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
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
889,781 Shares of Common Stock Outstanding as of September 30, 1997
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 9/30/97 12/31/96
<S> <C> <C>
Cash and due from banks $12,436 $11,011
Federal Funds Sold 10,500 6,850
Cash and cash equivalents 22,936 17,861
Time deposits with other financial institutions 0 100
Investment securities available for sale
(market value approximates book value) 1,589 2,588
Investment securities held to maturity
(market value of $13,870 in 1997 and $12,203 in 1996) 13,703 12,081
Loans, net of reserve for possible loan losses
of $1,587 in 1997 and $1,493 in 1996 79,309 67,012
Loans held for sale 0 723
Premises and equipment,net 674 811
Real estate owned 0 0
Interest receivable and other assets 2,033 2,011
Total assets $120,244 $103,187
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $32,879 $23,599
Interest-bearing transaction 39,241 44,493
Savings 7,114 5,551
Time 28,208 19,325
Total Deposits 107,442 92,968
Interest payable and other liabilities 1,165 938
Federal funds purchased 0 0
Federal Home Loan Bank advances 1,000 0
Total liabilities 109,607 93,906
Sharehoders' equity:
Common stock, no par value:
Authorized - 20,000,000 shares; issued & outstanding 4,352 4,143
889,781 in 1997 and 839,638 in 1996
Unrealized (loss) gain on securities held for sale (8) (5)
Retained earnings 6,293 5,143
Total shareholders' equity 10,637 9,281
Total liabilities and shareholders' equity $120,244 $103,187
</TABLE>
(1)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
9/30/97 9/30/96
<S> <C> <C>
Interest Income:
Interest and fees on loans $2,148 1,815
Interest on investment securities 252 211
Interest on federal funds sold 116 123
Interest on time deposits with other financial institutions 0 1
Total Interest Income 2,516 2,150
Interest Expense:
Interest on interest-bearing transaction amounts 361 338
Interest on savings deposits 69 55
Interest on time deposits 340 251
Interest on short-term borrowing 14 7
Interest on notes payable and redeemable debentures 0 0
Total Interest Expense 784 651
Net interest income 1,732 1,499
Provision for possible loan losses 60 150
Net interest income after provision for possible loan losses 1,672 1,349
Noninterest income:
Service charges on deposit accounts 55 56
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 56
Other Mortgage Banking Revenue 24 26
ATM network revenue 536 532
Other 34 32
Total noninterest income 649 702
Noninterest expense:
Salaries and related benefits 642 635
Occupancy 116 95
Equipment 134 139
Professional fees 77 65
Stationery and supplies 30 26
Other 506 457
Total noninterest expense 1,505 1,417
Income before provision for income taxes 816 634
Provision for income taxes 346 260
Net Income $470 $374
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 $0.49 $0.39
Fully Diluted Net income per share $0.49 $0.39
</TABLE>
<PAGE>
(2)
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9/30/97 9/30/96
<S> <C> <C>
Interest Income:
Interest and fees on loans $5,994 5,429
Interest on investment securities 732 611
Interest on federal funds sold 319 229
Interest on time deposits with other financial institutions 2 4
Total Interest Income 7,047 6,273
Interest Expense:
Interest on interest-bearing transaction amounts 1,049 982
Interest on savings deposits 186 167
Interest on time deposits 891 715
Interest on short-term borrowing 14 16
Interest on notes payable and redeemable debentures 0 0
Total Interest Expense 2,140 1,880
Net interest income 4,907 4,393
Provision for possible loan losses 180 385
Net interest income after provision for possible loan losses 4,727 4,008
Noninterest income:
Service charges on deposit accounts 153 162
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 12 364
Other Mortgage Banking Revenue 99 118
ATM network revenue 1,531 1,374
Other 83 107
Total noninterest income 1,878 2,127
Noninterest expense:
Salaries and related benefits 1,798 2,004
Occupancy 348 290
Equipment 369 407
Professional fees 190 178
Stationery and supplies 88 90
Other 1,552 1,343
Total noninterest expense 4,345 4,312
Income before provision for income taxes 2,260 1,823
Provision for income taxes 946 761
Net Income $1,314 =
Earnings per share:
Average common and equivalent shares outstanding- Primary 960,000 940,000
Average common and equivalent shares outstanding- Fully Diluted 960,000 940,000
Primary Net income per share $1.37 $1.13
Fully Diluted Net income per share $1.37 $1.13
</TABLE>
<PAGE>
(3)
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9/30/97 9/30/96
<S> <C> <C>
Cash flows from operating activities:
Net Income $1,314 $1,062
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 275 336
Provision for possible loan losses 180 385
Net gain loss on sale of assets 0 (2)
Funding of loans held for sale (947) (11,192)
Proceeds from the sale of loans held for sale 1,682 11,020
Net gain on sale of loans held for sale (12) (376)
Net loss on sale of investment securities 0 0
Net ammortization and accretion of investment premiums and discounts 69 50
