UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10198
The San Francisco Company
(Exact name of Registrant as specified in its charter)
Delaware 94-3071255
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
550 Montgomery Street, San Francisco, California 94111
(Address of principal executive office) (Zip Code)
(415) 781-7810
(Registrant's telephone number, including area code)
None
(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
The Registrant had 28,775,995 shares of Class A Common Stock
outstanding on May 1, 1997.
page
The San Francisco Company and Subsidiaries
Quarterly Report on Form 10-Q
Table of Contents
Page
Part I - Financial Information
Item 1. Consolidated Statements of Financial Condition
At March 31, 1997 and December 31, 1996 . . . . . . 1
Consolidated Statements of Operations
For the Three Months Ended March 31, 1997 and 1996. 2
Consolidated Statements of Changes in Shareholders'
Equity For the Three Months Ended March 31, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996. 4
Notes to Consolidated Financial Statements . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 6
Part II - Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . .13
Item 2. Changes in Securities. . . . . . . . . . . . . . . .13
Item 3. Defaults Upon Senior Securities. . . . . . . . . . .13
Item 4. Submission of Matters to a Vote of Security Holders.13
Item 5. Other Information. . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . .13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .14
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Financial Condition
March 31, 1997 and December 31, 1996
(Unaudited)
March 31, December 31,
(Dollars in Thousands
Except Per Share Data) 1997 1996
Assets:
Cash and due from banks $ 2,857 $ 3,701
Federal funds sold 20,500 11,925
Cash and cash equivalents 23,357 15,626
Investment securities held-to-maturity
(Market: 1997 $6,567; 1996 $6,848) 6,722 6,943
Investment securities available-for-sale 26,506 28,348
Federal Home Loan Bank stock, at par 681 670
Loans 41,399 43,762
Deferred loan fees (258) (190)
Allowance for loan losses (5,924) (5,663)
Loans, net 35,217 37,909
Other real estate owned 3,770 5,133
Premises and equipment, net 7,997 8,059
Interest receivable 553 758
Other assets 396 555
Total Assets $105,199 $104,001
Liabilities and Shareholders' Equity:
Non-interest bearing deposits $ 19,857 $ 16,505
Interest bearing deposits 72,480 74,661
Total deposits 92,337 91,166
Other liabilities and interest payable 1,887 1,771
Total liabilities 94,224 92,937
Shareholders' Equity:
Preferred stock (par value $0.01 per share)
Series B - Authorized - 437,500 shares
Issued and outstanding - 1997 and
1996 - 15,869 111 111
Common stock (par value $0.01 per share)
Class A - Authorized - 100,000,000 shares
Issued and outstanding -1997 and
1996 - 28,775,995 288 288
Additional paid-in capital 77,841 77,841
Retained deficit (66,961) (67,099)
Unrealized loss on securities
available-for-sale (304) (77)
Total shareholders' equity 10,975 11,064
Total Liabilities and
Shareholders' Equity $105,199 $104,001
See accompanying notes to unaudited consolidated financial
statements.
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
(Unaudited)
March 31,
(Dollars in Thousands Except Per Share Data) 1997 1996
Interest income:
Loans $ 1,123 $1,144
Investments 746 701
Dividends 12 8
Total interest income 1,881 1,853
Interest expense:
Deposits 697 865
Other borrowings -- --
Total interest expense 697 865
Net interest income 1,184 988
Provision for loan losses -- --
Net interest income after provision for loan losses 1,184 988
Non-interest income:
Stock option commissions and fees 354 355
Real estate rental income 244 207
Service charges and fees 99 106
Gain on sale of other assets 222 85
Other income 22 10
Total non-interest income 741 963
Non-interest expense:
Salaries and related benefits 908 908
Occupancy expense 304 308
Data processing 115 43
Professional fees 100 173
Corporate insurance premiums 61 95
Property taxes 40 42
FDIC insurance premiums 39 63
Other operating expenses 215 207
Total non-interest expense 1,782 1,839
Income before income taxes 143 112
Provision for income taxes 5 4
Net Income $ 138 $ 108
Income per common share:
Primary: Net income $ 0.00 $ 0.02
Weighted average shares outstanding 28,775,995 5,765,978
Fully Diluted: Net income $ 0.00 $ 0.00
Weighted average shares outstanding 28,775,995 18,458,905
See accompanying notes to unaudited consolidated financial
statements.
