UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 29,320,725 shares of Class A Common Stock
outstanding on October 27, 2000.
page
The San Francisco Company and Subsidiaries
Quarterly Report on Form 10-Q
Table of Contents
Page
Part I - Financial Information (unaudited)
Item 1. Consolidated Statements of Financial Condition
At September 30, 2000 and December 31, 1999 . . . . . . . . . 1
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Changes in Shareholders'
Equity and Comprehensive Income
For the Nine Months Ended September 30, 2000 and 1999 . . . . 3
Consolidated Statements of Cash Flows
For the Three and Nine Months Ended September 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Financial Condition
September 30, 2000 and December 31, 1999
(Unaudited)
September 30, December 31,
(Dollars in thousands except per share data) 2000 1999
Assets:
Cash and due from banks $6,270 $5,265
Federal funds sold 27,151 34,224
Cash and cash equivalents 33,421 39,489
Investment securities held-to-maturity, at cost
(Fair value: 2000 $629; 1999 $1,904) 638 1,953
Investment securities available-for-sale,
at fair value 37,161 32,236
Federal Home Loan Bank stock, at par 1,117 2,077
Loans and leases 105,367 94,612
Deferred loan fees (234) (140)
Allowance for loan and lease losses (1,600) (1,525)
Loans and leases, net 103,533 92,947
Premises and equipment, net 7,035 7,151
Operating lease equipment, net 3,493 4,306
Interest receivable 1,140 867
Other assets 4,221 3,900
Total Assets $191,759 $184,926
Liabilities and Shareholders' Equity:
Non-interest bearing deposits $28,936 $32,676
Interest bearing deposits 113,412 106,235
Total deposits 142,348 138,911
Other borrowings 18,000 20,000
Other liabilities and interest payable 2,803 2,061
Total liabilities 163,151 160,972
Shareholders' Equity:
Preferred Stock (par value $0.01 per share)
Series B Convertible - Authorized -
437,500 shares; Issued and outstanding -
2000 and 1999 - 15,869 111 111
Common stock (par value $0.01 per share)
Class A - Authorized - 100,000,000 shares;
Issued and outstanding - 2000 -
29,320,725 and 1999 - 29,317,558 293 293
Additional paid-in capital 76,965 76,963
Retained deficit (48,316) (52,766)
Accumulated other comprehensive loss (445) (647)
Total shareholders' equity 28,608 23,954
Total Liabilities and Shareholders' Equity $191,759 $184,926
See accompanying notes to unaudited consolidated financial statements.
page 1
The San Francisco Company and Subsidiaries
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands
except per share data) 2000 1999 2000 1999
Interest income:
Loans $2,469 $1,972 $7,172 $5,555
Investments 1,193 732 3,668 2,072
Dividends 21 26 83 77
Total interest income 3,683 2,730 10,923 7,704
Interest expense:
Deposits 1,112 722 3,240 2,067
Other borrowings 276 282 812 829
Total interest expense 1,388 1,004 4,052 2,896
Net interest income before
(adjustment) provision
for loan and lease losses 2,295 1,726 6,871 4,808
(Adjustment) provision for loan
and lease losses (44) -- (201) 100
Net interest income after
(adjustment) provision
for loan and lease losses 2,339 1,726 7,072 4,708
Non-interest income:
Stock brokerage commissions
and fees 505 500 2,110 1,350
Real estate rental income 341 306 981 922
Service charges and fees 264 230 844 643
Income from operating leases 300 300 900 730
Gain on sale of assets, net -- -- -- 70
Other income 174 61 536 172
Total non-interest income 1,584 1,397 5,371 3,887
Non-interest expense:
Salaries and related benefits 1,433 1,251 4,685 3,675
Occupancy expense 278 292 908 873
Operating lease depreciation 271 176 813 423
Professional fees 256 86 624 230
Data processing 129 136 387 362
Corporate insurance premiums 83 64 238 192
Other operating expenses 136 188 666 613
Total non-interest expense 2,586 2,193 8,321 6,368
Income before income taxes 1,337 930 4,122 2,227
Provision for income taxes 49 17 (332) 40
Net Income $1,288 $913 $4,454 $2,187
Income per common share:
Basic: Net income $0.04 $0.03 $0.15 $0.07
Weighted average
shares outstanding 29,320,725 31,856,703 29,319,361 31,774,199
Diluted: Net income $0.04 $0.03 $0.14 $0.07
Weighted average
shares outstanding 31,322,639 33,756,127 31,216,229 33,363,071
See accompanying notes to unaudited consolidated financial statements.
