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 March 31, 1996
Commission File Number 2-76003
BAY AREA BANCSHARES
California #94-2779021
900 Veterans Blvd., Redwood City, CA 94063
Telephone (415) 367-1600
Theregistrant (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
832,138 Shares of Common Stock Outstanding as of March 31, 1996
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 3/31/96 12/31/95
- ---------------------------------------------- ---------- ---------
<S> <C> <C>
Cash and due from banks $9,286 $8,276
Federal Funds Sold 3,700 9,800
----------- ---------
Cash and cash equivalents 12,986 18,076
Time deposits with other financial instituions 100 103
Investment securities available for sale
(market value approximates book value) 3,091 3,111
Investment securities held to maturity
(market value of $10,387 in 1996 and $10,269 in 1995) 10,292 10,133
Loans, net of reserve for possible loan losses
of $1,539 in 1996 and $1,516 in 1995 64,546 59,209
Loans held for sale 1,578 772
Premises and equipment,net 909 948
Real estate owned 0 0
Interest receivable and other assets 1,500 1,463
--------- ---------
Total assets $95,002 $93,815
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------
Deposits
Demand $22,737 $22,998
Interest-bearing transaction 39,255 40,480
Savings 5,746 4,376
Time 17,480 16,125
------------- --------------
Total Deposits 85,218 83,979
Interest payable and other liabilities 908 758
Federal funds purchased 0 1,000
Federal Home Loan Bank advances 500 0
------------- --------------
Total liabilities 86,626 85,737
------------- --------------
Sharehoders'equity:
Preferred stock, $10 stated value; 6% Series A, convertible and redeemable:
Authorized - 10,000,000 shares; issued & outstanding
none in 1996 and 1,000 in 1995 0 10
Common stock, no par value:
Authorized - 20,000,000 shares; issued & outstanding 4,382 4,053
832,138 in 1996 and 821,829 in 1995
Unrealized (loss) gain on securities held for sale (5) 10
Retained earnings 3,999 4,005
------------- --------------
Total shareholders' equity 8,376 8,078
------------- --------------
Total liabilities and shareholders' equity $95,002 $93,815
============= ==============
</TABLE>
(1)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/96 3/31/95
Interest Income: ------------- --------------
<S> <C> <C>
Interest and fees on loans $ 1,822 $ 1,532
Interest on investment securities 205 141
Interest on federal funds sold 37 66
Interest on time deposits with other financial institutions 2 2
------------- --------------
Total Interest Income 2,066 1,741
Interest Expense: ------------- --------------
Interest on interest-bearing transaction amounts 320 263
Interest on savings deposits 56 52
Interest on time deposits 219 157
Interest on short-term borrowing 2 0
Interest on notes payable and redeemable debentures 0 0
------------- --------------
Total Interest Expense 597 472
------------- --------------
Net interest income 1,469 1,269
Provision for possible loan losses 85 45
------------- --------------
Net interest income after provision for possible loan losses 1,384 1,224
Noninterest income: ------------- --------------
Service charges on deposit accounts 53 66
Net loss on sales of securities 0 0
Net gain on disposal of assets 2 0
Net gain on sale of loans held for sale 150 99
Other Mortgage Banking Revenue 47 55
ATM network revenue 398 304
Other 48 12
------------- --------------
Total noninterest income 698 536
Noninterest expense: ------------- --------------
Salaries and related benefits 716 629
Occupancy 98 94
Equipment 134 141
Professional fees 64 57
Stationery and supplies 33 37
Other 444 368
------------- --------------
Total noninterest expense 1,489 1,326
------------- --------------
Income before provision for income taxes 593 434
Provision for income taxes 250 176
------------- --------------
Net Income $ 343 $ 258
Earnings per share: ============= ==============
Average common and equivalent shares outstanding 920,000 905,000
============= ==============
Fully Diluted Net income per share $ 0.37 $ 0.29
============= ==============
</TABLE>
(2)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/96 3/31/95
Cash flows from operating activities: ------------- --------------
<S> <C> <C>
Net Income $ 343 $ 258
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 108 104
Provision for possible loan losses 85 45
Net gain loss on sale of assets (2) 0
Funding of loans held for sale (5,732) (7,661)
Proceeds from the sale of loans held for sale 5,076 7,375
Net gain on sale of loans held for sale (150) (98)
Net loss on sale of investment securities 0 0
Net ammortization and accretion of investment premiums and discounts 15 9
Net (increase) decrease in interest receivable and other assets (37) 19
Net increase in interest payable and other liabilities 150 8
Net increase (decrease) in deferred loan fees 27 (69)
------------- --------------
Total adjustments (460) (268)
------------- --------------
Net cash used in operating activities (117) (10)
Cash flows from investing activities:
Net decrease in time deposits with other financial institutions 3 94
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held to maturity 500 1000
Mortgage backed securities principal payments 50 59
Purchase of investment securities held to maturity (722) (1,169)
Purchase of investment securities held for sale 0 0
Net (increase) decrease in gross loans (5,945) 1,014
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (69) (42)
------------- --------------
Net cash (used in) provided by investing activities (6,183) 956
Cash flows from financing activities:
Net (decrease) increase in demand deposits,transaction and savings (116) 2,487
Net increase in time deposits 1,355 373
Proceeds from stock warrants and options exercised 38 13
Cash Dividends paid (67) 0
------------- -----------
Net cash provided by financing activities 1,210 2,873
------------- --------------
Net (decrease) increase in cash and cash equivalents (5,090) 3,819
Cash and cash equivalents,beginning of period 18,076 14,761
------------- --------------
Cash and cash equivalents,end of period 12,986 18,580
============= ==============
</TABLE>
There were no loans transferred to Real Estate Owned in 1996 and 1995
respectively.