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Unrealized
Gain/
Add- (Loss) on Total
itional Retained Securities Share-
Preferred Common Paid-in Earnings Available- holders'
(Dollars in Thousands) Stock Stock Capital (Deficit) for-Sale Equity
Balances at
January 1, 1996 $ 4,414 $ 58 $70,168 $(68,801) $ 41 $ 6,880
Net proceeds from
sale of stock
and warrants 1,000 -- -- -- -- 1,000
Other -- -- 100 -- -- 100
Depreciation in
market value of
securities
available -for-sale -- -- -- -- (157) (157)
Net income (three months) -- -- -- 108 -- 108
Balances at
March 31, 1996 5,414 58 70,268 (67,693) (116) 7,931
Net proceeds from
sale of stock 2,500 -- -- -- -- 2,500
Conversion of
preferred stock
to common stock (7,803) 230 7,573 -- -- --
Appreciation in
market value of
securities
available-for-sale -- -- -- -- 39 39
Net income (nine months) -- -- -- 594 -- 594
Balances at
December 31, 1996 111 288 77,841 (67,099) (77) 11,064
Depreciation in market
value of securities
available-for-sale -- -- -- -- (227) (227)
Net income (three months) -- -- -- 138 -- 138
Balances at
March 31, 1997 $ 111 $ 288 $77,841 $(66,961) $ (304) $10,975
See accompanying notes to unaudited consolidated financial
statements.
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Dollars in Thousands) 1997 1996
Cash Flows from Operating Activities:
Net income $ 138 $ 108
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization expense 138 193
Net gain on other real estate owned and real
estate investment (22) (285)
Decrease in interest receivable and other assets 364 316
Increase (decrease) in interest payable and
other liabilities 116 (684)
Increase in deferred loan fees 68 16
Net cash flows provided by (used in) operating activities 802 (336)
Cash Flows from Investing Activities:
Proceeds from maturities of investment securities
held-to-maturity 210 --
Proceeds from maturities of investment securities
available-for-sale 1,615 3,997
Purchase of investment securities available-for-sale -- (22,268)
Purchase of investment securities held to maturity -- (7,807)
Net decrease in loans 2,363 9,605
Recoveries of loans previously charged off 261 399
Purchases of premises and equipment (76) (32)
Sale of other real estate owned 1,385 2,215
Acquisition and capitalized costs of other real
estate owned -- (39)
Net cash provided by (used in) financing activities 5,758 (13,930)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits 1,171 (3,111)
Proceeds from the sale of preferred stock and warrants -- 1,000
Net cash used in financing activities 1,171 (2,111)
Increase (decrease) in cash and cash equivalents 7,731 (16,377)
Cash and cash equivalents at beginning of period 15,626 42,814
Cash and cash equivalents at end of period $ 23,357 $ 26,437
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $669 $ 889
Income taxes 3 1
Supplemental Schedule of Noncash Investing and
Financing Activities:
Net transfer of loans to other real estate owned -- 1,259
See accompanying notes to unaudited consolidated financial
statements.
page
The San Francisco Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Organization
The San Francisco Company (the "Company") is a Delaware corporation
and a bank holding company registered under the Bank Holding Company Act
of 1956. Bank of San Francisco (the "Bank"), a state chartered bank,
was organized as a California banking corporation in 1978 and became a
wholly owned subsidiary of the Company through a reorganization in 1982.
Note 2 - Principles of Consolidation and Presentation
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with the instructions pursuant
to Form 10-Q Quarterly Report and Articles 9 and 10 of Regulation S-X,
and therefore, do not include all the information and footnotes
necessary to present the consolidated financial condition, results of
operations and cash flows of the Company in conformity with generally
accepted accounting principles.