page 2
The San Francisco Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Accumulated
Other Total
Additional Compre- Retained Compre- Share-
(Dollars in Preferred Common Paid-in hensive Earnings hensive holders'
thousands) Stock Stock Capital Income (Deficit) Income Equity
Balances at
January 1, 1999 $111 $317 $78,816 $(56,619) $79 $22,704
Net proceeds from
the exercise of
stock options -- 2 45 -- -- -- 47
Dividend on
Preferred Stock
(8) -- (8)
Comprehensive income,
net of tax
Net unrealized losses $(477) -- (477) (477)
Other comprehensive
loss (477)
Net income (nine months) 2,187 2,187 -- 2,187
Comprehensive income $1,710
Balances at
September 30, 1999 $111 $319 $78,861 $(54,440) $(398) $24,453
Net proceeds from
the exercise of
stock options -- 2 83 -- -- -- 85
Redemption of
Common Stock -- (28) (1,981) -- -- -- (2,009)
Dividend on
Preferred Stock (4) -- (4)
Comprehensive income,
net of tax
Net unrealized
losses $(249) -- (249) (249)
Other comprehensive
loss (249)
Net income
(nine months) 1,678 1,678 -- 1,678
Comprehensive income $1,429
Balances at
December 31, 1999 $111 $29 $76,963 $(52,766) $(647) $23,954
Net proceeds
from the exercise of
stock options -- -- 2 -- -- -- 2
Dividend on
Preferred Stock (4) -- (4)
Comprehensive income,
net of tax
Net unrealized gain $202 -- 202 202
Other comprehensive
income 202
Net income
(nine months) 4,454 4,454 -- 4,454
Comprehensive income $4,656
Balances at
September 30, 2000 $111 $293 $76,965 $(48,316) $(445) $28,608
See accompanying notes to unaudited consolidated financial statements.
page 3
The San Francisco Company and Subsidiaries
Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands) 2000 1999 2000 1999
Cash Flows from Operating Activities:
Net income $1,288 $913 $4,454 $2,187
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provisions (adjustment)
for loan losses (44) -- (201) 100
Depreciation and amortization expense 428 315 1,271 777
Net gain on sale of real estate owned -- -- -- (71)
Increase in interest receivable and
other assets (225) (159) (736) (39)
Increase in interest payable and
other liabilities 652 485 744 105
Increase (decrease) in
deferred loan fees 13 (75) 94 (101)
Net cash flows provided by
operating activities 2,112 1,479 5,626 2,958
Cash Flows from Investing Activities:
Proceeds from maturities of investment
securities held-to-maturity 58 413 1,315 1,470
Proceeds from maturities of investment
securities available-for-sale 1,485 1,091 2,963 12,736
Proceeds from the sale of FHLB stock,
net of stock dividends (20) (26) 960 (77)
Purchase of investment securities
available-for-sale (100) -- (7,544) (6,058)
Net increase in loans (3,700) (2,350) (10,755) (12,914)
Loans (charged off)
net of recoveries 44 -- 276 (200)
Proceeds from the sale of
other real estate owned -- -- -- 122
Purchases of premises and equipment (184) (12) (342) (55)
Increase in investment in
operating leases -- -- -- (2,943)
Net cash used in investing activities (2,417) (884) (13,127) (7,919)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits (13,435) 6,411 3,437 15,498
Net decrease in other borrowings -- -- (2,000) --
Cash dividends paid on
Series B Preferred Stock -- -- (4) (8)
Net proceeds from sale of stock -- 17 2 47
Net cash (used in) provided
by financing activities (13,435) 6,428 1,435 15,537
(Decrease) increase in cash and
cash equivalents (13,740) 7,023 6,068 10,576
Cash and cash equivalents at
beginning of period 47,161 18,461 39,489 14,908
Cash and cash equivalents at
end of period $33,421 $25,484 $33,421 $25,484
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the period for:
Interest $1,174 $763 $3,822 $2,668
Payment of income taxes 46 15 164 42
See accompanying notes to unaudited consolidated financial statements.
