<PAGE>
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 March 31, 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 333-16951
BSM BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA NO. 77-0442667
(State or other jurisdiction of incorporation) (IRS Employer Identification
No.)
2739 Santa Maria Way, Santa Maria, California 93455
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 937-8551
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) Yes [X] and (2) has been subject to such
filing requirements for the past 90 days. Yes[ ] No[X]
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 8, 1998, there were 3,008,039 shares of BSM Bancorp Common Stock
outstanding.
1
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BSM BANCORP
March 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income for the three months ended
March 31, 1998 and 1997.................................... 4
Consolidated Statements of Changes in Financial Position for the three
months ended March 31, 1998 and 1997....................... 5
Notes to Consolidated Financial Statements............................ 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 7
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................ 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BSM BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Cash and due from banks $ 17,071,041 $ 18,472,719
Federal funds sold 14,193,000 7,461,000
-------------- -----------------
Cash and cash equivalents 31,264,041 25,933,719
Investments:
Securities available-for-sale 37,988,019 46,143,134
Securities held-to-maturity (market value of 59,790,997 62,767,464
$60,083,146 and $63,074,004, respectively)
Loans, net of unearned income 190,373,942 191,345,824
Allowance for loan losses (2,222,012) (2,114,684)
-------------- -----------------
Net loans 188,151,930 189,231,140
Premises and equipment 12,449,449 12,709,127
Accrued interest receivable and other assets 6,226,468 7,261,032
-------------- -----------------
Total Assets $335,870,904 $344,045,616
-------------- -----------------
-------------- -----------------
LIABILITIES
Deposits:
Noninterest-bearing demand $ 66,391,747 $ 74,450,817
Interest-bearing demand and savings 112,107,922 114,900,337
Time deposits under $100,000 80,200,490 78,951,276
Time deposits $100,000 or more 39,704,490 37,989,170
-------------- -----------------
Total deposits 298,404,649 306,291,600
Accrued interest payable and other liabilities 1,161,138 1,691,788
-------------- -----------------
Total liabilities 299,565,787 307,983,388
-------------- -----------------
Shareholders' equity:
Common stock, 50,000,000 authorized;
Issued and outstanding
3,007,639 as of March 31, 1998
2,975,139 as of December 31, 1997 11,753,864 11,636,514
Undivided profits 24,449,356 24,339,778
Valuation of securities available-for-sale, net of tax 101,897 85,936
-------------- -----------------
Total capital 36,305,117 36,062,228
-------------- -----------------
Total Liabilities & Capital $335,870,904 $344,045,616
-------------- -----------------
-------------- -----------------
</TABLE>
3
<PAGE>
BSM BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31,
-----------------------------
1998 1997
------------ ----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,855,521 $4,609,041
Interest on investment securities-taxable 1,098,451 1,133,586
Interest on investment securities-nontaxable 333,077 164,034
Other interest income 99,749 134,539
---------- ----------
TOTAL INTEREST INCOME 6,386,798 6,041,200
---------- ----------
INTEREST EXPENSE:
Interest on demand and savings deposits 607,048 582,078
Interest on time deposits 1,565,404 1,430,170
---------- ----------
TOTAL INTEREST EXPENSE 2,172,452 2,012,248
NET INTEREST INCOME BEFORE PROVISION 4,214,346 4,028,952
---------- ----------
Less: Provision for loan losses 150,000 30,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION 4,064,346 3,998,952
OTHER OPERATING INCOME:
Service charges and fees 487,177 481,336
Other noninterest income 471,842 354,786
---------- ----------
TOTAL OTHER OPERATING INCOME 959,019 836,122
---------- ----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,911,598 1,841,442
Occupancy expenses 255,604 239,514
Furniture and equipment 346,164 360,306
Advertising and promotion 168,951 152,456
Professional expenses 72,407 83,811
Office expenses 200,543 161,532
Merchant processing costs 141,798 118,588
Other expenses 353,691 409,662
---------- ----------
TOTAL OTHER OPERATING EXPENSES 3,450,756 3,367,311
---------- ----------
Income before taxes 1,572,609 1,467,763
