<PAGE>
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, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number: 0-11090
NAPA NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 94-2780134
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
901 Main Street, Napa, California 94559
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(707) 257-2440
Not Applicable
(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
As of November 1, 1995, the number of shares outstanding of the registrant's
Common Stock, without par value, was 754,500. Fully dilutive shares outstanding
were 874,300.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
The following interim consolidated financial statements are unaudited. However,
they reflect all adjustments (which included only normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
financial position, results of operations, and cash flows for the interim
periods presented.
Results for the quarter and nine month period as presented are not necessarily
indicative of results to be expected of the year as a whole.
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
(Unaudited)
CONSOLIDATED BALANCE SHEETS
(IN 000S)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,426 $ 5,459
Federal funds sold 9,790 10,760
Time deposits with other financial
institutions 4,356 4,357
Investment securities: Held to Maturity 1,233 1,216
Federal Reserve Stock 197 165
Loans, less allowance for loan losses of
$1,204 and $1,050 at September 30, 1995
And December 31, 1994 69,620 62,103
Premises, furniture, fixtures and
equipment, net 2,424 1,449
Accrued interest receivable 701 432
Other real estate owned 678 0
Other assets 769 536
TOTAL ASSETS $95,194 $86,477
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand $16,733 $18,098
Interest-bearing:
Savings 11,406 14,367
Transaction 24,039 24,431
Time certificates 35,439 22,482
Total deposits 87,617 79,378
Accrued interest payable and other
liabilities 398 753
TOTAL LIABILITIES 88,015 80,131
SHAREHOLDERS' EQUITY
Preferred stock, no par value,
1,000,000 shares authorized; no
shares outstanding 0 0
Common stock, no par value, 20,000,000
shares authorized; 754,500 shares
issued and outstanding at September
30,1995 and December 31, 1994 6,915 6,915
Retained Earnings 264 (569)
TOTAL SHAREHOLDERS' EQUITY 7,179 6,346
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $95,194 $86,477
</TABLE>
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In 000s, except earnings per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $ 5,463 $ 3,950
Interest on federal funds sold 405 318
Interest on time deposits with
other financial institutions 187 94
Interest on investment securities 62 26
Total interest income 6,117 4,388
Interest expense:
Interest on deposits 1,895 1,215
Total interest expense 1,895 1,215
Net interest income 4,222 3,173
Provision for loan losses 174 116
Net interest income after provision
For loan losses 4,048 3,057
Non-interest income:
Service charges on deposit accounts 342 276
Other customer fees and charges 197 210
Mortgage loan origination and
Service fees 1 18
Other income 12 0
Total non-interest income 552 504
Non-interest expense:
Salaries and employee benefits, net 1,675 1,475
Occupancy 289 220
Furniture, fixtures and equipment 294 243
Marketing and business development 82 85
Other 860 740
Total non-interest expense 3,200 2,763
Income before income taxes 1,400 798
Income taxes 567 323
Net income $ 833 $ 475
Net income per share $ 0.95 $ 0.63
Weighted average common shares
outstanding used to compute net
income per share 874,300 754,500
</TABLE>
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In 000s, except earnings per share data)
<TABLE>
<CAPTION>
Quarter Ended September 30,
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $ 1,925 $ 1,503
Interest on federal funds sold 138 103
Interest on time deposits with
other financial institutions 64 42
Interest on investment securities 22 13
Total interest income $ 2,149 $ 1,661
Interest expense:
Interest on deposits 712 426
Total interest expense 712 426
Net interest income 1,437 1,235
Provision for loan losses 50 34
Net interest income after provision
For loan losses 1,387 1,201
Non-interest income:
Service charges on deposit accounts 117 101
Other customer fees and charges 68 68
Mortgage loan origination and
Service fees (0) (1)
Other Income 12 0
Total non-interest income 197 168
Non-interest expense:
Salaries and employee benefits, net 591 495
Occupancy 109 78
Furniture, fixtures and equipment 99 80
Marketing and business development 30 32
Other 263 271
Total non-interest expense 1,092 956
Income before income taxes 492 413
Income taxes 182 168
Net income $ 310 $ 245
Net income per share $ 0.35 $ 0.32
Weighted average common shares
outstanding used to compute net
income per share 874,300 754,500
</TABLE>
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In 000s)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 833 $ 475
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation on premises and equipment 234 206
Amortization of deferred loan fees and
premiums on investment securities (256) (240)