page 4
The San Francisco Company and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2000
(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") is
a California state chartered banking corporation and a wholly owned
subsidiary of the Company.
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 accompanying financial statements include the accounts of
the Company, the Bank, and the Bank's wholly owned subsidiary, Bank
of San Francisco Realty Investors (the "BSFRI"). All material
intercompany transactions have been eliminated in consolidation.
The data as of September 30, 2000, and for the three months
ended September 30, 2000 and 1999 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. The results of
operations for the three months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the entire
year of 2000. This report should be read in conjunction with the
Company's 1999 Annual Report on Form 10-K.
Note 3 - Earnings Per Share (the "EPS")
Basic EPS is calculated by dividing net income by the weighted
average number of Class A Common Shares (the "Common Stock"). The
dilutive EPS is calculated giving effect to all potentially
dilutive Common Shares including the conversion of the Series B
Convertible Preferred Stock (the "Preferred Stock") and certain
stock options, that were outstanding during the period. The
following
page 5
tables present a reconciliation of the amounts used in
calculating basic and diluted EPS for each of the periods shown.
(Dollars in thousands except per share amounts)
Per share
2000 Income Shares
amount
Third quarter
Basic EPS $1,286 29,320,725 $0.04
Effect of dilutive securities:
Preferred Stock 2 793
Stock Options -- 2,001,121
Diluted EPS $1,288 31,322,639 $0.04
Year to date
Basic EPS $4,447 29,319,361 $0.15
Effect of dilutive securities:
Preferred Stock 7 793
Stock Options -- 1,896,075
Diluted EPS $4,454 31,216,229
$0.14
Per share
1999 Income Shares
amount
Third quarter
Basic EPS $911 31,856,703 $0.03
Effect of dilutive securities:
Preferred Stock 2 793
Stock Options -- 1,898,631
Diluted EPS $913 33,756,127 $0.03
Year to date
Basic EPS $2,181 31,774,199 $0.07
Effect of dilutive securities:
Preferred Stock 6 793
Stock Options -- 1,588,079
Diluted EPS $2,187 33,363,071 $0.07
Note 4 - Income Tax
During the second quarter of 2000, an adjustment of $500,000
to the amount of realizable deferred tax asset was recorded based
on a determination that the Company is more likely than not able to
utilize additional deferred tax assets for which a valuation
allowance has been previously provided. The adjustment was based
on revised projections taking into consideration actual results for
the first and second quarter 2000 that demonstrate a continuing
trend of earnings substantially above those projected as of
December 31, 1999. The actual results for the third quarter of
2000 are consistent with those projections. Therefore, no
adjustment was required in the third quarter of 2000.
page 6
The total tax provision (benefit) rate differs from the
statutory federal rate for the reasons shown in the following table
for the three and nine months ended September 30, 2000:
Three Nine
Tax expense at the statutory federal rate 34.0% 34.0%
Utilization of prior years taxable losses (41.1) (41.1)
State income taxes, net of federal benefits 7.1 7.1
Alternative minimum tax 3.7 4.1
Change in valuation allowance -- (12.2)
Total effective tax benefit rate 3.7% (8.1)%
The provision for income taxes for the nine months ended 2000
consists of state minimum taxes, state and federal alternative
minimum taxes, and recognition of the tax benefit of certain
deferred tax assets including net operating loss carryforwards and
the adjustment to the valuation allowance.