Provision for income taxes 562,000 552,800
---------- ----------
NET INCOME $1,010,609 $914,963
---------- ----------
---------- ----------
EARNING PER SHARE - BASIC $0.34 $0.31
EARNING PER SHARE - DILUTED $0.33 $0.30
</TABLE>
4
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BSM BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31,
--------------------------
1998 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,010,609 $914,963
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 293,943 294,824
Provision for credit losses 150,000 30,000
Net amortization of premium/discounts-investments 45,054 98,890
Loans originated for sale (1,665,800) (1,320,141)
Proceeds from loan sales 1,988,800 1,284,479
Net loss (gain) from sale of fixed assets (80) (45,582)
Net loss (gain) from sale other real estate loans 18,429 48,187
Net change in accrued interest, other assets and other liabilities 330,687 72,732
--------- ---------
Net cash provided by operating activities 2,171,642 1,378,352
INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 4,840,462 6,458,077
Proceeds from maturities of securities available for sale 8,500,000 2,173,000
Purchases of held-to-maturity securities (1,927,332) (4,442,359)
Purchases of available-for-sale securities (300,000) (4,976,963)
Net decrease in loans 631,210 5,555,660
Purchases of premises and equipment (34,265) (1,043,271)
Proceeds from the sale of other real estate owned 119,157 375,215
Proceeds for the sale of equipment 80 49,385
Net cash provided (used) by investing activities 11,829,312 4,148,744
FINANCING ACTIVITIES
Net decrease in demand and savings deposits (9,085,107) (10,851,573)
Net increase in time deposits 1,198,156 1,198,156
Payments for dividends/distributions (901,031) (446,001)
Proceeds from the exercise of stock options 117,350 32,201
----------- ------------
Net cash provided (used) by financing activities (8,670,632) (10,067,217)
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,330,322 (4,540,121)
----------- ------------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 25,933,719 31,563,554
----------- ------------
CASH AND CASH EQUIVALENTS, MARCH 31, $31,264,041 $27,023,433
----------- ------------
----------- ------------
Cash paid during the year for interest 2,070,687 2,038,648
Cash paid during the year for income taxes 0 433,100
</TABLE>
5
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BSM BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
BSM Bancorp (the "Company") was incorporated on November 12, 1996, for the
sole purpose of becoming a bank holding company for Bank of Santa Maria (the
"Bank"). Following regulatory consent and with the approval of the Bank's
shareholders, the Bank merged with BSM Merger Company (a wholly-owned
subsidiary of the Company) (the "Merger"), as of the close of business on
March 11, 1997, and thereby became a wholly-owned subsidiary of the Company.
As of December 31, 1996, the Company had only one shareholder and it had no
SEC nor Federal Reserve Bank reporting requirements. Following completion of
the Merger, the Company is required to file periodic reports under section
15(d) of the Exchange Act. A quarterly report on Form 10Q was filed on March
31, 1997, for the first time. As the Merger was recorded using the pooling
of interest method, restatement of prior balances was necessary to meet
accounting standards. Accordingly, the financial statements herein contain
balances prior to the actual existence of the Company which reflect what the
"consolidated" entity would have reported as restated for all acquisitions,
either recorded by pooling or purchase accounting.
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-Q. On March 18, 1998, the Company filed a Form 8-A
to register the Company Common Stock pursuant to 12(g) of the Exchange Act of
1934, thereby becoming subject to its requirements.
The accompanying consolidated balance sheets, consolidated statements of
income, and consolidated statements of changes in financial position (as
restated subsequent to Merger of the Bank of Santa Maria by the Company),
reflect all material adjustments necessary for fair presentation of the
Company's financial position as of March 31, 1998, and December 31, 1997,
and the results of operations for the three months ended March 31, 1998 and
1997. All such adjustments were of a normal recurring nature.
NOTE 2 - EARNINGS PER SHARE
The following is a reconciliation of net income and shares outstanding to the
income and number of shares used to compute Earnings Per Share (EPS).
