<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1995
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
------------------- ---------------------
Commission file number 0-9584
CALIFORNIA BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2147553
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Park Place, Ste 140, San Ramon California 94583
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(510) 743-4200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, 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 (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
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 27, 1995
----- ----------------------------
Common Stock, $2.50 par value 10,034,808
This report contains a total of 30 pages.
---------
<PAGE>
CALIFORNIA BANCSHARES, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
Consolidated Balance Sheet. . . . . . . . . . . . . . . . 3
Consolidated Statement of Income. . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows. . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Highlights. . . . . . . . . . . . . . . . . . . 9
Overview. . . . . . . . . . . . . . . . . . . . . . . . . 10
Results of Operations
Net Interest Income . . . . . . . . . . . . . . . . . . 10
Allowance and Provision for Loan Losses . . . . . . . . 15
Noninterest Income. . . . . . . . . . . . . . . . . . . 16
Noninterest Expense . . . . . . . . . . . . . . . . . . 16
Income Taxes. . . . . . . . . . . . . . . . . . . . . . 17
Financial Condition
Securities. . . . . . . . . . . . . . . . . . . . . . . 18
Loan Portfolio. . . . . . . . . . . . . . . . . . . . . 19
Nonaccrual Loans, Restructured Loans
and Foreclosed Assets . . . . . . . . . . . . . . . . . 20
Deposits. . . . . . . . . . . . . . . . . . . . . . . . 21
Asset/Liability Management
Interest Rate Risk. . . . . . . . . . . . . . . . . . . 22
Liquidity . . . . . . . . . . . . . . . . . . . . . . . 24
Capital . . . . . . . . . . . . . . . . . . . . . . . . 24
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(2)
<PAGE>
ITEM 1. Financial Statements
California Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(In thousands except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
----------- ------------
ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Cash and due from banks $ 78,101 $ 66,587
Federal funds sold 41,545 14,800
---------- ----------
Total cash and cash equivalents 119,646 81,387
Securities:
Available for sale 51,830 51,426
Held to maturity (approximate market values
of $260,239-1995 and $233,479-1994) 262,478 245,984
---------- ----------
Total securities 314,308 297,410
Loans 1,033,173 913,476
Less: Allowance for loan losses (15,103) (12,822)
---------- ----------
Net loans 1,018,070 900,654
Premises and equipment, net 20,921 17,329
Interest receivable and other assets 43,992 32,709
---------- ----------
TOTAL ASSETS $1,516,937 $1,329,489
---------- ----------
---------- ----------
LIABILITIES
Deposits:
Non interest-bearing demand $257,111 $228,211
Savings and interest-bearing demand 568,431 519,431
Time certificates, $100,000 or more 124,724 86,338
Other time 434,207 345,737
---------- ----------
Total deposits 1,384,473 1,179,717
Borrowed funds 348 29,747
Interest payable and other liabilities 8,185 7,782
---------- ----------
Total liabilities 1,393,006 1,217,246
---------- ----------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred stock, no par value
Shares authorized: 2,000,000
Shares issued: none -- --
Common stock, $2.50 par value
Shares authorized: 16,000,000
Shares issued and outstanding: 1995 - 10,005,807
1994 - 9,353,000 25,014 23,383
Capital surplus 37,791 35,707
Unrealized loss on securities available for sale, net (22) (421)
Retained earnings 61,148 53,574
---------- ----------
Total shareholders' equity 123,931 112,243
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,516,937 $1,329,489
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
(3)
<PAGE>
California Bancshares, Inc. and Subsidiaries
Consolidated Statement of Income (Unaudited)
For the Three and Six Month Periods Ended June 30, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $22,533 $14,024 $44,352 $27,313
Securities:
Taxable 3,475 3,569 7,211 6,694
Exempt from Federal income taxes 613 703 1,240 1,414
Other interest income 920 426 1,469 871
------- ------- ------- -------
Total interest income 27,541 18,722 54,272 36,292
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits:
Savings and interest-bearing demand 2,941 2,479 6,280 4,881
Time certificates, $100,000 or more 1,088 495 1,907 1,002
Other time 6,173 1,941 10,941 3,835
------- ------- ------- -------
Total interest on deposits 10,202 4,915 19,128 9,718
Interest on borrowed funds 164 28 729 55
------- ------- ------- -------
Total interest expense 10,366 4,943 19,857 9,773
------- ------- ------- -------
Net interest income 17,175 13,779 34,415 26,519
Provision for loan losses 210 585 600 1,055
------- ------- ------- -------
Net interest income after provision for loan losses 16,965 13,194 33,815 25,464
------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposit accounts 1,339 1,096 2,660 2,115
Loss on sale of securities available for sale -- -- -- (11)
Other operating income 911 620 1,600 1,610
------- ------- ------- -------
Total noninterest income 2,250 1,716 4,260 3,714
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 6,493 5,530 13,209 11,021
Occupancy expense 1,089 832 2,204 1,668
Equipment expense 964 786 1,897 1,541
Other operating expense 3,954 3,444 7,578 6,960
------- ------- ------- -------
Total noninterest expense 12,500 10,592 24,888 21,190
------- ------- ------- -------
Income before provision for income taxes 6,715 4,318 13,187 7,988
Provision for income taxes 2,505 1,552 4,977 2,792
------- ------- ------- -------
NET INCOME $ 4,210 $ 2,766 $ 8,210 $ 5,196
------- ------- ------- -------
------- ------- ------- -------
PER SHARE
Net Income $ 0.42 $ 0.30 $ 0.82 $ 0.56
------- ------- ------- -------
------- ------- ------- -------
Dividends declared $ 0.18 $ 0.14 $ 0.36 $ 0.27
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares outstanding 10,002 9,366 9,988 9,362
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements
(4)
<PAGE>
California Bancshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
For the Six Month Period Ended June 30, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,210 $ 5,196
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,558 1,406
Provision for loan losses 600 1,055
Net loss on sales of securities -- 11
Net gain on sales of premises and equipment and
foreclosed assets (267) (33)
Gain on sale of loans (483) --
Provision for foreclosed assets 275 49
Net (additions) proceeds from sales of mortgages held for sale (3,011) 1,695
Net change in interest receivable, other assets
interest payable and other liabilities (2,643) (3,403)
-------- --------
Net cash provided by operations 4,239 5,976
-------- --------
Cash flows from investing activities:
Securities:
Held to Maturity:
Proceeds from prepayments and maturities 18,787 31,523
Purchases (8,031) (61,162)
Available for Sale:
Proceeds from prepayments and maturities 26,522 15,500
Purchases -- (20,253)
Loans made to customers less principal payments collected (6,297) (17,241)
Net cash provided by acquisitions 3,651
Net change in interest-bearing time deposits -- 300
Capital expenditures (2,185) (1,654)
Proceeds from sales of premises and equipment 7 7
Proceeds from sales of foreclosed assets 998 1,383
-------- --------
Net cash provided by (used in) investing activities 33,452 (51,597)
-------- --------
Cash flows from financing activities:
Net increase in deposits 34,751 18,354
Net decrease in borrowed funds (29,399) --
Cash dividends paid (4,911) (3,360)
Proceeds from issuance of common stock for stock
options exercised and dividend reinvestment plan 681 1,313
Repurchase of common stock (554) (1,022)
-------- --------
Net cash provided by financing activities 568 15,285
-------- --------
Net change in cash and cash equivalents 38,259 (30,336)
Cash and cash equivalents at beginning of year 81,387 114,318
-------- --------
Cash and cash equivalents at end of period $119,646 $ 83,982
-------- --------
-------- --------
Supplemental disclosure on non-cash investing activities:
Loans transferred to foreclosed assets $ 1,636 $ 531
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 19,345 $ 9,802
-------- --------
-------- --------
Income taxes $ 4,060 $ 2,100
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
(5)
<PAGE>
California Bancshares, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The unaudited consolidated financial statements of California Bancshares,
Inc. and Subsidiaries (the "Company") are prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented have been
included and are normal and recurring. These unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 1994.