Provision for loan losses 174 116
(Increase) in accrued interest
receivable (269) (153)
(Increase) in other assets (233) (143)
(Decrease) increase in accrued interest
Payable and other liabilities (355) 248
Total adjustments (705) 34
NET CASH PROVIDED BY
OPERATING ACTIVITIES 128 509
Cash flows from investing activities:
Net increase in loans (7,440) (7,138)
Proceeds from sale of other real estate 0 612
Increase in other real estate owned (678) 0
Net decrease (increase) in time deposits
with other financial institutions 1 (1,882)
Purchase of investment securities (519) (732)
Proceeds from maturities of
investment securities-held to maturity 475 0
Capital expenditures (1,209) (45)
NET CASH USED BY INVESTING
ACTIVITIES (9,370) (9,185)
Cash flows from financing activities:
Net increases in deposits 8,239 4,631
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,239 4,631
DECREASE IN CASH/CASH EQUIVALENTS (1,003) (4,045)
Cash and cash equivalents at beginning
of period 16,219 17,284
Cash and cash equivalents at end of
period $15,216 $13,239
(Continued on following page)
</TABLE>
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(In 000s)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT September 30
CONSIST OF:
Cash and due from banks $ 5,423 $ 6,619
Federal funds sold 9,790 6,620
$15,216 $13,239
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,643 $ 1,231
Cash paid for income taxes $ 1,248 $ 78
</TABLE>
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following should be read in conjunction with the unaudited consolidated
financial statements presented elsewhere in this Form 10-Q. Since Napa National
Bancorp (the Company) is a holding company whose principal asset is, and is
expected to be, the capital stock of Napa National Bank (the Bank), the
following relates principally to the financial condition and results of
operations of the Bank. All dollar amounts are rounded and expressed in
thousands except earnings per share data.
Summary of Financial Results
The Company recorded net income of $310, or $0.35 per share for the third
quarter of 1995 as compared to net income of $245, or $0.32 per share for the
same period in 1994. For the first nine months of 1995, the Company had net
income of $833, or $0.95 per share, as compared to $475, or $0.63 per share for
the first nine months of 1994. The Company recorded $567 in income tax expense
for the first nine months of 1995 and $323 for the same period of 1994. The
Company's year to date 1995 net income was $358 above the results of the same
period of 1994 primarily due to the increase in net interest income. Net
interest income for the nine months ending September 30, 1995, was $1,049, or
33%, higher than the results for the same period of 1994. Additionally, non-
interest income increased by approximately $48, or 10%, over the same period of
1994. These increases were partially offset by an increase in the provision for
loan losses for the first nine months of 1995 of $58, or 50%, above 1994's
total. During this same time frame, non-interest expense also increased over
the prior year by $437, or 16%.
Net Interest Income
The Company's primary source of income is the difference between interest
income and fees derived from earning assets and interest paid on liabilities
incurred for the funding of those assets. This difference is referred to as
"net interest income". Net interest income expressed as a percentage of average
total earning assets is referred to as the "net interest margin" or "margin".
For the third quarter of 1995, net interest income was $202, or 16%, higher
than the third quarter of 1994. The increase in total interest income is
attributable primarily to the growth in earning assets during the prior twelve
months and increases in the prime interest rate during 1994 and early 1995.
During the third quarter of 1995, total interest expense increased substantially
over the same period of 1994 ($712 and $426, respectively). This increase was
primarily attributed to a limited time, one year 7% certificate of deposit
product that the Bank offered late in the first quarter of 1995 (See "Deposits"
herein). These factors resulted in net interest income for the third quarter of
1995 being $202, or 16%, more than the same period of 1994.
<PAGE>
For the first nine months of 1995, total average earning assets were
approximately $82,200, an increase of approximately $8,718, or 12%, over total
average earning assets ($73,482) during the same period in 1994. This increase
in average assets for the first three quarters of 1995 as compared to the same
period of 1994, contributed significantly to the increase of $1,729 in total
interest income between the two periods.
Average interest bearing deposits for the first nine months of 1995 were
$67,632, an increase of $6,996, or 12%, over 1994's average of $60,636. This
growth in interest bearing deposits, coupled with general increases on rates
paid on deposits and the 7% certificate of deposit offering discussed above,
resulted in total interest expense being higher during the first nine months of
1995 over the same period of 1994 by $680, or 56%.
