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 June 30, 1996
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
837,138 Shares of Common Stock Outstanding as of June 30, 1996
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 6/30/96 12/31/95
<S> <C> <C>
Cash and due from banks $11,927 $8,276
Federal Funds Sold 6,800 9,800
Cash and cash equivalents 18,727 18,076
Time deposits with other financial institutions 100 103
Investment securities available for sale
(market value approximates book value) 3,096 3,111
Investment securities held to maturity
(market value of $10,365 in 1996 and $10,269 in 1995) 10,348 10,133
Loans, net of reserve for possible loan losses
of $1,694 in 1996 and $1,516 in 1995 63,022 59,209
Loans held for sale 793 772
Premises and equipment,net 829 948
Real estate owned 0 0
Interest receivable and other assets 1,417 1,463
Total assets $98,332 $93,815
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $23,396 $22,998
Interest-bearing transaction 40,747 40,480
Savings 5,219 4,376
Time 19,090 16,125
Total Deposits 88,452 83,979
Interest payable and other liabilities 710 758
Federal funds purchased 0 1,000
Federal Home Loan Bank advances 500 0
Total liabilities 89,662 85,737
Shareholders'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 & outstandig 4,125 4,053
837,138 in 1996 and 821,829 in 1995
Unrealized (loss) gain on securities held for sale (10) 10
Retained earnings 4,555 4,005
Total shareholders' equity 8,670 8,078
Total liabilities and shareholders' equity $98,332 $93,815
</TABLE>
<PAGE>
(1)
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED,DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
6/30/96 6/30/95
<S> <C> <C>
Interest Income:
Interest and fees on loans $1,792 $1,546
Interest on investment securities 195 153
Interest on federal funds sold 69 151
Interest on time deposits with other financial
institutions 1 1
Total Interest Income 2,057 1,851
Interest Expense:
Interest on interest-bearing transaction accounts 324 327
Interest on savings deposits 56 52
Interest on time deposits 245 182
Interest on short-term borrowing 7 0
Interest on notes payable and redeemable debenture 0 0
Total Interest Expense 632 561
Net interest income 1,425 1,289
Provision for possible loan losses 150 35
Net interest income after provision for
possible loan losses 1,275 1,254
Noninterest income:
Service charges on deposit accounts 54 65
Net loss on sales of securities 0 0
Net gain on disposal of assets 0 0
Net gain on sale of loans held for sale 158 136
Other Mortgage Banking Revenue 45 47
ATM network revenue 445 384
Other 27 46
Total noninterest income 729 678
Noninterest expense:
Salaries and related benefits 654 648
Occupancy 97 93
Equipment 134 144
Professional fees 49 52
Stationery and supplies 31 39
Other 442 467
Total noninterest expense 1,407 1,443
Income before provision for income taxes 597 489
Provision for income taxes 250 204
Net Income $347 $285
Earnings per share:
Average common and equivalent shares outstanding 945,000 890,000
Fully Diluted Net income per share $0.37 $0.32
</TABLE>
(2)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/96 6/30/95
<S> <C> <C>
Interest Income:
Interest and fees on loans $3,614 3,078
Interest on investment securities 400 293
Interest on federal funds sold 106 218
Interest on time deposits with other financial
institutions 3 3
Total Interest Income 4,123 3,592
Interest Expense:
Interest on interest-bearing transaction accounts 644 591
Interest on savings deposits 112 104
Interest on time deposits 464 339
Interest on short-term borrowing 9 0
Interest on notes payable and redeemable debenture 0 0
Total Interest Expense 1,229 1,034
Net interest income 2,894 2,559
Provision for possible loan losses 235 80
Net interest income after provision for
possible loan losses 2,659 2,479
Noninterest income:
Service charges on deposit accounts 106 132
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 308 235
Other Mortgage Banking Revenue 92 102
ATM network revenue 842 687
Other 75 58
Total noninterest income 1,425 1,214
Noninterest expense:
Salaries and related benefits 1,369 1,278
Occupancy 195 188
Equipment 268 285
Professional fees 113 109
Stationery and supplies 64 75
Other 886 835
Total noninterest expense 2,895 2,770
Income before provision for income taxes 1,189 923
Provision for income taxes 500 380
Net Income $689 $543
Earnings per share:
Average common and equivalent shares outstanding 945,000 890,000
Fully Diluted Net income per share $0.73 $0.61
</TABLE>
(3)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/96 6/30/95
<S> <C> <C>
Cash flows from operating activities:
Net Income $689 $543
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 221 209
Provision for possible loan losses 235 80
Net gain loss on sale of assets (2) 0
Funding of loans held for sale (8,948) (15,454)
Proceeds from the sale of loans held for sale 8,661 14,146
Net gain on sale of loans held for sale (308) (235)