The unaudited financial statements of the Company include the accounts of
California Bancshares, Inc. (the Parent) and its banking subsidiaries,
Alameda First National Bank, Bank of Livermore, The Bank of Milpitas, N.A.,
The Bank of San Ramon Valley, Centennial Bank, Commercial Bank of Fremont,
Community First National Bank, Concord Commercial Bank, Lamorinda National
Bank, Modesto Banking Company and Westside Bank (collectively, the Banks),
and non-bank subsidiaries, CBI Mortgage, Island Bancorp. Leasing, Inc. and
LNB Corp.
The revenues, expenses, assets and liabilities of the subsidiaries are
included in the respective line items in the unaudited consolidated financial
statements, after elimination of all material intercompany accounts and
transactions. The results of operations and cash flows are not necessarily
indicative of those expected for the full fiscal year. Certain amounts for
prior periods have been reclassified to conform with the 1995 presentation.
2. ACQUISITIONS:
On June 30, 1995, the Company acquired all of the outstanding shares of First
Community Bankshares, Inc., the holding company for Centennial Bank.
Centennial Bank, located in Castro Valley, California, had assets of $118
million at June 30, 1995. This acquisition was accounted for as a purchase
and accordingly, the results of operations, which are not material to the
consolidated financial statements, will be included in the Company's
consolidated financial statements from the acquisition date. The total cost
of the acquisition was $16.25 million in cash. The excess of the purchase
price over fair value of net assets acquired was $5.1 million.
On January 31, 1995, the Company completed the acquisition of Bank of
Livermore (Livermore), which had $71 million in total assets at December 31,
1994. The Company issued 633,908 shares of common stock valued at
approximately $10.9 million at the time of the transaction. The acquisition
of Livermore was accounted for as a pooling-of-interests. Livermore is not
material to the financial condition or operating results of the Company, and
therefore, prior period balances were not restated. However, 1995 amounts
were adjusted to reflect the transaction as if it had occurred January 1,
1995.
(6)
<PAGE>
3. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114 AND 118:
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of
a Loan", as amended by SFAS No. 118 (collectively referred to as SFAS No.
114), on a prospective basis. These Statements address the accounting
treatment of certain impaired loans and amend SFAS No. 5 and 15. However,
these statements do not address the overall adequacy of the allowance for
loan losses and do not apply to large groups of smaller-balance homogeneous
loans unless they have been involved in a restructuring.
A loan is considered impaired, within the scope of SFAS No. 114, when, based
on current information and events, it is probable that the Company will be
unable to collect principal or interest due according to the contractual
terms of the loan. For a loan that has been restructured the contractual
terms of the loan refer to the contractual terms of the original loan
agreement.
The Company measures the impairment of a loan when and while a loan is on
nonaccrual or the loan has been restructured. The amount of impairment is
calculated by the Company using discounted cash flows, except when the source
of repayment for the loan is through the liquidation of the underlying
collateral. For these loans, the net realizable value of the collateral
(current fair value less estimated costs to sell) is used in place of
discounted cash flows. If the measurement of the impaired loan is less than
the recorded investment in the loan, the Company recognizes such impairment
by creating or adjusting the existing allowance for loan losses. If full
collection is uncertain, cash receipts shall be applied first to principal,
then to recovery of amounts previously charged off, then to interest income.
The following table presents the recorded investment in impaired loans and
the related SFAS No. 114 allowance for loan losses at June 30, 1995:
<TABLE>
<CAPTION>
Related
Recorded SFAS No. 114
investment in allowance for
(In thousands) impaired loans loan losses
-------------- -----------
<S> <C> <C>
Impaired loans with a required allowance $2,775 $562
Impaired loans not requiring an allowance 6,202 --
------ ------
Total $8,977 $562
------ ------
------ ------
</TABLE>
4. COMMITMENTS AND CONTINGENT LIABILITIES:
In the normal course of business there are outstanding various commitments to
extend credit, letters of credit and contingent liabilities that are not
reflected in the financial statements. While no related losses are
anticipated, such instruments do involve elements of credit and interest rate
risk in excess of amounts recorded in the balance sheet. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. Standby and commercial
letters of credit are written conditional commitments issued by the Banks to
guarantee
(7)
<PAGE>
the performance of a customer to a third party. Letters of credit have fixed
expiration dates and require payment of a fee. When making commitments or
issuing letters of credit, the Banks evaluate each customer's
creditworthiness on a case-by-case basis. The same credit policies are used
in making commitments and conditional obligations as are used for on-balance
sheet instruments. The Banks control the credit risk of these transactions
through credit approval, limits and monitoring procedures. The amount of
collateral obtained, if deemed necessary, is based on management's credit
evaluation of the customer. Exposure to credit loss, in the event of
nonperformance by the other party to the financial instrument, for
commitments to extend credit and letters of credit is represented by the
contractual notional amount of those instruments.
Amounts of these financial instruments at June 30, 1995 and December 31, 1994
are summarized below:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
-------- --------
<S> <C> <C>
Commitments to extend credit $225,535 $195,217
Standby letters of credit 8,808 5,837
</TABLE>
The Company and its subsidiaries, in the ordinary course of business, are
defendants in various legal proceedings. Management believes the aggregate
contingent liability, if any, will not materially affect the Company's
financial position.
The California franchise tax returns for the Company for the years 1977
through 1979, 1983 and 1984 have been examined by the California Franchise
Tax Board. These examinations have resulted in the assessment of additional
taxes, principally relating the tax treatment of direct financing leases.
Due to the complex nature of the matter, it is not reasonably possible to
predict the eventual outcome of this issue; however, management will continue
to vigorously protest this assessment. Management does not believe that the
resolution of the issue will have a material adverse effect on the Company's
financial position.
