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, 1997
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
883,399 Shares of Common Stock Outstanding as of June 30, 1997
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
6/30/97 12/31/96
<S> <C> <C>
ASSETS
Cash and due from banks $10,039 $11,011
Federal Funds Sold 1,600 6,850
Cash and cash equivalents 11,639 17,861
Time deposits with other financial institutions 0 100
Investment securities available for sale
(market value approximates book value) 2,095 2,588
Investment securities held to maturity
(market value of $13,459 in 1997 and $12,203 in 1996) 13,324 12,081
Loans, net of reserve for possible loan losses
of $1,593 in 1997 and $1,493 in 1996 79,175 67,012
Loans held for sale 0 723
Premises and equipment,net 721 811
Real estate owned 0 0
Interest receivable and other assets 1,962 2,011
Total assets $108,916 $103,187
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $25,231 $ 23,599
Interest-bearing transaction 45,568 44,493
Savings 5,846 5,551
Time 21,681 19,325
Total Deposits 98,326 92,968
Interest payable and other liabilities 414 938
Federal funds purchased 0 0
Federal Home Loan Bank advances 0 0
Total liabilities 98,740 93,906
Sharehoders' equity:
Common stock, no par value:
Authorized - 20,000,000 shares; issued & outstanding 4,354 4,143
883,339 in 1997 and 839,638 in 1996
Unrealized (loss) gain on securities held for sale (8) (5)
Retained earnings 5,830 5,143
Total shareholders' equity 10,176 9,281
Total liabilities and shareholders' equity $108,916 $103,187
</TABLE>
(1)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
6/30/97 6/30/96
<S> <C> <C>
Interest Income:
Interest and fees on loans $1,990 1,792
Interest on investment securities 253 195
Interest on federal funds sold 92 69
Interest on time deposits with other financial institutions 1 1
Total Interest Income 2,336 2,057
Interest Expense:
Interest on interest-bearing transaction amounts 349 324
Interest on savings deposits 59 56
Interest on time deposits 287 245
Interest on short-term borrowing 0 7
Interest on notes payable and redeemable debentures 0 0
Total Interest Expense 695 632
Net interest income 1,641 1,425
Provision for possible loan losses 80 150
Net interest income after provision for possible loan loss 1,561 1,275
Noninterest income:
Service charges on deposit accounts 50 54
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 0 158
Other Mortgage Banking Revenue 51 45
ATM network revenue 514 445
Other 28 27
Total noninterest income 643 729
Noninterest expense:
Salaries and related benefits 519 654
Occupancy 122 97
Equipment 104 134
Professional fees 67 49
Stationery and supplies 30 31
Other 599 442
Total noninterest expense 1,441 1,407
Income before provision for income taxes 763 597
Provision for income taxes 312 250
Net Income $451 $347
Earnings per share:
Average common and equivalent shares outstanding- Primary 960,000 945,000
Average common and equivalent shares outstanding-Fully Diluted 960,000 945,000
Primary Net income per share $0.47 $0.37
Fully Diluted Net income per share $0.47 $0.37
</TABLE>
(2)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/97 6/30/96
<S> <C> <C>
Interest Income:
Interest and fees on loans $3,846 3,614
Interest on investment securities 480 400
Interest on federal funds sold 203 106
Interest on time deposits with other financial institutions 2 3
- -
Total Interest Income 4,531 4,123
Interest Expense: - -
Interest on interest-bearing transaction amounts 688 644
Interest on savings deposits 117 112
Interest on time deposits 551 464
Interest on short-term borrowing 0 9
Interest on notes payable and redeemable debentures 0 0
- -
Total Interest Expense 1,356 1,229
- -
Net interest income 3,175 2,894
Provision for possible loan losses 120 235
- -
Net interest income after provision for possible loan loss 3,055 2,659
Noninterest income: - -
Service charges on deposit accounts 98 106
Net loss on sales of securities 0 0
Net gain on disposal of assets 0 2
Net gain on sale of loans held for sale 12 308
Other Mortgage Banking Revenue 75 92
ATM network revenue 995 842
Other 49 75
- -
Total noninterest income 1,229 1,425
Noninterest expense: - -
Salaries and related benefits 1,156 1,369
Occupancy 232 195
Equipment 235 268
Professional fees 113 113
Stationery and supplies 58 64
Other 1,046 886
- -
Total noninterest expense 2,840 2,895
- -
Income before provision for income taxes 1,444 1,189
Provision for income taxes 601 500
- -
Net Income $843 $689
Earnings per share:
Average common and equivalent shares outstanding- Primary 960,000 945,000
Average common and equivalent shares outstanding- Fully Diluted 960,000 945,000
Primary Net income per share $0.88 $0.73
Fully Diluted Net income per share $0.88 $0.73
</TABLE>
(3)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
6/30/97 6/30/96
<S> <C> <C>
Cash flows from operating activities:
Net Income $843 $689
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 216 221
Provision for possible loan losses 140 235
Net gain loss on sale of assets 0 (2)
Funding of loans held for sale (947) (8,948)
Proceeds from the sale of loans held for sale 1,682 8,661
Net gain on sale of loans held for sale (12) (308)
Net loss on sale of investment securities 0 0
Net ammortization and accretion of investment premiums and
discounts 8 31
Net decrease in interest receivable and other assets 49 46
Net increase in interest payable and other liabilities (524) (48)
Net (decrease) increase in deferred loan fees (97) 0
