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 June 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 July 28, 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 June 30, 2000 and December 31, 1999 . . . . . . . . . . . 1
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2000 and 1999 . . 2
Consolidated Statements of Changes in Shareholders'
Equity and Comprehensive Income
For the Six Months Ended June 30, 2000 and 1999 . . . . . . . 3
Consolidated Statements of Cash Flows
For the Three and Six Months Ended June 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
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
page
The San Francisco Company and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 2000 and December 31, 1999
(unaudited)
June 30, December 31,
(Dollars in thousands except per share data) 2000 1999
Assets:
Cash and due from banks $5,194 $5,265
Federal funds sold 41,967 34,224
Cash and cash equivalents 47,161 39,489
Investment securities held-to-maturity, at cost
(Fair value: 2000 $671; 1999 $1,904) 696 1,953
Investment securities available-for-sale, at fair value 38,179 32,236
Federal Home Loan Bank stock, at par 1,097 2,077
Loans 101,667 94,612
Deferred loan fees (221) (140)
Allowance for loan losses (1,600) (1,525)
Loans, net 99,846 92,947
Premises and equipment, net 7,008 7,151
Operating lease equipment, net 3,764 4,306
Interest receivable 954 867
Other assets 4,324 3,900
Total Assets $203,029 $184,926
Liabilities and Shareholders' Equity:
Non-interest bearing deposits $33,749 $32,676
Interest bearing deposits 122,034 106,235
Total deposits 155,783 138,911
Other borrowings 18,000 20,000
Other liabilities and interest payable 2,152 2,061
Total liabilities 175,935 160,972
Shareholders' Equity:
Preferred stock - convertible (par value $0.01 per share)
Series B - 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;
1999 - 29,317,558 293 293
Additional paid-in capital 76,965 76,963
Retained deficit (49,604) (52,766)
Accumulated other comprehensive loss (671) (647)
Total shareholders' equity 27,094 23,954
Total Liabilities and Shareholders' Equity $203,029 $184,926
See accompanying notes to unaudited consolidated financial statements.
page 1
The San Francisco Company and Subsidiaries
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands 2000 1999 2000 1999
except per share data)
Interest income:
Loans $2,366 $1,830 $4,703 $3,583
Investments 1,370 651 2,475 1,340
Dividends 33 25 62 51
Total interest income 3,769 2,506 7,240 4,974
Interest expense:
Deposits 1,200 693 2,128 1,345
Other borrowings 270 275 536 547
Total interest expense 1,470 968 2,664 1,892
Net interest income before
(adjustment) provision
for loan losses 2,299 1,538 4,576 3,082
(Adjustment) provision
for loan losses (232) 100 (157) 100
Net interest income after
(adjustment) provision
for loan losses 2,531 1,438 4,733 2,982
Non-interest income:
Stock brokerage commissions and fees 549 413 1,605 850
Real estate rental income 331 310 640 616
Service charges and fees 311 239 580 413
Income from operating leases 300 197 600 430
Gain on sale of assets, net -- 70 -- 70
Other income 126 62 362 111
Total non-interest income 1,617 1,291 3,787 2,490
Non-interest expense:
Salaries and related benefits 1,493 1,201 3,252 2,424
Occupancy expense 293 291 630 581
Operating lease depreciation 271 67 542 247
Professional fees 226 59 368 144
Data processing 131 117 258 226
Corporate insurance premiums 77 65 155 128
Other operating expenses 247 192 530 425
Total non-interest expense 2,738 1,992 5,735 4,175
Income before income taxes 1,410 737 2,785 1,297
Provision (benefit) for income taxes (457) 20 (381) 23
Net Income $1,867 $717 $3,166 $1,274
Income per common share:
Basic: Net income $0.06 $0.02 $0.11 $0.04
Weighted average
shares outstanding 29,319,785 31,735,705 29,318,672 31,732,244
Diluted: Net income $0.06 $0.02 $0.10 $0.04
Weighted average
shares outstanding 31,216,632 33,448,958 31,162,439 33,161,699
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
