during the three months ended March 31, 2000, totaled $2,800, compared to
$56,300 in the same period of 1999. Recoveries for the same periods were $2,100
and $6,500, respectively.
12
<PAGE>
The Bank's non-performing (delinquent 90 days or more and non-accrual)
loans as a percentage of total loans were .21 percent at March 31, 2000 compared
with .44 percent for the same period in 1999.
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 three months ended March 31, 2000 was
$620,000, compared with $488,700 for the same period in 1999. The increase of
$131,300 was the result of service charges on deposit accounts increasing
$14,400, income from SBA loan sales and servicing increased $5,300 and income
from other service charges, commissions and fees increased $111,600. Increased
merchant services fees accounted for $84,400 of 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.
13
<PAGE>
NON-INTEREST EXPENSE
Salary and benefits expense for the three months ended March 31, 2000
increased $63,500 compared with the same period in 1999. The increase was due to
the addition of one staff position, employee merit pay increases and bonus
accruals.
Total occupancy and equipment expense for the three months ended
March 31, 2000 was $73,300 compared to $69,000 for the same period in 1999.
For the three months ended March 31, 2000 professional fees were the
same as the amount reported for the same period in 1999.
Data processing expense for the three months ended March 31, 2000 was
$62,100 compared to $50,100 for the same period in 1999. The increase was due to
increased numbers of accounts and transaction volumes, and cost of living
adjustments.
Other expenses for the three months ended March 31, 2000 totaled
$543,200 compared with $425,400 for the same period in 1999. Significant changes
occurred in the following categories with increases in advertising ($11,700),
auto expense ($2,800), bank fees ($4,000), business development ($4,100),
donations ($5,800), FDIC & State assessments ($2,000), meals/entertainment
($2,900), merchant expense ($83,200), stationary/supply expense ($4,800), poppy
account expense ($3,100), telephone expense ($2,100), taxes ($13,800) and
decreases in insurance expense ($2,800) and operational losses ($12,000).
LOANS
Loans represented 71.29% of average earning assets, and 58.15% of
average total assets for the three months ended March 31, 2000, compared with
63.55% and 58.15%, respectively during 1999. For the three months ended March
31, 2000, average loans increased 28.91% from $29,023,000 for the same period in
1999 to $37,414,000. Average construction loans increased $2,669,000 (365.62%)
real estate loans increased $9,673,000 (63.04%), installment loans increased
$38,000 (11.27%); while average commercial loans decreased $1,320,000 (9.89%).
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 maturities
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
for monthly installments of principal and interest. The Bank from time to time
utilizes accounts receivable and inventory as security for loans.
14
<PAGE>
The Bank is a recognized leader for Small Business Administration
lending in Monterey County, and holds SBA's coveted Preferred Lender Status.
Generally, SBA loans are guaranteed, by the SBA, 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 that 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.
NON-PERFORMING AND NON-ACCRUAL 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"):
15
<PAGE>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- -----------
(Dollars in thousands)
ACCRUING,
PAST DUE 90 DAYS OR MORE:
Real Estate 63 70
Commercial 0 0
Installment 0 0
Other 0 0
------------- ------------
Total accruing 63 70
Nonaccrual Loans:
Commercial 25 57
Installment 0 0
Other 0 0
------------- ------------
Total nonaccrual 25 57
Total nonperforming 88 127
Total loans end of period 42,259 28,721
Ratio of nonperforming loans
to total loans at end of period 0.21% 0.44%
These ratios have been maintained as a result of conservative
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.
16
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
----------- ------------
(Dollars in thousands)
<S> <C> <C>
Average loans outstanding 34,115 28,993
Allowance, beginning of period 400 336
Loans charged off during period:
Commercial 1 56
Installment 2 0
Real Estate 0 0
Other 0 0
---------- ----------
Total charge offs 3 56
Recoveries during period:
Commercial 2 3
Installment 0 4
Other 0 0
---------- ----------
Total recoveries 2 7
Net Loans charged off
during the period 1 50
Additions to allowance for
possible loan losses 25 10
Allowance, end of period 424 296
Ratio of net loans charged off to average
loans outstanding during the period 0.00% 0.17%
Ratio of allowance to total
loans at end of period 1.00% 1.03%
</TABLE>
17
<PAGE>
FUNDING SOURCES
The Corporation has a line of credit, in the amount of $1,000,000, from
the Pacific Coast Bankers' Bank. The line of credit has an interest rate of Wall
Street Journal Prime Rate plus seventy five (75) basis points and is secured by
518,884 shares of Monterey County Bank common stock. At March 31, 2000 $800,000
had been advanced on the line of credit.
