<PAGE>
FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
TRANSITION REPORT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER: 0-23299
BAY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0046244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 HIGHWAY 146 SOUTH
LA PORTE, TEXAS 77551
(Address of principal executive offices)
(Zip Code)
(281) 471-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 December 20, 1997, there were 2,048,907 shares of the registrant's Common
Stock, par value $1.00 per share outstanding.
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
PART I - FINANCIAL INFORMATION
ITEM 1. - Financial Statements
Consolidated Balance Sheets for 09/30/97 & 12/31/96
Consolidated Statements of Operations for three months ended and
nine months ended 09/30/97 & 09/30/96
Consolidated Statements of Cash Flows for the nine months ended
09/30/97 & 09/30/96
Notes to Consolidated Financial Statements
ITEM 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operation
PART II - OTHER INFORMATION
ITEM 1. - Legal Proceedings
ITEM 2. - Changes in Securities
ITEM 3. - Defaults Upon Senior Securities
ITEM 4. - Submission of Matters to a Vote of Security Holders
ITEM 5. - Other Information
ITEM 6. - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - Financial Statements
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents
Cash and due from banks $6,666 $8,094
Federal funds sold 14,800 10,378
------------- ------------
Total cash and cash equivalents 21,466 18,472
Interest bearing deposits with banks 392 392
Securities available-for-sale 42,502 43,745
Loans, net of allowance for credit losses of $1,424 114,651 118,450
and $1,430
Bank premises and equipment, net 4,891 4,883
Other assets 3,200 3,069
------------- ------------
Total assets $187,102 $189,011
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $171,291 $173,318
Securities sold under agreements to repurchase - 1,000
Other liabilities 1,613 1,764
------------- ------------
Total liabilities 172,904 176,082
Stockholders' equity
Common stock 1,401 1,391
Additional paid-in capital 8,400 8,344
Retained earnings 4,651 3,660
Unrealized gain (loss) on available-for-sale
securities 20 (189)
------------- ------------
14,472 13,206
Less: Treasury stock (274) (277)
Total stockholders' equity 14,198 12,929
------------- ------------
Total liabilities and stockholders' equity $187,102 $189,011
------------- ------------
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(See accompanying notes to interim consolidated financial statements)
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $2,584 $2,351 $7,535 $7,092
Securities 662 699 2,006 1,951
Federal funds sold 155 57 397 278
------ ------ ------ ------
Total interest income 3,401 3,107 9,938 9,321
Interest expense
Deposits 1,431 1,349 4,149 3,959
Other 2 22 16 31
------ ------ ------ ------
Total interest expense 1,433 1,371 4,165 3,990
------ ------ ------ ------
Net interest income 1,968 1,736 5,773 5,331
Provision for credit losses 144 144 312 363
------ ------ ------ ------
Net interest income after provision for credit losses 1,824 1,592 5,461 4,968
Noninterest income
Service charges 378 351 1,119 1,052
Other 229 223 685 715
------ ------ ------ ------
Total noninterest income 607 574 1,804 1,767
Noninterest expense
Salaries and employee benefits 898 745 2,741 2,345
Occupancy expense, net 293 277 876 849
Other noninterest expense 663 669 1,852 1,766
------ ------ ------ ------
Total noninterest expense 1,854 1,691 5,469 4,960
------ ------ ------ ------
Earnings before federal income taxes 577 475 1,796 1,775
Provision for income taxes 197 187 561 595
------ ------ ------ ------
Net earnings $380 $288 $1,235 $1,180
Net earnings per common and common equivalent share $0.26 $0.20 $0.86 $0.82
Weighted average common and common and common equivalent share
outstanding (in thousands) 1,440 1,440 1,440 1,440
</TABLE>
(See accompanying notes to interim consolidated financial statements)
<PAGE>
BAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,235 $ 1,180
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 312 363
Depreciation 425 463
Gain on sale of bank premises and equipment (5) (69)
Gain on sale of available-for-sale securities (12) (11)
Amortization of premiums, net of (accretion) of discounts
on securities 53 30
Effect of phantom stock plan 134 144
Increase in other assets (131) (360)
(Decrease) increase in other liabilities (330) 1,316
--------- ---------
Net cash provided by operating activities 1,681 3,056