(8)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
(Dollar amounts in thousands except per share data) 1995 1994 1995 1994
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
FOR THE PERIOD
Net interest income on a taxable- equivalent basis $ 17,491 $ 14,142 $ 35,055 $ 27,246
Less: Taxable-equivalent adjustments (316) (363) (640) (727)
Provision for loan losses (210) (585) (600) (1,055)
-------- -------- -------- --------
Net interest income after provision for loan
losses 16,965 13,194 33,815 25,464
Noninterest income 2,250 1,716 4,260 3,714
Noninterest expense (12,500) (10,592) (24,888) (21,190)
Provision for income taxes (2,505) (1,552) (4,977) (2,792)
-------- -------- -------- --------
Net income $ 4,210 $ 2,766 $ 8,210 $ 5,196
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $ 0.42 $ 0.30 $ 0.82 $ 0.56
-------- -------- -------- --------
-------- -------- -------- --------
FINANCIAL RATIOS
Return on average assets(1) 1.20% 1.04% 1.19% 1.00%
Return on average equity(1) 13.92 10.21 13.74 9.71
Average shareholders' equity to average assets 8.61 10.21 8.63 10.25
Total risk-based capital ratio(2) 12.62 16.22 12.62 16.22
Net interest margin (TE)(1) 5.36 5.77 5.44 5.64
<CAPTION>
June 30,
----------------------
1995 1994
------- ---------
<S> <C> <C> <C> <C>
AT PERIOD END
Loans $1,033,173 $ 624,043
Allowance for loan losses 15,103 10,054
Assets 1,516,937 1,065,916
Shareholders' equity 123,931 108,922
Deposits 1,384,473 952,127
STOCK DATA
Book value per common share $ 12.39 $ 11.64
Common stock price range:
High 21 18 21 18
Low 16-3/8 15 16-3/8 14-1/2
Closing common stock price 21 17-1/2 21 17-1/2
Average common shares outstanding (000's) 10,002 9,366 9,988 9,362
Number of common shares outstanding at period 10,006 9,356 10,006 9,356
end (000)'s
Dividend payout ratio 42.9% 46.7% 43.9% 48.6%
<FN>
- ------------------------------
(1)Annualized
(2)Tier 1 and Tier 2 capital.
</TABLE>
(9)
<PAGE>
OVERVIEW
Net income for the second quarter of 1995 was $4.2 million ($0.42 per
share), a 52.2% increase from the $2.7 million ($0.30 per share) reported for
the same period in 1994. For the six months ended June 30, 1995 and 1994 net
income was $8.2 million ($0.82 per share) and $5.2 million ($0.56 per share),
respectively.
The return on average assets for the three and six months ended June 30,
1995 was 1.20% and 1.19%, respectively, up from 1.04% and 1.00% for the like
periods in 1994. Return on average shareholders' equity for the three and
six months ended June 30, 1995 was 13.92% and 13.74%, respectively, compared
to 10.21% and 9.71% for the comparable periods in 1994.
On June 30, 1995, the Company acquired all of the outstanding shares of
First Community Bankshares, Inc., the holding company for Centennial Bank.
This acquisition was accounted for as a purchase and accordingly, the results
of operations, which are not material, will be included in the Company's
consolidated financial statements from the acquisition date. On January 31,
1995, the Company acquired Bank of Livermore, in a transaction accounted for
as a pooling-of-interests. Bank of Livermore is not material to the
consolidated financial condition or operating results of the Company, and
therefore, prior periods balances have not been restated. However, 1995
amounts were adjusted to reflect the transaction as if it occurred January 1,
1995. On December 2, 1994, the Company acquired Old Stone Bank of
California, F.S.B. (Old Stone), which was merged into an existing
subsidiary. This transaction was accounted for using the purchase method.
Subsequent to the acquisition, the results of operations of Old Stone were
combined with the Company's. When appropriate, this analysis discusses the
impact of these transactions so meaningful comparisons can be made.
The following discusses significant areas, including the above mentioned
acquisitions, that have affected the Company's results of operations for the
three and six months ended June 30, 1995 as compared to the same periods in 1994
and financial condition at June 30, 1995 as compared to December 31, 1994.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income on a taxable-equivalent basis was $17.5 million and
$35.1 million for the three and six month periods, respectively, of 1995,
compared with $14.1 million and $27.2 million for the like periods in 1994.
The increase in net interest income between these periods is primarily
attributable to increases in loan volume. Average loans outstanding for the
second quarter of 1995 increased by $338.5 million (55.4%) compared to 1994
and $339.0 million (55.8%) for the first six months of 1995 compared to 1994.
This increase was principally related to the Company's acquisitions. Rising
interest rates also helped increase the yields on the Company's earning
assets but were offset by increases on deposit rates. In addition, the
Company's interest-bearing liabilities volume also increased substantially in
1995 compared to 1994 which was also acquisition related.
(10)
<PAGE>
The net interest margin on a taxable-equivalent basis decreased to 5.36%
for the second quarter of 1995 and 5.44% for the six months ended June 30,
1995 compared with 5.77% and 5.64% for the same periods in 1994. While the
average yield on the Company's earning assets have improved by 75 basis
points and 87 basis points, respectively, these increases have not kept pace
with the rates paid on interest-bearing liabilities, which increased 128
basis points in the second quarter of 1995 compared to 1994 and 116 basis
points for the first six months of 1995 compared to 1994. The Company's
acquisitions and the competitive rate environment were the leading factors
that increased the Company's cost of funds during these periods.
The following tables present the Company's consolidated average balance
sheets including average yields and rates on a taxable-equivalent basis for the
three and six month periods ended June 30, 1995 and 1994 (Table A) and the
approximate effect on net interest income of volume and rate changes from these
periods (Table B). The change in interest due to both rate and volume has been
allocated to change due to rate and change due to volume in proportion to the
relationship of absolute dollar amounts of change in each.
(11)
<PAGE>
<TABLE>
<CAPTION>
TABLE A Three Months Ended June 30,
-------------------------------------------------------------------
(Dollars in thousands) 1995 1994
------------------------------- -----------------------------
Average Yields Average Yields
Balance Interest & Rates Balance Interest & Rates
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-bearing time deposits $ -- $ -- -- $ 200 $ 3 6.02%
Federal funds sold 64,773 920 5.62% 44,417 423 3.77
Securities:
Taxable 247,318 3,475 5.64 272,687 3,569 5.25
Non-taxable (TE)(1) 45,825 929 8.11 54,115 1,066 7.88
---------- ------- ---- ---------- ------- ----
Total securities(1) 293,143 4,404 6.03 326,802 4,635 5.69
Loans(2) 949,903 22,533 9.51 611,385 14,024 9.20
---------- ------- ---- ---------- ------- ----
Total earning assets 1,307,819 27,857 8.54 982,804 19,085 7.79
Nonearning assets, net of
allowance for loan losses 101,546 81,366
---------- ----------
Total Assets $1,409,365 $1,064,170
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
Savings and interest-bearing
demand accounts $ 531,929 $ 2,941 2.22 $ 484,824 $ 2,479 2.05
Time 509,868 7,261 5.71 259,062 2,436 3.77
---------- ------- ---- ---------- ------- ----
Total interest-bearing deposits 1,041,797 10,202 3.93 743,886 4,915 2.65
Other borrowings 13,077 164 5.09 1,500 28 7.49
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 1,054,874 10,366 3.94 745,386 4,943 2.66
Demand deposits 223,871 205,785
Other liabilities 9,279 4,313
---------- ----------
Total liabilities 1,288,024 955,484
Shareholders' equity 121,341 108,686
---------- ----------
Total Liabilities and
Shareholders' Equity $1,409,365 $1,064,170
---------- ------- ---- ---------- ------- ----
---------- ----------
Net Interest Income and Margin(3) $17,491 5.36% $14,142 5.77%
------- ---- ------- ----
------- ---- ------- ----
<FN>
- ------------------------------
(1)Interest income is presented on a taxable-equivalent basis. The
taxable-equivalent adjustments were based on a marginal tax rate of 34%.
