<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from____________to____________
Commission File No. 2-78293-LA
SOUTH VALLEY BANCORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2818095
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
500 TENNANT STATION, MORGAN HILL, CA 95037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 848-2161
Former name, address and/or fiscal year, if changed since last report: NONE
Indicate by check or check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
No par value Common Stock -- 1,194,697 shares outstanding as of November 10,
1995
Page 1 of 26
Exhibit Index at Page 25
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SOUTH VALLEY BANCORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995(Unaudited) 1994*
-----------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,754,000 $ 6,015,000
Federal funds sold 19,800,000 13,700,000
-----------------------------------
Total cash and cash equivalents 30,554,000 19,715,000
Securities available-for-sale:
($16,509,000 cost at September 30, 1995; 16,539,000 10,460,000
$10,554,000 cost at December 31, 1994)
Securities-held-to-maturity:
($18,677,000 market at September 30, 1995; 18,772,000 16,765,000
$15,876,000 market at December 31, 1994)
Loans, net 85,979,000 88,241,000
Premises and equipment, net 5,957,000 4,519,000
Other assets 5,190,000 4,170,000
-----------------------------------
TOTAL ASSETS $ 162,991,000 $ 143,870,000
===================================
LIABILITIES
Deposits:
Noninterest bearing $ 33,165,000 $ 30,869,000
Interest bearing 110,147,000 93,772,000
-----------------------------------
Total deposits 143,312,000 124,641,000
Other liabilities 2,530,000 2,977,000
-----------------------------------
TOTAL LIABILITIES 145,842,000 127,618,000
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized 2,000,000
shares; no shares issued
Common stock, no par value; authorized, 4,000,000 11,331,000 11,331,000
shares; issued and outstanding, 1,194,697 shares at
September 30, 1995 and December 31, 1994
Retained earnings 5,801,000 4,971,000
Unrealized gain (loss) on securities available-for-sale 17,000 (50,000)
-----------------------------------
SHAREHOLDERS' EQUITY 17,149,000 16,252,000
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 162,991,000 $ 143,870,000
===================================
</TABLE>
*Derived from December 31, 1994 audited balance sheets included in the Company's
1994 Annual Report on Form 10-K.
See Notes to Consolidated Condensed Financial Statements
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<PAGE> 3
SOUTH VALLEY BANCORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $2,541,000 $2,424,000 $7,498,000 $6,590,000
Investment securities 413,000 337,000 1,245,000 969,000
Other 279,000 115,000 661,000 329,000
-----------------------------------------------------
Total interest income 3,233,000 2,876,000 9,404,000 7,888,000
INTEREST EXPENSE
Deposits 1,016,000 744,000 2,910,000 2,015,000
Other 29,000 25,000 78,000 70,000
-----------------------------------------------------
Total interest expense 1,045,000 769,000 2,988,000 2,085,000
NET INTEREST INCOME 2,188,000 2,107,000 6,416,000 5,803,000
Provision for credit losses 90,000 90,000 240,000 255,000
-----------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 2,098,000 2,017,000 6,176,000 5,548,000
Other income 241,000 165,000 869,000 515,000
Other expense 1,775,000 1,290,000 5,245,000 3,838,000
-----------------------------------------------------
INCOME BEFORE INCOME TAXES 564,000 892,000 1,800,000 2,225,000
Provision for income taxes 231,000 328,000 684,000 829,000
-----------------------------------------------------
NET INCOME $ 333,000 $ 564,000 $1,116,000 $1,396,000
=====================================================
NET INCOME PER COMMON AND
EQUIVALENT SHARE $ 0.28 $ 0.47 $ 0.93 $ 1.17
=====================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
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<PAGE> 4
SOUTH VALLEY BANCORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
------------- ------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
OPERATIONS
Net income $ 1,116,000 $ 1,396,000
Reconciliation to net cash (used in) provided by
operations
Provision for credit losses 240,000 255,000
Depreciation and amortization 273,000 132,000
Origination of loans held for sale (1,316,000) (146,000)
Proceeds from sale of loans held for sale 924,000 145,000
Gain on sale of OREO, -- (8,000)
Increase in other assets (1,020,000) (352,000)
Increase (decrease) in other liabilities 268,000 (512,000)
Increase in deferred loan fees, net 45,000 63,000
----------------------------------
Net cash provided by operations 530,000 973,000
INVESTMENT ACTIVITIES
Proceeds from sale of OREO 935,000
Proceeds from maturities of securities:
Held to maturity 4,400,000 1,339,000
Available for sale 10,355,000 1,500,000
Purchase of securities:
Held to maturity (6,407,000) (2,920,000)
Available for sale (16,367,000) (4,000,000)
Net increase (decrease) In loans 2,369,000 (4,239,000)
Capital expenditures (1,711,000) (2,233,000)
----------------------------------
Net cash used for investment activities (7,361,000) (9,618,000)
FINANCING ACTIVITIES
Net increase in deposit accounts 18,671,000 10,440,000
Net decrease in other borrowings (714,000) --
Payment of cash dividends (287,000) (96,000)
----------------------------------
Net cash provided by financing activities 17,670,000 10,344,000
----------------------------------
Net increase in cash and cash equivalents 10,839,000 1,699,000
Cash and cash equivalents, beginning of period 19,715,000 16,243,000
----------------------------------
Cash and cash equivalents, end of period $ 30,554,000 $ 17,942,000
==================================
OTHER CASH FLOW INFORMATION
Interest paid $ 2,963,000 $ 2,187,000
Income taxes paid $ 844,000 $ 660,000
</TABLE>
See Notes to Consolidated Condensed Financial Statements
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<PAGE> 5
SOUTH VALLEY BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1995 (Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position at September 30, 1995 and December 31, 1994, and the results of
operations and cash flows for the three and nine month periods ended September
30, 1995 and 1994.
