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, 1999
Commission File Number 2-76003
BAY AREA BANCSHARES
California #94-2779021
900 Veterans Blvd., Redwood City, CA 94063
Telephone (650) 562-3238
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
1,009,141 Shares of Common Stock Outstanding as of March 31, 1999
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 3/31/99 3/31/98
<S> <C> <C>
Cash and due from banks 11,059 $ 9,608
Federal Funds Sold 16,000 19,200
Cash and cash equivalents 27,059 28,808
Investment securities available for sale
(market value approximates book value) 1,686 1,775
Investment securities held to maturity
(market value of $13,129 in 1999 and $13,563
in 1998) 13,033 13,442
Loans, net of reserve for possible loan losses
of $2,131 in 1999 and $2,075 in 1998 112,245 108,116
Premises and equipment,net 374 419
Real estate owned 0 0
Interest receivable and other assets 2,759 2,764
Total assets $157,156 $155,324
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand $35,307 $33,558
Interest-bearing transaction 55,426 59,044
Savings 10,173 9,145
Time 35,861 34,708
- -
Total Deposits 136,767 136,455
Interest payable and other liabilities 2,908 2,004
Federal funds purchased 0 0
Federal Home Loan Bank advances 2,500 2,500
- -
Total liabilities 142,175 140,959
- -
Shareholders' equity:
Common stock, no par value:
Authorized - 20,000,000 shares; issued &
outstanding 4,896 4,896
1,009,141 in 1999 and 1,004,141 in 1998
Unrealized (loss) gain on securities held for sale 1 (2)
Additonal paid in capital 957 900
Retained earnings 9,127 8,571
-
Total shareholders' equity 14,981 14,365
Total liabilities and shareholders' equity $157,156 $155,324
</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
3/31/99 3/31/98
<S> <C> <C>
Interest Income:
Interest and fees on loans $2,806 $2,248
Interest on investment securities 213 232
Interest on federal funds sold 101 135
Total Interest Income 3,120 2,615
Interest Expense:
Interest on interest-bearing transaction amounts 372 299
Interest on savings deposits 99 70
Interest on time deposits 433 438
Interest on short-term borrowing 36 16
Interest on notes payable and redeemable debentures 0 0
Total Interest Expense 940 823
Net interest income 2,180 1,792
Provision for possible loan losses 60 40
Net interest income after provision for possible
loan losses 2,120 1,752
Noninterest income:
Service charges on deposit accounts 67 60
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 0
Other Mortgage Banking Revenue 14 49
ATM network revenue 527 451
Other 15 35
Total noninterest income 623 595
Noninterest expense:
Salaries and related benefits 789 672
Occupancy 171 124
Equipment 112 125
Professional fees 53 77
Stationery and supplies 21 25
Other 510 519
Total noninterest expense 1,656 1,542
Income before provision for income taxes 1,087 805
Provision for income taxes 443 330
Net Income 644 475
Comprehensive income:Unrealized gain (loss) on investment
securities held-for- sale, net 3 2
Comprehensive Income $647 $477
Earnings per share:
Average common and equivalent shares outstanding-
Primary 1,009,141 981,695
Average common and equivalent shares outstanding-
Fully Diluted 1,040,000 1,010,000
Earnings Per Common Share $0.64 $0.48
Earnings Per Common Share - Assuming Dilution $0.62 $0.47
</TABLE>
(2)
<PAGE>
Part 1 Item 1
BAY AREA BANCSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/99 3/31/98
<S> <C> <C>
Cash flows from operating activities:
Net Income $644 $475
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of premises and equipment 81 90
Provision for possible loan losses 60 40
Net gain loss on sale of assets 0 0
Net loss on sale of investment securities 0 0
Net ammortization and accretion of investment premiums
and discounts 35 30
Net decrease (increase) in interest receivable and
other assets 5 (86)
Net increase in interest payable and other liabilities 904 49
Net (increase) decrease in deferred loan fees (122) 31
Total adjustments 963 154
Net cash provided by operating activities 1,607 629
Cash flows from investing activities:
Proceeds from sale of investment securities 0 0
Proceeds from the maturity of investment securities
held for sale 0 0
Proceeds from the maturity of investment securities
held to maturity 1,000 500
Mortgage backed securities principal payments 873 316
Purchase of investment securities held to maturity (1,410) (440)
Purchase of investment securities held for sale 0 0
Net increase in gross loans (4,065) (3,165)
Proceeds from the sale of Real Estate Owned 0 0
Capital expenditures (36) (22)
Net cash used in investing activities (3,638) (2,811)
Cash flows from financing activities:
Net increase in demand deposits,transaction and savings (841) 3,240
Net increase in time deposits 1,153 1,463
Additional Piad in Capital 57 0
Net proceeds of Federal Home Loan Bank advances 0 0
Proceeds from stock warrants and options exercised 24 20
Cash Dividends paid (111) (98)
Net cash provided by financing activities 282 4,625
Net (decrease) increase in cash and cash equivalents (1,749) 2,443
Cash and cash equivalents,beginning of period 28,808 18,964
Cash and cash equivalents,end of period $27,059 $21,407
</TABLE>
There were no loans transferred to Real Estate Owned in 1999 or 1998
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, 1999 results of
operations for the three month period ended March 31, 1999 and the statement of
cash flows for the three month period ended March 31, 1999 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, 1998.