Net decrease in interest receivable and other assets (22) (1,163)
Net increase in interest payable and other liabilities 227 558
Net (decrease) increase in deferred loan fees (28) 35
Total adjustments 1,424 (349)
Net cash provided by operating activities 2,738 713
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 for sale 1,000 0
Proceeds from the maturity of investment securities
held to maturity 1,585 1,755
Mortgage backed securities principal payments 449 899
Purchase of investment securities held to maturity (3,733) (3,952)
Purchase of investment securities held for sale 0 0
Net increase in gross loans (12,653) (4,976)
Proceeds from the sale of Real Estate Owned 226 0
Capital expenditures (138) (188)
Net cash used in investing activities (13,164) (6,459)
Cash flows from financing activities:
Net increase in demand deposits,transaction and savings 5,591 7,310
Net increase in time deposits 8,883 2,619
Repayment of Federal Funds Purchased 0 (1,000)
Net proceeds of Federal Home Loan Bank advances 1,000 0
Proceeds from stock warrants and options exercised 263 62
Cash Dividends paid (236) (134)
Net cash provided by financing activities 15,501 8,857
Net increase in cash and cash equivalents 5,075 3,111
Cash and cash equivalents,beginning of period 17,861 18,076
Cash and cash equivalents,end of period $22,936 $21,187
There were $639 and $130 in loans transferred to Real Estate Owned in 1997 and
1996 respectively.
</TABLE>
(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 September 30, 1997, results of
operations for the three and nine month periods ended September 30, 1997 and the
statement of cash flows for the nine month period ended September 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.
In February 1997, the FASB issued SFAS No. 128, "Earning per Share." This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock. This statement
simplifies the standards for computing EPS previously found in APB Opinion No.
15, "Earnings Per Share", and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statements for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997; earlier application is not permitted. Management does
not believe that the application of this statement will have a material impact
on the Corporation's financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. SFAS No. 130 and 131 are effective for
financial statements issued for periods beginnng after December 15, 1997.
Management does not believe that the application of these statements will have a
material impact on the Company's financial statements.
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 $5.6 million or 17% to $38.2 million
over the nine month period from December 31, 1996 to September 30, 1997. At
year-end, total liquid assets as a percentage of total assets was 31.6%, whereas
on September 30, 1997 it had increased slightly to 31.8%.
Cash & due from banks increased $1.4 million over the first nine months of 1997
to $12.5 million at September 30, 1997. During the first nine 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 September
30, 1997 ATM cash was approximately $3.3 million.
The increase in total liquid assets, during the first nine months of 1997, was
primarily a result of an increase in deposits and advances of $15.5 million or
17%, offset in part by an increase in gross loans of $12.3 million or 18%.
Deposits have averaged $98.6 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 $74.2 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 $1.4 million in the first
nine months of 1997 from $10.8 million or 10.3% of total gross assets at
December 31, 1996 to $12.3 million or 10.0% of total gross assets at September
30, 1997.
Bank capital plus reserves totaled $11.8 million on September 30, 1997 or 9.7%
of total assets as compared to capital plus reserves of $10.8 million or 10.3%
of total adjusted assets at December 31, 1996. At September 30, 1997 the Bank
maintained a tier one capital ratio of 11.7% and a tier two capital ratio of
12.9% as compared to a tier one capital ratio of 11.9%
(6)
<PAGE>
and a tier two capital ratio of 13.1% 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 $450,000 in dividends to the Parent company in the first
nine months of 1997 and the Company also declared cash dividends to common
shareholders of $.09 per share in March, June and September of 1997. The third
quarter dividend represents twenty four consecutive quarterly cash dividends
declared by the Parent company to shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits were $470,000 ($.49 per fully diluted share vs.
$.39 in the prior year) for the third quarter of 1997, the highest third quarter
earnings in the Company's history. This represents a $96,000 or 25.7% increase
over the third quarter of 1996 when net income was $374,000.
Consolidated operating profits were $1,314,000 ($1.37 per fully diluted share
vs. $1.13 in the prior year) for the first nine months of 1997, the highest nine
month total in the Company's history. This represents a $252,000 or 24% increase
over the first nine months of 1996 in which net income was $1,062,000.