<TABLE>
<CAPTION>
Three Month Period Ended Three Month Period Ended
March 31, 1998 March 31, 1997
Income Shares Income Shares
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net income as reported $1,010,609 $914,963
Shares outstanding at period end 3,007,639 2,975,139
Impact of weighted shares purchased
during three month period (3,002) (1,276)
---------- ---------- -------- ----------
Used in basis EPS 1,010,609 3,004,637 914,963 2,974,863
Dilutive effect of stock options 63,299 41,769
---------- ---------- -------- ----------
Used in dilutive EPS $1,101,609 3,067,936 $914,963 3,015,632
---------- ---------- -------- ----------
---------- ---------- -------- ----------
</TABLE>
6
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
For the three months ended March 31, 1998, the Company reported net income of
$1,011,000, or $.34 per share compared to a net income of $915,000, or $.31
per share for the same three month period in 1997. The annualized return on
average assets was 1.22% for 1998, compared to 1.20% for 1997. Annualized
return on average shareholders' equity for 1998 and 1997, was 11.36% and
11.28% respectively.
On January 30, 1998, the Company and Mid-State Bank announced the signing of
an Agreement to Merge and Plan of Reorganization on January 27, 1998 (as
amended on March 18, 1998), pursuant to which the Bank of Santa Maria, the
Company's wholly-owned subsidiary, would be merged with and into Mid-State
Bank and become the subsidiary of the Company. Upon consummation of the
merger, Mid-State will become the surviving bank and the name of the Company
will be changed from BSM Bancorp to Mid-State Bancshares. As part of the
Agreement, three of the existing directors of the Company/Bank, including the
Company's Chairman and President, will continue as directors of the Company
and will be appointed as directors of Mid-State Bank. The remaining
directors of the Company will resign with the vacancies to be filled by the
seven existing directors of Mid-State Bank. The Company President will be
named as an Executive Vice President of the merged bank as well as an
Executive Vice President of the Company. The Executive Officers of Mid-State
will be appointed as the Executive Officers of both the Company and the Bank
following the resignation of the Company/Bank's current executive officers.
The signing of this Agreement, along with the Agreement itself, were reported
to the SEC on February 4, 1998, on a Form 8-K. On March 18, 1998, the Company
filed (with the SEC) a registration statement on Form S-4, and the Company is
hopeful the registration statement will be declared effective by May 14,
1998. The Company intends to hold its 1998 Annual Shareholders Meeting on
June 18,1998. The merger is intended to close during the third quarter of
1998, subject to the approval of government regulatory agencies and the
shareholders of both the Company and Mid-State Bank.
FINANCIAL CONDITION
Historically, the Company experiences a first quarter decline in total
assets, loans and deposits primarily due to timing of cash flows form the
Company's agricultural customers. Total assets as of March 31, 1998,
decreased 2.4% to $335.9 million in comparison to total assets of $344.0
million as of December 31, 1997. Comparable asset totals for the first three
months of 1997, recorded a 3.1% decrease. Cash and cash equivalents
increased by $5.3 million with funds provided primarily by the maturation of
investment securities. Total investment dollars decreased by 10.3% to $97.8
million as of March 31, 1998. Loans declined by $1.0 million during the
first three months of 1998, compared to a $5.6 million decline during the
same period in 1997. The percentage of decline was .5% for 1998, versus a
decline of 3.1% for 1997.
There were no material purchases of fixed assets during the first quarter of
1998. The Bank's cash flow continued to benefit from several sales of other
real estate owned properties during the first quarter.
Deposits decreased by $7.9 million during the first three months of 1998, in
comparison to a $9.6 million decline during the same period in 1997. The
percentage of decrease was 2.6% for 1998, versus 3.4% decline in 1997. The
larger 1997 decline appears to be attributable to the runoff of deposit
dollars associated with the acquisition of El Camino National Bank in January
of 1997. A certain level of runoff was anticipated by Company management.