Total adjustments 515 (112)
Net cash provided by (used in) operating activities 1,358 577
Cash flows from investing activities:
Net decrease in time deposits with other financial institutions 100 3
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held to maturity 1,715 1,170
Mortgage backed securities principal payments 256 748
Purchase of investment securities held to maturity (2,741) (2,183)
Purchase of investment securities held for sale 0 0
Net decrease in gross loans (12,197) (3,463)
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (126) (102)
Net cash used in investing activit (12,993) (3,827)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,transaction and savings 3,002 1,508
Net increase in time deposits 2,356 2,965
Repayment of Federal Funds Purchased 0 (1,000)
Net proceeds of Federal Home Loan Bank advances 0 500
Proceeds from stock warrants and options exercised 211 62
Cash Dividends paid (156) (134)
Net cash provided by financing actities 5,413 3,901
Net increase (decrease) in cash and cash equivalents (6,222) 651
Cash and cash equivalents,beginning of period 17,861 18,076
Cash and cash equivalents,end of period $11,639 $18,727
</TABLE>
There were $499 and $0 in loans transferred to Real Estate Owned in 1997 and
1996 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, 1997, results of
operations for the three and six month periods ended June 30, 1997 and the
statement of cash flows for the six month period ended June 30, 1997 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, 1996.
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) decreased $5.6 million or 17% to $32.6 million
over the six month period from December 31, 1996 to June 30, 1997. At year-end,
total liquid assets as a percentage of total assets was 31.6%, whereas on June
30, 1997 it had decreased to 24.8%.
Cash & due from banks decreased $972,000 over the first six months of 1997 to
$10.0 million at June 30, 1997. During the first six months of 1997 cash and due
from banks averaged $11.6 million. The portion of the total cash & due from
banks representing ATM ("Automatic Teller Machine") network cash inventory has
averaged approximately $3.6 million during 1997 and at June 30, 1997 ATM cash
was approximately $3.1 million.
The decrease in total liquid assets, during the first six months of 1997, was a
primarily a result of an increase in gross loans of $11.4 million or
16.8%, offset in part by an increase in deposits of $5.4 million or 5.8%.
Deposits have averaged $96.3 million thus far in 1997 while they averaged $88.1
million during the twelve month period ending December 31, 1996. Gross loans
outstanding have averaged $71.7 million thus far in 1997 as compared to $66.2
million averaged throughout 1996.
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 $949,000 in the first six
months of 1997 from $10.8 million or 10.3% of total gross assets at December 31,
1996 to $11.8 million or 10.6% of total gross assets at June 30, 1997.
Bank capital plus reserves totaled $11.5 million on June 30, 1997 or 10.4% of
total adjusted assets as compared to capital plus reserves of $10.8 million or
10.3% of total adjusted assets at December 31, 1996. At June 30, 1997 the Bank
maintained a tier one capital ratio of 11.62% and a tier two capital ratio of
12.87% as compared to a tier one capital ratio of 11.86%
(6)
<PAGE>
and a tier two capital ratio of 13.11% at December 31, 1996.
On May 27,1997 the Company announced it had adopted a stock repurchase plan to
repurchase up to 5% of the Company's outstanding stock or $500,000 (whichever is
less). The company did repurchase 3,000 shares in the open market in July at
a price of approximately $21.00 per share.
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 $225,000 in dividends to the Parent company in the first
six months of 1997 and the Company also declared cash dividends to common
shareholders of $.09 per share in March and June of 1997. The second quarter
dividend represents twenty three consecutive quarterly cash dividends declared
by the Parent company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $451,000 ($.47 per fully diluted share vs.
$.37 in the prior year) for the second quarter of 1997, the highest second
quarter earnings in the Company's history. This represents a $104,000 or 29.9%
increase over the second quarter of 1996 in when net income was $347,000.
Consolidated operating profits were $843,000 ($.88 per fully diluted share vs.
$.73 in the prior year) for the first six months of 1997, the highest first half
of earnings in the Company's history. This represents a $154,000 or 22.4%
increase over the first half of 1996 in which net income was $689,000.
The increase in second quarter earnings in 1997 versus the second quarter of
1996 is a result of an increase in pretax earnings of $166,000 which is
comprised of an increase in net interest income of $216,000 and a decrease in
loan loss provisions of $70,000, offset in part by a decrease in noninterest
income of $86,000 and an increase in non interest expense of $34,000.
The increase in earnings for the first six months of 1997 versus the first six
months of 1996 is a result of an increase in pretax earnings of $255,000 which
is comprised of an increase in net interest income of $281,000 and a decrease in
loan loss provisions of $115,000 and a decrease in noninterest expense of
$55,000, offset in part by a decrease in noninterest income of $196,000.