For the first nine months of 1995, net interest income was $1,049 higher
than the same period of 1994. Net interest income increased primarily due to
the increase in earning assets (approximately 12%) and the continued higher
interest rates experienced in early 1995 over the same period of 1994. These
increases were offset by increases in interest bearing deposits and a general
rise in the interest rates paid on these deposits.
Provision for Loan Losses
The provision for loan losses is based upon management's assessment of the
amount that is necessary to maintain the allowance for loan losses at an
adequate level. As further described in the "Allowance for Loan Losses" herein,
management takes many factors into consideration when determining the provision.
In addition to the factors described in the "Allowance for Loan Losses" section,
management also considers loan portfolio growth in establishing the provision.
During the third quarter of 1995, the provision was $50 as compared to a
provision of $34 for the same period in 1994. For the first nine months of
1995, the provision was $174 as compared to a provision of $116 for the same
period of 1994. Gross loans totaled $70,824, as of September 30, 1995, an
increase of $8,285 or 13%, over the September 30, 1994, balance of $62,539. The
increase in the provision during the first nine months of 1995 over 1994, was
due primarily to an increase in outstanding loan balances, projected loan growth
in the fourth quarter, and management's ongoing assessment of the adequacy of
the allowance for loan losses (See "Loans and Nonaccrual Loans" herein).
Non-Interest Income
Non-interest income consists primarily of service charges on deposit
accounts and fees charged for other banking services. Non-interest income for
the third quarter of 1995 was $197, $29 or 17%, greater than the third quarter
of 1994. Non-interest income for the first three quarters of 1995 was $552, $48
or 10%, higher than the same period of 1994. The growth experienced in 1995 can
be attributed to the continued increase in number of deposit accounts subject to
service charges during the period under review. Additionally, the Bank's
merchant card processing program has shown strong gains in 1995 over earnings in
1994.
<PAGE>
Non-Interest Expense
For the third quarter of 1995, non-interest expenses increased by $136, or
14%, over the same period of 1994. Total non-interest expenses for nine months
ending September 30, 1995 were $3,200, representing an increase of $437, or 16%,
over 1994's total of $2,763. Salaries and employee benefit expenses and other
expenses showed the largest dollar increases during the first nine months of
1995 over the same period in 1994 however, occupancy and furniture, fixtures and
equipment expenses showed the largest percentage gain.
Salaries and employee benefits increased by $96, or 19%, in the third
quarter of 1995 as compared to the same period of 1994. 1995 year to date
salary related expenses increase by $200, or 14%, over the first nine months of
1994. This increase can be primarily attributed to an addition of approximately
four full time equivalent employees during the previous twelve months. This
staff increase was a strategic move by management in order to take advantage of
unique marketing opportunities taking place in the Company's service area and
were necessary to maintain an adequate service level given the overall growth
within the Company. Additionally, annual Company wide salary increases for
1995, which began in March, were approximately 5%.
In November of 1994, the Bank entered into a five year noncancellable
operating lease for a new facility in Downtown Napa. This facility was intended
to house its existing Downtown Napa branch, primary lending services and
headquarters. The Bank began leasehold improvements early in 1995 and rent
payments during the later half of the first quarter. During the leasehold
improvement stage on this new facility, the Bank continued to operate from the
existing Downtown Napa branch. Occupancy and furniture, fixtures and equipment
expenses increased in 1995 over 1994 totals for the third quarter and year to
date by $50 and $120, respectively. These increases in costs were attributed
primarily to the Bank's new branch/headquarters tenant improvements, and the
continuous costs of supporting its other locations.
During April, the Bank closed its original banking office located at 1500
Third Street, Napa, California and re-opened at 901 Main Street, Napa,
California. At the end of June, the Bank relocated it primary lending services
and headquarters into the completed facility. After relocation of the lending
and administration staff from its previous location on 3263 Claremont Way, Napa,
California, this facility began remodeling to accommodate the Bank's customer
service and EDP departments. The remodeling of the Claremont facility was
completed in July and these two departments were immediately relocated. With
the completion of this move, the Bank was able to vacate the leased space which
previously housed the Customer Service Center. At the end of the third quarter,
the Bank had consolidated back into three locations, all offering full banking
services.