Cash flows from investing activities:
Maturities of interest-bearing deposits with banks - 98
Proceeds from sale of available-for-sale securities 1,012 1,981
Proceeds from principal repayments, maturities, and calls of
available-for-sale securities 3,323 2,149
Purchases of available-for-sale securities (2,817) (11,147)
Net decrease (increase) in loans, net of the effects resulting from the
purchase of certain branch assets and liabilities 3,487 (9,386)
Net increase in cash resulting from the acquisition of certain
branch assets and the assumption of certain liabilities - 10,354
Proceeds from sales of bank premises and equipment 62 187
Purchases of bank premises and equipment (490) (498)
--------- ---------
Net cash provided (used) by investing activities 4,577 (6,262)
Cash flows from financing activities:
Issuance of common stock 4 -
Net decrease in securities sold under agreements to repurchase (1,000) -
Sale of treasury stock 3 -
Purchase of treasury stock - (48)
Net (decrease) increase in deposits (2,027) 6,529
Dividends paid (244) (243)
--------- ---------
Net cash (used) provided by financing activities (3,264) 6,238
Net increase in cash and cash equivalents 2,994 3,032
Cash and cash equivalents at beginning of period 18,472 16,256
--------- ---------
Cash and cash equivalents at end of period $ 21,466 $ 19,288
--------- ---------
--------- ---------
</TABLE>
(See accompanying notes to interim consolidated financial statements)
<PAGE>
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bay
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary Bayshore
National Bank (the "Bank"). All significant intercompany transactions and
balances have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company on a consolidated basis, and all
such adjustments are of a normal recurring nature. These financial statements
and the notes thereto should be read in conjunction with the Company's
Registration Statement on Form S-1 (Registration No. 333-36185). Operating
results for the nine month period ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
(2) EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share was computed based on the
following:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
September 30, September 30,
1997 1996 1997 1996
-------------- ----------- ------------- ----------
(Dollars in thousands except for per share data)
<S> <C> <C> <C> <C>
Net earnings available to common shareholders 380 288 1,235 1,180
Average common shares 1,357 1,351 1,357 1,351
Average common share equivalents 83 89 83 89
----- ----- ----- -----
1,440 1,440 1,440 1,440
Earnings per common and common equivalent share 0.26 0.20 0.86 0.82
</TABLE>
(3) CAPITAL STOCK
Common Stock. On November 12, 1997, the Company completed its initial
public offering of shares of its Common Stock. The Company sold 600,000 shares
at $16.00 per share. On November 24, 1997, the 90,000 share over-allotment was
exercised by the Underwriter bringing the total number of shares outstanding
after the Offering to 2,048,907 shares.
(4) SUBSEQUENT EVENTS
On November 12, 1997, the Company completed the previously announced
acquisition of Texas Bank, located in Baytown, Texas ("Texas Bank"), including a
branch location in Mont Belvieu, Texas. At June 30, 1997, Texas Bank had total
assets of approximately $41.5 million, total deposits of approximately $37.7
million and total stockholders' equity of approximately $3.7 million. In
consideration of the exchange by shareholders of their Texas Bank Common Stock,
holders of Texas Bank Common Stock received a $5.3 million aggregate cash
payment from the Company.
<PAGE>
On November 21, 1997, the Company completed the previously announced
acquisitions of Texas National Bank of Baytown ("TNB") and First Bank of Deer
Park ("First Bank"). At June 30, 1997, TNB had total assets of approximately
$14.1 million, total deposits of approximately $12.4 million and total
stockholders' equity of approximately $1.6 million, and First Bank had total
assets of approximately $32.9 million, total deposits of approximately $26.8
million and total stockholders' equity of approximately $3.9 million. In
consideration of the exchange of the by shareholders of their TNB Common Stock,
holders of TNB Common Stock received a $2.4 million aggregate cash payment from
the Company. In consideration of the exchange by shareholders of their First
Bank Common Stock, holders of First Bank Common Stock received a $8.0 million
aggregate cash payment from the Company.
