<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 June 30, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number: 0-11090
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
3263 Claremont Way, Napa, California 94558
(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 June 30, 1995, the number of shares outstanding of the registrant's Common
Stock, without par value, was 754,500.
<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. This information should be read in conjunction
with the information presented in the Company's annual Form 10-K
filing.
Results for the two quarters as presented are not necessarily
indicative of results to be expected of the year as a whole.
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In 000s)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,921 $ 5,459
Federal funds sold 10,925 10,760
Time deposits with other
financial institutions 4,356 4,357
Investment securities: Held to maturity 745 1,216
Federal Reserve Stock 181 165
Loans, less allowance for loan losses of
$1,168 and $1,050 at June 30, 1995
and December 31, 1994 66,865 62,103
Premises, furniture, fixtures and
equipment, net 2,158 1,449
Accrued interest receivable 581 432
Other real estate owned 678 0
Other assets 676 536
TOTAL ASSETS $93,086 $86,477
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand $15,750 $18,098
Interest-bearing:
Savings 12,893 14,367
Transaction 22,101 24,431
Time certificates 35,135 22,482
Total deposits 85,879 79,378
Accrued interest payable and other
liabilities 338 753
TOTAL LIABILITIES 86,217 80,131
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000
shares authorized; no outstanding 0 0
Common stock, no par value, 20,000,000
shares authorized; 754,500 shares
issued and outstanding at June 30,
1995 and December 31, 1994 6,915 6,915
Accumulated deficit (46) (569)
TOTAL SHAREHOLDERS' EQUITY 6,869 6,346
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $93,086 $86,477
</TABLE>
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In 000s, except earnings per share data)
<TABLE>
<CAPTION>
Quarter Ended June 30,
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $ 1,842 $ 1,256
Interest on federal funds sold 165 125
Interest on time deposits with
other financial institutions 64 32
Interest on investment securities 20 6
Total interest income 2,091 1,419
Interest expense:
Interest on deposits 685 407
Total interest expense 685 407
Net interest income 1,406 1,012
Provision for loan losses 75 49
Net interest income after provision
for loan losses 1,331 963
Non-interest income:
Service charges on deposit accounts 115 94
Other customer fees and charges 58 78
Mortgage loan origination and
service fees (1) (5)
Total non-interest income 172 167
Non-interest expense:
Salaries and employee benefits, net 571 503
Occupancy 89 71
Furniture, fixtures and equipment 85 85
Marketing and business development 27 37
Other 324 249
Total non-interest expense 1,096 945
Income before income taxes 407 185
Income taxes 178 73
Net income $ 229 $ 112
Net income per share $ 0.26 $ 0.15
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>
Six Months Ended June 30,
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $3,538 $2,447
Interest on federal funds sold 267 215
Interest on time deposits with
other financial institutions 123 52
Interest on investment securities 40 13
Total interest income 3,968 2,727
Interest expense:
Interest on deposits 1,183 789
Total interest expense 1,183 789
Net interest income 2,785 1,938
Provision for loan losses 124 82
Net interest income after provision
for loan losses 2,661 1,856
Non-interest income:
Service charges on deposit accounts 225 175
Other customer fees and charges 129 142
Mortgage loan origination and
service fees 1 19
Total non-interest income 355 336
Non-interest expense:
Salaries and employee benefits, net 1,084 980
Occupancy 180 142
Furniture, fixtures and equipment 195 163
Marketing and business development 52 53
Other 597 469
Total non-interest expense 2,108 1,807
Income before income taxes 908 385
Income taxes 385 155
Net income $ 523 $ 230
Net income per share $ 0.60 $ 0.30
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>
Six Months Ended June 30
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 523 $ 230
Reconciliation of net income to net
cash provided by operating activities:
Depreciation on premises and equipment 134 137
Amortization of deferred loan fees and
discounts/premiums on investment securities (235) (215)
Provision for loan losses 124 82
(Increase) in accrued interest receivable (149) (27)
(Increase) in other assets, net (140) (39)
(Decrease) increase in accrued interest
payable and other liabilities (415) 124
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (158) 292
Cash flows from investing activities:
Loan originations net of collections (4,655) (3,324)
Net decrease (increase) in time deposits
with other financial institution 1 (1,585)
Purchases of investment securities-held
to maturity (16) (484)
Proceeds from maturities of investment
securities-held to maturity 475 0
Increase in other real estate (678) 0
Proceeds from sale of other real estate 0 112
Capital expenditures (843) (31)
NET CASH USED BY INVESTING ACTIVITIES (5,716) (5,312)
Cash flows from financing activities:
Net increases in deposits 6,501 6,731
NET CASH PROVIDED BY FINANCING
ACTIVITIES 6,501 6,731
INCREASE IN CASH AND CASH EQUIVALENTS 627 1,711
Cash and cash equivalents at beginning
of period 16,219 17,284
Cash and cash equivalents at end of
period $16,846 $18,995
</TABLE>
(Continued on following page)
<PAGE>
NAPA NATIONAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In 000s)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT JUNE 30
CONSIST OF:
Cash and due from banks $ 5,921 $ 4,215
Federal funds sold 10,925 14,780
$16,846 $18,995
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 989 $ 745
Cash paid for income taxes $ 1,038 $ 69
</TABLE>
(Concluded)
<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 $229, or $0.26 per share, during the
second quarter of 1995, as compared to net income of $112, or $0.15 per share,
for the second quarter of 1994. The Company recorded net income of $523, or
$0.60 per share, for the first six months of 1995, as compared to net income of
$230, or $0.30 per share, for the same period of 1994. The Company's year-to-
date 1995 net income was $293 above the results for the same period in 1994 for
the following reasons. Net interest income for the first two quarters of 1995
was $847 above the results for the similar period of 1994. This increase was
partially offset by an increase in the provision for loan losses for the first
six months of 1995 of $42 over 1994's total. Additionally, the slight increase
in non-interest income of $19 in 1995 over 1994, was offset by a $301 increase
in non-interest expenses for the same period. The Company recorded $385 in
income tax expense for the first six months of 1995, an increase of $230 over
the same period of 1994.