The data as of March 31, 1997, and for the three months ended March
31, 1997 and 1996 are unaudited, but in the opinion of management,
reflect all accruals and adjustments of a normally recurring nature
necessary for fair presentation of the Company's financial condition and
results of operations. Certain amounts in the 1996 consolidated
financial statements have been reclassified for comparative purposes.
The results of operations for the three months ending March 31, 1997 are
not necessarily indicative of the results to be expected for the entire
year of 1997. This report should be read in conjunction with the
Company's 1996 Annual Report on Form 10-K.
The accompanying financial statements include the accounts of the
Company, the Bank, the Bank's wholly owned subsidiary, Bank of San
Francisco Realty Investors (the "BSFRI"). All material intercompany
transactions have been eliminated in consolidation.
Note 3 - Income Per Common Share
Primary income per common share is calculated using the weighted
average number of Class A Common Shares (the "Common Stock"), par value
of $0.01 per share, outstanding divided into net income. In 1996 and
1997, fully diluted income per share was calculated using the weighted
average number of shares outstanding assuming the common stock
equivalent of the Series D Preferred Stock divided into income per
share. On December 31, 1996, all 390,000 outstanding shares of Series
D Preferred Stock were converted into 23,010,000 shares of Common Stock.
Note 4 - Dividend Restrictions
The Company is subject to dividend restrictions under the Delaware
General Corporation Law and regulations and policies of, and a Written
Agreement dated December 14, 1994 (the "Agreement") with, the Federal
Reserve Bank of San Francisco (the "FRB" ). The Company's Series B
Preferred Shares participate equally, share for share, in cash dividends
paid on the Common Shares in addition to receiving the cash dividends to
which they are entitled. The Board of Directors does not intend to
declare dividends on any class of the Company's stock.
page
Note 5 - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards (the "SFAS")
No. 128 "Earnings per Share" (the "SFAS No. 128"). Generally, SFAS No.
128 establishes standards for computing and presenting earnings per
share (the "EPS") for publicly held companies, replaces Primary EPS with
Basic EPS, and specifies additional disclosure requirements regarding
EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. Earlier application is not
permitted. The adoption of SFAS No. 128 is not expected to have a
material impact on the Company's present computation of primary and
fully diluted EPS.
In February 1997, the FASB also issued SFAS No. 129 "Disclosure of
Information about Capital Structure" (the "SFAS No. 129"). Generally,
SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure, and supersedes and consolidates specific
disclosure requirements specified in other accounting pronouncements.
SFAS No. 129 is effective for financial statements issued for periods
ending after December 15, 1997. The adoption of SFAS No. 129 is not
expected to have any impact on the Company's present disclosure of its
capital structure.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a one-bank holding company registered in Delaware under
the Bank Holding Company Act of 1956. The principal activity of the
Company is to serve as the holding company for Bank of San Francisco, a
California chartered bank organized in 1978, with deposits insured by
the Federal Deposit Insurance Corporation's Bank Insurance Fund. The
information set forth in this report, including unaudited interim
financial statements and related data, relates primarily to the Bank.
The Company's Common Stock is sold "over-the-counter". The closing
price of the Company's Common Stock on May 2 1997 was $0.40.
The Company recorded net income of $138,000 for the three months ended
March 31, 1997, compared to a net income of $108,000 for the same period
in 1996. The increase in the Company's net income of $30,000 was
primarily from an increase in net interest income and reductions in non-
interest expenses partially offset by lower gain on sale of other real
estate owned in first quarter 1997 compared to the same period in 1996.
At March 31, 1997, total assets were $105.2 million, an increase of
$1.2 million, or 1.2% from $104.0 million at December 31, 1996. As of
March 31, 1997, total loans were $41.4 million, a decrease of $2.4
million, or 5.5% from $43.8 million at December 31, 1996. Total
deposits were $92.3 million at March 31, 1997, an increase of $1.1
million, or 1.2%, compared to $91.2 million at December 31, 1996.