The increase in third quarter earnings in 1997 versus the third quarter of 1996
is a result of an increase in pretax earnings of $182,000 which is comprised of
an increase in net interest income of $233,000 and a decrease in loan loss
provisions of $90,000, offset in part by a decrease in noninterest income of
$53,000 and an increase in non interest expense of $88,000.
The increase in earnings for the first nine months of 1997 versus the first nine
months of 1996 is a result of an increase in pretax earnings of $437,000 which
is comprised of an increase in net interest income of $514,000 and a decrease in
loan loss provisions of $205,000, offset in part by a decrease in noninterest
income of $249,000 and a increase in noninterest expense of $33,000.
The growth in net interest income of 15.5% in the third quarter of 1997 and
11.7% in the first nine 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 third quarter of 1997 were $103.2 million, a $14.9 million
or 16.9% increase over the third quarter of 1996 when earning assets averaged
$88.3 million. Net interest margin in the third quarter of 1997 was
approximately 6.71% as compared to 6.79% in the third quarter of 1996.
(7)
<PAGE>
Average earning assets in the first nine months of 1997 were $97.4 million, a
$10.5 million or 13.4% increase over the first nine months of 1996 when earning
assets averaged $85.9 million. Net interest margin in the first nine months of
1997 was approximately 6.72% as compared to 6.82% in the first half of 1996.
The yield on earning assets rose slightly in the third quarter of 1997 to 9.75%
as compared to 9.74% in the third quarter of 1996. The yield on earning assets
was down in the first nine months of 1997 to 9.65% as compared to 9.74% in the
first nine months of 1996.
The cost of the Bank's deposits and advances (including demand deposits ) which
averaged $103.9 million in the third quarter of 1997 rose to 3.02% as compared
to 2.88% in the third quarter of 1996 when the deposits and advances averaged
$90.3 million. Throughout the first nine months of 1997 deposits and advances
have averaged $98.9 million and cost 2.88% while in the first nine months of
1996 the average was $86.7 million and cost 2.89%.
The decrease in loan loss provisions throughout 1997, despite the 18% growth in
loans outstanding since December 31, 1996, is primarily a result of improved
loan portfolio performance. Non performing assets at September 30, 1997 were
$707,000 or .59% of total assets and 45% of loan loss reserves. Non performing
assets at December 31, 1996 were $1.67 million or 1.61% of total assets and 112%
of loan loss reserves. There have been $113,000 in loans charged off during the
first nine months of 1997 as compared to $467,000 during the first nine months
of 1996. Loan loss reserves of $1.59 million at September 30, 1997 represent a
ratio of 2.04% 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 $53,000 in the third quarter of 1997 and
$249,000 in the first nine months 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 relatively flat in the third quarter, up $4,000 or
1% over the third quarter of 1996, but up $157,000 or 11% for the first nine
months of 1997 as compared to the same period in 1996. The lack of revenue
growth in the third quarter can be attributed to a reduction in machines in
operation. Average revenue per machine was up from $9,700 per machine in the
third quarter of 1996 to $11,700 per machine in the third quarter of 1997. There
was an average of 55 machines in operation in the third quarter of 1996 but just
46 operating in the third quarter of 1997. The reduction in machine was a result
of certain contracts that expired in 1997. The Bank hopes to find acceptable
machines sites to redeploy all or some of the excess machines in the coming
months. The department has contributed $249,000 to pretax profits in the first
nine months of 1997 as compared to $173,000 in the first nine months of 1996.
Non interest expense was up $88,000 or 6.2% in the third quarter but up only
$33,000, less than 1%, for the first none months of 1997.
(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)
(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: November 10, 1997
/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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,436
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,589
<INVESTMENTS-CARRYING> 13,703
<INVESTMENTS-MARKET> 13,870
<LOANS> 79,309
<ALLOWANCE> 1,587
<TOTAL-ASSETS> 120,244
<DEPOSITS> 107,442
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 1,165
<LONG-TERM> 0
0
0
<COMMON> 4,352
<OTHER-SE> 6,285
<TOTAL-LIABILITIES-AND-EQUITY> 120,244
<INTEREST-LOAN> 5,994
<INTEREST-INVEST> 732
<INTEREST-OTHER> 321
<INTEREST-TOTAL> 7,047
<INTEREST-DEPOSIT> 2,126
<INTEREST-EXPENSE> 2,140
<INTEREST-INCOME-NET> 4,907
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,345
<INCOME-PRETAX> 2,260
<INCOME-PRE-EXTRAORDINARY> 2,260
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,314
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
<YIELD-ACTUAL> 9.65
<LOANS-NON> 707
<LOANS-PAST> 159
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,587
<CHARGE-OFFS> 42
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,587
<ALLOWANCE-DOMESTIC> 1,587
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