(2)Nonaccrual loans are included in total loans, but are not material
to this presentation.
(3)Net interest margin is calculated as annualized net interest income on
a taxable-equivalent basis divided by average earning assets.
</TABLE>
(12)
<PAGE>
<TABLE>
<CAPTION>
TABLE A Six Months Ended June 30,
---------------------------------------------------------------------
(Dollars in thousands) 1995 1994
-------------------------------- -------------------------------
Average Yields Average Yields
Balance Interest & Rates Balance Interest & Rates
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-bearing time deposits $ -- $ -- -- $ 270 $ 5 3.73%
Federal funds sold 49,109 1,469 5.95% 51,173 866 3.37
Securities:
Taxable 260,014 7,211 5.59 261,785 6,694 5.16
Non-taxable (TE)(1) 43,327 1,880 8.68 53,867 2,141 7.95
---------- ------- ---- ---------- -------- ----
Total securities(1) 303,341 9,091 6.04 315,652 8,835 5.64
Loans(2) 946,174 44,352 9.45 607,140 27,313 9.07
---------- ------- ---- ---------- ------- ----
Total earning assets 1,298,624 54,912 8.53 974,235 37,019 7.66
Nonearning assets, net of
allowance for loan losses 97,950 77,909
---------- ----------
Total Assets $1,396,574 $1,052,144
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits:
Savings and interest-bearing
demand accounts $ 533,458 $ 6,280 2.37 $ 477,158 $ 4,881 2.06
Time 493,378 12,848 5.25 259,326 4,837 3.76
---------- ------- ---- ---------- ------- ----
Total interest-bearing deposits 1,026,836 19,128 3.76 736,484 9,718 2.66
Other borrowings 18,271 729 8.05 1,500 55 7.39
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 1,045,107 19,857 3.83 737,984 9,773 2.67
Demand deposits 223,414 201,790
Other liabilities 7,579 4,493
---------- ----------
Total liabilities 1,276,100 944,267
Shareholders' equity 120,474 107,877
---------- ----------
Total Liabilities and
Shareholders' Equity $1,396,574 $1,052,144
---------- ------- ---- ---------- ------- ----
---------- ----------
Net Interest Income and Margin(3) $35,055 5.44% $27,246 5.64%
------- ---- ------- ----
------- ---- ------- ----
<FN>
- ------------------------------
(1)Interest income is presented on a taxable-equivalent basis. The
taxable-equivalent adjustments were based on a marginal tax rate of 34%.
(2)Nonaccrual loans are included in total loans, but are not material
to this presentation.
(3)Net interest margin is calculated as annualized net interest income on
a taxable-equivalent basis divided by average earning assets.
</TABLE>
(13)
<PAGE>
<TABLE>
<CAPTION>
TABLE B Quarter Ended June 30, Six Months Ended June 30,
------------------------- ---------------------------
1995 compared to 1994 1995 compared to 1994
------------------------- ---------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Interest-bearing time deposits $ (1) $ (2) $ (3) $ (3) $ (2) $ (5)
Federal funds sold 240 257 497 (36) 639 603
Securities:
Taxable (346) 252 (94) (46) 563 517
Non-taxable (TE) (167) 30 (137) (445) 184 (261)
Loans 8,015 494 8,509 15,848 1,191 17,039
------ ------ ------ ------- ------ -------
Total average earning assets 7,741 1,031 8,772 15,318 2,575 17,893
------ ------ ------ ------- ------ -------
Increase in interest expense:
Savings and interest-bearing
demand deposits 251 211 462 614 785 1,399
Time certificates 3,151 1,674 4,825 5,567 2,444 8,011
Other borrowings 148 (12) 136 669 5 674
------ ------ ------ ------- ------ -------
Total average interest-bearing
liabilities 3,550 1,873 5,423 6,850 3,234 10,084
------ ------ ------ ------ ------ -------
Net increase in net interest income $4,191 $ (842) $3,349 $8,468 $ (659) $ 7,809
------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ -------
</TABLE>
(14)
<PAGE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES
- ---------------------------------------
The following table details the changes in the Company's allowance for loan
losses for the first six months of 1995 and 1994. The allowance for loan losses
should not be interpreted as an indication that charge-offs in the future will
occur in these amounts or proportions.
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
(Dollars in thousands) 1995 1994
-------- --------
<S> <C> <C>
Balance at beginning of year $ 12,822 $ 11,547
---------- --------
Deduct loans charged-off:
Real estate (141) (410)
Commercial and industrial (493) (1,274)
Consumer (378) (671)
---------- --------
Total charge-offs (1,012) (2,355)
Add recoveries of loans charged-off: ---------- --------
Real estate -- --
Commercial and industrial 280 123
Consumer 75 146
---------- --------
Total recoveries 355 269
---------- --------
Net charge-offs (657) (2,086)
---------- --------
Provision for loan losses 600 1,055
Allowance related to acquisitions 2,338 (462)
---------- --------
Balance at end of period $ 15,103 $ 10,054
---------- --------
---------- --------
Net charge-offs to average loans outstanding
(annualized) 0.14% 0.69%
Average loans outstanding $ 946,174 $607,140
Allowance at end of period to loans outstanding 1.46% 1.61%
Period end loans $1,033,173 $624,043
</TABLE>
At June 30, 1995, the allowance for loan losses was $15.1 million or
1.46% of total loans compared with $12.8 million or 1.40% at December 31,
1994 and $10.1 million or 1.61% at June 30, 1994. The provision for loan
losses declined to $210,000 for the second quarter of 1995 from $585,000 for
the like period in 1994. For the first six months of 1995 the provision was
$600,000 compared to $1.1 million in 1994. Net charge-offs for second
quarter and first six months of 1995 were $552,000, (0.23% of average total
loans, on an annualized basis) and $657,000 (0.14%), compared with $1.1
million (0.71%) and $2.1 million (0.69%) for the comparable periods in 1994.
At June 30, 1995, December 31, 1994 and June 30, 1994, the Company's ratio of
the allowance for loan losses to total nonperforming loans was 122%, 98% and
120%, respectively.
The Company's determination of the allowance for loan losses and the
corresponding provision for loan losses is based on various judgments and
assumptions including, but not limited to, general economic conditions, the
composition of the loan portfolio, prior loss experience and estimates of
potential future losses. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Banks'
allowances for loan losses.
(15)
<PAGE>
The Company performs a quarterly assessment to determine the appropriate
level of the allowance for loans losses. This process uses a series of
allocation methods including specific credit allocations for individual loans
and historical loss experience for each loan category and degree of criticism
within each category. The total of these allocations is then supplemented by
the unallocated portion of the allowance for loan losses. Based on management's
analysis of the Company's overall allowance for loan losses, management believes
that the provision for loan losses for 1995 is appropriate. It is management's
opinion that the allowance for loan losses at June 30, 1995 is adequate to
provide for potential losses in the current loan portfolio. No assurances can
be given that adverse economic conditions will not result in increased losses in
the Company's loan portfolio.