Certain information and footnote disclosures normally presented in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These interim consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1994 Annual Report to Shareholders. The
results of operations for the three and nine month periods ended September 30,
1995 may not necessarily be indicative of the operating results for the full
year.
2. BRANCH ACQUISITIONS
The Bank purchased certain assets and assumed certain liabilities of the San
Juan Bautista branch of Bank of America, NT&SA as of the close of business on
February 16, 1995. As a result of the transaction the Bank assumed deposit
liabilities of $8,514,000, received cash of $7,560,000, and acquired tangible
assets valued at approximately $688,000. This transaction resulted in
approximately $266,000 of intangible assets, representing the excess of the
liabilities assumed over the fair value of the tangible assets acquired.
On August 31, 1995, the Bank entered into an agreement to purchase the deposits
of the Comerica Bank--California branch in Gilroy. Applications for approval of
the purchase have been filed with regulatory authorities. If approved, the
purchase is expected to be completed in December 1995. The Bank will assume
approximately $9,000,000 in deposits and will receive cash which will be
invested in interest earning assets. The transaction is expected to result in
approximately $130,000 of intangible assets, representing the excess of the
deposit liabilities assumed over the cash received.
3. INVESTMENT SECURITIES
The Company is required under Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Investments in Certain Debt and Equity Securities", to
classify debt and equity securities into one of three categories:
held-to-maturity, trading or available-for-sale. Investment securities
classified as held-to-maturity are measured at amortized cost based on the
Company's positive intent and ability to hold such securities to maturity.
Trading securities are bought and held principally for the purpose of selling
them in the near term and are carried at market value with a corresponding
recognition of unrecognized holding gain or loss in the results of operations.
The remaining investment securities are classified as available-for-sale and are
measured at market value with a corresponding recognition of the unrealized
holding gain or loss (net of tax effect) as a separate component of
shareholders' equity until realized. Any gains and losses on sales of
investments are computed on a specific identification basis.
-5-
<PAGE> 6
The carrying value and approximate market value of securities at September 30,
1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
September 30, 1995
-------------------------------------------
Unrealized Unrealized Market
In thousands Book Value Gains Loss Value
-------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury and agency securities $15,517 $ 43 $ 7 $15,553
Other 992 6 986
-------------------------------------------
Total $16,509 $ 43 $ 13 $16,539
===========================================
SECURITIES HELD-TO-MATURITY:
U.S. Treasury and agency securities $ 8,005 $ -- $ 164 $ 7,841
State and municipal obligations 5,714 59 23 5,750
Other 5,053 66 33 5,086
-------------------------------------------
Total $18,772 $ 125 $ 220 $18,677
===========================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------
Unrealized Unrealized Market
In thousands Book Value Gains Loss Value
-------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury and agency securities $ 7,962 $ 14 $ 87 $ 7,889
State and municipal obligations 1,567 1 9 1,559
Other 1,015 -- 3 1,012
-------------------------------------------
Total $10,544 $ 15 $ 99 $10,460
===========================================
SECURITIES HELD-TO-MATURITY:
U.S. Treasury and agency securities $11,583 $ -- $ 770 $10,813
State and municipal obligations 5,182 19 138 5,063
-------------------------------------------
Total $16,765 $ 19 $ 908 $15,876
===========================================
</TABLE>
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The activity in the allowance for credit losses is summarized as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
In thousands 1995 1994 1995 1994
-------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $ 1,165 $ 1,309 $ 1,331 $ 1,246
Provision charged to expense 90 90 240 255
Loans charged-off (29) (2) (424) (140)
Recoveries 1 31 80 67
-------------------------------------------
Ending balance $ 1,227 $ 1,428 $ 1,227 $ 1,428
===========================================
</TABLE>
The allowance for credit losses reflects management's judgment as to the level
which is considered adequate to absorb potential losses inherent in the loan
portfolio. This allowance is increased by provisions charged to expense and
reduced by loan charge-offs net of recoveries. Management determines an
appropriate provision based upon information currently available to analyze
credit loss potential, including (1) the loan portfolio balance in the period;
(2) a comprehensive grading
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<PAGE> 7
and review of new and existing loans outstanding; (3) actual previous
charge-offs; and (4) changes in economic conditions.
