SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED September 30, 1995
Commission File Number 2-76003
BAY AREA BANCSHARES
California #94-2779021
900 Veterans Blvd., Redwood City, CA 94063
Telephone (415) 367-1600
The registrant (1) has filed all reports required by Section 13 or 15(d)
of the Securities Exchange Act during the preceding 12 months, and
x Yes No
(2) has been subject to such filing requirements for the past 90 days.
x Yes No
812,593 Shares of Common Stock Outstanding as of September 30, 1995
Part 1 Item 1
<TABLE>
<CAPTION>
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<S> <C> <C>
ASSETS 9/30/95 12/31/94
Cash and due from banks $10,470,983 $8,406,265
Federal Funds Sold 15,800,000 6,355,000
------------- --------------
Cash and cash equivalents 26,270,983 14,761,265
Time deposits with other financial institutions 102,728 197,585
Investment securities available for sale
(market value approximates book value) 1,510,626 1,439,872
Investment securities held to maturity
(market value of $10,244,000 in 1995 and $8,122,000 in 10,206,790 8,426,348
1994
Loans, net of reserve for possible loan losses
of $1,455,500 in 1995 and $1,505,400 in 1994 50,254,929 52,016,341
Loans held for sale 1,888,017 327,586
Premises and equipment,net 979,233 1,023,060
Real estate owned 0 0
Interest receivable and other assets 1,414,382 1,344,825
------------- --------------
Total assets $92,627,688 $79,536,882
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $22,282,212 $20,818,159
Interest-bearing transaction 41,316,761 32,884,654
Savings 4,490,868 4,439,217
Time 15,895,922 13,871,559
------------- --------------
Total Deposits 83,985,763 72,013,589
Interest payable and other liabilities 811,076 552,649
------------- --------------
Total liabilities 84,796,839 72,566,238
------------- --------------
Shareholders' equity:
Preferred stock, $10 stated value; 6% Series A,
convertible and redeemable: Authorized - 10,000,000
shares; issued & outstanding
3,000 in 1995 and 10,300 in 1994 30,000 103,000
Common stock, no par value:
Authorized - 20,000,000 shares; issued & outstanding 4,033,059 3,908,616
812,593 in 1995 and 789,525 in 1994
Unrealized loss on securities held for sale 2,500 (76,000)
Retained earnings 3,765,290 3,035,028
------------- --------------
Total shareholders' equity 7,830,849 6,970,644
------------- --------------
Total liabilities and shareholders' equity $92,627,688 $79,536,882
</TABLE>
<TABLE>
<CAPTION>
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C>
Three Months Three Months
Ended Ended
9/30/95 9/30/94
Interest Income: ------------- --------------
Interest and fees on loans $1,584,059 $1,368,506
Interest on investment securities 171,147 158,114
Interest on federal funds sold 171,202 50,669
Interest on time deposits with other financial institutions 1,466 1,979
------------- --------------
Total Interest Income 1,927,874 1,579,268
Interest Expense: ------------- --------------
Interest on interest-bearing transaction amounts 328,015 229,180
Interest on savings deposits 50,440 15,334
Interest on time deposits 205,993 152,591
Interest on short-term borrowing 0 0
Interest on notes payable and redeemable debentures 0 2,438
------------- --------------
Total Interest Expense 584,448 399,543
------------- --------------
Net interest income 1,343,426 $1,179,725
Provision for possible loan losses 15,000 75,000
------------- --------------
Net interest income after provision for possible loan losses 1,328,426 $1,104,725
Noninterest income: ------------- --------------
Service charges on deposit accounts 64,269 72,349
Net loss on sales of securities (16,301) 0
Net gain on disposal of assets 7,500 0
Net gain on sale of loans held for sale 133,081 80,251
Other Mortgage Banking Revenue 51,250 20,760
ATM network revenue 436,623 263,398
Other 43,125 8,936
------------- --------------
Total noninterest income 719,547 445,694
Noninterest expense: ------------- --------------
Salaries and related benefits 685,111 555,213
Occupancy 93,153 77,968
Equipment 136,925 119,287
Professional fees 74,272 51,404
Stationery and supplies 31,175 37,296
Other 398,700 351,776
------------- --------------
Total noninterest expense 1,419,336 1,192,944
------------- --------------
Income before provision for income taxes 628,637 $357,475
Provision for income taxes 266,000 140,000
------------- --------------
Net Income $362,637 $217,475
Earnings per share: ============= ==============
Average common and equivalent shares outstanding 915,000 865,000
============= ==============
Net income per share $0.40 $0.25
============= ==============