The Company decreased its marketing and business development costs by $2, or
6%, during the third quarter of 1995 over the same period of 1994. For the first
nine months of 1995 marketing costs decreased by $3, or 4%, over the nine months
of 1994. These decreases in both the third quarter and year to date, are due
primarily to the high profile and costly marketing efforts incurred during the
first quarter of 1995. Given the
<PAGE>
growth in loans and deposits resulting from these marketing efforts, management
curtailed the Bank's marketing costs greatly during the second and third
quarters of this year.
Other non-interest expense declined by $8, or 3%, for the third quarter of
1995 over the similar period of 1994. This decline was principally due to the
reduction of the FDIC insurance assessment that occurred during the third
quarter. The Bank's insurance assessment rate declined from $0.23 to $0.04 per
$100 of applicable deposits beginning with the July assessment period. This
reduction in assessment rate resulted in a refund of approximately $12 from the
second quarter payments which was received in September 1995. Additionally, it
reduced the third and forth quarter anticipated payments by an estimated $72.
For the first nine months of 1995, other non-interest expenses increased by
$120, or 16% over the same period of 1994. A significant portion of this
increase is attributable to the fact that the Company has grown total assets by
15% during the last twelve months. Additionally, the Company approved a new
director compensation plan effective January 1, 1995. Director and other
professional fees attributed over half of the increase in expenses during the
prior twelve months.
Income Taxes
Income tax expense was 41% of pre-tax income for the nine months ending
September 30, 1995 and 1994.
Loans and Nonaccrual Loans
Gross loans totaled $70,824 at September 30, 1995, an increase of $7,671
(12%), and $8,285 (13%) over December 31, 1994 and September 30, 1994,
respectively. The increase in the Company's loan portfolio over the last twelve
months resulted from new loan generation by the Bank's loan officers, a
concentrated marketing plan, and current changes in the Company's service area.
As of September 30, 1995, nonperforming loans were $1,009, as compared to
$962, at December 31, 1994. Accruing loans past due 90 days or more were $200
at September 30, 1995 and $0 at December 31, 1994, respectively.
During the beginning of 1995, and again in March, the Napa Valley was
subjected to severe weather conditions that resulted in some areas of the Valley
flooding from high rain fall levels. Most of the flooding resulted in areas
near the Napa River on dormant fields. Management believes that this flooding
will not have a direct or material impact on either its existing loan portfolio
or the future growth in loans and deposits.
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure". These statements
address the accounting and reporting by creditors for impairment of certain
loans. A loan is impaired when, based upon current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. These statements are applicable
to all loans, uncollateralized
<PAGE>
as well as collateralized, except large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment such as credit cards,
residential mortgage and consumer installment loans, loans that are measured at
fair value or at the lower of cost or fair value and leases. Impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, except that as a practical expedient, the
Company measures impairment based on a loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. Loans are
measured for impairment as part of the Company's normal internal asset review
process.
Interest income is recognized on impaired loans in a manner similar to that
of all loans. It is the Company's policy to place loans that are delinquent 90
days or more as to principal or interest on a nonaccrual of interest basis
unless secured and in the process of collection, and to reverse from current
income accrued but uncollected interest. Cash payments subsequently received on
nonaccrual loans are recognized as income only where the future collection of
principal is considered by management to be probable.
At both September 30, 1995, and June 30, 1995, the Company's total recorded
investment in impaired loans was $0, of which all dollars relate to the recorded
investment for which there is a related allowance for credit losses were $0,
determined in accordance with these Statements and $0 relates to the amount of
that recorded investment for which there is no related allowance for credit
losses determined in accordance with these Standards.
The average recorded investment in the impaired loans during the three
months ended September 30, 1995, was $4: the related amount of interest income
recognized during the period that such loans were impaired was less than $1, and
the amount of interest income recognized under the cash-basis method of
accounting during the time within the period that the loans were impaired was
also less than $1.
Allowance for Loan Losses
Inherent in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being made
and the credit-worthiness of the borrower over the term of the loan. The Company
maintains an allowance for possible loan losses at a level estimated to be
adequate to provide for losses that can be reasonably anticipated based upon
specific loan conditions as determined by management, and based upon
management's assessment of historical loan loss experience, prevailing economic
conditions and other factors. While these factors are essentially judgmental
and may not be reduced to a mathematical formula, it is management's view that
the $1,204 allowance, approximately 1.70% of total loans outstanding at
September 30, 1995, is adequate. At September 30, 1994, the $1,018 amounted to
approximately 1.63% of total loans. There can be no assurance that in any given
period the Bank may not sustain charge-offs which are substantial in relation to
the size of the allowance. The allowance is increased by charges to the
provision for loan losses and reduced by net charge-offs.