(5) NEW PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Financial
Accounting Standards No. 128, EARNINGS PER SHARE, which is effective for
financial statements issued after December 15, 1997. The new standard
eliminates primary and fully diluted earnings per share and requires the
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. The pro forma effect of adopting the
new standard would be basic earnings per share of $0.91 and $0.87 diluted
earnings per share of $0.86 and $0.82 for the nine months ended September 30,
1997 and 1996, respectively.
The FASB has issued Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME, which is effective for financial statements issued after
December 15, 1997. The new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income will include net
income plus unrealized gain or loss on securities.
ITEM 2. -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company's performance during the nine month period ended September 30,
1997, as compared with the nine month period ended September 30, 1996, was
marked by several significant events which occurred during 1996. In August
1996, the Company assumed approximately $12.0 million in deposits related to a
banking center location in Cleveland, Texas acquired from a commercial bank (the
"Cleveland Acquisition"), and the Company relocated its existing Cleveland
office to the newly acquired facility. In January 1996, the Company sold land
adjacent to its Spencer banking office located in La Porte (the "Spencer
Office") recognizing a gain on the sale of $68 thousand. During the first half
of 1996, the Company opened two additional Loan Production Offices ("LPOs") in
Houston and received its designation as a Preferred SBA Lender. Balance sheet
growth from September 30, 1996 to September 30, 1997 was primarily due to the
Cleveland Acquisition. The Company's average deposits increased 6.4% and
average gross loans increased 4.9% as a result of both the Cleveland Acquisition
and internally generated growth. Internal growth was a direct reflection of the
Company's commitment to its sales and service culture and to the success of the
Company's three LPOs. The Company's nine month 1997 earnings, however, were
affected by certain incremental expenses (salary, occupancy, communication and
technological changes, advertising and other items) related to the Cleveland
Acquisition along with costs relating to the Company's SBA program and the
operation of the LPOs. Additionally, the Company has incurred increased
personnel cost related to its commitment to the development of its sales and
service culture and incentive based compensation.
RESULTS OF OPERATIONS
Net Interest Income
<PAGE>
Net interest income represents the amount by which interest income on
interest-earning assets, including securities and loans, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowed funds. Net interest income is the principal source of the Company's
income. Interest rate fluctuations, as well as changes in the amount and type
of earning assets and liabilities, combine to affect net interest income.
Net interest income for the nine months ended September 30, 1997 was $5.8
million compared with $5.3 million for the nine months ended September 30, 1996,
an increase of $442 thousand or 8.3% and an increase of $232 thousand or 13.4%
in the third quarter of 1997 as compared with the third quarter of 1996. Net
interest income increased as a result of a higher dollar amount of
interest-earning assets derived from the August 1996 Cleveland Acquisition and
internal loan growth. Average interest-earning assets increased from 91.43% of
total average assets at September 30, 1996 to 92.21% of total average assets at
September 30, 1997. Average gross loans increased to $117.2 million for the
nine months ended September 30, 1997 from $111.3 million for the nine months
ended September 30, 1996, an increase of $5.9 million or 5.25%.
Net interest income was improved by a decrease in the cost of
interest-bearing liabilities from 4.14% in September 30, 1996 to 4.06% for the
nine months ended September 30, 1997. Average interest-bearing deposits
increased to $136.7 million for the nine months ended September 30, 1997 from
$128.4 million for the nine months ended September 30, 1996, an increase of $8.3
million or 6.5%. This growth was primarily attributable to the Cleveland
Acquisition.
The Company posted net interest margins of 4.51% and 4.41% and net interest
spreads of 3.71% and 3.59% for the periods ended September 30, 1997 and
September 30, 1996, respectively. The slight increase in net interest margin
from the third quarter of 1996 to the third quarter of 1997 reflects a four
basis point increase in the yield on average interest-earning assets and an
eight basis point reduction in the cost of interest-bearing liabilities.