Regulatory Directives and Orders
Federal Reserve Board Written Agreement
The Company and the FRB entered into the Agreement that supersedes the
previous directive dated April 20, 1992. The Agreement prohibits the
Company, without prior approval of the FRB, from: (a) paying any cash
dividends to its shareholders; (b) directly or indirectly, acquiring or
selling any interest in any entity, line of business, problem or other
assets; (c) executing any new employment, service, or severance
contracts, or renewing or modifying any existing contracts with any
executive officer; (d) engaging in any transactions with
page
the Bank that exceeds an aggregate of $20,000 per month; (e) engaging in
any cash expenditures with any individual or entity that exceeds $25,000 per
month; (f) increasing fees paid to any directors for attendance at board
or committee meetings, or paying any bonuses to any executive officers;
(g) incurring any new debt or increasing existing debt; and (h)
repurchasing any outstanding stock of the Company. The Company is
required to submit a progress report to the FRB on a quarterly basis.
The Company was also required to submit to the FRB an acceptable
written plan to improve and maintain an adequate capital position, a
comprehensive business plan concerning current and proposed business
activities, and a comprehensive operating budget for the Bank and the
consolidated Company. In addition, the Board of Directors was required
to submit an acceptable written plan designed to enhance their
supervision of the operations and management of the consolidated
organization.
Management was notified by the FRB at its 1996 examination that the
Company was in full compliance with the Agreement, and management
believes the Company continues to be in full compliance.
Cease and Desist Orders
On August 18, 1993, the Bank, without admitting or denying any alleged
charges, stipulated to Cease and Desist Orders (the "Orders") issued by
the Federal Deposit Insurance Corporation (the "FDIC") and the State
Banking Department (the "SBD") that became effective August 29, 1993
(the "Orders Effective Date"). The Orders directed, among other things,
that the Bank: (a) achieve and maintain a 7% Leverage Capital ratio on
and after September 30, 1993; (b) pay no dividends without the prior
written consent of the FDIC and the California Superintendent of Banks
(the "Superintendent"); (c) reduce the assets classified "Substandard"
or "Doubtful" as of November 30, 1992 to no more than certain levels as
of various dates; (d) have and retain management whose qualifications
and experience are commensurate with their duties and responsibilities
to operate the Bank in a safe and sound manner, notify the FDIC and the
Superintendent at least 30 days prior to adding or replacing any new
director or senior executive officer and comply with certain
restrictions in compensation of senior executive officers; (e) maintain
an adequate reserve for loan losses; (f) not extend additional credit
to, or for the benefit of, any borrower who had a previous loan from the
Bank that was charged off or classified "Loss" in whole or in part;
(g) develop and implement a plan to reduce its concentrations of
construction and development loans; (h) not increase the amount of its
brokered deposits above the amount outstanding on the Order's Effective
Date and submit a written plan for eliminating reliance on brokered
deposits; (i) revise or adopt, and implement, certain plans and policies
to reduce the Bank's concentration of construction and land development
loans, reduce the Bank's dependency on brokered deposits and out of area
deposits, and to improve internal routines and controls; (j) reduce the
Bank's volatile liability dependency ratio to not more than 15%;
(k) eliminate or correct all violations of law set out in the most
recent Report of Examination, and take all necessary steps to ensure
future compliance with all applicable laws and regulations; and
(l) establish a committee of three independent directors to monitor
compliance with the Orders and report to the FDIC and the Superintendent
on a quarterly basis.
Management was notified by the FDIC and SBD at its 1997 examination
that the Bank is in substantial compliance with the requirement of
Orders. As of March 31, 1997, management believes that the Bank is full
compliance with the requirements of the Orders.
Capital Impairment Orders
Under California law, if a bank's deficit retained earnings exceeds
40% of its contributed capital, its capital is deemed to be impaired,
and the bank is required to levy an assessment on its shares to correct
the impairment.
page
The SBD has issued twelve impairment orders to the
Bank, with the most recent dated February 14, 1997 (the "Impairment
Orders"). At March 31, 1997, the Bank had contributed capital of $74.5
million and deficit retained earnings of $63.4 million.