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan" and No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosure." Under the new standards, the
1995 allowance for credit losses related to loans that are identified for
evaluation in accordance with Statements 114 and 118 is based on discounted cash
flows using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for credit losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans. The
implementation of Statements 114 and 118 did not have a material effect on the
Company's financial position or operating results for the three and nine month
periods ended September 30, 1995, respectively.
Management believes that the allowance for credit losses at September 30, 1995
is adequate, based on information currently available. However, no prediction of
the ultimate level of loans charged-off in future years can be made with any
certainty.
Nonperforming assets are comprised of loans delinquent 90 days or more with
respect to interest or principal, loans for which the accrual of interest has
been discontinued, and other real estate which has been acquired through
foreclosure and is awaiting disposition.
Unless well secured and in the process of collection, loans are placed on
nonaccrual status when a loan becomes 90 days past due as to interest or
principal, when the payment of interest or principal in accordance with the
contractual terms of the loan becomes uncertain or when a portion of the
principal balance has been charged off. When a loan is placed on nonaccrual
status, the accrued and unpaid interest receivable is reversed and the loan is
accounted for on the cash or cost recovery method thereafter, until qualifying
for return to accrual status. Generally, a loan may be returned to accrual
status when all delinquent interest and principal become current in accordance
with the terms of the loan agreement and remaining principal is considered
collectible or when the loan is both well secured and in process of collection.
Real estate and other assets acquired in satisfaction of indebtedness are
recorded at the lower of estimated fair market value net of anticipated selling
costs or the recorded loan amount, and the difference, if any, between this and
the loan amount is treated as a loan loss. Costs of maintaining other real
estate owned and gains or losses on the subsequent sale are reflected in current
earnings.
-7-
<PAGE> 8
Nonperforming loans and other real estate owned (foreclosed properties) are
summarized below:
<TABLE>
<CAPTION>
In thousands September 30, 1995 December 31, 1994
--------------------------------------------
<S> <C> <C>
Past due 90 days or more and still accruing:
Real estate $ 57 $ 543
Commercial 252 171
Installment and other 5 13
---------------------------------
Total 314 727
---------------------------------
Nonaccrual:
Real estate 805 1,073
Commercial 966 132
Installment and other 12 55
---------------------------------
Total 1,783 1,260
---------------------------------
Total non-performing loans $2,097 $1,987
=================================
---------------------------------
Other real estate owned $2,971 $1,627
=================================
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
In the normal course of business there are outstanding various commitments to
extend credit which are not reflected in the financial statements, including
loan commitments of approximately $35,000,000 and standby letters of credit of
$1,254,000 at September 30, 1995. However, all such commitments will not
necessarily culminate in actual extensions of credit by the Bank during 1995.
Approximately $10,584,000 of loan commitments outstanding at September 30, 1995
relate to real estate construction loans and are expected to fund within the
next twelve months. The remainder relate primarily to revolving lines of credit
or other commercial loans, and many of these commitments are expected to expire
without being drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. The Bank evaluates each potential borrower
and the necessary collateral on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities or business
assets.
Stand-by letters of credit are commitments written by the Bank to guarantee the
performance of a customer to a third party. These guarantees are issued
primarily relating to purchases of inventory by the Bank's commercial customers
and are typically short-term in nature. Credit risk is similar to that involved
in extending loan commitments to customers and the Bank accordingly uses
evaluation and collateral requirements similar to those for loan commitments.
Virtually all such commitments are collateralized.
6. NET INCOME PER SHARE COMPUTATION
Net income per common and equivalent share is calculated using weighted average
shares and the dilutive effect of stock options outstanding during the period
totaling 1,194,697 for the three and nine month periods ended September 30,
1995.
-8-
<PAGE> 9
7. CASH DIVIDENDS
On January 19, 1995 the Board of Directors declared a cash dividend of $.08 per
common share payable February 15, 1995 to shareholders of record on February 1,
1995. On April 20, 1995 the Board of Directors declared a cash dividend of $.08
per common share payable May 5, 1995 to shareholders of record as of April 28,
1995. On July 18, 1995 the Board of Directors declared a cash dividend of $.08
per common share payable August 23, 1995 to shareholders of record as of August
9, 1995. On October 19, 1995 the Board of Directors declared a cash dividend of
$.08 per common share payable November 15, 1995 to shareholders of record as of
November 2, 1995.
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<PAGE> 10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF FINANCIAL RESULTS
At September 30, 1995, total assets of South Valley Bancorporation were
$162,991,000 an increase of $19,121,000, or 13.29% over December 31, 1994 total
assets of $143,870,000. Average total assets for the quarter and nine months
ended September 30, 1995 were $158,658,000 and $150,161,000, respectively.