The following table presents for the periods indicated the total dollar
amount of average balances, interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax
equivalent adjustments were made and all average balances are daily average
balances. There were no nonaccruing loans during the periods covered.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------------
1997 1996
------------------------------------------ ------------------------------------------
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- -------- ------- ----------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $ 117,196 $ 7,535 8.57% $ 111,345 $ 7,092 8.49%
Securities 44,209 2,006 6.05% 42,921 1,951 6.06%
Federal funds sold and other temporary
investments 9,038 397 5.86% 6,501 278 5.70%
---------- ------- ---- ---------- ------- ----
Total interest-earning assets 170,443 9,938 7.77% 160,767 9,321 7.73%
---------- ------- ---- ---------- ------- ----
Less allowance for loan losses (1,457) (1,291)
---------- ----------
Total interest-earning assets, net of
allowance 168,986 159,476
Nonearning asssets 17,425 15,012
---------- ----------
Total assets $ 186,411 $ 174,488
---------- ----------
---------- ----------
Liabilities and stockholders' equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 19,285 $ 169 1.16% $ 16,769 $ 151 1.20%
Public fund deposits 3,174 77 3.25% 2,795 75 3.58%
Savings and money market accounts 41,778 1,054 3.36% 41,288 1,005 3.25%
Certificates of deposit 72,015 2,849 5.27% 67,144 2,728 5.42%
Federal funds purchased, FHLB line of
credit and other borrowings 429 16 5.10% 450 31 9.19%
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 136,681 4,165 4.06% 128,446 3,990 4.14%
---------- ------- ---- ---------- ------- ----
Noninterest-bearing liabilites:
Noninterest-bearing demand deposits 32,350 32,350
Other liabilities 3,876 1,668
---------- ----------
Total liabilities 172,907 162,464
---------- ----------
Stockholders' equity 13,504 12,024
---------- ----------
Total liabilities and stockholders'
equity $ 186,411 $ 174,488
---------- ----------
---------- ----------
Net interest income $ 5,773 $ 5,331
------- --------
------- --------
Net interest spread 3.71% 3.59%
---- ----
---- ----
Net interest margin 4.51% 4.41%
---- ----
---- ----
</TABLE>
Provision for Loan Losses
The provision for loan losses decreased to $312 thousand for the nine
months ended September 30, 1997 from $363 thousand for the same time period in
1996, a decrease of $51 thousand or 14.05%.
Noninterest Income
Noninterest income is an important source of revenue for financial
institutions in a deregulated environment. The Company's primary source of
noninterest income is service charges on deposit accounts and other banking
service related fees. Noninterest income for the nine months ended September
30, 1997 was $1.8 million compared with $1.7 million for the nine months ended
September 30, 1996, an increase of $37 thousand or 2.1%. The increase was
primarily to the additional service charges earned on deposit accounts related
to the Cleveland Acquisition.
<PAGE>
The following table presents for the periods indicated the major categories
of noninterest income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Service charges on deposit accounts $378 $351 $1,119 $1,052
Gain on sale of SBA loans 72 93 213 213
ATM fee income 50 56 155 145
Alternative investments 56 19 145 104
Other noninterest income 51 55 172 253
---- ---- ------ ------
Total noninterest income $607 $574 $1,804 $1,767
---- ---- ------ ------
---- ---- ------ ------
Noninterest Expense
In the nine month period ended September 30, 1997, noninterest expense
increased $509 thousand or 10.3% to $5.5 million from $5.0 million for the
period ended September 30,1996. There was an increase of $163 thousand or 9.6%
in the third quarter of 1997 as compared with the third quarter of 1996. The
increase reflects the additional expenses resulting from the Cleveland
Acquisition consummated in the third quarter of 1996, the additional salary and
related expenses associated with the commencement of the operation of two
additional LPOs opened in mid-1996 and increased salary costs, a result of the
Company's commitment to rewarding individual merit in its sales and service
culture.