NONINTEREST INCOME
- ------------------
Noninterest income for the second quarter and first six months of 1995 was
$2.3 million and $4.3 million, respectively, an increase of $534,000 and
$546,000 over the like periods in 1994. The components of noninterest income
were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
(In thousands) 1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $1,339 $1,096 $2,660 $2,115
Other fee income 338 332 698 561
Loss on sale of securities -- -- -- (11)
Gains on sales of loans 323 218 484 721
Other income 250 70 418 328
----- ---- ------ ------
Total noninterest income $2,250 $1,716 $4,260 $3,714
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Service charges on deposit accounts increased $243,000 or (22.2%) and
$545,000 (25.8%), respectively, in 1995 compared to 1994. This increase was
primarily related to deposit growth through acquisitions.
NONINTEREST EXPENSE
- -------------------
Total noninterest expense was $12.5 million for the second quarter of 1995
compared with $10.6 million for 1994. For the first six months of 1995 total
noninterest expense was $24.9 million, a $3.7 million or 17.5% increase over the
same period in 1994. The ratio of noninterest expense to operating revenue, on
a taxable-equivalent basis, excluding securities transactions, was 63.3% for
both the second quarter and first six months of 1995 compared with 66.8% and
68.4% for the like periods in 1994.
(16)
<PAGE>
The following table presents the major components of noninterest expense for
the second quarter and first six months of 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------------------------
June 30, Change 95/94 June 30, Change 95/94
-------------- ------------- ---------------------- ------------------
1995 1994 $ % 1995 1994 $ %
---- ---- --- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 6,493 $ 5,530 $963 17.4% $13,209 $11,021 $2,188 19.9%
Occupancy 1,089 832 257 30.9 2,204 1,668 536 32.1
Equipment 964 786 178 22.6 1,897 1,541 356 23.1
Regulatory expenses 738 603 135 22.4 1,470 1,208 262 21.7
Banking forms and stationery 397 277 120 43.3 800 532 268 50.4
Communications expense 432 245 187 76.3 869 559 310 55.5
Outside data processing expense 151 159 (8) (5.0) 340 383 (43) (11.2)
Legal expense 198 148 50 33.8 303 284 19 6.7
Foreclosed assets expense, net 74 11 63 572.7 74 82 (8) (9.8)
Consultant fees 226 259 (33) (12.7) 400 436 (36) (8.3)
Promotional expense 281 280 1 0.4 532 540 (8) (1.5)
Courier service 240 207 33 15.9 471 381 90 23.6
Other 1,217 1,255 (38) (3.0) 2,319 2,555 (236) (9.2)
------- ------- ------ ----- ------- ------- ------ -----
$12,500 $10,592 $1,908 18.0% $24,888 $21,190 $3,698 17.5%
------- ------- ------ ----- ------- ------- ------ -----
------- ------- ------ ----- ------- ------- ------ -----
</TABLE>
The increase in salaries and benefits for the periods presented in 1995
compared to 1994 is directly related to the Company's expansion, primarily
acquisition related. The Company's full time equivalent staff numbered 657 at
June 30, 1995, this compares with 565 at June 30, 1994.
The increase in occupancy, equipment, regulatory, banking forms and
stationery, communication and courier expenses in 1995 compared to 1994 is
primarily expansion related. The Company at June 30, 1995 had 40 banking
locations, compared to 26 locations at June 30, 1994.
The Company recently announced plans to re-focus on cost reduction and
revenue enhancement with a target efficiency ratio of 62% achieved by the
first quarter of 1996. This goal will be achieved through on-going efforts
to enhance revenue growth while achieving operational efficiencies through
acquisition consolidation, re-engineering of work flows and normal employee
attrition.
INCOME TAXES
- ------------
The provision for income taxes was $2.5 million for the second quarter of
1995 and $5.0 million for the first six months of 1995. This compares with $1.6
million and $2.8 million, respectively, for the comparable periods in 1994. The
effective tax rates for these periods in 1995 were 37.3% and 37.7%,
respectively. The effective tax rates in 1994 were 35.9% and 35.0%. The
increase in the Company's effective tax rate between these two periods is
primarily attributable to the decrease in nontaxable income in 1995 relative to
the Company's earnings.
(17)
<PAGE>
FINANCIAL CONDITION
- -------------------
SECURITIES
- ----------
The Company's securities portfolio increased by $16.9 million between
December 31, 1994 and June 30, 1995. The increase was due to the addition of
$54.0 million in securities from 1995 acquisitions. Excluding these
transactions, the Company had year to date maturities and repayments totaling
$45.3 million and $8.0 million in purchases.
At June 30, 1995 and December 31, 1994, the held to maturity securities had
an estimated unrealized pretax loss of $2.2 million and $12.5 million,
respectively.
At June 30, 1995, the available for sale securities portfolio had an
unrealized pretax loss of $43,000 or a net of tax loss of $22,000. This net
loss has been reported as a separate component of shareholders' equity. At
December 31, 1994 the pretax loss in this segment of the portfolio was $721,000
with a net of tax loss of $421,000.
The amortized cost and estimated market value of securities excluding
equity securities, which have no contractual maturity, at June 30, 1995 by
contractual maturity are shown in the following table. Actual maturities will
differ from contractual maturities because borrowers have the right to call or
prepay obligations with or without call or prepayment penalties. For
asset/liability purposes, the Company monitors these securities with
consideration of prepayment assumptions. Yields have been calculated by
dividing the taxable-equivalent interest income, including discount or premium
by the book value. Yields on nontaxable securities of states and political
subdivisions were presented on a taxable-equivalent basis using a marginal tax
rate of 34%.
<TABLE>
<CAPTION>
Securities Available for Sale
-----------------------------------------------------------------------------
Within 1 1 to 5 5 to 10 After 10
(Dollars in thousands) Year Years Years Years Total
-------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury
securities $24,397 $8,763 $ -- $ -- $33,160
Securities of U.S.
Government agencies and
corporations 3,003 2,964 1,833 7,800
Obligations of states
and political sub-
divisions 100 225 723 135 1,183
Corporate and Federal
Reserve Bank Stock -- 1,500 -- 1,092 2,592
------- ------- ------ ------ -------
Total $27,500 $13,452 $ 723 $3,060 $44,735
------- ------- ------ ------ -------
------- ------- ------ ------ -------
Weighted average yield 5.30% 6.38% 8.33% 6.32% 5.37%
------- ------- ------ ------ -------
------- ------- ------ ------ -------
Market value $27,430 $13,487 $ 721 $3,108 $44,746
------- ------- ------ ------ -------
------- ------- ------ ------ -------
</TABLE>
(18)
<PAGE>
<TABLE>
<CAPTION>
Securities Held to Maturity
--------------------------------------------------------------------
Within 1 1 to 5 5 to 10 After 10
(Dollars in thousands) Year Years Years Years Total
-------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $15,080 $ 57,097 $ -- $ -- $ 72,177
Securities of U.S.