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 second quarter of 1995, total interest income was $672 higher than
the second quarter of 1994. This increase was due to growth in earning assets
during the prior twelve months and increases in the prime interest rate during
1994 and early 1995. During the
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second quarter of 1995, total interest expense increased substantially over both
the same period of 1994 and the first quarter of 1995 ($278 and $187,
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 (See "Deposits" herein). These factors resulted in net interest income
for the second quarter of 1995 being $394 more that the same period of 1994.
For the first six months of 1995, total average earning assets were
approximately $80,694, an increase of approximately $8,281, or 11%, over total
average earning assets ($72,413) during the same period in 1994. This increase
in average assets for the first two quarters of 1995 as compared to the same
period of 1994, contributed significantly to the increase of $1,241 in total
interest income between the two periods.
Interest bearing deposits for the first six months of 1995 were $70,129, an
increase of $8,849, or 14%, over 1994 totals. 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 six months of 1995 over the same period of
1994 by $394.
For the first six months of 1995, net interest income was $847 higher than
the same period of 1994. Net interest income increased primarily due to the
increase in earning assets (approximately 11%) and 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 "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 second quarter of 1995, the provision for loan losses was $75 as
compared to $49 during the same period in 1994. For the first six months of
1995, the provision was $124 compared to $82 for the same period of 1994. Gross
loans totaled $68,033 as of June 30, 1995, an increase of $9,334, or 16%, over
the June 30, 1994, balance of
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$58,699. The increase in the provision during the first six months of 1995 over
1994, was due primarily to an increase in outstanding loan balances, projected
loan growth for the remainder of the year, 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
both the second quarter and first six months of 1995 showed slight increases
over earnings during the similar periods of 1994 ($5 and $19, respectively).
This modest growth can be attributed to the continued increase in number of
deposit accounts subject to service charges during the period under review.
Additionally, during the latter half of 1994, the Bank began offering
alternative investment products through the use of a third party vendor. The
sale of these products results in a commission fee income for the Bank. These
increases were partially offset by decreases in gains on the sale of mortgage
loans due to the continually rising interest rates experienced throughout 1994
and into the first half of 1995.
Non-Interest Expense
For the second quarter of 1995, non-interest expenses increased by $151, or
16%, over the same period of 1994. Total non-interest expenses for the six
months ending June 30, 1995 were $2,108, representing an increase of $301, or
17%, over 1994's total of $1,807. Salaries and employee benefit expenses and
other expenses showed the largest increases of $104 and $128, respectively, for
the first six months of 1995 over the same period in 1994.
Salaries and employee benefits increased by $68, or 14%, in the second
quarter of 1995 as compared to the same quarter of 1994. 1995 year to date
salary related expenses increased by $104, or 11%, over the first six 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%.
10
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In November 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 second quarter and year to
date by $18 and $70, 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 four 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 its primary lending services
and headquarters into the completed facility. After relocation of the head
quarters from its previous location on 3263 Claremont Way, Napa, California,
this facility began remodeling to accommodate the Bank's customer service and
EDP departments. These departments are slated to move early in the third
quarter. After this move, the Bank will vacate the leased space which
previously housed the Customer Service Center.
The Company decreased its marketing and business development costs by $10,
or 27%, during the second quarter of 1995 over the same period of 1994. For the
first six months of 1995 however, marketing and business development costs only
decreased by $1, or 2%, over the six months of 1994. This decrease in the
second quarter was due primarily to the high profile and costly marketing
efforts incurred during the first quarter of 1995. Given the growth in loans
and deposits resulting from these marketing efforts, management curtailed the
Bank's marketing costs greatly during the second quarter of this year. This
curtailment brought marketing costs on a year to date basis more into alignment
with the previous year.