Net loss on sale of investment securities 0 0
Net amortization and accretion of investment
premiums and discounts 31 21
Net decrease in interest receivable and other assets 46 95
Net (decrease) increase in interest payable and
other liabilities (48) 127
Net decrease in deferred loan fees 0 (54)
Total adjustments (112) (1,065)
Net cash provided by (used in) operating activities 577 (522)
Cash flows from investing activities:
Net decrease in time deposits with other financial
institutions 3 95
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held to maturity 1,170 1,000
Mortgage backed securities principal payments 748 115
Purchase of investment securities held to maturity (2,183) (2,433)
Purchase of investment securities held for sale 0 0
Net (increase) decrease in gross loans (3,463) 2,933
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (102) (119)
Net cash (used in)
provided by investing activities (3,827) 1,591
Cash flows from financing activities:
Net increase in demand deposits,transaction and savings 1,508 3,208
Net increase in time deposits 2,965 1,375
Repayment of Federal Funds Purchased (1,000) 0
Net proceeds of Federal Home Loan Bank advances 500 0
Proceeds from stock warrants and options exercised 62 37
Cash Dividends paid (134) (62)
Net cash provided by
financing activities 3,901 4,558
Net increase in cash and cash equivalents 651 5,627
Cash and cash equivalents,beginning of period 18,076 14,761
Cash and cash equivalents,end of period $18,727 $20,388
</TABLE>
There were no loans transferred to Real Estate Owned in 1996 and 1995
respectively.
(4)
<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 June 30, 1996, results of
operations for the three and six month periods ended June 30, 1996 and the
statement of cash flows for the six month period ended June 30, 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.
(5)
<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) increased $848,000 or 2.7% to $32.3 million over
the six month period from December 31, 1995 to June 30, 1996. At year-end, total
liquid assets as a percentage of total assets was 33.5% whereas on June 30, 1996
it had decreased to 32.8% as a result of an increase of $4.5 million or 4.8% in
total assets.
Cash & due from banks increased $3.7 million over the first six months of 1996
to $11.9 million at June 30, 1996. During the first six months of 1996 cash and
due from banks averaged $9.8 million. The portion of the total cash & due from
banks representing ATM network cash inventory has averaged approximately $2.9
million during 1996 and at June 30, 1996 ATM cash was approximately $3.5 million
. At December 31, 1995, there was approximately $2.7 in ATM network cash
inventory.
The increase in total liquid assets, during the first half of 1996, was a result
of a increase in deposits of $4.5 million or 5.3% offset in part by an increase
in total net loans outstanding (including loans held for sale) of $3.8 million
(6.4%) to $63.0 million. Deposits have averaged $84.6 million thus far in 1996
while they averaged $72.3 million during the first half of 1995. Gross loans
outstanding have averaged $66.3 million thus far in 1996 as compared to $53.5
million averaged in the first half 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 $770,000 in the six months
of 1996 from $9.6 million or 10.06% of total gross assets at December 31, 1995
to $10.4 million or 10.36% of total gross assets at June 30, 1996.
Bank capital plus reserves totaled $10.3 million on June 30, 1996 or 10.33% 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 June 30, 1996 the Bank
maintained a tier one capital ratio of 12.55% and a tier two capital ratio of
13.80%.
(6)
<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 $100,000 in dividends to the Parent company in the first
six months of 1996 and the Company also declared a cash dividend to common
shareholders of $.08 per share in March of 1996 and June of 1996. The second
quarter dividend represents nineteen consecutive quarterly cash dividends
declared by the Parent company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $347,000 ($.37 per share vs. $.32 in the
prior year) for the second quarter of 1996, the highest second quarter in the
company's history. This represents a $62,000 or 22% increase over the second
quarter of 1995. Consolidated operating profits were $689,000 ($.73 per share
vs. $.61in the prior year) for the first six months of 1996, the highest first
six months in the company's history. This represents a $146,000 or 27% increase
over the first half of 1995.
The increase in second quarter earnings in 1996 versus the second quarter of
1995 is a result of an increase in pretax earnings of $108,000 comprised of: an
increase in net interest income of $136,000, an increase in non interest income
of $51,000, a decrease in noninterest expense of $36,000; offset in part by an
increase in loan loss provisions of $115,000.
