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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 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: 000-23257
BYL BANCORP
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CALIFORNIA NO. 33-0755794
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
18206 Imperial Highway, Yorba Linda, California 92686
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (714) 996-1800
Not applicable
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(c) of the Securities Exchange Act of 1934 during
the preceding 12 months (of shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 8, 1998, there were 1,553,196 shares of BYL Bancorp Common Stock
outstanding.
1
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BYL BANCORP AND SUBSIDIARY
MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
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PAGE
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Item 1 - Financial Statements
Consolidated Condensed Balance Sheet at March 31, 1998 and
December 31, 1997......................................... 3
Consolidated Condensed Statement of Income for the three
months ended March 31, 1998 and 1997...................... 4
Consolidated Condensed Statement of Changes in Capital from
January 1, 1997 through March 31, 1998.................... 5
Consolidated Condensed Statement of Cash Flows for the three
months ended March 31, 1998 and 1997...................... 6
Notes to Consolidated Financial Statements..................... 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 7 - 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........................... 10 - 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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March 31, December 31,
1998 1997
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<S> <C> <C>
Cash and Due From Bank $ 9,831 $ 7,188
Investment Securities 6,480 5,470
Federal Funds Sold - -
Loans Held For Sale 45,201 47,150
Loans 108,669 93,516
Allowance for Loan Losses (1,637) (1,521)
-------- --------
NET LOANS 107,032 91,995
Premises and Equipment 4,353 4,402
Other Real Estate Owned 671 646
Goodwill 1,517 1,545
Accrued Interest and Other Assets 6,389 6,271
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$181,474 $164,667
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-------- --------
Noninterest-Bearing Deposits $ 42,248 $ 40,537
Interest-Bearing Deposits 121,777 102,299
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TOTAL DEPOSITS 164,025 142,836
Accrued Interest and Other Liabilities 2,059 7,001
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TOTAL LIABILITIES 166,084 149,837
Common Shares 10,404 10,372
Undivided Profits 4,986 4,458
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TOTAL SHAREHOLDERS' EQUITY 15,390 14,830
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$181,474 $164,667
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-------- --------
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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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For the Three Months Ended
March 31,
--------------------------
1998 1997
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<S> <C> <C>
Interest Income $3,861 $2,781
Interest Expense 1,333 786
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Net Interest Income 2,528 1,995
Provision for Loan Losses 270 80
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Net Interest Income after
Provision for Loan Losses 2,258 1,915
Noninterest Income 4,721 2,865
Noninterest Expense 5,927 4,011
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Income before Taxes 1,052 769
Income Taxes 446 329
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Net Income $ 606 $ 440
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Per Share Data:
Net Income - Basic $ .39 $ .29
Net Income - Diluted $ .36 $ .27
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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
------------------- Undivided
Number Amount Profits Total
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 1,535,064 10,298 2,640 12,938
Net Income 2,109 2,109
Cash Dividends (291) (291)
Exercise of Stock Options 11,466 74 - 74
--------- ------- ------ -------
Balance at December 31, 1997 1,546,530 10,372 4,458 14,830
Net Income 606 606
Cash Dividends (78) (78)
Exercise of Stock Options 6,666 32 - 32
--------- ------- ------ -------
Balance at March 31, 1998 1,553,196 $10,404 $4,986 $15,390
--------- ------- ------ -------
--------- ------- ------ -------
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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 Three Months Ended
March 31,
--------------------------
1998 1997
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OPERATING ACTIVITIES
Net Income $ 606 $ 440
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities:
Depreciation and Amortization 271 164
Provision for Loan Losses 270 80
Net Change in Loans Held for Sale 1,949 (19,297)
Other Items - Net (5,047) 583
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NET CASH USED BY
OPERATING ACTIVITIES (1,951) (18,030)
INVESTING ACTIVITIES
Purchases of Investment Securities (1,000) (1,000)
Net Change in Loans (15,307) 11,139
Purchase of Premises and Equipment (217) (91)
Other Items - Net (25) -
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (16,549) 10,048
FINANCING ACTIVITIES
Net Change in Deposits 21,189 16,008
Proceeds from Exercise of Options 32 -
Dividends (78) (57)
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NET CASH PROVIDED
BY FINANCING ACTIVITIES 21,143 15,951
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INCREASE IN CASH
AND CASH EQUIVALENTS 2,643 7,969
Cash and Cash Equivalents at Beginning of Period 7,188 12,260
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 9,831 $ 20,229
-------- --------
-------- --------
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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 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.
The financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME in June 1997
effective for the periods beginning after December 31, 1997. SFAS No. 130
established standards for reporting and display of comprehensive income and its
components. For the periods ended March 31, 1998 and 1997 the Company had no
material items of other comprehensive income, and accordingly, no separate
Statement of Comprehensive Income has been included.
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 April 14, 1998.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
PROPOSED ACQUISITION OF DNB FINANCIAL
On January 29, 1998, the Company entered into a definitive agreement to merge
with DNB Financial (DNBF), the parent company of De Anza National Bank. Under
the terms of the agreement, DNBF will be merged with and into the Company, and
De Anza National Bank will become an operating division of the Bank of Yorba
Linda. The transaction will be structured as a pooling of interests through a
tax-free exchange of Company's shares of common stock for all outstanding shares
of the DNBF's common stock.
The aggregate transaction value for DNBF will be subject to adjustment based
upon tangible book value at the date of closing. The aggregate transaction
value will be the sum of (a) $19,569,722, or approximately 2.53 times DNBF's
tangible book value at December 31, 1997 and (b) 1.5 times the change in
tangible book value between December 31, 1997 and the closing. The total number
of Company shares to be exchanged will be determined by dividing the aggregate
transaction value by the stipulated value of $18.75 per share. The stipulated
value per share will be adjusted if the average closing Company stock price
during the pricing determination period is greater than $22.50 or less than
$15.00 per share.
The Agreement has been approved by the boards of directors of both companies and
is subject to the approval of the shareholders of both DNBF and the Company and
appropriate regulatory agencies. The merger is expected to close by May 31,
1998.
OVERVIEW
For the three months ended March 31, 1998, the Company reported net income of
$606,000, or $.39 per share compared to a net income of $440,000, or $.29 per
share for the same three month period in 1997. The annualized return on average
assets was 1.40% for 1998 compared to 1.35% for 1997. Annualized return on
average shareholders' equity for 1998 and 1997 was 15.9% and 13.3%,
respectively.
FINANCIAL CONDITION
Total assets as of March 31,1998, increased 10.2% to $181.5 million in
comparison to total assets of $164.7 million as of December 31, 1997. The
majority of this asset growth was centered in the Bank's held-for-investment
loan portfolio which increased by $15 million. This growth was funded by a
$21.2 million increase in deposits, a portion of which was utilized to pay down
short term borrowings of $4 million that were outstanding at December 31, 1997.
8
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ASSET QUALITY
The Company's asset quality has declined slightly in 1998 as evidenced by an
increase in the ratio of nonperforming loans to total loans which rose to 1.36%
at March 31, 1998 from 1.02% at December 31, 1997. Management believes the
loans creating this increase are adequately secured and will not result in
significant losses to the Company. In response to this increase, and other
factors, the Company added $270,000 to the ALLL for the quarter ended March 31,
1998 as compared to $80,000 for the same period in 1997. The ALLL at March 31,
1998 was 1.51% of total loans and 78.1% of non-performing loans compared to
1.63% and 160.6%, respectively, at December 31, 1997.
LIQUIDITY
The Bank liquidity is impacted significantly by the origination and sale of its
wholesale loan products. The loan to deposit ratio at March 31, 1998 was 93.8%.
Had the Bank actually sold all of the loans it held for sale, this ratio would
have declined to 66.3%.
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 March 31, 1998, the Bank's Tier 1 leverage capital ratio
was 7.89% compared to 7.42% at December 31, 1997. 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 $2.5 million for 1998 compared to $2.0 million for 1997.