(3)
<PAGE>
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 March 31, 1996, results of
operations for the three month period ended March 31, 1996 and the statement of
cash flows for the three month period ended March 31, 1996 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, 1995.
All references to the "Bank" are in reference to the Company's sole, and wholly
owned, subsidiary Bay Area Bank.
(4)
<PAGE>
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) decreased $4.9 million to $26.5 million over the
three month period from December 31, 1995 to March 31, 1996. At year-end, total
liquid assets as a percentage of total assets was 33.5% whereas on March 31,
1996 it had decreased to 27.9%.
Cash & due from banks increased $1.0 million over the first three months of 1996
to $9.3 million at March 31, 1996. During the first three months of 1996 cash
and due from banks averaged $9.2 million. The portion of the total cash & due
from banks representing ATM network cash inventory has averaged approximately
$2.6 million during 1996 and at March 31, 1996 ATM cash was approximately $2.1
million . At December 31, 1995, there was approximately $2.7 in ATM network cash
inventory. The Bank continues to minimize ATM cash wherever possible through
more aggressive cash management and the closure of unproductive sites.
The decrease in total liquid assets was a result of a increase in total net
loans outstanding (including loans held for sale) of $6.1 million (10.2%) to
$66.1 million and an increase in deposits of $1.2 million (1.5%) to $85.2
million during the first three months of 1996. Deposits have averaged $82.9
million thus far in 1996 while they averaged $70.2 million during the first
quarter of 1995. Gross loans outstanding have averaged $65.2 million thus far in
1996 as compared to $54.1 million averaged in the first quarter of 1995.
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 $321,000 in the three months
of 1996 from $9.6 million or 10.06% of total gross assets at December 31, 1995
to $9.9 million or 10.27% of total gross assets at March 31, 1996.
Bank capital plus reserves totaled $9.9 million on March 31, 1996 or 10.23% of
total adjusted assets as compared to capital plus reserves of $9.6 million or
10.03% of total adjusted assets at December 31, 1995. At March 31, 1996 the Bank
maintained a tier one capital ratio of 11.86% and a tier two capital ratio of
13.11%.
(5)
<PAGE>
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 $50,000 in dividends to the Parent company in the first
three months of 1996 and the Company also declared a cash dividend to common
shareholders of $.08 per share in March of 1996. The first quarter dividend
represents eighteen consecutive quarterly cash dividends declared by the Parent
company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $343,000 ($.37 per share vs. $.29 in the
prior year) for the first quarter of 1996, the highest first quarter in the
company's history. This represents a $85,000 or 33% increase over the first
quarter of 1995. The first quarter operating profits for 1996 were comprised of
Bank earnings of $356,000 and a Parent company loss (excluding bank dividends
and undistributed earnings) of $13,000.
The increase in first quarter earnings in 1996 versus the first quarter of 1995
is a result of an increase in pretax earnings of $159,000 comprised of: an
increase in net interest income of $200,000 an increase in non interest income
of $162,000 offset in part by an increase in loan loss provisions of $40,000 and
an increase in non interest expense of $163,000.