In February 1995, the Bank purchased certain assets and assumed certain
liabilities of the San Juan Bautista branch of Bank of America, NT&SA. This
transaction resulted in an increase in total assets of the Bank of approximately
$8,514,000. The Bank also experienced growth in deposits in its other branches
in Morgan Hill, Gilroy and Hollister. The increase in total assets at September
30, 1995 compared to December 31, 1994 was primarily invested in the Bank's
securities portfolio, federal funds sold and fixed assets acquired as part of
the San Juan Bautista purchase.
Loans , net of deferred loan fees and the allowance for loan losses, at
September 30, 1995 were $85,979,000 compared to $88,241,000 at December 31,
1994, a decrease of $2,262,000, or 2.58%. The following table describes the
changes in the composition of the loan portfolio, not including any adjustment
for deferred loan fees and the allowance for loan losses, from December 31, 1994
to September 30, 1995:
<TABLE>
<CAPTION>
September 30, December 31, Dollar Percentage
1995 1994 Change Change
------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate construction $ 14,309,000 $ 33,619,000 $(19,310,000) -57.44%
Real estate, other 29,744,000 16,813,000 12,931,000 76.91%
Commercial 30,377,000 28,057,000 2,320,000 8.27%
Installment 13,317,000 11,579,000 1,738,000 15.01%
------------------------------------------------------
Total $ 87,747,000 $ 90,068,000 $ (2,321,000) -2.58%
======================================================
</TABLE>
Investment securities were $35,311,000 at September 30, 1995 compared to
$27,225,000 at December 31, 1994 representing an increase of $8,086,000, or
29.70%. Of the $35,311,000 outstanding at September 30, 1995 $16,539,000 was
designated as available-for-sale and carried at market value. The amortized cost
of securities designated as available-for-sale at September 30, 1995 was
$16,509,000.
Securities designated as held-to-maturity at September 30, 1995 were carried at
an amortized cost of $18,772,000. The estimated market value of the
held-to-maturity portfolio at September 30, 1995 was $18,677,000. The
held-to-maturity portfolio at September 30, 1995 consists primarily of
securities issued by U.S. government-sponsored agencies (FNMA, FHLMC and FHLB)
and investment grade municipal bonds with maturities within five years.
Investment securities classified as held-to-maturity are recorded at amortized
cost based on the Company's intent and ability to hold such securities to
maturity.
During the first nine months of 1995, the Bank made $22,274,000 of securities
purchases to replace $14,255,000 of securities which matured and to more fully
employ excess liquidity
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<PAGE> 11
generated by growth in deposits and a reduction in net loans outstanding.
Federal funds sold of $19,800,000 at September 30, 1995 represent an increase of
$6,100,000, or 44.53%, over $13,700,000 in federal funds sold at December 31,
1994.
Total deposits of $143,312,000 at September 30, 1995 represent an increase of
$18,671,000, or 14.98%, from $124,641,000 at December 31, 1994. The following
table describes changes in the composition of deposits from December 31, 1994 to
September 30, 1995.
<TABLE>
<CAPTION>
September 30, December 31, Dollar Percentage
1995 1994 Change Change
------------------------------------------------------
<S> <C> <C> <C> <C>
Demand, noninterest bearing $ 33,165,000 $ 30,869,000 $ 2,296,000 7.44%
Demand, interest bearing 38,300,000 31,823,000 6,477,000 20.35%
Savings 36,229,000 31,844,000 4,385,000 13.77%
Time 35,618,000 30,105,000 5,513,000 18.31%
------------------------------------------------------
$143,312,000 $124,641,000 $18,671,000 14.98%
======================================================
</TABLE>
Core deposits (time deposits less than $100,000, demand and savings) gathered in
the local communities served by the Bank continue to be the Bank's primary
source of funds for loans and investments. Core deposits of $130,749,000
represented 91.2% of total deposits at September 30, 1995 compared to
$113,478,000 and 91.0% of total deposits at December 31, 1994. The Company has
never purchased funds through deposit brokers.
-11-
<PAGE> 12
THIRD QUARTER 1995 AND 1994
Net income for the third quarter of 1995 was $333,000, or $0.28 per share,
compared to $564,000, or $.47 per share, for the comparable period in 1994. The
following discussion highlights changes in certain items in the consolidated
condensed statements of income.
NET INTEREST INCOME
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits, is the principal component of the
Bank's earnings. The components of net interest income include:
<TABLE>
<CAPTION>
Three months ended September 30,
1995 1994
- ----------------------------------------------------------------------------------- ----------------------------------
Avg. Avg. Avg. Avg.