This increase is primarily due to the significant asset growth experienced by
the Company, especially in loans held for investment. Net loans held for
investment were $107.0 million and total assets were $181.5 million at
March 31, 1998 compared to $52.0 million and $133.5 million, respectively, at
March 31, 1997.
Noninterest income increased substantially in 1998 reaching $4.7 million
compared to $2.9 million in 1997. This increase is attributable to the
continued expansion of the Company's wholesale loan divisions. These divisions
have expanded by adding new products as well as entering new geographic markets.
Noninterest expense increased in 1998 to $5.9 million compared to $4.0 million
in 1996. This increase is attributable to the continued expansion of the
Company's wholesale loan divisions.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
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EXHIBIT NO. EXHIBIT
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2.1 Plan of Reorganization and Merger Agreement -- Annex 1 of Proxy
Statement/Prospectus incorporated by reference (A)
4.1 Specimen Certificate evidencing shares of Registrant's Common
Stock (A)
4.2 Stockholder Agreement Covering Issuance and Compulsory
Repurchase of Organizing Shares of Registrant -- Annex II of
Proxy Statement/Prospectus incorporated by reference.
10.1 Form of Indemnification Agreement (A)
10.2 BYL Bancorp 1997 Stock Option Plan and form of Stock Option
Agreement (A)
10.3 Form of Proxy (A)
10.4 Employment Agreement -- Mr. Robert Ucciferri (A)
10.5 Employment Agreement -- Mr. Barry J. Moore (A)
10.6 Employment Agreement -- Mr. Michael Mullarky (A)
10.7 Salary Continuation Agreement -- Mr. Robert Ucciferri (A)
10.8 Salary Continuation Agreement -- Mr. Barry J. Moore (A)
10.9 Agreement and Plan of Reorganization with DNB Financial (B)
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- ------------------
(A) Filed as an Exhibit to the Registrants Registration Statement (File
No. 333-34995) filed on September 5, 1997, which exhibit is incorporated
herein by this reference.
(B) Filed as an Exhibit to Form 8-K filed on January 29, 1998, which exhibit is
incorporated herein by this reference.
10
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PART II - OTHER INFORMATION - CONTINUED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - CONTINUED
B) Reports on Form 8-K
1) BYL's Current Report on Form 8-K, dated January 16, 1998
announcing year end and quarterly earnings;
2) BYL's Current Report on Form 8-K, dated January 29, 1998
announcing the execution of the Agreement and Plan of
Reorganization with DNBF
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: May 14, 1998 /s/ ROBERT UCCIFERRI
Robert Ucciferri
President and
Chief Executive Officer
Date: May 14, 1998 /s/ BARRY J. MOORE
Barry J. Moore
Chief Financial Officer and
Executive Vice President
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,831
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,469
<INVESTMENTS-CARRYING> 5,011
<INVESTMENTS-MARKET> 5,042
<LOANS> 153,870
<ALLOWANCE> 1,637
<TOTAL-ASSETS> 181,474
<DEPOSITS> 164,025
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,059
<LONG-TERM> 0
0
0
<COMMON> 10,404
<OTHER-SE> 4,986
<TOTAL-LIABILITIES-AND-EQUITY> 181,474
<INTEREST-LOAN> 3,664
<INTEREST-INVEST> 84
<INTEREST-OTHER> 113
<INTEREST-TOTAL> 3,861
<INTEREST-DEPOSIT> 1,313
<INTEREST-EXPENSE> 1,333
<INTEREST-INCOME-NET> 2,528
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,927
<INCOME-PRETAX> 1,052
<INCOME-PRE-EXTRAORDINARY> 1,052
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 606
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 6.64
<LOANS-NON> 2,095
<LOANS-PAST> 0
<LOANS-TROUBLED> 104
<LOANS-PROBLEM> 1,085
<ALLOWANCE-OPEN> 1,521
<CHARGE-OFFS> 158
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<ALLOWANCE-DOMESTIC> 1,200
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<ALLOWANCE-UNALLOCATED> 437
</TABLE>