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 and Investments) decreased $2.5 million
or 5.1% to $41.8 million over the three month period from December 31, 1998 to
March 31, 1999. At year-end, total liquid assets as a percentage of total assets
was 28.3%, whereas on March 31, 1999 it had decreased to 26.6%.
Cash and due from banks increased $1.5 million over the first three months of
1999 to $11.1 million at March 31, 1999. During the first three months of 1999,
cash and due from banks averaged $12.1 million. The portion of the total cash
and due from banks representing ATM ("Automatic Teller Machine") network cash
inventory has averaged approximately $3.1 million during 1999 and averaged $2.6
in the first three quarters of 1998.
Both average and period end loans and deposits outstanding are at record levels
for the Company. During the first three months of 1999 gross loans outstanding
has averaged $115.0 million as compared to $86.5 million in the first three
months of 1998, an increase of 33%. Gross loans were $114.3 million at March 31,
1999 representing a $4.5 million or 4.1% increase over the balance at December
31, 1998.
Deposits have averaged $132.8 million in the first three months of 1999 while
they averaged $108.7 million during the first three months of 1998, an increase
of 22.1%. Deposits were $136.8 million at March 31, 1999, an increase of
$312,000 over year end 1998.
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.
(5)
<PAGE>
Capital
Consolidated equity capital plus reserves increased $672,000 in the first three
months of 1999 from $16.4 million or 10.36% of total gross assets at December
31, 1998 to $17.1 million or 10.9% of total gross assets at March 31, 1999. Bank
capital plus reserves totaled $15.9 million on March 31, 1999 or 10.0% of total
adjusted assets as compared to capital plus reserves of $15.2 million or 9.67%
of total adjusted assets at December 31, 1998. At March 31, 1999 the Bank
maintained a tier one capital ratio of 10.92% and a tier two capital ratio of
12.17% as compared to 11.41% and 12.66% respectively at December 31, 1998.
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 declared no dividends to the Parent company in the first three months
of 1999 and the Company declared a cash dividend to common shareholders of $.11
per share in March of 1999. The first quarter dividend represents the thirtieth
consecutive quarterly cash dividend declared by the Parent company to
shareholders.
Item 2B Results of Operations
Results of Operations
Consolidated operating profits for the first quarter of 1999 were $647,000 ($.62
per common share assuming dilution compared to $.47 in the same quarter of the
prior year). This represents the highest first quarter earnings in the Company's
history and a $169,000 or 35.4% increase over the first quarter of 1998 when net
income was $477,000.
The increase in first quarter earnings in 1999 compared with the first quarter
of 1998 is a result of an increase in pretax earnings of $282,000 which is
comprised of an increase in net interest income of $388,000 and an increase in
other income of $28,000 offset in part by an increase in noninterest expense of
$114,000 and an increase in loan loss provisions of $20,000.
The growth in net interest income of 21.2% in the first quarter of 1999 is
primarily a result of growth in total earning assets offset in part by a
decrease in net interest margin (Net interest margin is computed by dividing
annualized net interest income by average earning assets during the respective
period). Average earning assets in the first quarter of 1999 were $138.6
million, a $28.0 million or 21.2% increase over the first quarter of 1998 when
earning assets averaged $114.4 million. Net interest margin in the first quarter
of 1999 was approximately 6.29% as compared to 6.43% in the first quarter of
1998.
The modest decline in net interest margin that has occurred throughout the first
three months of 1999 is a result of a decrease in the yield on earning assets
offset in part by a decrease in the cost of deposits and advances. The yield on
earning assets decreased in the first three months of 1999 to 9.04% as compared
to 9.39% in the first three months of 1998. The cost of the Bank's deposits and
advances (including demand deposits), which averaged $135.2 million in the first
three months of 1999, fell to 2.78% as compared to 3.00% in the first three
months of 1998, when the deposits and advances averaged $109.7 million.
(6)
<PAGE>
Loan loss provisions were $60,000 in the first quarter of 1999 and $40,000 in
the first quarter of 1998. Non performing assets at March 31, 1999 were $145,000
or .09% of total assets and 6.8% of loan loss reserves. Non performing assets at
December 31, 1998 were also $145,000 or .09% of total assets and 7.0% of loan
loss reserves.
There have been $25,000 in loans charged off during the first three months of
1999 and $21,000 in recoveries of loans previously charged off. Loan loss
reserves of $2.13 million at March 31, 1999 represent a ratio of 1.86% of gross
loans outstanding as compared to a loan loss reserve of $2.075 million or 1.88%
of gross loans at December 31, 1998.
The Bank's ATM revenues were up $76,000 or 16.9% in the first quarter of 1999 in
comparison to the first quarter of 1998. Revenue per machine has averaged $3,444
per month thus far in 1999 an increase of 7.6% over the first three months of
1998 in which average revenue per machine was $3,185. The average number of
machines in operation was approximately 51 in the first three months of 1999 and
1998.