<PAGE>
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance at January 1 $1,050 $ 912
Provision for loan losses 174 116
Recoveries 3 1
Charge-offs 23 11
Balance at September 30 $1,204 $1,018
Investments
</TABLE>
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS 115
changes the accounting and reporting for certain equity and all dept securities
as defined, and requires that upon acquisition, securities be classified into
one of the three categories and accounted for as follows:
Debt securities where management has the positive intent and
ability to hold to maturity are classified as "held to
maturity" and reported at amortized cost.
Debt and equity securities that are held for current sale
are classified as "trading account securities" and reported
at their fair value, with unrealized gains and losses
included in earnings.
Debt and equity securities not classified as either
securities to be held to maturity or trading account
securities are classified as "securities available for sale"
and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component
of shareholders' equity, net of the income tax effect that
would result from their sale.
The Bank's classification of its investment in debt and equity securities
according to the provisions of SFAS 115 are as follows:
September 30, 1995 - Investment Securities Classified
According to the Provisions of SFAS No. 115
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held-to-Maturity Securities
U.S. Treasury (HTM) $1,233 $0 $0 $1,233
Other Real Estate Loans
</TABLE>
As of September 30, 1995, other real estate owned consisted of a single
property totaling $678. The outstanding balance was originally a
<PAGE>
prime rate residential loan, secured by a personal residence on approximately 41
acres of land in the northern end of the Napa Valley. The Bank foreclosed on
the property in June 1995. The property is listed and being actively marketed
by a local broker. Other real estate owned at December 31, 1994, was $0.
Deposits
Deposits totalled $87,617, at September 30, 1995, an increase of $8,239, or
10%, from December 31, 1994's balance of $79,378. Since December 31, 1994, all
categories of deposits except for certificates of deposits have declined
slightly. Certificates of deposits have been the only area to grow during this
time frame. The growth in this single category is due almost entirely to the
one year 7% certificate of deposit offered by the Bank during March 1995.
Non-interest bearing demand deposits were 19% of total deposits at September
30, 1995, as compared to 20% at September 30, 1994. Time certificates of
deposit were 40% of total deposits for the nine months ended September 30, 1995,
and 29% for the same period of 1994.
Liquidity and Capital Resources
Liquidity refers to the Company's ability to maintain a cash flow adequate
to fund operations and meet obligations and other commitments on a timely basis.
As shown in the Consolidated Statements of Cash Flows ("Statement") for the nine
months ended September 30, 1995 and 1994, the Company's usual and primary source
of funds has been customer deposits and loan principal repayments. While the
usual and primary sources are expected to continue to provide significant
amounts of funds in the future, their mix, as well as those from other sources,
will depend on future economic and other market conditions.
The maturity and repricing profile of the Company's asset-liability mix is
currently in an asset sensitive position. This means that when there exists a
declining interest rate environment, the returns on the Company's earning assets
decrease more quickly than the Company's cost of funds. This causes a narrowing
of the net interest spread and a possible decrease to the overall earnings of
the Company. As rates increase, the opposite effect occurs. The Company's
management monitors the asset-liability position of the Company on a monthly
basis and is continually assessing both the asset-liability mix and the products
being offered to its customer.
The 1995 Statement shows that operations and financing activities were
sources of net cash inflows ($128 and $8,239, respectively) for the first nine
months of the year. Investing activities used a net $9,370 in cash, which was
comprised primarily in increases in net loan originations which totaled $7,440,
and capital expenditures totaling $1,209. The Bank experienced deposit growth
in the first nine months of 1995 (See "Deposits" herein), thereby providing a
net $8,239 in cash by financing activities. With these transactions, cash and
cash equivalents for the first nine months of 1994 decreased by $1,003.
<PAGE>
If the Bank's loan portfolio grows substantially, it might be necessary to
raise deposits to support this growth. The Bank monitors its loan-to-deposit
ratio (81% at September 30, 1995 as compared to 80% at December 31, 1994) on a
daily basis. If the loan-to-deposit ratio indicated that a liquidity squeeze is
possible, the Bank has a number of options available to raise the necessary
liquidity. The Bank can raise rates on deposits to attract more funds, as well
as having $5,500, in short-term lines of credit available to it from its
correspondent banks.
