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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 September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . . . .
Commission file number: 000-23257
BYL BANCORP
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<S> <C>
CALIFORNIA NO. 95-3389734
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
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18206 Imperial Highway, Yorba Linda, California 92686
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 996-1800
Not applicable
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(c) of the Securities Exchange Act of
1934 during the preceding 12 months (of shorter period that the registrant
was required to file such reports) 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 November 10, 1997, there were 1,546,530 shares of BYL Bancorp Common Stock
outstanding.
1
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BYL BANCORP AND SUBSIDIARY
SEPTEMBER 30, 1997
INDEX
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PART I - FINANCIAL INFORMATION
PAGE
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Item 1 - Financial Statements
Consolidated Condensed Balance Sheet at September 30, 1997 and
December 31, 1996.............................................................. 3
Consolidated Condensed Statement of Income for the three and nine
months ended September 30, 1997 and 1996....................................... 4
Consolidated Condensed Statement of Cash Flows for the nine months ended
September 30, 1997 and 1996.................................................... 5
Consolidated Condensed Statement of Changes in Capital from
January 1, 1996 through September 30, 1997..................................... 6
Notes to Consolidated Financial Statements...................................... 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 7 - 10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K....................................... 11
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2
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ITEM 1. FINANCIAL STATEMENTS
BYL BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED - DOLLAR AMOUNTS IN THOUSANDS)
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September 30, December 31,
1997 1996
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<S> <C> <C>
Cash and Due From Bank $ 10,726 $ 11,760
Investment Securities 5,451 5,774
Federal Funds Sold -- 500
Loans Held For Sale 55,805 24,363
Loans 74,430 64,549
Allowance for Loan Losses (1,360) (1,210)
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NET LOANS 73,070 63,339
Premises and Equipment 4,471 3,707
Other Real Estate Owned 821 1,030
Goodwill 1,574 1,660
Accrued Interest and Other Assets 5,250 4,334
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$ 157,168 $ 116,467
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Noninterest-Bearing Deposits $ 38,050 $ 31,965
Interest-Bearing Deposits 100,368 70,403
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TOTAL DEPOSITS 138,418 102,368
Accrued Interest and Other Liabilities 4,524 1,161
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TOTAL LIABILITIES 142,942 103,529
Common Shares 10,372 10,298
Undivided Profits 3,854 2,640
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TOTAL SHAREHOLDERS' EQUITY 14,226 12,938
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$ 157,168 $ 116,467
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3
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - DOLLAR AMOUNTS IN THOUSANDS, EXCEPT EPS)
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<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Interest Income $ 3,758 $ 2,114 $ 9,820 $ 4,854
Interest Expense 1,115 680 2,871 1,370
----------- ----------- ----------- ----------
Net Interest Income 2,643 1,434 6,949 3,484
Provision for Loan Losses 188 40 383 163
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Net Interest Income after Provision
for Loan Losses 2,455 1,394 6,566 3,321
Noninterest Income 3,777 2,055 9,508 5,434
Noninterest Expense 5,297 2,803 13,579 7,348
----------- ----------- ----------- ----------
Income before Taxes 935 646 2,495 1,407
Income Taxes 399 281 1,066 591
----------- ----------- ----------- ----------
Net Income $ 536 $ 365 $ 1,429 $ 816
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Per Share Data:
Net Income $ .32 $ .28 $ .86 $ .84
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----------- ----------- ----------- ----------
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4
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED - DOLLAR AMOUNTS IN THOUSANDS)
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Common Shares
Preferred ---------------------- Undivided
Stock Number Amount Profits Total
--------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 1,000 461,731 $ 2,540 $ 865 $ 4,405
Net Income 1,022 1,022
Preferred Dividends -- -- -- (270) (270)
--------- ---------- -------- ---------- -------
Balance at December 31, 1995 1,000 461,731 2,540 1,617 5,157
Net Income 1,202 1,202
Preferred Dividends (159) (159)
Redemption of Preferred Stock (1,000) (20) (1,020)
Issuance of Common Stock
(Net of Related Costs) -- 1,073,333 7,758 -- 7,758
--------- ---------- -------- ---------- -------
Balance at December 31, 1996 -- 1,535,064 10,298 2,640 12,938
Net Income 1,429 1,429
Exercise of Stock Options 11,466 74 74
Dividends (212) (212)
Payment for Fractional Shares
Related to Stock Split (3) (3)
--------- ---------- -------- ---------- -------
Balance at September 30, 1997 $ 1,546,530 $ 10,372 $ 3,854 $14,226
--------- ---------- -------- ---------- -------
--------- ---------- -------- ---------- -------
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5
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED - DOLLAR AMOUNTS IN THOUSANDS)
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For the Nine Months Ended
September 30,
--------------------------
1997 1996
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OPERATING ACTIVITIES
Net Income $ 1,429 $ 816
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 638 265
Provision for Loan Losses 383 163
Net Change in Loans Held for Sale (31,442) (15,155)
Other Items - Net 2,447 (26)
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NET CASH USED BY OPERATING ACTIVITIES (26,545) (13,937)
INVESTMENT ACTIVITIES
Purchases of Investment Securities (1,350) (14,171)
Maturities of Investment Securities 1,673 12,250
Net Change in Loans (10,114) (26,929)
Purchase of Premises and Equipment (1,316) (3,295)
Other Items - Net 209 (1,717)
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NET CASH USED BY INVESTING ACTIVITIES (10,898) (33,862)
FINANCING ACTIVITIES
Net Change in Deposits 36,050 49,992
Redemption of Preferred Stock -- (1,020)
Proceeds from Common Shares 74 7,748
Dividends (215) (159)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 35,909 56,561
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INCREASE IN CASH AND CASH EQUIVALENTS (1,534) 8,762
Cash and Cash Equivalents at Beginning of Period 12,260 9,801
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,726 $ 18,563
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6
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
BYL Bancorp (the "Company") was incorporated on April 17, 1997, for the sole
purpose of becoming a bank holding company for the Bank of Yorba Linda (the
"Bank"). Following regulatory consent and with the approval of the Bank's
shareholders, the Bank merged with BYL Merger Company (a wholly-owned
subsidiary of the Company) and thereby became a wholly-owned subsidiary of
the Company. 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.