Six Months Ended June 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 1 29 -- -- 30
Dividend on
Preferred Stock (8) -- (8)
Net income
(six months) $1,274 1,274 -- 1,274
Comprehensive loss,
net of tax
Unrealized loss, net (387) -- (387) (387)
Total other
comprehensive loss (387) -- -- --
Comprehensive income $887
Balances at
June 30, 1999 111 318 78,845 (55,353) (308) 23,613
Net proceeds from
the exercise of
stock options 3 99 -- -- 102
Redemption of
Common Stock (28) (1,981) (2,009)
Dividend on
Preferred Stock -- -- (4) -- (4)
Net income
(six months) $2,591 2,591 2,591
Comprehensive loss,
net of tax
Unrealized loss, net (339) -- (339) (339)
Total other
comprehensive income (339)
Comprehensive income $2,252
Balances at
December 31, 1999 111 293 76,963 (52,766) (647) 23,954
Net proceeds from
the exercise of
stock options -- -- 2 -- -- -- 2
Dividend on
Preferred Stock (4) -- (4)
Net income
(six months) $3,166 3,166 -- 3,166
Comprehensive
income, net of tax
Unrealized loss, net (24) -- (24) (24)
Total other comprehensive income (24) --
Comprehensive income $3,142
Balances at
June 30, 2000 $111 $293 $76,965 $(49,604) $(671) $27,094
See accompanying notes to unaudited consolidated financial statements.
page 3
The San Francisco Company and Subsidiaries
Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 2000 1999 2000 1999
Cash Flows from Operating Activities:
Net income $1,867 $717 $3,166 $1,274
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provisions (adjustment)
for loan losses (232) 100 (157) 100
Depreciation and amortization expense 426 207 843 529
Net gain on sale of real estate owned -- (71) -- (71)
Decrease (increase) in interest
receivable and other assets (374) 114 (511) 120
Increase (decrease) in interest
payable and other liabilities (28) 37 91 (385)
Increase (decrease) in deferred loan fees 19 (40) 81 (26)
Net cash flows provided
by operating activities 1,678 1,064 3,513 1,541
Cash Flows from Investing Activities:
Proceeds from maturities of investment
securities held-to-maturity 44 509 1,257 1,057
Proceeds from maturities of investment
securities available-for-sale 657 1,581 1,478 11,594
Proceeds from sale of FHLB Stock, net 980 -- 980 --
Purchase of investment
securities available-for-sale (7,215) (1,965) (7,444) (6,058)
Net increase in loans (1,300) (3,087) (7,055) (10,564)
Loans (charged off) net of recoveries 232 (200) 232 (200)
Proceeds from the sale of
other real estate owned -- 122 -- 122
Purchases of premises and equipment (86) (16) (158) (43)
Net decrease (increase) in
investment in operating leases -- -- -- (2,943)
Net cash used in investing activities (6,688) (3,056) (10,710) (7,035)
Cash Flows from Financing Activities:
Net (decrease) increase in deposits (15,076) 11,537 16,871 9,087
Net decrease in other borrowings -- -- (2,000) --
Cash dividends paid on
Series B Preferred Stock (4) -- (4) (4)
Net proceeds from sale of stock 2 30 2 30
Net cash (used in) provided
by financing activities (15,078) 11,567 14,869 9,113
(Decrease) increase in cash
and cash equivalents (20,088) 9,689 7,672 3,553
Cash and cash equivalents
at beginning of period 67,249 8,772 39,489 14,908
Cash and cash equivalents
at end of period $47,161 $18,461 $47,161 $18,461
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the period for:
Interest $1,626 $1,158 $2,648 $1,905
Payment of income taxes 82 21 118 27
See accompanying notes to unaudited consolidated financial statements.
page 4
The San Francisco Company and Subsidiaries
Notes to Consolidated Financial Statements
June 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. The 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 data as of June 30, 2000, and for the three months ended
June 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 June 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.
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.
Certain reclassifications have been made in the prior years's
consolidated financial statements to conform to the present year
presentation.