In thousands (except percentages) Balance Interest Yield(1) Balance Interest Yield(1)
- ----------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans(2) $ 91,206 $2,541 11.1% $ 91,620 $2,424 10.5%
Investment securities:
Taxable 22,657 337 5.9% 17,502 248 5.6%
Non-taxable(3) 5,974 116 7.8% 7,039 134 7.6%
Federal funds sold 19,671 279 5.7% 10,194 115 4.5%
------------------------------- ---------------------------------
Total interest earning assets 139,508 3,273 9.4% 126,355 2,921 9.2%
Cash and due from banks 9,729 7,112
Other assets net of deferred loan fees and
allowance for loan losses(4) 9,422 4,694
-------- --------
Total $158,658 $138,161
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits $ 36,663 $ 242 2.6% $ 30,805 $ 190 2.4%
Time deposits 72,168 774 4.3% 65,017 554 3.4%
Other borrowings 1,660 29 7.0% 1,111 25 8.9%
------------------------------- ---------------------------------
Total interest bearing liabilities 110,491 1,045 3.8% 96,933 769 3.1%
Demand deposits 30,378 24,065
Other liabilities 1,756 1,453
-------- --------
Total liabilities 141,625 122,451
Shareholders' equity 17,033 15,710
-------- --------
Total $158,658 $138,161
======== ========
Net taxable equivalent interest
income and margin $2,228 6.4% $2,152 6.8%
=================== ====================
</TABLE>
(1) Annualized
(2) Loan interest income includes fee income of $275,000 and $254,000 for the
quarters ended September 30, 1995 and 1994, respectively.
(3) Tax exempt interest income has been adjusted to fully taxable equivalent
basis using the Federal statutory rate of 34% ($40,000 and $45,000 for the
quarters ended September 30, 1995 and 1994, respectively).
(4) Includes the average allowance for loan losses of $1,220,000 and $1,369,000,
and average deferred loan fees of $508,000 and $646,000 for the quarters
ended September 30, 1995 and 1994, respectively.
-12-
<PAGE> 13
Net taxable equivalent interest income for the quarter ended September 30, 1995
was $2,228,000 representing an improvement of $76,000 or 3.53% over $2,152,000
for the comparable period in 1994. As a percentage of average earning assets,
net taxable equivalent interest margin for the third quarter of 1995 declined to
6.4% from 6.8% in the same period one year earlier. The decrease in net taxable
equivalent interest margin is primarily due to a decline in net loans (the
highest yielding component of earning assets) and increases in investment
securities and federal funds sold combined with an increase in the cost of
deposits.
Taxable equivalent interest income in the quarter ended September 30, 1995 was
$3,273,000 representing an increase of $352,000, or 12.05 %, over $2,921,000 for
the third quarter of 1994. The increase in taxable equivalent interest income
was primarily due to increases in the volume of average earning assets and rates
earned on such assets. Earning assets averaged $139,508,000 in the quarter ended
September 30, 1995 compared to $126,355,000 in the same period in 1994,
representing an increase of $13,153,000, or 10.41%. The increase in average
earning assets was centered in investment securities and federal funds sold
which increased $13,567,000, or 39.06%, partially offset by a decline of
$414,000, or .45%, in total loans. In addition, the average yield on interest
earning assets increased to 9.4% in the third quarter of 1995 compared to 9.2%
for the third quarter of 1994.
Partially offsetting the increase in taxable equivalent interest income was an
increase in the cost of liabilities, primarily insured deposits, funding the
growth in average earning assets. Interest expense for the three months ended
September 30, 1995 was $1,045,000 and represented an increase of $276,000, or
35.9%, over $769,000 for the third quarter of 1994. During the three months
ended September 30, 1995, the average rate paid by the Bank on interest-bearing
liabilities was 3.8% compared to 3.1% for the same period in 1994. In addition
to the increase in rates, interest expense was impacted by an increase in the
volume of average interest bearing liabilities. Average interest bearing
liabilities were $110,491,000 in the quarter ended September 30, 1995 compared
to $96,933,000 for the same period in 1994, an increase of $13,558,000, or
14.0%. An increase in average noninterest bearing demand deposits also
contributed to the improvement in net taxable equivalent interest during the
quarter. Average noninterest bearing demand deposits were $30,378,000 for the
quarter ended September 30, 1995 compared to $24,065,000 for the same quarter in
1994, an increase of $6,313,000, or 26.23%.
PROVISION FOR CREDIT LOSSES
The provision for credit losses is based upon management's evaluation of the
adequacy of the existing allowance for loan losses in relation to total loans
and the inherent risk in the loan portfolio. Management's evaluation takes into
consideration such factors as changes in the composition of the portfolio,
overall portfolio quality, loan concentrations, specific problem loans, and
current and anticipated economic conditions that may affect borrowers' ability
to repay.
The Bank's loans are virtually all made within its defined market area of South
Santa Clara and San Benito counties. Real estate construction loans, the
majority of which are for the construction of single family residential
properties, of $14,309,000 represented 16.31% of total loans at September 30,
1995. In addition, $29,744,000, or 33.90%, of the Bank's loans were real estate
term loans. These loans were primarily made to Bank depositors and secured by
first deeds of trust on commercial and residential properties in the Bank's
primary service area having original loan to value ratios not exceeding 75%.