</TABLE>
<TABLE>
<CAPTION>
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C>
Nine Months Nine Months
Ended Ended
9/30/95 9/30/94
Interest Income: ------------- --------------
Interest and fees on loans $4,662,524 $4,075,232
Interest on investment securities 464,011 437,524
Interest on federal funds sold 388,994 179,791
Interest on time deposits with other financial institutions 4,591 5,348
------------- --------------
Total Interest Income 5,520,120 4,697,895
Interest Expense: ------------- --------------
Interest on interest-bearing transaction amounts 918,957 648,449
Interest on savings deposits 154,491 47,121
Interest on time deposits 544,668 449,840
Interest on short-term borrowing 0 0
Interest on notes payable and redeemable debentures 0 8,726
------------- --------------
Total Interest Expense 1,618,116 1,154,136
------------- --------------
Net interest income 3,902,004 3,543,759
Provision for possible loan losses 95,000 300,000
------------- --------------
Net interest income after provision for possible loan losses 3,807,004 3,243,759
Noninterest income: ------------- --------------
Service charges on deposit accounts 195,878 223,171
Net loss on sales of securities (16,301) 0
Net gain on disposal of assets 7,500 21,081
Net gain on sale of loans held for sale 368,019 423,119
Other Mortgage Banking Revenue 153,717 92,945
ATM network revenue 1,124,185 521,565
Other 100,642 30,318
------------- --------------
Total noninterest income 1,933,640 1,312,199
Noninterest expense: ------------- --------------
Salaries and related benefits 1,962,710 1,697,876
Occupancy 281,125 254,532
Equipment 421,881 259,632
Professional fees 182,977 188,506
Stationery and supplies 106,620 92,501
Other 1,233,555 930,386
------------- --------------
Total noninterest expense 4,188,868 3,423,433
------------- --------------
Income before provision for income taxes 1,551,776 1,132,525
Provision for income taxes 646,000 463,000
------------- --------------
Net Income $905,776 $669,525
Earnings per share:
Average common and equivalent shares outstanding 915,000 865,000
Net income per share $0.99 $0.77
</TABLE>
<TABLE>
<CAPTION>
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
Nine Months Nine Months
Ended Ended
9/30/95 9/30/94
Cash flows from operating activities: ------------- --------------
Net Income $905,776 $669,525
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 319,225 162,948
Provision for possible loan losses 95,000 300,000
Net gain on sale of assets (7,500) (21,081)
Net gain on sale of loans held for sale (368,019) (423,119)
Net loss on sale of investment securities 16,301 0
Net amortization and accretion of investment premiums
and discounts 35,195 52,856
Net increase in interest receivable and other assets (69,557) (830,090)
Net increase (decrease) in interest payable and other
liabilities 258,427 (60,564)
Net decrease in deferred loan fees (37,362) (19,707)
------------- --------------
Total adjustments 241,710 (838,757)
------------- --------------
Net cash provided by (used in) operating activities 1,147,486 (169,232)
Cash flows from investing activities:
Net decrease in time deposits with other financial
institutions 94,857 3,915
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held to maturity 2,054,375 795,000
Mortgage backed securities principal payments 215,627 750,309
Purchase of investment securities held to maturity (3,595,053) (2,076,353)
Purchase of investment securities held for sale (499,141) (500,156)
Funding of loans held for sale (24,877,322) (16,537,329)
Proceeds from the sale of loans held for sale 23,684,910 16,960,448
Net decrease in gross loans 1,654,544 5,952,505
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (275,398) (836,498)
------------- --------------
Net cash (used in) provided by investing activities (1,542,601) 4,511,841
Cash flows from financing activities:
Net increase (decrease) in demand deposits,transaction
and savings 9,947,811 (420,104)
Net increase (decrease) in time deposits 2,024,363 (2,031,926)
Principle payments on short-term notes payable 0 (50,000)
Proceeds from stock warrants and options exercised 50,968 83,277
Cash Dividends paid (118,309) (93,261)
------------- --------------
Net cash provided by (used in) financing activities 11,904,833 (2,512,014)
Net increase in cash and cash equivalents 11,509,718 1,830,595
Cash and cash equivalents, beginning of period 14,761,265 11,980,321
------------- --------------
Cash and cash equivalents, end of period $26,270,983 $13,810,916
There were no loans transferred to Real Estate Owned in 1995 and 1994 respectively.