The Impairment Orders require the Bank to correct the impairment
within 60 days by levying an assessment on the Company as the Bank's
sole shareholder. The Bank has not levied an assessment against its
shares nor has it otherwise corrected the impairment, and, therefore, is
in violation of this law. In addition, the SBD has specifically
reserved the right to take such other action as the Superintendent may
deem appropriate or necessary, which may include taking possession of
the Bank's property and business, including ultimately liquidating the
business and affairs of the Bank. Management believes, however, that
the Superintendent has never exercised his bank takeover powers under
Section 134 solely on the basis that a bank's capital is impaired under
the standards set forth in Section 134.
The Company plans to correct the Bank's capital impairment by
requesting the SBD to approve a quasi-reorganization of the Bank. In a
quasi-reorganization, the Bank's retained deficit would be reduced or
eliminated by netting the retained deficit against contributed capital.
Management believes that approval for such quasi-reorganization would
only be granted by the SBD upon the Bank demonstrating the ability to
sustain profitable operations and meet all of its regulatory capital
requirements in the future.
No assurance can be given that the Bank's capital condition will not
deteriorate prior to any such quasi-reorganization as a result of
operating losses. In addition, because a quasi-reorganization requires
that the Bank adjust its assets and liabilities to market value at the
time of the reorganization, the Bank's capital could be further reduced
from its present levels. Finally, there can be no assurances given
that, following a correction of the Bank's capital impairment, whether
through a quasi-reorganization or otherwise, the Bank's capital position
will not erode through future operating losses.
Results of Operations
Net Interest Income
The Company's net interest income was $1.2 million in the quarter
ended March 31, 1997 compared to $1.0 million for the same period in
1996, or an increase of 20%. The increase was primarily the result of
a reduction in interest expense. The reduction was the result of lower
cost of funds by 30 basis points and lower average interest bearing
deposits of $10.9 million in the first quarter of 1997 compared to the
same period in 1996.
Non-Interest Income
Non-interest income was $741,000 at March 31, 1997 compared to
$963,000 at March 31, 1996. The decline in non-interest income of
$222,000 was primarily the result of the reduction in net gain on sale
of other real estate owned assets in 1997 compared to 1996.
Non-Interest Expense
The Company's non-interest expenses were $1.8 million during the first
quarter of 1997 and 1996.
page
Financial Condition
Liquidity and Capital Resources
Liquidity
The Bank's liquid assets, which include cash and short term
investments totaled $23.4 million, or 22.2% of total assets, at March
31, 1997, an increase of $7.8 million, from $15.6 million, or 15.0% of
total assets, at December 31, 1996. The increase was the result of the
sale of other real estate owned, loan repayments, investment securities
repayments and maturities, and an increase in core deposits.
As of March 31, 1997, the Bank had pledged loans and securities
totaling $7.0 million enabling the Bank to borrow up to 5% of the Bank's
assets or $5.0 million from the Federal Home Loan Bank of San Francisco
(the "FHLB"). The Bank did not draw on this lending facility during
the first quarter of 1997. In the future, long and short term
borrowings from the FHLB may be used as an on-going source of liquidity
and funding.
The Bank has loans pledged to the FRB totaling $2.2 million as
collateral for $1.8 million in borrowing capacity through the FRB discount
window.
Capital
At March 31, 1997, shareholders' equity was $11.0 million compared to
$11.1 million at December 31, 1996.
The Company and the Bank are subject to general regulations issued by
the FRB, FDIC, and SBD which require maintenance of a certain level of
capital, and the Bank is under specific capital requirements as a result
of the Orders and Capital Order. As of March 31, 1997, the Company and
the Bank are in compliance with the all minimum capital ratio
requirements including the minimum Leverage ratio of 7% mandated by the
Orders. The Bank is not in compliance with the capital requirements as
defined by the Capital Impairment Orders (see Capital Impairment
Orders).