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, such as certain stock options, that were
outstanding during the period. The
page 5
following 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
Second quarter
Basic EPS $1,865 29,319,785 $0.06
Effect of dilutive securities:
Series B Convertible Preferred Stock 2 793
Stock Options -- 1,896,054
Diluted EPS $1,867 31,216,632 $0.06
Year to date
Basic EPS $3,161 29,318,672 $0.11
Effect of dilutive securities:
Series B Convertible Preferred Stock 4 793
Stock Options -- 1,842,974
Diluted EPS $3,166 31,162,439 $0.10
Per share
1999 Income Shares amount
Second quarter
Basic EPS $715 31,735,705 $0.02
Effect of dilutive securities:
Series B Convertible Preferred Stock 2 793
Stock Options -- 1,712,460
Diluted EPS $717 33,448,958 $0.02
Year to date
Basic EPS $1,270 31,732,244 $0.04
Effect of dilutive securities:
Series B Convertible Preferred Stock 4 793
Stock Options -- 1,428,662
Diluted EPS $1,274 33,161,699 $0.04
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 of 2000 that demonstrate a continuing
trend of earnings substantially above those projected as of
December 31, 1999.
page 6
The total tax provision (benefit) rate differs from the
statutory federal rate for the reasons shown in the following table
for the six months ended June 30, 2000:
Tax expense at the statutory federal rate 34.0%
Utilization of prior years taxable losses (41.1)
State income taxes, net of federal benefit 7.1
Alternative minimum tax 4.3
Change in valuation allowance (18.0)
Total effective tax benefit rate (13.7)%
The provision for income taxes for the six 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 half of 2000, there were no new
pronouncements that are 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 respective
long-term business plan, the economy in general and the condition
of stock markets upon which the Company's stock brokerage business
and fee income is dependent, the risks associated with Year 2000
remediation, the continued services of the Company's and Bank's key
executives and managers, 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.
The Company recorded net income of $1,867,000 for the three
months ended June 30, 2000, compared to a net income of $717,000
for the same period in 1999. The Company recorded net income of
$3,166,000 for the six months ended June 30, 2000, compared to a
net income of $1,274,000 for the same period in 1999. The increase
in the Company's net income of $1,150,000 for the second quarter
and $1,892,000 for the first half was comprised of higher net
interest income due to higher earning assets funded by higher core
deposits, adjustment for loan losses due to a recovery received in
the second quarter 2000, non-interest income primarily from stock
option and brokerage commissions and fees, and recognition of
income tax benefit related to the carryfoward of net operation
losses, partially offset by an increase in non-interest expenses
related to incentive programs and professional fees.
At June 30, 2000, total assets were $203.0 million, an
increase of $18.1 million, or 9.8% from $184.9 million at December
31, 1999. As of June 30, 2000, total loans were $101.7 million, an
increase of $7.1 million, or 7.5%, compared to $94.6 million at
December 31, 1999. Total deposits were $155.8 million at June 30,
2000, an increase of $16.9 million, or 12.2%, compared to $138.9
million at December 31, 1999.
Results of Operations
Net Interest Income
The Company's net interest income was $2.3 million in the
quarter ended June 30, 2000 compared to $1.5 million for the same
period in 1999, or an increase of 53.3%. The Company's net
page 8
interest income was $4.6 million in the six months ended June 30,
2000 compared to $3.1 million for the same period in 1999, or an
increase of 48.4%. The increase was primarily the result of an
increase
in higher earning assets.
The Company's second quarter average interest earning assets
increased to $189.2 million for 2000 compared to $130.7 million for
the same period in 1999. The increase was funded from higher
deposits which increased to an average of $149.4 million for the
second quarter 2000 compared to $102.9 million for the same period
in 1999. The Company's net interest margin increased to 4.97% for
the second quarter 2000 compared to 4.74% for 1999. The increase
was primarily higher interest paid on investments including
overnight deposits as a result of increases in market interest
rates.
The Company's year to date average interest earning assets
increased to $185.4 million for the first half of 2000 compared to
$130.3 million for the same period in 1999. The increase was
funded from higher deposits which increased to an average of $153.7
million for the second half of 2000 compared to $101.5 million for
the same period in 1999. The Company's net interest margin
increased to 4.95% for the first half of 2000 compared to 4.77% for
1999 due to higher interest paid on investments including overnight
deposits and higher non-interest bearing deposits.