</TABLE>
BAY AREA BANCSHARES & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All adjustments, which in the opinion of management are necessary for a fair
statement of the Company's financial condition at September 30, 1995,
results of operations for the three month and nine month periods ended
September 30, 1995 and the statement of cash flows for the nine month
period ended September 30, 1995 have been included. These adjustments are
of a normal and recurring nature. The results of operations and statement
of cash flows are not necessarily indicative of the results for a full
year's activity.
The accompanying unaudited financial statements have been prepared on
a basis consistent with the accounting principles and policies reflected in
the Company's Annual Report for the year ended December 31, 1994.
BAY AREA BANCSHARES & SUBSIDIARIES
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 2A Financial Condition
Liquidity
Liquid assets (Cash, Federal Funds Sold, Time Deposits with other Financial
Institutions and Investments) increased $13.3 million to $38.1 million
over the nine month period from December 31, 1994 to September 30, 1995.
At year-end, total liquid assets as a percentage of total assets was 31.2%
whereas on September 30, 1995 it had increased to 41.1%.
Cash & due from banks increased $2.1 million over the first nine months
of 1995 to $10.5 million at September 30, 1995. During the first nine
months of 1995 cash and due from banks averaged $9.1 million. The portion
of the total cash & due from banks representing ATM network cash inventory
has averaged approximately $2.5 million during 1995 and at September 30,
1995 ATM cash was approximately $2.5 million. At December 31, 1994,
there was approximately $3.0 in ATM network cash inventory. The reduction in
average ATM cash is a result of more aggressive cash management and the
closure of unproductive sites.
The increase in total liquid investments was a result of a decline in total
net loans outstanding of $1.8 million (3.4%) to $50.3 million and an increase
in deposits of $12.0 million (16.6%) to $84.0 million during the
first nine months of 1995. Deposits have averaged $75.4 million thus far
in 1995 and $83.0 million in the third quarter of 1995 while they averaged
$73.4 million during 1994. Gross loans outstanding have averaged $53.7
million thus far in 1995 as compared to $54.2 million averaged in 1994.
Management believes the decline in demand for loans is primarily a result
of intense pricing competition in the marketplace as well as the
continuation of a sluggish local real estate economy. Management has
embarked on other lending areas to stimulate loan demand, and continues to
explore new avenues for lending.
Management believes current liquid assets and current available credit
lines are adequate to cover the working capital requirements of the
Company and any reasonable needs arising from deposit withdrawals.
Capital
Consolidated equity capital plus reserves increased $810,300 in the first
nine months of 1995 from $8.5 million or 10.46% of total gross assets at
December 31, 1994 to $9.3 million or 9.87% of total gross assets at
September 30, 1995.
Bank capital plus reserves totaled $9.3 million on September 30, 1995
or 9.83% of total adjusted assets as compared to capital plus reserves
of $8.5 million or 10.45% of total adjusted assets at December 31, 1994.
At September 30, 1995 the Bank maintained a tier one capital ratio of
13.08% and a tier two capital ratio of 14.33%.