The following table reflects both the Company's and the Bank's capital
ratios with respect to minimum capital requirements in effect as of
March 31, 1997:
Minimum
Capital
Company Bank Requirement Orders
Leverage ratio 10.6% 10.3% 4.0% 7.0%
Tier 1 risk-based capital 16.4 16.0 4.0 N/A
Total risk-based capital 19.1 18.7 8.0 N/A
Investment Activities
At March 31, 1997, the Company's investment securities, including Fed
funds sold, totaled $54.4 million, or 51.8% of total assets, compared to
$47.9 million, or 46.0% of total assets, at December 31, 1996. The
decrease in investment securities resulted primarily from principal
amortization on mortgage related securities and one of the agency
securities being called by the issuer. The Company's investment portfolio
may from time to time include treasury and agency securities, fixed and
adjustable rate mortgage backed securities, and to a limited extent
collateralized mortgage backed securities. Generally, the Bank's
investment securities held-to-maturity and
page
available-for-sale have maturities or principal amortization of five years
or less.
At March 31, 1997, investment securities held-to-maturity totaled $6.7
million, compared to $6.9 million at December 31, 1996, and are carried
at amortized cost. At March 31, 1997, the Company held $26.5 million in
securities available-for-sale, compared to $28.3 million at December 31,
1996. Investment securities available-for-sale are accounted for at
fair value. Unrealized gains and losses are recorded as an adjustment
to equity and are not reflected in the current earnings of the Company.
As of March 31, 1997, the investment securities available-for-sale have
an unrealized loss of $304,000 that was included as a separate component
of shareholder's equity to reflect the current market value of these
securities.
Loans
During the first quarter of 1997, total loans decreased by $2.4
million, from $43.8 million at December 31, 1996 to $41.4 million at
March 31, 1997. The reduction resulted primarily from loan repayments.
The composition of the Bank's loan portfolio at March 31, 1997 and
December 31, 1996 is summarized as follows:
March 31, December 31,
(Dollars in Thousands) 1997 1996
Real estate mortgage $ 26,413 $ 28,022
Secured commercial and financial 6,535 6,229
Unsecured 6,758 7,800
Other 1,693 1,711
41,399 43,762
Deferred fees and discounts, net (258) (190)
Allowance for possible loan losses (5,924) (5,663)
Total loans, net $ 35,217 $ 37,909
Classified Assets and Impaired Loans
Classified assets include non-accrual loans, other real estate owned
(the "OREO"), and performing loans that exhibit credit quality
weaknesses. The table below outlines the Bank's classified assets at
March 31, 1997 and December 31, 1996:
March 31, December 31,
(Dollars in Thousands) 1997 1996
Loans - performing $ 9,784 $ 10,391
Non-accrual loans 1,265 3,400
OREO 3,770 5,133
Total classified assets $ 14,819 $ 18,924
Classified assets decreased by 22% to $14.8 million as of March 31,
1997 compared to $18.9 million at December 31, 1996. The decrease was
primarily the result of loan payoffs and OREO sales. As of March 31,
1997 and December 31, 1996, all OREO properties were classified. The Bank
had approximately $616,000 in loans on March 31, 1997 that were between 31
and 89 days delinquent and still accruing. All of the loans delinquent
between 31 and 89 days are secured by first or subordinate deeds of
trust on real estate.
The Company identifies loans with weak credit quality characteristics
for review in accordance with SFAS
page
No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures" (the "SFAS No. 114"). As of March 31, 1997 and
December 31, 1996, the Company had impaired loans totaling $1.3 million and
$3.4 million, respectively. The impairment was measured using the collateral
value method. Total interest income recognized on impaired loans during
the first quarter of 1997 and 1996 was $31,000.
There can be no assurance that the Bank will continue to experience
declines in the amount of its classified assets or not experience losses
in attempting to collect the non-performing loans or otherwise liquidate
the non-performing assets which are presently reflected on the Company's
statement of financial condition. The Bank expects that continued
reductions in non-performing assets will continue to reduce the costs
incurred for managing and carrying the assets.
Allowance for Loan Losses
The Bank charges current earnings with provisions for estimated losses
on loans receivable. The provisions take into consideration
specifically identified problem loans, the financial condition of the
borrowers, the fair value of the collateral, recourse to guarantors and
other factors.