Commercial loans of $30,377,000 represented 34.62% of total loans at September
30, 1995. The Bank's commercial loans are not concentrated in any
-13-
<PAGE> 14
particular industry. The Bank's service area is somewhat dependent on the
economy of the greater Santa Clara Valley, generally known as Silicon Valley,
which has a concentration of technology companies, and accordingly, the ability
of the Bank's borrowers to repay loans may be affected by the performance of
this sector of the economy. At September 30, 1995, virtually all loans were
collateralized, and the majority have adjustable rates. Generally, real estate
loans are secured by real property, and commercial and other loans are secured
by bank deposits and business or personal assets. Repayment is generally
expected from the sale of the related property for real estate construction
loans and from the cash flow of the borrower for commercial and other loans.
In the third quarter of 1995, the Bank increased its provision for loan losses
through a charge to earnings of $90,000. The provision is equal to $90,000 for
the same period in 1994. Loan balances of $29,000, which were previously
identified and fully reserved for, were charged-off in the third quarter of 1995
compared to $2,000 charged-off in the third quarter of 1994. Recoveries of loan
balances previously charged-off were $1,000 for the quarter ended September 30,
1995 compared to $31,000 for the same period in 1994. See Note 4 of the
consolidated condensed financial statements at page 6 of this document for
further discussion of nonperforming loans and the allowance for credit losses.
At September 30, 1995 the allowance for credit losses was $1,227,000, or 1.40%
of total loans, compared to $1,331,000, or 1.45%, at December 31, 1994
Management believes that the allowance for loan losses is at an adequate level
for known and anticipated future risks inherent in the loan portfolio. However,
the Company's loan portfolio, particularly the real estate related segments, may
be adversely affected if California's economic conditions and the Santa Clara
County real estate market weaken. As a result, the level of nonperforming loans,
the provision for loan losses and the level of the allowance for loan losses may
increase.
OTHER INCOME AND EXPENSE
Other income consists primarily of service charges on deposit accounts and fees
for miscellaneous services. Total other income was $241,000 for the third
quarter of 1995 compared to $165,000 for the third quarter of 1994. Growth in
other income resulted primarily from increases in service charges related to
deposit accounts. Other income includes premiums generated by the sale of the
guaranteed portion of SBA loans. The Bank had no such sales and earned no
premiums for the sale of SBA loans in the third quarter of 1994. Bank management
evaluates conditions in the secondary market for SBA loans and the composition
of the Bank's earning assets to determine whether to sell SBA loans. At
September 30, 1995, the Bank had approximately $275,000 of SBA loans available
for sale.
Noninterest expense increased $522,000, or 40.46%, to $1,812,000 in the quarter
ended September 30, 1995 from $1,290,000 in the same period one year earlier. As
a percentage of average earning assets, other expenses, on an annualized basis,
increased to 5.1% in the third quarter of 1995 from 4.1% in the third quarter of
1994. Increases in noninterest expense are attributed primarily to increases in
salary and benefit expense and data processing expense.
Salary and benefits expense was $857,000 in the quarter ended September 30, 1995
compared to $770,000 in the same period one year earlier. The increase in salary
and benefits expense is
-14-
<PAGE> 15
primarily due to increased headcount as a result of the addition of the San Juan
Bautista branch and expanded business hours in previously existing Bank
branches.
Data processing expense of $137,000 in the third quarter of 1995 represents a
substantial increase over 1994 expense of $20,389 as a result of the decision by
the Bank to outsource the function during the fourth quarter of 1994. This
decision resulted in the redeployment of employees previously associated with
the Bank's internal data processing to other areas of the Bank or, in some
cases, the elimination of those positions.
The Bank also experienced increases in advertising, depreciation, postage and
ATM network charges during the quarter ended September 30, 1995 compared to the
same period in 1994. These expenses are primarily associated with purchase of
the San Juan Bautista branch and relocation of the Bank's Gilroy and Hollister
branches to larger offices.
-15-
<PAGE> 16
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Net income for the nine months ended September 30, 1995 was $1.116.000, or $0.93
per share, compared to $1,396,000, or $1.17 per share, for the comparable period
in 1994. The following discussion highlights changes in certain items in the
consolidated condensed statements of income.
NET INTEREST INCOME
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits, is the principal component of the
Bank's earnings. The components of net interest income are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
1995 1994
- ------------------------------------------------------------------------------------------ ----------------------------------
Avg. Avg. Avg. Avg.