The growth in net interest income of 15.1% in the second quarter of 1997 and
9.7% in the first six months of 1997 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 second quarter of 1997 were $96.2 million, a $10.1 million
or 11.8% increase over the second quarter of 1996 when earning assets averaged
$86.1 million. Net interest margin in the second quarter of 1997 was
approximately 6.82% as compared to 7.55% in the second quarter of 1996.
(7)
<PAGE>
Average earning assets in the first six months of 1997 were $94.4 million, a
$10.5 million or 12.5% increase over the first six months of 1996 when earning
assets averaged $83.9 million. Net interest margin in the first six months of
1997 was approximately 6.72% as compared to 6.89% in the first half of 1996.
Yields on earning assets rose in the second quarter of 1997 to 9.71% as compared
to 9.56% in the second quarter of 1996. Yields on earning assets are down in the
first six months of 1997 to 9.60% as compared to 9.82% in the first six months
of 1996.
The decrease in loan loss provisions throughout 1997, despite the 16.8% growth
in loans outstanding since December 31, 1996, is a result of improved loan
portfolio performance and the Board's current judgement that the Bennet Leasing
Assets (book value of $548,000 included in nonaccrual loans at June 30, 1997)
would not require further reserves. A settlement was indeed reached in
July of 1997. The Bank received a payment of approximately $465,000 and expects
additional payments of approximately $200,000 pursuant to the agreement. The
Bank ultimately expects to recover approximately $117,000 of the $318,000
written off in 1996.
Non performing assets at June 30, 1997 (adjusted for the Bennet funding
settlement in July) were $816,000 or .74% of total assets and 51% of loan loss
reserves. Non performing assets at December 31, 1996 were $1.67 million
(including Bennet) or 1.61% of total assets and 112% of loan loss reserves.There
were $42,000 in loans charged off during the first six months of 1997 as
compared to $68,000 during the first six months of 1996. Loan loss reserves of
$1.59 million at June 30, 1997 represent a ratio of 1.96% of gross loans
outstanding as compared to a loan loss reserve of $1.49 million or 2.14% of
gross loans at December 31, 1996.
The reduction in non interest income of $86,000 in the second quarter of 1997
and $196,000 in the first half of 1997 was a result of the closing of the Bank's
mortgage department in February 1997. The department was closed primarily as a
result of intense competition which affected the profit margins for such loans
sold in the marketplace. The department never reached its budgeted performance
goals or contributed a satisfactory return given the risk of operations or the
time that was committed by Bank management.
The Bank's ATM revenues were up $69,000 or 15.5% for the second quarter and
$153,000 or 18% for the first half of 1997 as compared to the same periods in
1996. The department has contributed $148,000 to pretax profits in the first six
months of 1997 as compared to $93,000 in the first six months of 1996.
Non interest expense was up $34,000 in the second quarter but still down $55,000
in the first six months of 1997 as compared to 1996 primarily as a result of the
closing of the Mortgage Department.
(8)
<PAGE>
Part 2, Item 4
(a) The 1997 Annual Meeting of the Shareholders of the Registrant was held on
May 20, 1997.
(b) The following table shows the votes for, against or withheld, and the broker
nonvotes as to each candidate for director. Each candidate was elected.
<TABLE>
<CAPTION>
Name Votes For Votes Against or Withheld Broker Nonvotes
<S> <C> <C> <C>
Mario A. Biagi 654,209 11.803 0
John O. Brooks 655,809 10,203 0
Gary S. Goss 665,942 70 0
Robert R. Haight 653,109 12,903 0
Stanley A. Kangas 643,029 22,983 0
David J. Macdonald 655,530 10,483 0
Thorwald A. Madsen 653,109 12,903 0
Dennis W. Royer 643,029 22,983 0
</TABLE>
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).
(9)
<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: August 11, 1997
/s/Robert R. Haight
Robert R. Haight
President and Chief Executive Officer
/s/Anthony J. Gould
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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,039
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,095
<INVESTMENTS-CARRYING> 13,324
<INVESTMENTS-MARKET> 13,459
<LOANS> 79,175
<ALLOWANCE> 1,593
<TOTAL-ASSETS> 108,916
<DEPOSITS> 98,326
<SHORT-TERM> 0
<LIABILITIES-OTHER> 414
<LONG-TERM> 0
0
0
<COMMON> 4,354
<OTHER-SE> 5,822
<TOTAL-LIABILITIES-AND-EQUITY> 108,916
<INTEREST-LOAN> 1,990
<INTEREST-INVEST> 253
<INTEREST-OTHER> 93
<INTEREST-TOTAL> 2,336
<INTEREST-DEPOSIT> 695
<INTEREST-EXPENSE> 695
<INTEREST-INCOME-NET> 1,641
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,441
<INCOME-PRETAX> 763
<INCOME-PRE-EXTRAORDINARY> 763
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 451
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<YIELD-ACTUAL> 9.71
<LOANS-NON> 1,281
<LOANS-PAST> 173
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,593
<CHARGE-OFFS> 42
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,593
<ALLOWANCE-DOMESTIC> 1,593
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