The following table presents for the periods indicted the major categories
of noninterest expense:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Employee compensation and benefits $898 $745 $2,741 $2,345
Non-staff expense:
Net bank premises expense 135 137 409 389
Equipment rentals, depreciation and maintenance 158 140 467 460
Data processing 36 47 107 139
Professional fees 66 59 225 170
Regulatory assessments/FDIC insurance 25 46 76 134
Ad valorem and franchise taxes 48 48 139 144
Other 488 469 1,305 1,179
------ ------ ------ ------
Total non-staff expenses 956 946 2,728 2,615
------ ------ ------ ------
Total noninterest expense $1,854 $1,691 $5,469 $4,960
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Employee compensation and benefit expense for the nine months ended
September 30, 1997 was $2.7 million, an increase of $396 thousand or 16.9% from
$2.3 million in the same period of 1996 and an increase of $153 thousand or
20.5% in the third quarter of 1997 as compared with the third quarter of 1996.
The increase was principally due to additional staff associated with the
Cleveland Acquisition, the two new LPOs and additional general staffing hired.
<PAGE>
Non-staff expense increased to $2.7 million for the nine month period ended
September 30, 1997 from $2.6 million for the same period in 1996, an increase of
$113 thousand or 4.3% and an increase of $10 thousand or 1.1% in the third
quarter of 1997 as compared with the third quarter of 1996. This increase was
due to additional expenses associated with the Cleveland Acquisition, increased
advertising costs related to the Company's SBA program and increased
professional fees related to the sales and service culture, offset by lower data
processing costs and ordinary Federal Depository Insurance Corporation ("FDIC")
assessments.
Financial Condition
Total assets as of September 30, 1997 were $187.1 million compared with
$189.0 million at December 31, 1996 a decrease of $1.9 million or 1.0%. At
September 30, 1997, investment securities totaled $42.5 million, a decrease of
$1.2 million or 2.7% from $43.7 at December 31, 1996. Net loans were $114.7
million at September 30, 1997, a decrease of $3.8 million or 3.2% from $118.5
million at December 31, 1996.
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has established
an allowance for loan losses which it believes is adequate for estimated losses
in the Company's loan portfolio. The Company follows a loan review program to
evaluate the credit risk in the loan portfolio. Through the loan review
process, the Company maintains an internally classified loan watch list which,
along with the delinquency list of loans, helps management assess the overall
quality of the loan portfolio and the adequacy of the allowance for loan losses.
Loans classified as "substandard" are those loans with clear and defined
weaknesses such as a highly-leveraged position, unfavorable financial ratios,
uncertain repayment sources or poor financial condition, which may jeopardize
recoverability of the debt. Allowance for loan losses as of September 30, 1997
was $1.42 million or 1.23% of outstanding loans compared with $1.43 million or
1.19% of outstanding loans as of December 31, 1996.
The Company's total deposits for the nine months ended September 30, 1997
were $171.3 million, a decrease of $2.0 million or 1.2% from $173.3 million at
December 31, 1996.
Stockholders' equity increased from $12.9 million at September 30, 1996 to
$14.2 million at September 30, 1997, an increase of $1.3 million or 10.1%.
This increase was primarily the result of net income of $1.2 million. As of
September 30, 1997 the Company's ratio of stockholders' equity to total assets
was 7.59% as compared with 6.83% as of December 30, 1996.
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. The Company's liquidity needs are primarily met by
growth in core deposits. Although access to purchased funds from correspondent
banks is available and has been utilized on occasion to take advantage of
investment opportunities, the Company does not rely on these external funding
sources. The cash and federal funds sold position, supplemented by amortizing
investment along with payments and maturities within the loan portfolio, have
historically created and adequate liquidity position.
The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating activities was $1.7
million and $3.1 million for the nine months ended September 30, 1997 and 1996
respectively. The net cash provided by operating activities for the nine months
ended September 30, 1997 compared with the same period in 1996 was primarily due
to the decrease in other liabilities in 1996.
Net cash provided by (used in) investing activities was $4.6 million and
($6.3) million for the nine months ended September 30, 1997 and 1996,
respectively. The net cash provided by investing
<PAGE>
activities for the nine months ended September 30, 1997 compared with the same
period in 1996 was primarily due to the purchase of available-for-sale
securities in 1996.