The Company's primary source of income is interest income earned on its
liquid investments. Due to regulatory restrictions, the Bank is not expected to
pay dividends to the Company in the foreseeable future. The amounts invested by
the Company in the Bank as of September 30, 1995 were approximately $288. The
Company's yearly operating expenses are expected to exceed investment income by
approximately $23 during 1995.
Liquidity is measured by various ratios, the most common being the liquidity
ratio of cash less reserve requirements, time deposits with other financial
institutions, federal funds sold, and unpledged investment securities compared
to total deposits. At September 30, 1995, this ratio was 22% as compared to 25%
at December 31, 1994, and 22% at September 30, 1994. As discussed in "Deposits"
herein, the Bank's one year, 7% certificates of deposits will be maturing during
the first quarter of 1996. With continued deposit growth and a very concentrated
marketing campaign aimed at retaining these funds, the Bank does not anticipate
any significant drop in its liquidity ratio in 1996.
Capital Adequacy
The Federal Reserve Bank and the Comptroller of the Currency have specified
guidelines for the purpose of evaluating the capital adequacy of holding
companies and banks. The table below summarizes the current requirements for
1995, and the Company's and the Bank's compliance therewith. The requirements
for the ratio of regulatory capital to risk-weighted assets for an "adequately
capitalized" institution is 8.00%.
<TABLE>
<CAPTION>
Capital as a Minimum Tier 1
% of Risk- Leverage Capital
Weighted Assets Ratio Ratio
<S> <C> <C> <C>
Regulatory Requirements
for 1995 8.00% 4.00% 4.00%
Consolidated Company Ratio at
September 30, 1995 8.81% Not applicable 8.81%
Bank Ratio at September
30, 1995 10.35% 7.33% 9.09%
</TABLE>
The capital levels of both the Bank and the Company currently exceed the
regulatory requirements for a "well capitalized" institution. Management
anticipates that both companies will continue to exceed the regulatory minimums
in the foreseeable future. Therefore, the Company and the Bank have adequate
capital in order to expand in the future, either through loan generation or
other means of expansion.
<PAGE>
Effects of Inflation
The impact of inflation on a financial institution differs significantly
from that exerted on an industrial concern, primarily because its assets and
liabilities consist largely of monetary items. The most direct effect of
inflation is higher interest rates. However, the Bank's earnings are affected
by the spread between the yield on earning assets and rates paid on interest-
bearing liabilities rather than the absolute level of interest rates.
Additionally, there may be some upward pressure on the Company's operating
expenses, such as adjustments in staff expense and occupancy expense, based upon
consumer price indices. In the opinion of management, inflation has not had a
material effect on the consolidated results of operations.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Not applicable
Item 2. Not applicable
Item 3. Not applicable
Item 4. Not applicable
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
No reports filed in 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAPA NATIONAL BANCORP
Date: November 13, 1995 By:
Brian J. Kelly
President/COO
By:
Joan E. Heinitz
Treasurer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 5,426
<INT-BEARING-DEPOSITS> 4,356
<FED-FUNDS-SOLD> 9,790
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 197
<INVESTMENTS-CARRYING> 1,233
<INVESTMENTS-MARKET> 1,233
<LOANS> 70,824
<ALLOWANCE> 1,204
<TOTAL-ASSETS> 95,194
<DEPOSITS> 87,617
<SHORT-TERM> 0
<LIABILITIES-OTHER> 398
<LONG-TERM> 0
<COMMON> 6,915
0
0
<OTHER-SE> 264
<TOTAL-LIABILITIES-AND-EQUITY> 95,194
<INTEREST-LOAN> 5,463
<INTEREST-INVEST> 654
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,117
<INTEREST-DEPOSIT> 1,895
<INTEREST-EXPENSE> 1,895
<INTEREST-INCOME-NET> 4,222
<LOAN-LOSSES> 174
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,200
<INCOME-PRETAX> 1,400
<INCOME-PRE-EXTRAORDINARY> 1,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 833
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<YIELD-ACTUAL> 9.92
<LOANS-NON> 1,009
<LOANS-PAST> 200
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,798
<ALLOWANCE-OPEN> 1,050
<CHARGE-OFFS> 23
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,204
<ALLOWANCE-DOMESTIC> 1,204
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 80
</TABLE>