Government agencies
and corporations 7,498 54,618 42,603 26,614 131,333
Obligations of states
and political subdivisions 10,778 32,405 13,975 1,660 58,818
Other securities -- 150 -- -- 150
------- -------- -------- ------- --------
Total $33,356 $144,270 $56,578 $28,274 $262,478
------- -------- -------- ------- --------
------- -------- -------- ------- --------
Weighted average yield 5.72% 6.13% 6.59% 6.97% 6.26%
------- -------- -------- ------- --------
------- -------- -------- ------- --------
Market Value $33,296 $143,745 $55,620 $27,578 $260,239
------- -------- -------- ------- --------
------- -------- -------- ------- --------
</TABLE>
LOAN PORTFOLIO
- --------------
The Company's loan portfolio consists primarily of commercial and
industrial loans, real estate 1-4 family residential properties, other
commercial real estate mortgages, construction and land development loans,
consumer installment loans and individual lines of credit. The following table
presents the loan mix at June 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
$ %
---------------------- -------------------
(In thousands) 06/30/95 12/31/94 06/30/95 12/31/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real estate -
Construction and
land development $ 118,307 $ 99,975 11.5% 11.0%
Secured by 1-4 family
residential properties 364,942 347,093 35.3 38.0
Other real estate mortgages 231,777 186,638 22.4 20.4
Loans held for sale 4,279 1,268 0.4 0.1
Commercial and industrial 181,575 159,266 17.6 17.4
Consumer 132,293 119,236 12.8 13.1
---------- -------- ----- -----
Total loans $1,033,173 $913,476 100.0 100.0
---------- -------- ----- -----
---------- -------- ----- -----
</TABLE>
The Company's loan portfolio increased by $119.7 million or 13.1% at
June 30, 1995 compared to December 31, 1994. This increase was primarily
attributable to 1995 acquisitions. Included in the commercial and industrial
loan totals were agricultural loans of $17.9 million and $18.8 million at
June 30, 1995 and December 31, 1994, respectively. Agricultural loans
consist of loans to finance agricultural production and other loans to
farmers. Agricultural loans that are primarily secured by real estate
(farmland) are included in other real estate mortgages.
The Company has historically been active in financing the construction and
development of residential properties. The underwriting standards and
administrative guidelines regarding these credits are specific and stringent.
Although a significant percentage of the Company's nonperforming loans come from
this portion of the portfolio the Company has not historically suffered any
material losses in this area.
(19)
<PAGE>
Other real estate mortgages, the majority of which are commercial
properties, are another active market for the Company. These credits are also
governed by stringent loan policies. These credits are primarily owner occupied
business properties that are limited to specific types of properties.
Inherent in any loan portfolio are risks associated with certain types of
loans. The Company's objective is to limit these risks through strict loan
policies and review procedures. Included in these policies are specific
loan-to-value (LTV) limitations as to various categories of real estate related
loans. The Company has also established policies to limit the degree of
portfolio concentration in any product type or to any individual borrower.
NONACCRUAL LOANS, RESTRUCTURED LOANS AND FORECLOSED ASSETS
- ----------------------------------------------------------
The following table presents the Company's nonaccrual and restructured
loans and foreclosed assets at June 30, 1995 and December 31, 1994.
Classification of a loan as nonaccrual or restructured does not necessarily
indicate the loan is not performing with respect to collection of principal and
interest nor does it mean that the principal of the loan is uncollectible in
whole or in part.
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1995 1994
------- -------
<S> <C> <C>
Nonaccrual loans $ 9,803 $ 8,751
Restructured loans 2,561 4,285
------- -------
Total nonperforming loans 12,364 13,036
Foreclosed assets 4,264 2,415
------- -------
Total nonperforming assets $16,628 $15,451
------- -------
------- -------
Nonperforming loans as a percentage of
total loans 1.2% 1.4%
Nonperforming assets as a percentage of
total loans and foreclosed assets 1.6% 1.7%
Loans past due 90 days and still accruing
interest $ 1,227 $ 659
Foregone interest $ 467 $ 665
</TABLE>
Effective January 1, 1995, the Company adopted Statement of Financial
Account Standards No. 114 (SFAS No. 114), "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118 (collectively referred to as
SFAS No. 114). The adoption of SFAS No. 114 has not affected the Company's
policy for placing loans on nonaccrual status. The Company generally identifies
loans to be evaluated for impairment when such loans are on nonaccrual or have
been restructured. Loans are placed on nonaccrual status when full
collectibility of principal or interest is uncertain or when principal or
interest is past due for 90 days (unless the loan is well secured and in the
process of collection). From the time a loan is placed on nonaccrual status,
interest previously accrued but not collected is reversed and charged against
interest income. Any interest or principal payments received on a nonaccrual
loan is normally applied as a principal reduction. A nonaccrual loan may be
restored to accrual status when none of its principal and interest is past
(20)
<PAGE>
due and unpaid or when it otherwise becomes well secured and in the process of
collection. In a case where a borrower experiences financial difficulties and
the Company makes certain concessionary modifications to contractual terms
(i.e., the reduction of either interest or principal or other such modifications
that the Company would not otherwise consider), the loan is classified as a
restructured loan. If the borrower is not able to meet the revised payment
schedule and the loan becomes delinquent, the loan is placed on nonaccrual
status.
The increase in nonaccrual loans between the two periods is primarily
acquisition related. Restructured loans are principally three credits, a
residential lot development loan (of which $1.6 million was reduced from the
December 31, 1994 balance) and two commercial real estate properties. All loans
in this category are currently performing according to their respective revised
terms and are yielding a market rate.
Foreclosed assets include property acquired through foreclosure. These
properties are carried at the lower of (I) fair value less estimated costs to
sell or (ii) the recorded cost of the asset. Upon foreclosure, any necessary
write-downs are charged to the allowance for loan losses. The difference
between cost and fair value less estimated cost to sell, if lower, is recorded
as a valuation allowance. Subsequent declines in the fair value of the property
are recorded as an addition to the valuation allowance. The increase of $1.8
million in foreclosed assets between December 31, 1994 and June 30, 1995 was
entirely from residential properties, both single family homes and residential
lot developments.
Loans 90 days or more past due and still accruing at June 30, 1995 were
$1.2 million, up $568,000 from the December 31, 1994 total of $659,000. All
loans in this category are well secured or in the process of collection.
Management is not aware of any significant potential problem loans which
have not otherwise been disclosed as a nonaccrual or restructured loan at June
30, 1995, in which there is known information about possible credit problems of
a borrower that has caused management to have serious doubts as to the ability
of such borrowers to comply with the present loan repayment terms.