Net cash (used in) provided by financing activities was ($3.3) million and
$6.2 million for the nine months ended September 30, 1997 and 1996,
respectively. The net cash provided by (used in) financing activities for the
nine months ended September 30, 1997 compared with the same period in 1996 was
primarily due to the decrease in deposits in 1997 and a decrease in securities
sold under agreements to repurchase in 1997.
Capital management consists of providing equity to support both current and
future operations. The Company is subject to capital adequacy requirements
imposed by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board") and the Bank is subject to capital adequacy requirements imposed
by the Office of the Comptroller of Currency ("OCC"). Both the Federal Reserve
board and the OCC have adopted risk-based capital requirements. The following
table provides a comparison of the Company's and the Bank's leverage and risk
weighted capital ratios as of September 30, 1997 and the regulatory standards.
Minimum Actual Ratio
Required September 30, 1997
---------------------------------
THE COMPANY
Leverage ratio 3.00% 7.32%
Tier 1 risk-based capital 4.00% 10.40%
Risk-based capital ratio 8.00% 11.48%
THE BANK
Leverage ratio 3.00% 7.36%
Tier 1 risk-based capital 4.00% 10.43%
Risk-based capital ratio 8.00% 11.52%
ACQUISITIONS
On November 12, 1997, the Company completed the previously announced
acquisition of Texas Bank, Baytown, Texas ("Texas Bank") located in Baytown,
Texas, with a branch location in Mont Belvieu, Texas. At June 30, 1997, Texas
Bank had total assets of approximately $41.5 million, total deposits of
approximately $37.7 million and total stockholders' equity of approximately $3.7
million. As part of the transaction, the Company acquired all of the issued and
outstanding shares of Texas Bank's common stock (the "Texas Bank Common Stock")
through the consolidation of Texas Bank with a subsidiary of the Company formed
solely to facilitate the acquisition. Following the consummation of the
acquisition, Texas Bank became a wholly-owned subsidiary of the Company, and
immediately thereafter, Texas Bank was consolidated with the Company's
wholly-owned subsidiary, the Bank, with the Bank surviving. The acquisition by
the Company was made pursuant to an Agreement and Plan of Reorganization by and
between the Company, Texas Bank and certain shareholders of Texas Bank dated
June 24, 1997 (the "Texas Bank Acquisition Agreement"). In consideration of the
exchange by shareholders of their Texas Bank Common Stock, holders of Texas Bank
Common Stock received a $5.3 million aggregate cash payment from the Company.
The purchase price was determined by arms-length negotiations between the
Company and Texas Bank and adjusted prior to closing pursuant to the Texas Bank
Acquisition Agreement. The funds used for the acquisition represent a portion
of the proceeds obtained from the Offering.
On November 21, 1997, the Company completed the previously announced
acquisitions of TNB and First Bank. At June 30, 1997, TNB had total assets of
approximately $14.1 million, total deposits of
<PAGE>
approximately $12.4 million and total stockholders' equity of approximately $1.6
million and First Bank had total assets of approximately $32.9 million, total
deposits of approximately $26.8 million and total stockholders' equity of
approximately $3.9 million.
As part of the transaction with TNB, the Company acquired all of the issued
and outstanding shares of TNB's common stock (the "TNB Common Stock") through
the consolidation of TNB with a subsidiary of the Company formed solely to
facilitate the acquisition of TNB. As a result of the consummation of the
acquisition, TNB became a wholly-owned subsidiary of the Company, and
immediately thereafter, TNB was consolidated with the Company's wholly-owned
subsidiary, the Bank, with the Bank surviving. The acquisition of TNB by the
Company was made pursuant to an Agreement and Plan of Consolidation by and among
the Company, the Bank and TNB dated August 7, 1997. In consideration of the
exchange of the by shareholders of their TNB Common Stock, holders of TNB Common
Stock received a $2.4 million aggregate cash payment from the Company. The
purchase price was determined by arms-length negotiations between the Company
and TNB. A portion of the funds used for the acquisition represent a portion of
the proceeds obtained from the public offering of 600,000 shares of Company
common stock which closed on November 12, 1997.