Note 5 - Recent Accounting Pronouncements
During the first nine months of 2000, no new pronouncements
were applicable to the Company or the Bank.
page 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
This document contains forward-looking statements that are
subject to risks and uncertainties, including, but not limited to,
the Company's and Bank's ability to implement their business plan,
manage interest rate risks, and utilize the tax benefit of the net
operating loss carryforwards, and the economy in general and the
condition of stock markets upon which the Company's stock brokerage
business and fee income is dependent, the retention of key
employees, the real estate market in California and other factors
beyond the Company's and Bank's control. Such risks, uncertainties
and factors, including those discussed herein, could cause actual
results to differ materially from those indicated. Readers should
not place undue reliance on forward-looking statements, which
reflect management's views only as of the date hereof. The Company
and the Bank undertake no obligation to revise these forward-
looking statements to reflect subsequent events or circumstances.
Readers are also encouraged to review the Company's publicly
available filings with the Securities and Exchange Commission.
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, 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 not listed on any exchange.
First Security Van Kasper of San Francisco California is the sole
market maker in the Company's Common Stock.
On September 22, 2000, the Company and First Banks America,
Inc. (the "FBA") jointly announced the signing of a Definitive
Agreement providing for the acquisition of the Company and the Bank
by FBA. The merger is expected to close in the first quarter of
2001. Under the terms of the Definitive Agreement, the
shareholders of the Company will receive $1.95 per share of Common
Stock and $7.00 per share of Preferred Stock. The merger is
subject to regulatory approvals and other conditions.
The Company recorded net income of $1,288,000 for the three
months ended September 30, 2000, compared to a net income of
$913,000 for the same period in 1999. The increase in third
quarter 2000 earnings over earnings for the same period in 1999 by
$375,000 is comprised of higher net interest income and higher non-
interest revenue partially offset by higher expenses.
The Company recorded net income of $4.5 million for the nine
months ended September 30, 2000, compared to a net income of $2.2
million for the same period in 1999. Earnings for the nine months
ended September 30, 2000 were better than for the same period in
1999 by $2.3 million. This increase is comprised of higher net
interest income, higher non-interest income, a loan loss provision
adjustment related to recoveries, partially offset by higher
operating expenses.
At September 30, 2000, total assets were $191.8 million, an
increase of $6.8 million, or 3.6% from $184.9 million at December
31, 1999. As of September 30, 2000, total loans were $105.4
million, an increase of $10.8 million, or 11.4%, compared to $94.6
million at December 31, 1999. Total deposits were $142.3 million
at September 30, 2000, an increase of $3.4 million, or 2.4%,
compared to $138.9 million at December 31, 1999.
page 8
Results of Operations
Net Interest Income
The Company's net interest income was $2.3 million in the
quarter ended September 30, 2000 compared to $1.7 million for the
same period in 1999, or an increase of 35.3%. The Company's net
interest margin was 5.2% for the quarter ended September 30, 2000
compared to 4.95% for the same period in 1999. The increase in net
interest income, for the third quarter 2000, was the result of an
increase in the quarterly average earning assets by $39.1 million
in 2000 compared to 1999. The yield on interest earning assets
increased 47 basis points for the third quarter 2000 compared to
the same period in 1999. For the third quarter 2000, average non-
interest bearing deposits increased by $20.0 million, offsetting
the increase in the interest rates on interest bearing deposits and
other borrowings.
The Company's net interest income was $6.9 million in the nine
months ended September 30, 2000 compared to $4.8 million for the
same period in 1999, or an increase of 43.8%. The Company's net
interest margin was 5.0% for the nine months ended September 30,
2000 compared to 4.85% for the same period in 1999. The increase
in net interest income, for the nine months ended September 30,
2000, was the result of an increase in year to date average earning
assets by $49.8 million in 2000 compared to 1999. The yield on
interest earning assets increased 24 basis points for the nine
months ended September 30, 2000 compared to the same period in
1999. For the nine months ended September 30, 2000, average non-
interest bearing deposits increased by $16.2 million, substantially
offsetting the increase in the interest rates on interest bearing
deposits and other borrowings.