The Bank, prior to its acquisition by the Company, paid semi-annual
dividends, a policy which was first implemented in mid 1996. During the
first quarter of 1996, the Directors of the Bank paid a $.20 per share annual
cash dividend which was augmented in August of 1996, with the first
semi-annual dividend of $.15 per share. In January of 1997, the Bank again
paid a $.15 per share cash dividend. The Company was the beneficiary of two
organizational dividends from the Bank during 1997. A dividend in the amount
of $150,000 payable in March, 1997, and a dividend in the amount of $700,000
payable in August, 1997. With the Company now fully organized, a $.20 per
share cash dividend was declared in July, 1997, payable on August 15, 1997.
In January 1998, the Company declared a $.30 per share cash dividend, payable
in February of 1998. The Bank declared a $800,000 cash dividend to provide
cash for the Company's dividend as well as operating capital. In addition,
the exercise of
7
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stock options by Bank employees, provided approximately $117,000 in cash to
the Company. Both the Bank and the Company maintain strong liquidity
positions.
A provision of the Agreement limits the amount of any mid-year dividend, if
any, by the Company to $.10 per share. This dividend can only be paid if the
Merger has not yet been consummated by July 14, 1998.
RESULTS OF OPERATIONS
Interest income on loans was up by $246,000 in the first three months of
1998, compared with the same period during 1997. The increase in interest
income was primarily attributable to the increase in average outstanding
loans, which were up by $11.7 million. The effective yield on the loan
portfolio declined by approximately .33 basis points. Without any increase
in the loans outstanding, interest income on loans would have declined by
approximately $129,000.
Interest income on investments, including Federal funds transactions,
increased by $100,000 during the first three months of 1998, over the
comparable period in 1997. This increase, as with loans, was primarily
attributable to the increase in funds available for investment, which was up
by $7.8 million. The effective yield decreased .15 basis points.
Interest expense on interest-bearing deposits was up by $160,000 in the first
three months of 1998, compared with the first three months of 1997. The
increase in interest expense was attributable to the increase in average
interest-bearing deposits which were up by $10.1 million. The effective rate
increased by 2 basis points. The increase in the rate raised the overall
interest expense cost by only $11,000 or approximately 7% of the total
increase.
Net interest margin declined from 5.95% for the first three months of 1997,
to 5.69% for the same period in 1998. The decline in interest income to
earning assets, by 30 basis points, against a modest 4 basis point decline in
interest expense to earning assets, tighten the company's overall spread.
The provision for loan losses of $150,000 is sufficient to bring the
allowance for loan losses to a balance considered to be adequate to absorb
potential losses in the portfolio. Management's determination of the
adequacy of the allowance is based upon a detailed evaluation of the
portfolio, current economic conditions and trends, historical loan loss
experience and other risk factors.
Noninterest income increased $123,000 or 14.7% to $959,000 as of March 31,
1998. This increase is primarily the results of increased activity in the
mortgage banking functions of the Bank. Non interest expenses increased
$83,000 or 2.5% to $3,451,000 as of March 31, 1998. While there are some
fluctuations in operating expenses due to the El Camino merger and the
opening of the Atascadero Branch in the first quarter of 1997, the primarily
reason for the increase in 1998 is due to increased commissions paid from the
aforementioned mortgage banking function.