The accompanying consolidated balance sheets, statements of income,
statements of changes in shareholders' equity and statement of cash flows (as
restated for the subsequent Merger of the Bank of Yorba Linda by the Company)
reflect all material adjustments necessary for fair representation of the
Company's financial position as of September 30, 1997 and December 31, 1996
and the results of operations for the three and nine months ended September
30, 1997 and 1996. All such adjustments were of a normal recurring nature.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This analysis is designed to provide a more complete understanding of the
material changes and trends related to the Company's financial condition and
results of operations. This discussion should be read in conjunction with
the Financial Statements included in Item 1, the Bank's 1997 Annual Report,
and the Form S-4 dated September 5, 1997.
MATERIAL CHANGES IN FINANCIAL CONDITION
The financial condition of the Bank was materially impacted by the following
1996 transactions:
1) The redemption of the outstanding preferred stock and the payment of all
unpaid cumulative dividends.
2) The acquisition of the Bank of Westminster.
3) The supplemental offering of common shares.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
MATERIAL CHANGES IN FINANCIAL CONDITION - CONTINUED
The preferred stock was redeemed during the first quarter of 1996. This
transaction reduced total stockholders by $1.2 million including dividends
and a redemption premium.
The acquisition of the Bank of Westminster and simultaneous underwritten
public offering of a total of 1,073,333 shares of the Bank's common stock was
consummated on June 14, 1996.
The acquisition of the Bank of Westminster has been recorded utilizing the
purchase method of accounting which resulted in goodwill being recorded in
the amount of approximately $1.7 million, which amount will be amortized over
a period of 15 years from the date of acquisition. The following is a
summary of the primary assets and liabilities acquired from Bank of
Westminster (dollar amounts in thousands):
Cash and Due From Banks $ 5,942
Investments $ 6,246
Federal Fund Sold $ 4,850
Loans, Net $ 34,308
Premises and Equipment $ 2,912
Noninterest-Bearing Deposits $ 14,303
Interest-Bearing Deposits $ 35,099
The underwritten public offering of a total of 1,073,333 shares increased
shareholder's equity by $7.7 million after all issuance costs.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
As noted above, the acquisition of Bank of Westminster was consummated on
June 14, 1996. The following is proforma disclosure of results of operations
had the acquisition been consummated at the beginning of each reported period
(dollar amounts in thousands, except per share data):
Nine Months Ended
September 30, 1996
------------------
Net Interest Income $ 4,889
Net Income $ 749
Net Income per Share $ 0.63
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
MATERIAL CHANGES IN RESULTS OF OPERATIONS - CONTINUED
These proforma disclosures include projected earnings from net offering
proceeds and goodwill amortization. No adjustments have been recorded in
these amounts for the expected cost savings to be derived from this merger.
Included in the results of operations for the periods ended September 30,
1996 are one-time costs related to the acquisition of Bank of Westminster
totaling approximately $118,000 after tax. Of this total one-time after tax
expense, approximately $103,000 arises from an agreement between the Bank and
Mr. Donald Solsby, the former President and Chief Executive Officer of the
Bank of Westminster, terminating his relationship with the Bank following the
acquisition, waiving all benefits from the Bank and releasing the Bank from
any and all liability. Prior to the acquisition, the Bank had agreed to
employ Mr. Solsby for a one year following the acquisition at an annual
salary of $125,000 plus benefits and expenses; however, at the request of Mr.
Solsby, the Board of Directors of the Bank agreed that the Bank would not
retain Mr. Solsby in exchange for entering into this agreement. The Bank
believes that the after tax cost of this agreement with Mr. Solsby is
approximately equal to the after tax cost to the Bank of Mr. Solsby's salary,
benefits, and expenses had he remained with the Bank for the full year
following the acquisition.