The Bank's capital level continues to exceed State and Federal Deposit
Insurance Corporation requirements and satisfies the Federal Reserve
Board's current risk-based capital Guidelines.
The Bank has declared $200,000 in dividends to the Parent company in the
first nine months of 1995 and the Company also declared a cash dividends
to common shareholders of $.07 per share in the first, second, and third
quarters. Total dividends declared to shareholders through the first
nine months of 1995 are $176,000. The third quarter dividend represents
seventeen consecutive quarterly cash dividends declared by the Parent
company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $362,600 ($.40 per share vs. $.25 in
the prior year) for the third quarter of 1995, the highest third quarter
in the company's history. This represents a 67% increase over the third
quarter of 1994. The third quarter operating profits for 1995 were
comprised of Bank earnings of $375,700 and a Parent company loss
(excluding bank dividends and undistributed earnings) of $13,100.
Consolidated operating profits were $905,800 ($.99 per share vs. $.77 in
the prior year) for the first nine months of 1995, a 35.3% increase over
the same period in 1994 and the highest nine month results in the
Company's history. The first nine months operating profits were
comprised of Bank earnings of $953,300 and a Parent company loss
(excluding bank dividends and undistributed earnings) of $47,500.
The increase in third quarter earnings in 1995 versus the third quarter
of 1994 is primarily a result of an increase in net interest income of
$223,700, a reduction in loan loss provisions of $60,000 and an increase
in non interest income of $273,900, offset by an increase of $226,400 in
non interest expense.
The increase in earnings for the first nine months of 1995 versus the
first nine months of 1994 is primarily a result of an increase in net
interest income of $358,200, a reduction in loan loss provisions of
$205,000 and an increase in non interest income of $621,400, offset by
an increase of $765,400 in non interest expense.
The growth in net interest income throughout 1995 is primarily a result
of rising interest rates, which resulted in an increase in net interest
margin, and growth in average bank earning assets. The $358,200 increase
in net interest margin during the first nine months of 1995 was comprised
of a $822,200 increase in interest income offset in part by a $464,000
increase in interest expense over the same period in 1994. Earning assets
have averaged $73.2 million through September 30, 1995 as compared to
$67.0 million over the same period in 1994. Year to date net interest
income to total average assets has been 6.34% in the first nine months of
1995 as compared to 5.89% in the first nine months of 1994.
The decline in loan loss provisions in the first nine months of 1995 as
compared to 1994 is primarily a result of lack of loan growth and improved
delinquency ratios in the loan portfolio. Loan loss reserves of $1.46
million at September 30, 1995 represent a ratio of 2.70% of gross loans
outstanding. Total nonearning assets, comprised solely of nonaccrual
loans, at September 30, 1995 were $310,100 or 21.3% of loan loss reserves,
and .34% of total assets. Total nonearning assets at December 31, 1994 were
$200,000 or 13.3% of loan loss reserves and .25% of total assets.
The $765,400 increase in non interest expense in 1995 can primarily be
attributed to the Bank's Electronic Funds Transfer (EFT) department which
operates approximately 50 ATM's throughout the state. EFT department
expenses were $1,031,100 in the first nine months of 1995 as compared
to $562,200 in the first nine months of 1994. EFT department revenues
grew from $521,600 in the first nine months of 1994 to $1,124,200 in the
first nine months of 1995.
The department contributed $102,600 to pretax income in the third quarter
of 1995 as compared to a loss of $14,600 in the third quarter of 1994. The
department has contributed $101,300 to pretax income thus far in 1995 as
compared to a loss of $40,600 in the first nine months of 1994. Revenues
are somewhat seasonal, with the highest month being August, but management
expects the department to continue to contribute to Bank profitability in
the fourth quarter of 1995.
The Bank's mortgage department revenues for the first nine months of 1995
totaled $674,900 (which includes $152,100 in interest income) as compared
to $594,800 (including $78,700 in interest income) in the first nine months
of 1994. Mortgage department expenses have been $606,600 during the first
nine months of 1995 resulting in pretax profits of $67,300. Mortgage
department expenses in the first nine months of 1994 were $574,200
resulting in pretax profits of $20,600.