8
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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 asset
risk profile and off-balance sheet exposures, such as unused loan commitments
and letters of credit. The following table sets forth the Company's and the
Bank's leverage and risk-based capital ratios at March 31, 1998:
<TABLE>
<CAPTION>
(In thousands) COMPANY BANK
---------------------- ---------------------
Amount % Amount %
------- ------ ------- ------
<S> <C> <C> <C> <C>
LEVERAGE RATIO $34,498 10.31% $34,220 10.23%
Regulatory minimum $13,380 4.00% $13,377 4.00%
Excess $21,118 6.31% $20,843 6.23%
RISKED-BASED RATIOS
Tier 1 capital $34,498 15.07% $34,220 14.94%
Tier 1 minimum $9,157 4.00% $9,163 4.00%
Excess $25,341 11.07% $25,057 10.94%
Total capital $36,720 16.04% $36,442 15.91%
Total capital minimum $18,313 8.00% $18,325 8.00%
Excess $18,407 8.04% $18,117 7.91%
</TABLE>
The management of the Company is not aware of any trends, events,
uncertainties or recommendations by regulatory authorities that will have or
that are reasonably likely to have material effect on the liquidity, capital
resources or operations of the Company with the exception of the proposed
merger with Mid-State Bank. The effects of this merger will be accretive to
earnings in 1999, and should have positive effects to both capital resources
and liquidity during 1998.
9
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- ---------------------------------------------------------------------
<S> <C>
2.1 Plan of Reorganization and Merger Agreement dated November 20, 1996 -
Annex 1 of Written Consent Statement/Prospectus*
2.2 Plan of Reorganization and Merger Agreement dated January 29, 1997
and amended by and between Company, The Bank and Mid-State Bank***
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*
10.2 BSM Bancorp 1996 Stock Option agreement as approved by California
Department of Corporations**
10.4 Nipomo Branch Land Lease*
10.5 Lompoc Branch Lease*
10.6 Form of "Change in Control" Employment Contract**
27 Financial Data Schedule (for SEC use only)
</TABLE>
* All documents listed are incorporated by reference and can be found
in the Registration Statement of the Company filed on Form S-4
(Commission File No 333-16951). The effective date was January 29, 1997
** This exhibit is contained in BSM Bancorp's Quarterly Report on Form
10-Q for the period ended March 31, 1997, filed with the Commission on
May 15, 1997 (Commission File No. 333-16951), and incorporated by
reference.
*** Document listed is incorporated by reference and can be found in
the BSM Bancorp's Registration Statement on Form S-4
(File No. 333-48181)
B) Reports on Form 8-K
During the first quarter of 1998, the Company filed two Current
Reports on Form 8-K, one as of January 16, 1998, and the second as of
February 3, 1998
10
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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.
BSM Bancorp
(Registrant)
/s/ WILLIAM A. HARES
Date: May 8, 1998 ------------------------------
William A. Hares
President and
Chief Executive Officer
/s/ F. DEAN FLETCHER
Date: May 8, 1998 ------------------------------
F. Dean Fletcher
Executive Vice President
and Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,071,041
<INT-BEARING-DEPOSITS> 232,012,902
<FED-FUNDS-SOLD> 14,193,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,988,019
<INVESTMENTS-CARRYING> 59,790,997
<INVESTMENTS-MARKET> 60,083,146
<LOANS> 190,373,942
<ALLOWANCE> (2,222,012)
<TOTAL-ASSETS> 335,870,904
<DEPOSITS> 298,404,649
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,161,138
<LONG-TERM> 0
0
0
<COMMON> 11,753,864
<OTHER-SE> 24,551,253
<TOTAL-LIABILITIES-AND-EQUITY> 335,870,904
<INTEREST-LOAN> 4,855,521
<INTEREST-INVEST> 1,431,528
<INTEREST-OTHER> 99,749
<INTEREST-TOTAL> 6,386,798
<INTEREST-DEPOSIT> 2,172,452
<INTEREST-EXPENSE> 2,172,452
<INTEREST-INCOME-NET> 4,214,346
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,450,756
<INCOME-PRETAX> 1,572,609
<INCOME-PRE-EXTRAORDINARY> 1,572,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,010,609
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
<YIELD-ACTUAL> 5.65
<LOANS-NON> 507,341
<LOANS-PAST> 0
<LOANS-TROUBLED> 767,115
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,114,683
<CHARGE-OFFS> (91,710)
<RECOVERIES> 49,039
<ALLOWANCE-CLOSE> 2,222,012
<ALLOWANCE-DOMESTIC> 2,222,012
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