Provision/Adjustment for Loan and Lease Losses
In 2000 and 1999, the Bank recorded reductions to the
allowance for loan and lease losses as an adjustment for loan and
lease losses, and increases to the allowance for loan and lease
losses as provisions. The provisions and adjustments are based on
the factors discussed under "Allowance for Loan and Lease Losses".
The Company's third quarter 2000 adjustment for loan and lease
losses increased earnings by $44,000 compared to the third quarter
of 1999. An adjustment of $44,000 was recorded in third quarter
2000 compared to none for the same period in 1999.
The Company's year to date 2000 adjustment, net of provisions,
for loan and leases losses increased earnings by $301,000 compared
the same period in 1999. An adjustment of $276,000, net of
provisions of $75,000, totaling $201,000 was recorded in 2000
compared to a provision of $100,000 for the same period in 1999.
The adjustment was related to loan loss recoveries received during
the second and third quarters of 2000.
Non-Interest Income
Non-interest income was $1.6 million for the quarter ended
September 30, 2000 compared to $1.4 million for the same period in
1999, an increase of $187,000, or 13.4%. Non-interest income was
$5.4 million for the first nine months of 2000 compared to $3.9
million for the same period in 1999, an increase of $1.5 million,
or 38.2%. The increase in non-interest income was primarily the
result of an increase in stock option and brokerage commission
income from higher transaction volumes, an increase in real estate
rental income from higher rents, an increase in operating lease
income, and an increase in all other fees and charges in 2000
compared to 1999.
page 9
Non-Interest Expense
The Company's non-interest expenses increased to $2.6 million
from $2.2 million for the third quarter 2000 and 1999,
respectively. The increase of $393,000, or 17.9%, was primarily
related to compensation related expenses including incentive
programs related to profitability improvements, an increase in
depreciation of operating lease equipment, and an increase in
professional fees related to the recently announced merger of the
Company with First Banks America, Inc.
The Company's non-interest expenses increased to $8.3 million
from $6.4 million for the nine month period ended September 30,
2000 and 1999, respectively. The increase of $1.9 million, or
30.7%, was primarily related to compensation related expenses
including incentive programs related to profitability improvements,
an increase in depreciation of operating lease equipment, an
increase in professional fees related to the recently announced
merger as described above.
Financial Condition
Liquidity and Capital Resources
Liquidity
The Bank's liquid assets, which include cash and short term
investments totaled $33.4 million, or 17.4% of total assets, at
September 30, 2000, a decrease of $6.1 million, from $39.5 million,
or 21.4% of total assets, at December 31, 1999. The change in
liquidity was the result of an increase in loans of $10.8 million
and investments available for sale of $4.9 million, and increases
in deposits of $3.4 million and earnings of $4.5 million.
As of September 30, 2000, the Bank had pledged securities
totaling $21.9 million and loans totaling $37.0 million to the
Federal Home Loan Bank of San Francisco (the "FHLB") as collateral
for other borrowings totaling $15.0 million and a short-term
liquidity commitment totaling $3.0 million. The loans were pledged
as additional collateral to facilitate the unpledging of investment
securities. As of September 30, 2000, the Bank has the ability to
borrow up to a maximum of $38.4 million from the FHLB with terms of
under five years. In the future, long and short-term borrowings
from the FHLB may be used as an on-going source of liquidity and
funding. As of September 30, 2000, the Bank had other securities
totaling $600,000 pledged as collateral for public funds and
trusts.
The Bank has access to the discount window at the Federal
Reserve Bank (the "FRB") for a total borrowing facility of $3.1
million upon the pledge of securities. At September 30, 2000 and
December 31, 1999, no securities were pledged as collateral for the
FRB facility.
Capital
At September 30, 2000, shareholders' equity was $28.6 million
compared to $24.0 million at December 31, 1999.