In thousands (except percentages) Balance Interest Yield(1) Balance Interest Yield(1)
- ------------------------------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning assets:
Loans(2) $ 87,603 $7,429 11.3% $ 87,965 $6,590 10.0%
Investment securities
Taxable 22,483 1,070 6.3% 15,784 692 5.8%
Non-taxable(3) 6,540 371 7.6% 7,446 420 7.5%
Federal funds sold 15,231 661 5.8% 11,193 329 3.9%
------------------------------- -------------------------------
Total interest earning assets 131,857 9,531 9.6% 122,388 8,031 8.8%
Cash and due from banks 8,725 7,001
Other assets net of deferred loan fees and
allowance for loan losses(4) 9,579 4,318
-------- --------
Total $150,161 $133,707
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest bearing liabilities
Demand deposits $ 34,931 714 2.7% $ 29,992 498 2.2%
Time deposits 69,359 2,196 4.2% 62,750 1,517 3.2%
Other borrowings 1,432 41 3.8% 1,505 70 6.2%
------------------------------- -------------------------------
Total interest bearing liabilities 105,722 2,951 3.7% 94,247 2,085 3.0%
Demand deposits 26,867 23,132
Other liabilities 846 1,020
-------- --------
Total liabilities 133,435 118,399
Shareholders' equity 16,726 15,308
-------- --------
Total $150,161 $133,707
======== ========
Net taxable equivalent interest
income and margin $6,580 6.7% $5,946 6.5%
================== =================
</TABLE>
(1) Annualized
(2) Loan interest income includes fee income of $741,000 and $943,000 for the
periods ended September 30, 1995 and 1994, respectively.
(3) Tax exempt interest income has been adjusted to fully taxable equivalent
basis using the Federal statutory rate of 34% ($127,000 and $143,000 for the
nine months ended September 30, 1995 and 1994, respectively).
(4) Includes the average allowance for loan losses of $1,266,000 and $1,323,000,
and average deferred loan fees of $511,000 and $601,000 for the nine months
ended September 30, 1995 and 1994, respectively.
-16-
<PAGE> 17
Net taxable equivalent interest income for the nine months ended September 30,
1995 was $6,580,000 representing an increase of $634,000, or 10.66%, over
$5,946,000 for the comparable period in 1994. As a percentage of average earning
assets, net taxable equivalent interest margin for the first nine months of 1995
improved to 6.7% from 6.5% in the same period one year earlier. The increase in
net taxable equivalent interest margin is primarily due to an increase in
taxable equivalent interest income.
Taxable equivalent interest income recognized in the nine months ended September
30, 1995 was $9,531,000 representing an increase of $1,500,000, or 18.68%, over
$8,031,000 for the same period of 1994. The increase in taxable equivalent
interest income was primarily due to increases in the volume of average earning
assets and rates earned on such assets. Earning assets averaged $131,857,000 in
the nine months ended September 30, 1995 compared to $122,388,000 in the same
period in 1994, an increase of $9,469,000, or 7.73%. The increase in average
earning assets included increases in investment and federal funds sold balances
of $5,793,000, and $4,038,000, respectively. Average loans for the first nine
months of 1995 and 1994 were $87,603,000 and $87,965,000, respectively. In
addition, the average yield on interest earning assets increased to 9.6% in the
first nine months of 1995 compared to 8.8% for the first nine months of 1994.
Loan fees recognized during the first nine months of 1995 decreased to $741,000
compared to $943,000 one year earlier as a result of decreased loan volume.
Partially offsetting the increase in taxable equivalent interest income was an
increase in the cost of liabilities funding the growth in average earning
assets. Interest expense for the nine months ended September 30, 1995 was
$2,951,000 and an increase of $866,000, or 41.53% over $2,085,000 for the nine
months ended September 30, 1994. During the nine months ended September 30,
1995, the average rate paid by the Bank on interest-bearing liabilities was 3.7%
compared to 3.0% for the same period in 1994, primarily reflecting changes in
market rates of interest. In addition to the increase in rates, interest expense
was impacted by an increase in the volume of average interest bearing
liabilities. Average interest bearing liabilities were $105,722,000 in the nine
months ended September 30, 1995 compared to $94,247,000 for the same period in
1994, an increase of $11,475,000, or 12.18%. The increase in average noninterest
bearing demand deposits also contributed to the improvement in net taxable
equivalent interest during the quarter. Average noninterest bearing demand
deposits were $26,867,000 for the first nine months of 1995 compared to
$23,132,000 for the same period in 1994, an increase of $3,735,000, or 16.15%.
PROVISION FOR CREDIT LOSSES
For the first three quarters of 1995, the Bank increased its provision for loan
losses through a charge to earnings of $240,000. The provision compares to
$255,000 for the same period in 1994. The decrease in loan loss provision for
the comparable periods is primarily attributed to the decrease in loan balances
at September 30, 1995. Loan balances of $424,000, which were previously
identified and were fully reserved for, were charged-off in the first nine
months of 1995 compared to $140,000 charged-off in the same period of 1994.