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 second quarter 2000 adjustment for loan loss
increased earnings by $332,000 compared to the second quarter of
1999. An adjustment of $232,000 was recorded in second quarter
2000 compared to a provision of $100,000 in 1999. The adjustment
was related to loan loss recoveries received during the second
quarter of 2000.
The Company's first half 2000 adjustment for loan loss
increased earnings by $257,000 compared to the same period in 1999.
The first half 2000 adjustment, net of provisions, for loan and
lease losses was $157,000 compared to a provision of $100,000 for
the same period in 1999.
Non-Interest Income
Non-interest income was $1.6 million for the quarter ended
June 30, 2000 compared to $1.3 million for the same period in 1999,
an increase of $326,000, or 25.3%. Non-interest income was $3.8
million for the first half of 2000 compared to $2.5 million for the
same period in 1999, an increase of $1.3 million, or 52.1%. 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.
Non-Interest Expense
The Company's non-interest expenses increased to $2.7 million
from $2.0 million for the second quarter 2000 and 1999,
respectively. The Company's non-interest expenses increased to
$5.6 million from $4.2 million for the six month period ended June
30, 2000 and 1999, respectively. The second quarter increase of
$746,000, or 37.4%, and the first half increase of $1.6 million, or
37.4%, was
page 9
primarily related to compensation related expenses
including incentive programs, higher professional fees related to
higher legal and accounting costs, and higher operating lease
equipment depreciation expense.
Financial Condition
Liquidity and Capital Resources
Liquidity
The Bank's liquid assets, which include cash and short term
investments totaled $47.2 million, or 23.3% of total assets, at
June 30, 2000, an increase of $7.7 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 deposits of $16.9
million offset by an increase in investments available for sale of
$6.0 million which was partially used to fund an increase in loans.
As of June 30, 2000, the Bank had pledged securities totaling
$23.7 million to the Federal Home Loan Bank of San Francisco (the
"FHLB") as collateral for other borrowings totaling $18.0 million.
As of June 30, 2000, the Bank has the ability to borrow up to a
maximum of 20% of total assets or $40.6 million from the FHLB upon
the pledge of sufficient collateral. 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 June 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 $2.8
million upon the pledge of securities. At June 30, 2000 and
December 31, 1999, no securities were pledged as collateral for the
FRB facility.
Capital
At June 30, 2000, shareholders' equity was $27.1 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 June 30, 2000,
the Company and the Bank are in compliance with all minimum capital
ratio requirements.
The following table reflects both the Company's and the Bank's
capital ratios with respect to minimum capital requirements in
effect as of June 30, 2000:
Minimum
Capital
Company Bank Requirement
Leverage ratio 12.5% 12.5% 4.0%
Tier 1 risk-based capital 17.6 17.5 4.0
Total risk-based capital 18.6 18.5 8.0
page 10
Investment Activities
At June 30, 2000, the Company's investment securities, and
FHLB stock totaled $40.0 million, or 19.7% of total assets,
compared to $36.3 million, or 19.6% of total assets, at December
31, 1999. Investment securities increased as a result of security
purchases which were partially offset by principal amortization on
existing mortgage-backed securities and sale of Federal Home Loan
Bank Stock.
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 seven years or less.
At June 30, 2000, investment securities held-to-maturity
totaled $696,000, compared to $2.0 million at December 31, 1999,
and are carried at amortized cost. At June 30, 2000, the Company
held $38.2 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 June
30, 2000, the investment securities available-for-sale have an
unrealized loss of $671,000 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 decline in market value of the
investment securities was the result of increasing market interest
rates during the second half 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 half of 2000, total loans and leases
increased, from $94.6 million at December 31, 1999 to $101.7
million at June 30, 2000. The increase resulted primarily from the
funding of new loans. The composition of the Bank's loan and lease
portfolio at June 30, 2000 and December 31, 1999 is summarized as
follows:
June 30, December 31,
(Dollars in thousands) 2000 1999
Real estate mortgage $74,156 $67,914
Secured commercial and financial 9,788 9,386
Unsecured 14,031 13,344
Other loans and leases 3,692 3,968
101,667 94,612
Deferred fees and costs, net (221) (140)
Allowance for possible loan and lease losses (1,600) (1,525)
Total loans and leases, net $99,846 $92,947
Impaired Loans and Leases
On June 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 Accountin Standards ("SFAS") No. 114 "Accounting by
Creditors for
page 11
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 June 30,
2000 and December 31, 1999, the Company had no impaired loans.