The Company and the Bank are subject to general regulations
issued by the FRB, Federal Deposit Insurance Corporation, and
California Department of Financial Institutions which require
maintenance of a certain levels of capital. As of September 30,
2000, the Company and the Bank are in compliance with all minimum
capital ratio requirements.
page 10
The following table reflects both the Company's and the Bank's
capital ratios with respect to minimum capital requirements in
effect as of September 30, 2000:
Minimum
Capital
Company Bank Requirement
Leverage ratio 14.0% 13.9% 4.0%
Tier 1 risk-based capital 18.3 18.2 4.0
Total risk-based capital 19.3 19.2 8.0
Investment Activities
At September 30, 2000, the Company's investment securities and
FHLB stock totaled $38.9 million, or 20.3% of total assets,
compared to $36.3 million, or 19.6% of total assets, at December
31, 1999. 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 available-for-sale have maturities
or principal amortization of ten years or less.
At September 30, 2000, investment securities held-to-maturity
totaled $638 million, compared to $1,953,000 at December 31, 1999,
and are carried at amortized cost. At September 30, 2000, the
Company held $37.2 million in securities available-for-sale,
compared to $32.2 million at December 31, 1999. 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 September 30, 2000, the investment securities available-for-sale
have an unrealized loss of $445,000 net of tax, that was included
as a component of accumulated other comprehensive income under
shareholder's equity to reflect the current market value of the
securities available-for-sale. The change in market value of the
investment securities was the result of changes in market interest
rates during the first nine months of 2000. The market value of
the investment portfolio will fluctuate with changes in market
interest rates. Management believes the recent decline in market
value is temporary and does not represent a permanent impairment in
the market value of the investment portfolio.
Loans and Leases
During the first nine months of 2000, total loans and leases
increased from $94.6 million at December 31, 1999 to $105.4 million
at September 30, 2000. The increase resulted primarily from the
page 11
funding of new loans. The composition of the Bank's loan and lease
portfolio at September 30, 2000 and December 31, 1999 is summarized
as follows:
September 30, December 31,
(Dollars in thousands) 2000 1999
Real estate mortgage $77,355 $67,914
Secured commercial and financial 8,777 9,386
Unsecured 14,614 13,344
Other loans and leases 4,621 3,968
105,367 94,612
Deferred fees and costs, net (234) (140)
Allowance for possible loan and lease losses (1,600) (1,525)
Total loans and leases, net $103,533 $92,947
Impaired Loans and Leases
On September 30, 2000, the Bank had no loans that were past
due more than 31 days.
The Company identifies loans with weak credit quality
characteristics for review in accordance with Statement of
Financial Accounting Standards ("SFAS") 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 September
30, 2000 and December 31, 1999, the Company had no impaired loans.
Total interest income recognized on impaired loans during the first
nine months of 2000 and 1999 was zero and $4,000, respectively.
There can be no assurance that the Bank will not experience
losses in attempting to collect or otherwise liquidate any assets
that become non-performing in the future. As of September 30, 2000
and December 31, 1999, the Company's statement of financial
condition did not include any non-performing loans.
Allowance for Loan and Lease Losses
Generally, the Bank charges current earnings with a provision
for estimated losses on loan and lease receivables. The Bank will
provide an adjustment if the total allowance for loan and lease
losses exceeds the amount of estimated loan and lease losses. The
provisions or adjustments 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 asset
characteristics 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
September 30, 2000, none of the allowance for loan losses was
allocable to impaired loans, as identified in accordance with SFAS
No. 114. In addition, the Bank carries an "unallocated" loan and
lease loss allowance to provide for inherent losses
page 12
on loans and leases based on present economic conditions, trends, and
related uncertainties. The following table summarizes the loan and lease
loss experience of the Bank for the nine months ended September 30,
2000:
(Dollars in thousands) 2000
Beginning balance of allowance for loan and
lease losses at December 31, 1999 $1,525
Charge-offs --
Recoveries 276
Adjustment, net of provision (201)
Ending balance of allowance for loan and
lease losses September 30, 2000 $1,600
Other Assets
Operating Leases
As of September 30, 2000, other assets included investments in
operating leases totaling $3.5 million compared to $4.3 million at
December 31, 1999. Generally, the operating leases are comprised
of computer and electronic equipment leased to various lessees for
various periods with a weighted average lease term of eight months.