DEPOSITS
- --------
Total deposits increased to $1.38 billion at June 30, 1995 from $1.18
billion at December 31, 1994. Average daily deposits, along with the average
rates paid thereon, for the three and six months ended June 30, 1995 and 1994 on
an annualized basis are summarized on the following table:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------ --------------------------------------
1995 1994 1995 1994
------------------ ------------------- ------------------ ----------------
(Dollars in thousands) Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 223,871 --% $205,785 --% $ 223,414 --% $204,789 --%
Savings and interest-bearing demand 531,929 2.22 484,824 2.05 533,458 2.37 477,158 2.06
Time certificates, $100,000 or more 84,523 5.16 64,550 3.08 82,453 4.60 63,469 3.18
Other time 425,345 4.50 194,512 4.00 410,925 5.37 195,857 3.95
---------- ----- -------- ----- ---------- ----- -------- -----
Total $1,265,668 3.23% $949,671 2.08% $1,250,250 3.09% $941,273 2.08%
---------- ----- -------- ----- ---------- ----- -------- -----
---------- ----- -------- ----- ---------- ----- -------- -----
</TABLE>
(21)
<PAGE>
The total amount held in the accounts of any single depositor is not
material in relationship to total deposits.
ASSET/LIABILITY MANAGEMENT
- --------------------------
The Company has separate policies and guidelines for managing the Company's
balance sheet and off-balance sheet activities which are incorporated and
considered integral parts of the asset/liability management process. Certain
policies may be governed and implemented by committees or persons other than the
Asset/Liability Committee (ALCO) as directed by the Board of Directors. Overall
asset/liability management encompasses the management and monitoring of asset
quality, liquidity and capital needs and interest rate risk.
INTEREST RATE RISK
- ------------------
One of the principal objectives of asset/liability management is to manage
the risks associated with changing interest rates and their impact on earnings.
The ALCO regularly evaluates and sets predetermined limits on the sensitivity of
each Bank's net interest income to changes in interest rates.
Interest rate risk can be viewed from a variety of perspectives,
including the sensitivity of earnings to rate movements and the sensitivity
of the market value of the Company's equity to changes in interest rates.
One way to measure how a change in interest rates will impact net interest
income in specific time frames is through a cumulative gap analysis.
Traditional gap analysis represents interest rate risk in terms of the
mismatch between the stated repricing of the Company's earning assets and
interest-bearing liabilities within defined time periods. As shown in the
following table, at June 30, 1995, the cumulative one-year contractual gap
for the Company was a negative $103.2 million, or (7.4%) of earning assets.
In other words, 7.4% of the Company's interest-bearing liabilities has the
potential to reprice or mature more quickly than its earning assets in one
year.
(22)
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
--------------------------------------------------------------------
0-3 >3-12 >1-5 >5 Non-
(Dollars in thousands) months months years years market Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 41,545 $ -- $ -- $ -- $ -- $ 41,545
Securities(1) 42,955 40,170 139,034 84,012 8,137 314,308
Loans(2) 478,065 308,332 159,218 77,755 9,803 1,033,173
-----------------------------------------------------------------------
Total earning assets 562,565 348,502 298,252 161,767 17,940 1,389,026
Noninterest-earning assets -- -- -- -- 127,911 127,911
-----------------------------------------------------------------------
Total assets 562,565 348,502 298,252 161,767 145,851 1,516,937
-----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Savings and interest-bearing
demand deposits $ 568,431 $ -- $ -- $ -- $ -- $ 568,431
Time certificates, $100,000
or more 45,723 56,611 22,190 200 -- 124,724
Other time 107,421 235,759 90,586 441 -- 434,207
-----------------------------------------------------------------------
Total interest-bearing
deposits 721,575 292,370 112,776 641 -- 1,127,362
Borrowed funds 348 -- -- -- -- 348
-----------------------------------------------------------------------
Total interest-bearing
liabilities 721,923 292,370 112,776 641 -- 1,127,710
-----------------------------------------------------------------------
Noninterest-bearing liabilities -- -- -- -- 265,296 265,296
Shareholders' equity -- -- -- -- 123,931 123,931
-----------------------------------------------------------------------
Total liabilities and
shareholders' equity 721,923 292,370 112,776 641 389,227 1,516,937
-----------------------------------------------------------------------
Incremental gap (159,358) 56,132 185,476 161,126 (243,376) --
-----------------------------------------------------------------------
Cumulative gap $(159,358) $(103,226) $82,250 $243,376 --
-------------------------------------------------------------
-------------------------------------------------------------
% to earning assets (11.5%) (7.4%) 5.9% 17.5%
-------------------------------------------------------------
-------------------------------------------------------------
<FN>
- ----------
(1)The nonmarket column consists of Federal Reserve Bank stock
(2)The nonmarket column consists of nonaccrual loans of $9,803
</TABLE>
Over the short period (one year or less) changes in interest rates affect
net interest income to the extent that there is a timing difference between the
repricing of assets and liabilities. For instance, if more liabilities than
assets reprice during a time period, such as the Company's gap analysis
indicates, given a rising rate environment, net interest income will have a
tendency to decrease if the assets and liabilities reprice in rate by
approximately the same amount. Conversely, if an institution is considered to
be asset sensitive, or as having a positive gap, when the amount of its
liabilities maturing or repricing is less than the amount of its assets also
maturing or repricing during the same period, net interest income would benefit
from a rising rate environment. Generally, in a falling interest rate
environment, a
(23)
<PAGE>
negative gap should result in an increase in net interest income, and in a
rising interest rate environment, a negative gap should adversely affect net
interest income. The converse would be true for a positive gap.
However, shortcomings are inherent in a simplified gap analysis that may
result in an institution with a nominally negative gap having interest rate
behavior associated with an asset sensitive balance sheet. For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market interest
rates. Furthermore, repricing characteristics of certain assets and liabilities
vary substantially within a given time period. In the event of a change in
interest rates, prepayment and early withdrawal levels could also deviate
significantly from those assumed in calculating gap. The Company attempts to
quantify these characteristics by taking into account the expected repricing or
maturities of earning assets and funding sources, as opposed to their
contractual maturities.
Because net interest income is not necessarily a conclusive indication of
an institution's ongoing net worth, a second measure of interest rate risk - the
market value of portfolio equity (MVPE) is important. This measure attempts to
quantify the ongoing worth of the institution by considering all cash flows,
regardless of their timing, and discounting these back to the present. The
difference between the discounted assets less the discounted liabilities is the
present value of equity or the economic measure of the institution's net worth.
These two approaches to interest rate risk measurement are complimentary
and are used in tandem by the individual Banks to provide a more complete
picture of the interest rate risk associated with their balance sheets.
Included in the Company's Asset/Liability Management Policy are limitations on
the maximum volatility each Bank may undertake associated with possible interest
rate movement.
LIQUIDITY
- ---------
Liquidity is defined as the Company's ability to provide funds to meet
customers' loan and deposit needs and to fund operations in the most timely and
cost effective basis. The Company's liquidity is measured and managed on a
individual bank basis. The holding company (parent) is funded primarily by
dividends and management fee income from its subsidiaries.
Core deposits have historically provided the Company with funding sources.
The Company also utilizes repurchase agreements. In addition, the Banks have
informal federal funds borrowing arrangements with correspondents banks to meet
unforeseen deposit outflows. At June 30, 1995 and December 31, 1994, the
Company's loan to deposit ratio was 74.6% and 77.4%, respectively.
CAPITAL
- -------
The Company reviews various capital adequacy ratios on a quarterly basis to
ensure that each banking subsidiary and the consolidated Company are within
established internal and external guidelines. The Company and its banking
subsidiaries are subject to risk-based capital regulations.