The growth in net interest income of 15.8% in the first quarter of 1996 as
compared to the first quarter of 1995 is primarily a result of growth in total
earning assets offset in part by a decrease in net interest margin. Average
Earning assets in the first quarter of 1996 were $81.8 million a $13.5 million
or 20.6% increase over the first quarter of 1995 when earning assets averaged
$65.2 million. The $200,000 increase in net interest margin during the first
three months of 1996 was comprised of a $325,000 increase in interest income
offset in part by a $125,000 increase in interest expense over the same period
in 1995. Year to date net interest income to total average earning assets (net
interest margin) has been 7.18% in the first three months of 1996 as compared to
7.43% in the first three months of 1995.
The increase in loan loss provisions in the first three months of 1996 as
compared to 1995 is primarily a result of loan growth of 10.2% and an increase
in nonperforming assets. Non performing assets (consisting entirely of
nonaccrual loans) at March 31, 1996 were $1.42 million or 2.1% of total gross
loans and 92% of loan loss reserves. Non performing assets at March 31, 1995
were $250,000 or .46% of total gross loans and 16% of loan loss reserves. Loan
loss reserves of $1.54 million at March 31, 1996 represent a ratio of 2.26% of
gross loans outstanding as compared to 2.90% at March 31, 1995.
In the first quarter of 1996, the Bank reclassified $662,000 in lease
receivables and notes as nonperforming assets and has suspended accruing
interest on these assets. These assets consist of approximately 150 lease
receivables purchased in 1994 from Bennett Group Funding Inc. ("Bennett") which
declared chapter 11 bankruptcy in March of 1996.
(6)
<PAGE>
There have been reports by national news services of alleged fraudulent leases
that were written by Bennett. Bay Area Bancshares, however, is not aware that
any of its Bennett leases are fraudulent. The Company's current information is
that the allegations of fraud are directed at a relatively small percentage of
all Bennett leases. The Company expects to have more information on the
authenticity of these assets by the filing date of the second quarter 10-Q
filing. In the interim the Company believes it to be prudent to reclassify all
Bennett assets to nonperforming status until an official accounting is finished
by the bankruptcy trustee.
The $163,000 increase in non interest expense in 1996 can be attributed to a
$70,000 increase in expenses related to the Bank's EFT department and an $67,000
increase expenses related to the Bank's Mortgage Department. The $162,000
increase in noninterest income can primarily be attributed to a $101,000 or 33%
increase in EFT revenues and a $49,000 increase in Mortgage department premiums
and fees.
The Bank's Electronic Funds Transfer (EFT) department operates approximately 50
ATM's throughout the state. The department contributed approximately $36,000 to
pretax income in the first quarter of 1996 as compared to a loss of $2,000 in
the first quarter of 1995.
The Bank's mortgage department revenues for the first three months of 1996
totaled $284,000 (which includes $82,000 in interest income) as compared to
$206,000 (including $53,000 in interest income) in the first three months of
1995. Mortgage department expenses have been $264,000 during the first three
months of 1996 as compared to $197,000 in the first quarter of 1995. The
Mortgage Department's contribution to pretax profits were $20,000 in the first
quarter of 1996 as compared to $10,000 in the first quarter of 1995.
(7)
<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.
BAY AREA BANCSHARES
Registrant
Dated: May 14, 1996
/s/Robert R. Haight /s/Anthony J. Gould
- ---------------------- -----------------------
Robert R. Haight Anthony J. Gould
President and Chief Chief Accounting Officer
Executive Officer
(8)
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,286
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 3,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,091
<INVESTMENTS-CARRYING> 10,292
<INVESTMENTS-MARKET> 10,387
<LOANS> 66,124
<ALLOWANCE> 1,539
<TOTAL-ASSETS> 95,002
<DEPOSITS> 85,218
<SHORT-TERM> 500
<LIABILITIES-OTHER> 908
<LONG-TERM> 0
4,382
0
<COMMON> 0
<OTHER-SE> 3,994
<TOTAL-LIABILITIES-AND-EQUITY> 95,002
<INTEREST-LOAN> 1,822
<INTEREST-INVEST> 205
<INTEREST-OTHER> 39
<INTEREST-TOTAL> 2,066
<INTEREST-DEPOSIT> 595
<INTEREST-EXPENSE> 597
<INTEREST-INCOME-NET> 1,469
<LOAN-LOSSES> 85
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,489
<INCOME-PRETAX> 593
<INCOME-PRE-EXTRAORDINARY> 593
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 7.18
<LOANS-NON> 1,422
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,539
<CHARGE-OFFS> 68
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,539
<ALLOWANCE-DOMESTIC> 1,539
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