The Bank has contracted with a leasing administrator to manage the
equipment and collect lease payments.
Deferred Tax Asset
As of September 30, 2000 and December 31, 1999, other assets
included total deferred tax assets net of deferred tax liabilities
and the valuation allowance of $3.7 million and $3.4 million,
respectively. As of September 30, 2000, the deferred tax asset
included the tax effective of the market value adjustment of the
investment securities available for sale of $311,000, a reduction
of $142,000 from $453,000 as of December 31, 1999. In addition,
the Company reduced the valuation allowance by $500,000 as income
tax benefit. Based on evidence available through the third quarter
of 2000, it is likely that $3.4 million of the deferred tax assets
will be realized based on the Company's present financial
condition, continuing trend of increasing earnings, and available
information about future years.
page 13
Deposits
The Company had total deposits of $142.3 million at September
30, 2000 compared to $138.9 million at December 31, 1999, an
increase of $3.4 million or 2.4%. The increase is attributed
primarily to an increase in homeowners' association related
customer's deposits of $5.0 million, an increase in escrow related
deposits of $7.4 million, and an increase in Private and Business
Banking related customer's deposits of $1.5 million. The increase
was partially offset by a decline in stock option and brokerage
related deposits of $4.6 million and money desk related deposits of
$6.0 million. A summary of deposits at September 30, 2000 and
December 31, 1999 is as follows:
September 30, December 31,
(Dollars in thousands) 2000 1999
Demand deposits $28,936 $32,676
NOW 28,957 27,555
Money market and savings 43,080 38,354
Total deposits with no stated maturity 100,973 98,585
Time deposits:
Less than $100,000 11,613 14,819
$100,000 and greater 29,762 25,507
Total time deposits 41,375 40,326
Total deposits $142,348 $138,911
The Bank's deposits from private and business banking
customers totaled $63.2 million, or 44.4% of total deposits, at
September 30, 2000, compared to $61.6 million, or 44.3% of total
deposits, at December 31, 1999. Deposits from Association Bank
Services customers totaled $32.3 million, or 22.7% of total
deposits at September 30, 2000, compared to $27.3 million, or 19.6%
of total deposits at December 31, 1999. Deposits from Escrow
customers totaled $33.1 million, or 23.2% of total deposits at
September 30, 2000, compared to $25.7 million, or 18.5% of total
deposits at December 31, 1999. Deposits acquired through the money
desk operations totaled $3.7 million, or 2.6% of total deposits at
September 30, 2000, compared to $9.7 million, or 7.0% of total
deposits at December 31, 1999.
Other Borrowings
As of September 30, 2000, the Bank had long-term FHLB
borrowings outstanding totaling $15.0 million and short-term FHLB
borrowings outstanding of $3.0 million secured by pledged
securities totaling $21.9 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Market risk includes risks that arise from changes in interest
rates, foreign currency, exchange rates, commodity prices, equity
prices, and other market changes that affect market sensitive
instruments. The Company's primary market rate risk, interest rate
risk, has not changed significantly since December 31, 1999. The
Company does not have any significant risk related to foreign
currency, exchange rates, commodity prices, equity prices, and other
market changes that affect market sensitive instruments.
page 14
Item 6. Exhibits and Reports on Form 8-K
(a) none
(b) A report on Form 8-K dated September 22, 2000 was filed
with the SEC regarding the announcement of the approval
of an Agreement and Plan of Merger between the Company
and First Banks America, Inc. subject to regulatory
approval and other conditions.
page 15
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: October 31, 2000 /s/ James E. Gilleran
James E. Gilleran
Chairman of the Board and
Chief Executive Officer
Date: October 31, 2000 /s/ Keary L. Colwell
Keary L. Colwell
Chief Financial Officer
and Executive Vice President