The increase in earnings in the first half of 1996 versus the first half of 1995
is a result of an increase in pretax earnings of $266,000 comprised of: an
increase in net interest income of $335,000, an increase in non interest income
of $211,000; offset in part by a an increase in noninterest expense of $125,000
and an increase in loan loss provisions of $155,000.
The growth in net interest income of 10.55% in the second quarter of 1996 as
compared to the second quarter of 1995 is primarily a result of growth in total
earning assets throughout 1996 offset in part by a decrease in net interest
margin. Average earning assets in the first six months of 1996 were $84.0
million a $13.0 million or 18.3% increase over the first half of 1995 when
earning assets averaged $71.0 million. The $136,000 increase in net interest
margin during the second quarter of 1996 was comprised of a $206,000 increase in
interest income offset in part by a $71,000 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 6.90% in the first six months of
1996 as compared to 7.21% in the first six months of 1995. The interest margin
compression has been primarily caused by increasing competition for quality
loans and the resulting pricing concessions the Bank has made to grow the loan
portfolio in this competitive environment.
(7)
<PAGE>
The increase in loan loss provisions in 1996 as compared to 1995 is primarily a
result of loan growth of 6.4% and an increase in nonperforming assets. Non
performing assets (consisting entirely of nonaccrual loans) at June 30, 1996
were $1.58 million or 2.41% of total gross loans and 93% of loan loss reserves.
Non performing assets at December 31, 1995 were $495,000 or .81% of total gross
loans and 33% of loan loss reserves. Loan loss reserves of $1.69 million at June
30, 1996 represent a ratio of 2.59% of gross loans outstanding as compared to
2.47% at December 31, 1995.
The increase in nonperforming assets of $1.1 million in the first half of 1996
is primarily attributable to $837,000 in lease receivables and notes
reclassified as nonperforming assets in 1996. 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.
While the Company expected to have more information on the authenticity of these
assets by the filing date of the second quarter 10-Q filing, no information is
yet available. 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.
Non interest expense is up 4.5% thus far in 1996 but was down 1.25% in the
second quarter as compared to the prior year. The increase in noninterest income
of $51,000 for the second quarter and $262,000 for the first half of 1996 can
primarily be attributed to an increase in EFT revenues and 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's revenues increased from $384,000 in
the second quarter of 1995 to $445,000 in the second quarter of 1996. In the
first half of 1996, EFT revenues were $842,000 as compared to $687,000 in the
first half of 1995.
The Bank's mortgage department revenues for the first six months of 1996 totaled
$587,000 (which includes $176,000 in interest income) as compared to $438,000
(including $100,000 in interest income) in the first six months of 1995.
Revenues in the second quarter of 1996 were $303,000 as compared to $231,000 in
the second quarter of 1995.
(8)
<PAGE>
ITEM 6
(a) Exhibits.
3.1 Restated Articles of Incorporation of the Company (incorporated by reference
to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988).
3.2 Amendment to Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989).
3.3 Bylaws of the Company, as
amended (incorporated by reference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987).
3.4 Amendment to
Bylaws of Company (incorporated by reference to Exhibit 3.3 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987).
27 Financial Data Schedule (filed herewith)
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: August 12, 1996
/s/Robert R. Haight
- -----------------------------
Robert R. Haight
President and Chief Executive Officer
/s/Anthony J. Gould
- ----------------------------------------
Anthony J. Gould
Chief Accounting Officer
<PAGE>
<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> JUN-30-1996
<CASH> 11,927
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 6,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,096
<INVESTMENTS-CARRYING> 10,348
<INVESTMENTS-MARKET> 10,365
<LOANS> 63,815
<ALLOWANCE> (1,694)
<TOTAL-ASSETS> 98,332
<DEPOSITS> 88,452
<SHORT-TERM> 500
<LIABILITIES-OTHER> 710
<LONG-TERM> 0
0
0
<COMMON> 4,125
<OTHER-SE> 4,545
<TOTAL-LIABILITIES-AND-EQUITY> 98,332
<INTEREST-LOAN> 1,792
<INTEREST-INVEST> 195
<INTEREST-OTHER> 70
<INTEREST-TOTAL> 2,057
<INTEREST-DEPOSIT> 625
<INTEREST-EXPENSE> 632
<INTEREST-INCOME-NET> 1,425
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,407
<INCOME-PRETAX> 597
<INCOME-PRE-EXTRAORDINARY> 597
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 6.89
<LOANS-NON> 1,580
<LOANS-PAST> 3
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,694
<CHARGE-OFFS> 68
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,694
<ALLOWANCE-DOMESTIC> 1,694
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