OVERVIEW
For the nine months ended September 30, 1997, the Company reported net income
of $1,429,000, or $.86 per share compared to a net income of $816,000, or
$.84 per share for the same nine month period in 1996 (Earnings per share
comparisons with 1996 are negatively impacted by the increase in the shares
outstanding following the public offering in June 1996). Earnings per share
for the third quarter of this year was $.32 compared to $.23 for the same
period in 1996. The annualized return on average assets was 1.37% for 1997
compared to 1.26% for 1996. Annualized return on average shareholders'
equity for 1997 and 1996 was 13.86% and 11.69%, respectively.
FINANCIAL CONDITION
Total assets as of September 30, 1997, increased 34.9% to $157.2 million in
comparison to total assets of $116.5 million as of December 31, 1996. This
increase was generated primarily by the Bank's wholesale loan activities.
ASSET QUALITY
The Bank's asset quality has remained stable in 1997. The ALLL at September
30, 1997 was 1.83% of total loans and 163.5% of non-performing loans compared
to 1.88% and 172.6%, respectively, at December 31, 1996. Non-performing
assets to total assets has improved to 1.05% at September 30, 1997 compared
to 1.49% at December 31, 1996.
9
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LIQUIDITY
The Bank liquidity is impacted significantly by the origination and sale of
its wholesale loan products. The loan to deposit ratio at September 30, 1997
was 93.1%. Had the Bank actually sold all of the loans it held for sale,
this ratio would have been 52.8%.
CAPITAL RESOURCES
The Company and its bank subsidiary are subject to risk-based capital
regulations adopted by the federal banking regulators. These guidelines are
used to evaluate capital adequacy and are based upon an institution's risk
profile and off-balance sheet exposures, such as unused loan commitments and
letters of credit. At September 30, 1997, the Bank's Tier 1 leverage capital
ratio was 7.82% compared to 9.24% at December 31, 1996. Management is not
aware of any trends, events, uncertainties or recommendations by regulatory
authorities that will have or that are reasonable likely to have material
effects on the liquidity, capital resources or operations of the Company.
RESULTS OF OPERATIONS
Net interest income was $6.9 million for 1997 compared to $3.5 million for
1996. This increase is primarily attributable to the acquisition of Bank of
Westminster on June 14, 1996, and the continued growth in the Bank's
wholesale loan divisions. (The increase in the Bank's capital has allowed
the Bank to hold loans longer before sale therefore maximizing net interest
income.)
Noninterest income increased substantially in 1997 reaching $9.5 million
compared to $5.4 million in 1996. This increase is attributable to the
continued expansion of the Bank's wholesale loan divisions. These divisions
have expanded by adding new products as well as entering new geographic
markets.
Noninterest expense increased in 1997 to $13.6 million compared to $7.3
million in 1996. This increase is attributable to the acquisition of Bank of
Westminster on June 14, 1996 and the continued expansion of the Bank's
wholesale loan divisions.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
Exhibit No. Exhibit
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2.1 Plan of Reorganization and Merger Agreement - Annex 1 of
Written Consent Statement/Prospectus*
3.1 Articles of Incorporation of Registrant*
3.2 Amendment to Articles of Incorporation of Registrant*
3.3 Amendment to Articles of Incorporation of Registrant*
3.4 Bylaws of the Registrant*
10.1 Form of Indemnification Agreement*
10.3 Form of Written Consent*
* All documents listed are incorporated by reference and can be found in the
Registration Statement of the Company filed on Form S-4.
B) Reports on Form 8-K
There were no reports on Form 8-K during the nine months ended September 30,
1997.
11
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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.
BYL BANCORP
Date: November 14, 1997 /s/Robert Ucciferri
Robert Ucciferri
President and
Chief Executive Officer
Date: November 14, 1997 /s/Barry J. Moore
Barry J. Moore
Chief Operating Officer and
Senior Executive Vice President
12
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<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,626
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 456
<INVESTMENTS-CARRYING> 4,995
<INVESTMENTS-MARKET> 5,026
<LOANS> 130,235
<ALLOWANCE> 1,360
<TOTAL-ASSETS> 157,168
<DEPOSITS> 138,418
<SHORT-TERM> 1,900
<LIABILITIES-OTHER> 2,624
<LONG-TERM> 0
0
0
<COMMON> 10,372
<OTHER-SE> 3,854
<TOTAL-LIABILITIES-AND-EQUITY> 157,168
<INTEREST-LOAN> 9,291
<INTEREST-INVEST> 293
<INTEREST-OTHER> 236
<INTEREST-TOTAL> 9,820
<INTEREST-DEPOSIT> 6,937
<INTEREST-EXPENSE> 6,949
<INTEREST-INCOME-NET> 6,949
<LOAN-LOSSES> 383
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,579
<INCOME-PRETAX> 2,495
<INCOME-PRE-EXTRAORDINARY> 1,429
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,429
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.81
<LOANS-NON> 464
<LOANS-PAST> 368
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,210
<CHARGE-OFFS> 290
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 1,360
<ALLOWANCE-DOMESTIC> 1,360
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