Specific loss allowances are established based on the asset
classification and credit quality. Specific loss allowances are
utilized to ensure that the allowance is allocated based on the credit
quality including the present value of expected cash flows, the terms
and structure of the loan, the financial condition of the borrower, and
the fair value of underlying collateral. As of March 31, 1997, $190,000
in the allowance of loan losses was allocable to impaired loans, as
identified in accordance with SFAS No. 114, which had an outstanding
principal balance totaling $1.3 million. In addition, the Bank carries
an "unallocated" loan loss allowance to provide for losses that may
occur in the future in loans that are or are not presently classified,
based on present economic conditions, trends, and related uncertainties.
The following table summarizes the loan loss experience of the Bank for
the quarter ended March 31, 1997:
March 31,
(Dollars in Thousands) 1997
Beginning balance of allowance for loan losses at
December 31, 1996 $5,663
Charge-offs --
Recoveries 261
Provision --
Ending balance of allowance for loan losses $ 5,924
For the quarter ended March 31, 1997, the unallocated portion of the
allowance for loan loss totaled $3.4 million at March 31, 1997 compared
to $2.4 million at December 31, 1996. The increase in the unallocated
allowance was primarily the result of recoveries and the reduction in
classified loans.
page
Deposits
The Bank had total deposits of $92.3 million at March 31, 1997
compared to $91.2 million at December 31, 1996, an increase of $1.1
million or 1.2%. The $1.1 million increase was attributed to escrow and
stock option lending related customer's deposits of $3.8 million
partially offset by a decrease in Association Bank Services customer's
deposits of approximately $1.7 million and volatile deposits of $1.0
million. A summary of deposits at March 31, 1997 and December 31, 1996
is as follows:
March 31, December 31,
(Dollars in Thousands) 1997 1996
Demand deposits $ 19,857 $ 16,505
NOW 16,722 18,295
Money market 17,371 17,376
Savings 1,390 1,343
Total deposits with no stated maturity 55,340 53,519
Time deposits:
Less than $100,000 27,841 29,154
$100,000 and greater 9,156 8,493
Total time deposits 36,997 37,647
Total deposits $ 92,337 $ 91,166
The Bank's deposits from private and business banking customers
totaled $36.4 million, or 39.4% of total deposits, at March 31, 1997,
compared to $36.4 million, or 40.0% of total deposits, at December 31,
1996. Deposits from Association Bank Services customers totaled $18.2
million, or 19.7% of total deposits at March 31, 1997, compared to $19.9
million, or 21.8% of total deposits at December 31, 1996. Deposits
acquired through the money desk operations totaled $20.1 million, or
21.8% of total deposits at March 31, 1997, compared to $21.0 million, or
23.0% of total deposits at December 31, 1996. The Bank expects to
decrease money desk deposits during the remainder of the year with the
intention of replacing these deposits with core deposits.
Concentrations of deposits acquired through the money desk operations
have been classified by bank regulators as volatile liabilities
associated with certain risks, including the risks of reduced liquidity
if a bank is unable to retain such deposits and reduced margins if its
interest costs are increased by a bank in order to retain such deposits.
As a result of the Orders, the Bank is required to maintain a volatile
liability dependency ratio of not more than 15%. The Bank's volatile
dependency ratio at March 31, 1997 was below the 15.0% requirement.
page
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Because of the nature of its business, the Company and its
subsidiaries, including the Bank, are from time-to-time, a party to
legal actions. Based on information available to the Company and the
Bank, and its review of such outstanding claims to date, management
believes the liability relating to such claims, if any, will not have a
material adverse effect on the Company's liquidity, consolidated
financial condition or results of operations.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
See "Note 4 -- Dividend Restrictions".
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
(a) Exhibits
None
(b) Report on Form 8-K
None
page
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
The San Francisco Company
(Registrant)
Date: May 2, 1997 /s/ James E. Gilleran
James E. Gilleran
Chairman of the Board and
Chief Executive Officer
Date: May 2, 1997 /s/ Keary L. Colwell
Keary L. Colwell
Chief Financial Officer
and Executive Vice President
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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