Average deposits for the three months ended March 31, 2000 were
$54,742,000 an increase of 24.99% compared with the same period in 1999. Average
certificates of deposit represented 55.82% of average deposits for the three
months ended March 31, 2000. Average interest bearing checking, money market and
savings accounts as a group was 22.50% of average deposits. Average demand
deposits represented 21.68% of average deposits.
The Bank has lines of credit from the Federal Reserve Bank of San
Francisco, the Federal Home Loan Bank of San Francisco and Pacific Coast
Bankers' Bank with maximum borrowing limits on March 31, 2000 of $5,950,000,
$7,225,000 and $1,000,000, respectively. The Federal Reserve Bank line of credit
is secured by certain of the Bank's municipal securities. The Federal Home Loan
Bank line of credit is secured by certain of the Bank's real estate secured
loans and investment securities. At March 31, 2000 the Bank had four $1,000,000
advances which bear interest at 6.53%, 4.83%, 6.81% and 6.36%, respectively. The
advances mature in June 2000, October 2003, June 2004 and January 2028,
respectively. The Pacific Coast Bankers' Bank line of credit is unsecured. The
Bank did not utilize any short-term borrowings in 2000, 1999 or 1998.
CAPITAL RESOURCES
The Company 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 March 31, 2000,
stockholders' equity was $4,064,400 versus $3,993,000 at December 31, 1999. The
Company paid a ten (10%) percent stock dividend in 1999 and1998, and a cash
dividend of $0.12 1997. The Bank paid cash dividends totaling $50,000, $50,000
and $170,000 to the Corporation in 1999, 1998 and 1997.
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.
18
<PAGE>
Under current rules, all banks are 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 9.46% and a total risk-based
capital ratio of 10.33% at March 31, 2000, 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 7.56% March 31, 2000.
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 lines of credit from the
Federal Reserve Bank of San Francisco of approximately $5,950,000, the Federal
Home Loan Bank of San Francisco of approximately $7,225,000 and a $1,000,000
federal funds line of credit with the Pacific Coast Bankers' Bank 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 10 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 March 31, 2000 was 11.97, while its average loan
to deposit ratio for the three months ended March 31, 2000 was 68.35 percent.
INTEREST RATE RISK
Management of interest rate sensitivity (asset/liability management)
involves matching and repricing rates of interest-earning assets with
interest-bearing liabilities in a manner designed to optimize net interest
income within the constraints imposed by regulatory authorities, liquidity
determinations and capital considerations. The Bank instituted formal
asset/liability policies at the end of 1989.
The purpose for asset/liability management is to provide stable net
interest income growth by protecting the Bank's earnings from undue interest
rate risk. The Bank expects to generate earnings from increasing loan volume,
appropriate loan pricing and expense control and not from trying to accurately
forecast interest rates. Another important function of asset/liability
management is managing the risk/return relationships
19
<PAGE>
between interest rate risk, liquidity, market risk and capital adequacy. The
Bank gives priority to liquidity concerns followed by capital adequacy, then
interest rate risk and market risk in the investment portfolio. The policy of
the Bank will be to control the exposure of the Bank's earnings to changing
interest rates by generally maintaining a position within a narrow range around
an "earnings neutral position." An earnings neutral position is defined as the
mix of assets and liabilities that generate a net interest margin that is not
affected by interest rate changes. However, Management does not believe that the
Bank can maintain a totally earnings neutral position. Further, the actual
timing of repricing of assets and liabilities does not always correspond to the
timing assumed by the Bank for analytical purposes. Therefore, changes in market
rates of interest will generally impact on the Bank's net interest income and
net interest margin for long or short periods of time.