(24)
<PAGE>
These guidelines are used to evaluate capital adequacy and are based on an
institution's balance sheet risk and off-balance sheet risk. Current
regulations define capital adequacy into five categories; well capitalized,
adequately capitalized, undercapitalized, significantly under capitalized and
critically undercapitalized. Each of these capital categories have predefined
risk-based capital ratio minimums. At June 30, 1995 and December 31, 1994, the
capital ratios of the Company exceeded the "well capitalized" threshold as
prescribed by banking regulators. An institution's deposit insurance premiums
are determined through a matrix based on the institution's capital category and
supervisory subgroup. Any reduction in an institution's capital category can
significantly increase premiums.
The following table presents the Company's capital positions at June 30,
1995 and December 31, 1994, including the risk-based capital ratio and leverage
ratio.
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Tier 1:
Shareholders'equity $ 123,931 $112,243
Less: Intangibles (7,313) (906)
Add: Unrealized losses on securities
available for sale 22 421
---------- --------
Total Tier 1 capital 116,640 111,758
Tier 2 capital 12,822 11,042
---------- --------
Total risk-based capital $ 129,462 $122,800
---------- --------
---------- --------
Risk-adjusted assets $1,025,747 $883,325
---------- --------
---------- --------
Tier 1 capital/risk-adjusted assets
Capital ratio 11.37% 12.65%
Minimum ratio 4.00% 4.00%
Total risk-based capital/risk-
adjusted assets
Capital ratio 12.62% 13.90%
Minimum 8.00% 8.00%
Leverage ratio(1) 8.28% 10.27%
<FN>
- ----------
(1) Had Centennial Bank's assets been combined with the Company's for the full
quarter, the leverage ratio as of June 30, 1994 would have been approximately
7.64%.
</TABLE>
The Company regularly evaluates opportunities for expansion through
merger and acquisition. Such transactions, if any, in the future could
involve capital commitments giving rise to a need for additional capital.
(25)
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES
---------------------
On June 30, 1995, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
common stock, par value $2.50 per share (the "Common Shares"), of the Company.
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, no
par value (the "Preferred Shares"), of the Company at a price of $75 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement dated as of June 30, 1995 (the "Rights Agreement") between the Company
and First Interstate Bank of California, as Rights agent (the "Rights Agent").
A copy of the Rights Agreement is on file with the Commission. Because of the
nature of the dividend, liquidation and voting rights of the Preferred Shares,
the value of the one one-hundredth interest in a Preferred Share purchasable
upon exercise of each Right should approximate the value of one Common Share.
In the event that any person or group of affiliated persons (an "Acquiring
Person") becomes the beneficial owner of 10% or more of the outstanding Common
Shares (except in a transaction approved by the independent directors of the
Company), each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of Common Shares (or, in the event that
there are insufficient authorized Common Shares, substitute consideration such
as cash, property, or other securities of the Company, including Preferred
Shares) having a market value of two times the exercise price of the Right. The
effect is to provide for substantial dilution of the shares held by the
Acquiring Person; this will in turn encourage potential acquirors to discuss
their intentions with the Board of Directors and allow the Board to play an
active role in a transaction that may affect the value of stockholder interests.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
(26)
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual Meeting of Stockholders, held May 17, 1995, the following
proposal was submitted to an approved by the Stockholders as indicated.
(a) Election of Directors
Dale C. Adams, Harry A. Avila, Wayne W. Bennett, Richard J. Clancy,
Joseph P. Colmery, Keith S. Fraser, Donald J. Gehb, Thomas F. Matthews, James L.
McKenna, Jr., Ralph N. Mendelson, Harry R. Sheppard and A. Steve Simi.
At least 7,721,174 shares were voted for each of the aforementioned
---------
persons as Directors.
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
11 Computation of Earnings Per Share
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 6, 1995, concerning its
adoption on June 30, 1995, of a Rights Agreement, which is described briefly in
Item 2 above.
(27)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
California Bancshares, Inc.
------------------------------
(Registrant)
Date: August 7, 1995 /s/ Joseph P. Colmery
-------------------------------------------------
Joseph P. Colmery
President/Chief Executive Officer
(Principal Executive Officer)
Date: August 7, 1995 /s/ Vincent M. Leveroni
--------------------------------------------------
Vincent M. Leveroni
Exec. Vice President and
Chief Financial Officer
(Principal Financial Officer)
(28)
<PAGE>
CALIFORNIA BANCSHARES, INC.
EXHIBIT INDEX
Exhibit Page
Number Description Number
------- ----------- ------
11 Computation of Earnings Per Share 30
27 Financial Data Schedule
(29)
<PAGE>
EXHIBIT 11
CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months
June 30, June 30,
------------------- ---------------
1995 1994 1995 1994
------- ------ ------ -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $4,210 $2,766 $8,210 $5,196
------ ------ ------ ------
------ ------ ------ ------
Weighted average number
of common shares
outstanding 10,002 9,366 9,988 9,362
------ ------ ------ ------
------ ------ ------ ------
Earnings per common share $ 0.42 $ 0.30 $0.82 $0.56
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings per
common share(1):
Weighted average number of
common shares outstanding 10,002 9,366 9,988 9,362
Assuming exercise of stock
options reduced by the
number of shares which
could have been purchased
with the proceeds from
exercise of such options 227 171 227 171
------ ----- ------ -----
10,229 9,537 10,215 9,533
------ ------ ------ ------
------ ------ ------ ------
Earnings per common and
common equivalent share $ 0.41 $ 0.29 $0.80 $0.55
------ ------ ------ ------
------ ------ ------ ------
- -----------
<FN>
(1) This presentation is submitted in accordance with Item 601(b)(11) of
Regulation S-K. This presentation is not required by APB Opinion No. 15,
because it results in dilution of less than 3%.
</TABLE>
(30)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1994
<CASH> 78,101
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 41,545
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,830
<INVESTMENTS-CARRYING> 262,478
<INVESTMENTS-MARKET> 260,239
<LOANS> 1,033,173
<ALLOWANCE> 15,103
<TOTAL-ASSETS> 1,516,937
<DEPOSITS> 1,384,473
<SHORT-TERM> 348
<LIABILITIES-OTHER> 8,185
<LONG-TERM> 0
<COMMON> 25,014
0
0
<OTHER-SE> 98,917
<TOTAL-LIABILITIES-AND-EQUITY> 1,516,937
<INTEREST-LOAN> 44,352
<INTEREST-INVEST> 8,451
<INTEREST-OTHER> 1,469
<INTEREST-TOTAL> 54,272
<INTEREST-DEPOSIT> 19,128
<INTEREST-EXPENSE> 19,857
<INTEREST-INCOME-NET> 34,415
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 24,888
<INCOME-PRETAX> 13,187
<INCOME-PRE-EXTRAORDINARY> 13,187
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,210
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
<YIELD-ACTUAL> .054
<LOANS-NON> 9,803
<LOANS-PAST> 1,227
<LOANS-TROUBLED> 2,561
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,822
<CHARGE-OFFS> 1,012
<RECOVERIES> 355
<ALLOWANCE-CLOSE> 15,103
<ALLOWANCE-DOMESTIC> 8,306
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,979
</TABLE>