As part of the transaction with First Bank, the Company acquired all of the
issued and outstanding shares of First Bank's common stock (the "First Bank
Common Stock") through the merger of First Bank with a subsidiary of the Company
formed solely to facilitate the acquisition of First Bank. As a result of the
consummation of the acquisition, First Bank became a wholly-owned subsidiary of
the Company, and immediately thereafter, First Bank was consolidated with the
Company's wholly-owned subsidiary, the Bank, with the Bank surviving. The
acquisition of First Bank by the Company was made pursuant to an Agreement and
Plan of Consolidation by and among the Company, the Bank and First Bank dated
August 7, 1997. In consideration of the exchange by shareholders of their First
Bank Common Stock, holders of First Bank Common Stock received a $8.0 million
aggregate cash payment from the Company. The purchase price was determined by
arms-length negotiations between the Company and First Bank. A portion of the
funds used for the acquisition represent a portion of the proceeds obtained from
the Offering.
PART II - Other Information
ITEM 1. - Legal Proceedings
None
ITEM 2. - Changes in Securities
(a) On November 12, 1997, the Company completed the Offering of 600,000 shares
of the Company's Common Stock bringing the total number of shares to be
outstanding after the Offering to 1,958,907 shares. On November 24, 1997,
the 90,000 share over-allotment was exercised by the Underwriter bringing
the total shares to be outstanding after the Offering to 2,048,907 shares.
The Company received $8.5 million of the proceeds of the Offering from its
sale of Common Stock, after deducting the underwriting discount and other
expenses associated with the Offering. The Company received $1.3 million
in proceeds for the Underwriters over-allotment, after deducting the
underwriting discount and other expenses. A portion of the net proceeds of
the Offering were used to fund the $5.5 million purchase price for the
acquisition of Texas Bank. The remaining $3.0 in net proceeds were used to
fund a portion of the $10.3 million aggregate purchase price for the
acquisitions of TNB and First Bank. The $7.3 million balance of the
purchase price for the acquisitions of TNB and First Bank were funded
through a dividend from the Bank to the Company.
ITEM 3. - Defaults Upon Senior Securities
None
<PAGE>
ITEM 4. - Submission of Matters to a Vote of Security Holders
None
ITEM 5. - Other Information
None
ITEM 6. - Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 1 - Agreement and Plan of Consolidation by and between Bay
Bancshares, Inc., Bayshore National Bank and Texas Bank and
certain shareholders of Texas Bank dated June 24, 1997, together
with the exhibits thereto (incorporated by reference to Exhibit
No. 10.3 filed as part of the Registration Statement on form S-1
(Registration No. 333-36185) of Bay Bancshares, Inc.).
Exhibit 2 - Agreement and Plan of Consolidation by and between Bay
Bancshares, Inc., Bayshore National Bank and Texas National Bank
of Baytown dated August 7, 1997, together with the exhibits
thereto (incorporated by reference to Exhibit No. 10.4 filed as
part of the Registration Statement on Form S-1 (Registration No.
333-36185) of Bay Bancshares, Inc.).
Exhibit 3 - Agreement and Plan of Consolidation by and between Bay
Bancshares, Inc., Bayshore National Bank and First Bank of Deer
Park dated August 7, 1997, together with the exhibits thereto
(incorporated by reference to Exhibit No. 10.5 filed as part of
the Registration Statement on Form S-1 (Registration No.
333-36185) of Bay Bancshares, Inc.).
Reports on Form 8-K:
On November 25, 1997, the Registrant filed with the Securities and Exchange
Commission Form 8-K (Commission File No. 0-23299) reporting the
acquisition of Texas Bank.
On December 5, 1997, the Registrant filed with the Securities and Exchange
Commission Form 8-KA (Commission File No. 0-23299) reporting the
financial statements and pro forma financial information of Texas
Bank.
On December 5, 1997, the Registrant filed with the Securities and Exchange
Commission Form 8-K (Commission File No. 0-23299) reporting the
acquisition of Texas National Bank of Baytown and First Bank of
Deer Park.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BAY BANCSHARES, INC.
By: /s/ Larry D. Wright
--------------------------
Larry D. Wright
President
By: /s/ Kim Love
--------------------------
Kim Love
Controller
Dated: December 19, 1997
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