Non interest expense was up $114,000 or 7.4% in the first quarter of 1999 as
compared to the first quarter of 1998. This increase was comprised primarily of
additional salaries and benefits which are up $117,000 or 17% in the first three
months of 1999.
For information regarding the Company's Year 2000 computer programming status
see the discussion contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 (Part I, Item 1(C) Bay Area Bank - Company
Subsidiary "Year 2000 Computer Programming Status").
(7)
<PAGE>
Part II
ITEM 5. OTHER INFORMATION
Proposed Merger of Holding Companies
On January 26, 1999, the Company and Greater Bay Bancorp signed an
Agreement and Plan of Reorganization for a merger of the two companies.
Following the transaction, Bay Area Bank, will operate as a wholly owned
subsidiary of Greater Bay Bancorp, along with Greater Bay Bancorp's other bank
subsidiaries, Mid-Peninsula Bank, Cupertino National Bank, Peninsula Bank of
Commerce and Golden Gate Bank. The combined company will have total assets of
approximately $1.8 billion and equity of approximately $107 million.
The terms of the agreement provide for the Company's shareholders to
receive shares of Greater Bay Bancorp stock in a tax-free exchange for their
shares of the Company. For each outstanding share of the Company, Greater Bay
Bancorp will issue 1.38682 shares if the market price of its stock is $30.00 or
more at closing, or 1.44271 shares if the market price of its stock is less than
$30.00 at the closing. Following the merger, the shareholders of the Company
will own approximately 12.7% of the combined company, after giving effect to all
outstanding options.
The merger is expected to be accretive to Greater Bay Bancorp's
earnings in 1999 based on reductions in operating expenses and revenue
enhancements resulting from an expanded product line and increased lending
capacity that can be utilized at the Bank. Management of the organizations
believe that significant opportunities exist to enhance the spectrum of
financial services offered to both existing and future clients of the Bank while
also increasing market penetration in the San Francisco Peninsula market areas.
Greater Bay Bancorp's Board of Directors will be expanded to 15 members
with the addition of one current director of the Company. The Board of Directors
of Bay Area Bank will continue and will include David L. Kalkbrenner, President
and Chief Executive Officer of Greater Bay Bancorp. Frank Bartaldo, Jr.,
President and Chief Executive Officer of Bay Area Bank, will remain in that
capacity.
The merger is subject to certain conditions and will be accounted for
as a pooling of interests. Subject to these conditions, the merger is expected
to be completed May 21, 1999.
Greater Bay Bancorp and its financial services subsidiaries, Cupertino
National Bank, Mid-Peninsula Bank, Peninsula Bank of Commerce and Golden Gate
Bank, along with its operating divisions, Greater Bay Bank Santa Clara Valley
Commercial Banking Group, Greater Bay Corporate Finance Group, Greater Bay
International Banking Division, Greater Bay Trust Company, Pacific Business
Funding and Venture Banking Group, serve clients throughout Silicon Valley, the
San Francisco Peninsula and the Contra Costa Tri Valley Region, with offices
located in San Jose, Cupertino, Santa Clara, Palo Alto, Redwood City, San Mateo,
Millbrae, San Bruno, San Francisco and Walnut Creek.
ITEM 6
(a) Exhibits.
2.1 Agreement and Plan of Reorganization By And Among Greater Bay Bancorp and
Bay Area Bancshares dated January 26, 1999 (incorporated by reference to Exhibit
2.1 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998).
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)
(b) Reports on Form 8-K
None.
(8)
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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 13, 1999
/s/ Robert R. Haight
----------------------------------------
Robert R. Haight
President and Chief Executive Office
/s/ Anthony J. Gould
----------------------------------------
Anthony J. Gould
Chief Accounting Officer
(9)
<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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,059
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,686
<INVESTMENTS-CARRYING> 13,033
<INVESTMENTS-MARKET> 13,129
<LOANS> 114,376
<ALLOWANCE> 2,131
<TOTAL-ASSETS> 157,156
<DEPOSITS> 136,767
<SHORT-TERM> 2,500
<LIABILITIES-OTHER> 2,908
<LONG-TERM> 0
0
0
<COMMON> 4,896
<OTHER-SE> 10,085
<TOTAL-LIABILITIES-AND-EQUITY> 157,156
<INTEREST-LOAN> 2,806
<INTEREST-INVEST> 213
<INTEREST-OTHER> 101
<INTEREST-TOTAL> 3,120
<INTEREST-DEPOSIT> 904
<INTEREST-EXPENSE> 940
<INTEREST-INCOME-NET> 2,180
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,656
<INCOME-PRETAX> 1,087
<INCOME-PRE-EXTRAORDINARY> 1,087
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 644
<EPS-PRIMARY> .64
<EPS-DILUTED> .62
<YIELD-ACTUAL> 9.04
<LOANS-NON> 145
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,131
<CHARGE-OFFS> 25
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 2,131
<ALLOWANCE-DOMESTIC> 2,131
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