Part II - Item 6
(a)
Exhibit
Number Exhibit
3.1 Restated Articles of Incorporation of
Company 4*
3.2 Amendment to Restated Articles of
Incorporation 5*
3.3 Bylaws of Company, as amended 2*
3.4 Amendment to Bylaws of Company 2*
4.1 Certificate of Determination of Preferred Stock 3*
10.1 # 1983 Non-Qualified Stock Option Plan of the Company 1*
10.2 # Non-Qualified Stock Option Agreement
Pursuant to the 1983 Non-Qualified Stock
Option Plan of the Company 1*
10.3 Lease Entered Into By and Between
Alan B. Miller and Bay Area Bank 7*
10.4 # Employment Agreement Between John O. Brooks,
Bay Area Bancshares and Bay Area Bank dated
as of September 2, 1992 8*
10.5 # Amendment to 1983 Non-Qualified Stock
Option Plan of Company 5*
10.6 Lease Entered Into By and Between
Eureka Bank and Bay Area Bank dated
dated December 18, 1990 6*
10.7 Promissory Note with Liberty Bank dated
November 18, 1992 8*
10.8 # 1993 Stock Option Plan 9*
10.9 # Forms of Stock Option Agreements 9*
10.10 Lease entered into by and between Nine C Corporation
and Bay Area Bank dated March 18, 1993 9*
10.11 #Director Emeritus Agreement *
27 Financial Data Schedule
(b) Not Applicable
*Previously filed.
1 Filed as Exhibits 10.8 and 10.9, respectively, to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.
2 Filed as Exhibits 3.2, and 3.3, respectively, to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
3 Filed as Exhibits 4.1, to the Company's Current Report on Form 8-K
filed September 15, 1988.
4 Filed as Exhibits 3.1, to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
5 Filed as Exhibits 3.2 and 10.11, respectively, to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
6 Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990.
7 Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.
8 Filed as Exhibits 10.4 and 10.7, respectively, to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
9 Filed as Exhibits 10.8, 10.9 and 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
# Management contracts and compensation plans are identified with a number
sign ("#").
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.
BAY AREA BANCSHARES
Registrant
Dated: November 6, 1995
/s/ Robert R. Haight
President and Chief Executive Officer
/s/ Anthony J. Gould
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet, and Statement of Income, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,470,983
<INT-BEARING-DEPOSITS> 102,728
<FED-FUNDS-SOLD> 15,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,510,626
<INVESTMENTS-CARRYING> 10,206,790
<INVESTMENTS-MARKET> 10,244,000
<LOANS> 50,254,929
<ALLOWANCE> (1,455,500)
<TOTAL-ASSETS> 92,627,688
<DEPOSITS> 83,985,763
<SHORT-TERM> 0
<LIABILITIES-OTHER> 811,076
<LONG-TERM> 0
<COMMON> 4,033,059
0
30,000
<OTHER-SE> 3,767,790
<TOTAL-LIABILITIES-AND-EQUITY> 92,627,688
<INTEREST-LOAN> 4,662,524
<INTEREST-INVEST> 464,011
<INTEREST-OTHER> 393,585
<INTEREST-TOTAL> 5,520,120
<INTEREST-DEPOSIT> 1,618,116
<INTEREST-EXPENSE> 1,618,116
<INTEREST-INCOME-NET> 3,902,004
<LOAN-LOSSES> 95,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,188,868
<INCOME-PRETAX> 1,551,776
<INCOME-PRE-EXTRAORDINARY> 1,551,776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 905,776
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 7.11
<LOANS-NON> 310,077
<LOANS-PAST> 234,579
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,505,355
<CHARGE-OFFS> 167,462
<RECOVERIES> 22,589
<ALLOWANCE-CLOSE> 1,455,500
<ALLOWANCE-DOMESTIC> 1,455,500
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