Other non-interest expenses increased by $75, or 30%, during the second
quarter of 1995 over the second quarter of 1994. For the six months ended June
1995, other non-interest expenses increased by $128, or 27% over the same period
of 1994. A significant portion of this increase is attributable to the fact
that the Company has grown 10% in total assets during the previous twelve
months. Additionally, the Company approved a new director compensation plan
effective January 1, 1995. Director and other professional fees attributed to
approximately half of the increase in expenses during the prior twelve months.
11
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Income Taxes
Income tax expense was 41% of pre-tax income for the six months ending June
30, 1995 and 1994.
Loans and Nonaccrual Loans
Gross loans totaled $68,033 at June 30, 1995, an increase of $4,880 (8%)
and $9,334 (16%), over loan totals as of December 31, 1994 and June 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 June 30, 1995, nonperforming loans were $592, as compared to $962, at
December 31, 1994. Accruing loans past due 90 days or more were $0 at both June
30, 1995 and December 31, 1994, respectively. The change in nonperforming loans
during the first half of 1995 was due primarily to the foreclosure of one
nonaccrual loan (See "Other Real Estate Owned" herein).
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 or in dormant fields. Management does not believe that this
flooding will have a direct or material effect 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 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
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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 June 30, 1995 and March 31, 1995, the Company's total recorded
investment in impaired loans was $0 and $10, respectively, of which all dollars
relate to the recorded investment for which there is a related allowance for
credit losses of $0 and $5, respectively, determined in accordance with these
Statements and $0 and $5, respectively, 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 June 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 $1,168 allowance at June 30, 1995, approximately 1.72% of total loans, was
adequate as an allowance against foreseeable losses in the portfolio. At June
30, 1994, the $984 allowance was approximately 1.68% 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.
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The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1995 1994
(in 000's)
<S> <C> <C>
Balance at January 1 $1,050 $ 912
Provision for loan losses 124 82
Recoveries 0 1
Charge-offs (6) (11)
Balance at June 30 $1,168 $ 984
</TABLE>
Investments
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 debt 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:
June 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 $745 $2 $0 $747
(Held to maturity)
Federal Reserve Stock $181 $0 $0 $181
</TABLE>
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Other Real Estate Owned
As of June 30, 1995, other real estate owned consisted of a single
property totaling $678. The outstanding balance was originally a 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 with and being actively marketed by a
local broker. Other real estate owned at December 31, 1994, was 0.
Deposits
Deposits totalled $85,879 at June 30, 1995, an increase of $6,501, or 8%,
from December 31, 1994's balance of $79,378. During the last twelve months,
deposits have grown by $7,685, or 10%, over June 30, 1994's total of $78,194.
Since December 31, 1994, all categories of deposits except for certificate 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 18% of total deposits at June 30,
1995, as compared to 19% at June 30, 1994. Time certificates of deposit were
41% of total deposits at both June 30, 1995 and 30% at June 30, 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 six
months ended June 30, 1995 and 1994, the Company's usual and primary sources of
funds have 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 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
drops more quickly than the Company's cost of funds. This causes a narrowing of
the net interest spread and a possible reduction to the overall earnings of the
Company. As rates increase, the opposite effect occurs. The Company's
15
<PAGE>
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 customers.
The 1995 Statement shows that financing activities were the only net source
of net cash inflows generating $6,501 for the period. Investing activities used
a net $5,716 in cash, primarily for net loan originations which totaled $4,655.
Operating activities used a net $158. The Bank experienced deposit growth in
the first two quarters of 1995 (see "Deposits" herein), thereby providing a net
$6,501 in cash for financing activities. With these transactions, cash and cash
equivalents for the first two quarters of the year increased by $627.
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 (79% at June 30, 1995 as compared to 80% at December 31, 1994) on a daily
basis. If the loan-to-deposit ratio indicates 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 June 30, 1995 were approximately $289. The
Company's yearly operating expenses are not expected to exceed investment income
by approximately $30 during 1995.
Liquidity is measured by various ratios, the most common being the
liquidity ratio of cash, time deposits in other financial institutions, federal
funds sold, securities held for sale and unpledged investment securities
compared to total deposits. At June 30, 1995, this ratio was 24% as compared to
28% at March 30, 1995, and 25% at December 31, 1994.
Capital Adequacy
The FRB 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%.
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<PAGE>
<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
June 30, 1995 8.63% Not applicable 8.63%
Bank Ratio at June 30, 1995 10.09% 7.21% 8.84%
</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.
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.
17
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
27 Financial Data Schedule
18
<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.
19
<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: August 11, 1995
By:
Brian J. Kelly
President/COO
By:
Joan E. Heinitz
Treasurer
20
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