Total interest income recognized on impaired loans during the first
half 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 June 30, 2000, the
Company's statement of financial condition did not include any non-
performing assets.
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 June
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 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 quarter ended June 30, 2000:
(Dollars in thousands)
Beginning balance of allowance for loan and
lease losses at December 31, 1999 $1,525
Charge-offs --
Recoveries 232
Provision (157)
Ending balance of allowance for loan and
lease losses June 30, 2000 $1,600
Other Assets
Operating Leases
As of June 30, 2000, other assets included investments in
operating leases totaling $3.8 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
periods ranging from a few days to five years. The Bank has
contracted with a leasing administrator to manage the equipment and
collect lease payments.
Deferred Tax Asset
As of June 30, 2000 and December 31, 1999, other assets
included total deferred tax assets net of deferred tax liabilities
and the valuation allowance of $3.4 million and $2.9 million,
respectively. The Company reduced the valuation allowance by
$500,000 as income tax benefit. Based on the evidence
page 12
available as of June 30, 2000, it is likely that $3.4 million of the
deferred tax asset will be realized based on the Company's current
financial condition, continuing trend of increasing earnings, and available
information about future years.
Deposits
The Company had total deposits of $155.8 million at June 30,
2000 compared to $138.9 million at December 31, 1999, an increase
of $16.9 million or 12.2%. The increase is attributed primarily to
an increase in homeowners' association related customer's deposits
of $4.7 million, an increase in Escrow related deposits of $11.2
million, and an increase in Private and Business Banking client's
deposits by $3.0 million. A summary of deposits at June 30, 2000
and December 31, 1999 is as follows:
June 30, December 31,
(Dollars in thousands) 2000 1999
Demand deposits $33,749 $32,676
NOW 27,217 27,555
Money market and savings 46,692 38,354
Total deposits with no stated maturity 107,658 98,585
Time deposits:
Less than $100,000 12,750 14,819
$100,000 and greater 35,375 25,507
Total time deposits 48,125 40,326
Total deposits $155,783 $138,911
The Bank's deposits from private and business banking
customers totaled $64.6 million, or 41.5% of total deposits, at
June 30, 2000, compared to $61.6 million, or 44.3% of total
deposits, at December 31, 1999. Deposits from Association Bank
Services customers totaled $32.0 million, or 20.5% of total
deposits at June 30, 2000, compared to $27.3 million, or 19.6% of
total deposits at December 31, 1999. Deposits from Escrow
customers totaled $36.9 million, or 23.7% of total deposits at June
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 $8.0 million, or 5.1% of total deposits at June
30, 2000, compared to $9.7 million, or 7.0% of total deposits at
December 31, 1999.
Other Borrowings
As of June 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
$23.7 million.
page 13
PART II
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2000 Annual Meeting (the "Annual
Meeting") on May 24, 2000. Two matters were submitted to a vote of
security holders at the Annual Meeting. The stockholders elected
three directors and ratified the Board of Directors' selection of
KPMG LLP, independent public accountants, as the independent
accounting firm for the Company during the fiscal year ending
December 31, 2000.
The following schedule sets forth each matter voted upon
at the Annual Meeting and the number of votes casts for, against or
withheld including a tabulation with respect to each nominee for
director.
Votes Withheld/
Proposal/Nominee Votes For Votes Against Abstentions
Proposal 1:
Election of Directors
Paul Erickson 29,083,855 2,289 --
Willard D. Sharpe 29,083,865 2,279 --
Gary Williams 29,083,865 2,279 --
Proposal 2: Ratify the
selection of KPMG LLP as
the Company's independent
accounting firm for 2000. 29,034,365 51,717 62
page 14
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: July 31, 2000 /s/ James E.Gilleran
James E. Gilleran
Chairman of the Board and
Chief Executive Officer
Date: July 31, 2000 /s/ Keary L.Colwell
Keary L. Colwell
Chief Financial Officer and
Executive Vice President