The Bank monitors its interest rate risk on a quarterly basis through
the use of a model which calculates the effect on earnings of changes in the fed
funds rate. The model converts a fed funds rate change into rate changes for
each major class of asset and liability, then simulates the bank's net interest
margin based on the bank's actual repricing over a one year period, assuming
that maturities are reinvested in instruments identical to those maturing during
the period. At March 31, 2000 the affect of a 2% increase in the federal funds
sold rate, expressed, as a percentage of equity, was a positive 1.5%, while a 2%
decrease in the fed funds rate was a negative 3.9% of equity.
The Corporation's sources of revenues and liquidity are the dividends,
tax equalization payments or management fees from the Bank, gains on securities
held in a trading account and the line of credit from the Pacific Coast Bankers'
Bank. The ability of the Bank to pay such items to the Corporation is subject to
limitations under state and Federal law.
20
<PAGE>
INVESTMENT SECURITIES
The following table sets forth the book and market value of the Bank's
investment securities at March 31, 2000:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO MIX
MARCH 31, 2000
BOOK MARKET
VALUE VALUE
-------- --------
<S> <C> <C>
Available for sale:
Federal Home Loan Bank Stock 254 254
Pacific Coast Bankers' Bank Stock 350 350
Community Bankers' Insurance Agency, LLC 40 40
U.S. Government Agencies 2,000 1,975
----------- ----------
Total 2,644 2,619
=========== ==========
Held to maturity:
State and Local Agencies 7,591 6,145
U.S. Government Agencies 2,499 2,391
----------- ----------
Total 10,090 8,536
=========== ==========
</TABLE>
The following table summarizes the maturity of the Bank's investment
securities at March 31, 2000:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO MATURITIES
(Dollars in thousands)
over 1 over 5
1 year through through over 10
or less 5 years 10 years years
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
U.S. Government Agency Securities --- --- 1,500 2,999
State and Local Agency Securities --- --- --- 7,591
Other Securities 604 --- --- ---
----------- ----------- -------------- -----------
Total 604 --- 1,500 10,590
</TABLE>
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: May 5, 2000 By: /s/ Charles T. Chrietzberg, Jr.
------------ ---------------------------------------
Charles T. Chrietzberg, Jr.
Chief Executive Officer
and President
Date: May 5, 2000 By: /s/ Bruce N. Warner
------------ ---------------------------------------
Bruce N. Warner
Chief Financial Officer and
Principal Accounting Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FROM THE
COMPANY FORM 10-QSB FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,129,600
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 2,330,000
<TRADING-ASSETS> 177,900
<INVESTMENTS-HELD-FOR-SALE> 2,618,600
<INVESTMENTS-CARRYING> 10,090,000
<INVESTMENTS-MARKET> 8,536,000
<LOANS> 42,259,200
<ALLOWANCE> 424,300
<TOTAL-ASSETS> 65,619,700
<DEPOSITS> 55,984,400
<SHORT-TERM> 800,000
<LIABILITIES-OTHER> 770,900
<LONG-TERM> 4,000,000
0
0
<COMMON> 3,395,400
<OTHER-SE> 669,000
<TOTAL-LIABILITIES-AND-EQUITY> 65,619,700
<INTEREST-LOAN> 1,020,800
<INTEREST-INVEST> 220,200
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,241,000
<INTEREST-DEPOSIT> 469,000
<INTEREST-EXPENSE> 549,500
<INTEREST-INCOME-NET> 691,500
<LOAN-LOSSES> 25,000
<SECURITIES-GAINS> 10,400
<EXPENSE-OTHER> 1,129,000
<INCOME-PRETAX> 157,500
<INCOME-PRE-EXTRAORDINARY> 157,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,600
<EPS-BASIC> .109
<EPS-DILUTED> .095
<YIELD-ACTUAL> 5.30
<LOANS-NON> 83,700
<LOANS-PAST> 62,900
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 119,100
<ALLOWANCE-OPEN> 400,000
<CHARGE-OFFS> 2,800
<RECOVERIES> 2,100
<ALLOWANCE-CLOSE> 424,300
<ALLOWANCE-DOMESTIC> 10,300
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 414,000
</TABLE>