Recoveries of loan balances previously charged-off were $80,000 for the period
ended September 30, 1995 compared to $67,000 for the same period in 1994. See
Note 4 of the consolidated condensed financial statements at page 6 of this
document for further discussion of nonperforming loans and the allowance for
credit losses.
-17-
<PAGE> 18
OTHER INCOME AND EXPENSE
Other income consists primarily of service charges on deposit accounts and fees
for miscellaneous services. Total other income was $869,000 for the nine months
ended September 30, 1995 as compared to $515,000 for the same period of 1994.
Other income included certain non-recurring operational adjustments of
approximately $130,000 resulting from conversion of the Bank's computer systems.
Excluding these adjustments, growth in other income resulted primarily from
increases in deposit-related service charges of $118,000, reflecting an increase
in the number of deposit accounts served by the Bank, and $70,000 of premiums
earned on the sale of SBA guaranteed loans, as compared to $14,000 during the
same period in 1994.
Noninterest expense increased $1,444,000, or 37.62%, to $5,282,000 in the period
ended September 30, 1995 as compared to $3,838,000 in the same period one year
earlier. As a percentage of average earning assets, other expenses, on an
annualized basis, increased to 5.34% in the first three quarters of 1995 as
compared to 4.21% in the first three quarters of 1994. Increases in noninterest
expense are attributed primarily to increases in salary and benefit expense and
data processing expense.
Salary and benefits expense was $2,535,000 in the nine months ended September
30, 1995 compared to $2,080,000 in the same period one year earlier. The
increase in salary and benefits expense is primarily due to increased headcount
as a result of the addition of the San Juan Bautista branch and expanded
business hours in previously existing branches.
Data processing expense of $362,000 for the first three quarters of 1995 is a
net increase over 1994 of $36,000 as a result of the decision by the Bank to
outsource the function during the fourth quarter of 1994. Data processing
expenses for 1994 do not include the salary and benefits of persons associated
with the data processing function. When the data processing function was
transferred to an outside vendor, the Bank redeployed or eliminated personnel.
The Bank also experienced increases in advertising, depreciation, professional
fees, postage and ATM network charges during the nine months ended September 30,
1995 compared to the same period in 1994. These expense increases were primarily
the result of the purchase of the San Juan Bautista branch and relocation of the
existing Gilroy and Hollister branches to new offices.
Finally, the Bank received a Federal Deposit Insurance Corporation (FDIC)
deposit assessment refund of approximately $79,000 in the quarter ended
September 30, 1995. The Bank consequently reversed $31,000 in year-to-date FDIC
insurance expense and wrote off its remaining unamortized prepaid FDIC
assessments totaling $48,000.
LIQUIDITY AND INTEREST RATE SENSITIVITY
LIQUIDITY
Liquidity management refers to the Bank's ability to provide funds on an ongoing
basis to meet fluctuations in deposit levels as well as the credit needs and
withdrawal requirements of its customers. Both assets and liabilities contribute
to the Bank's liquidity position. Assets such as cash and due from banks,
federal funds sold and investment securities, as well as loan repayments,
contribute to liquidity. Of greater significance are the diverse sources
comprising the Bank's funding base. These include demand deposits, interest
bearing accounts and time deposits.
-18-
<PAGE> 19
Liquidity is measured by various ratios, the most common being the ratio of
cash, deposits with other banks, federal funds sold and unpledged securities to
total deposits. At September 30, 1995 this ratio was 43.8% as compared to 35.3%
at December 31, 1994. Another key liquidity ratio is gross loans to total
deposits. This ratio was 61.2% at September 30, 1995 and 72.3% at December 31,
1994. The decline in loan to deposit ratio is attributable to low loan demand in
the Bank's primary service area combined with the purchase of the San Juan
Bautista office, which generated $8,514,000 in deposits new to the Bank. The San
Juan Bautista purchase did not include the acquisition of any loans.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a measure of the exposure to fluctuations in the
Bank's future earnings caused by fluctuations in interest rates. If assets and
liabilities do not reprice simultaneously and in equal amounts, the potential
for such exposure exists. It is management's objective to maintain stability in
net interest margin through the maintenance of an appropriate mix of interest
rate sensitive assets and liabilities. Management regularly reviews general
economic and financial conditions, both external and internal, and determines
whether the positions taken with respect to liquidity and interest rate
sensitivity continue to be appropriate. The Bank also utilizes a monthly "GAP"
report which identifies rate sensitivity over the short- and long-term.
The following table sets forth the distribution of repricing opportunities,
based on contractual terms, of the Bank's earning assets and interest bearing
liabilities at September 30, 1995, the interest rate sensitivity gap (i.e.
interest rate sensitive assets less interest rate sensitive liabilities), the
cumulative interest rate sensitivity gap, the interest rate sensitivity gap
ratio (i.e. interest rate sensitive assets divided by interest rate sensitive
liabilities) and the cumulative interest rate sensitivity gap ratio:
-19-
<PAGE> 20
<TABLE>
<CAPTION>
In thousands (except ratios):
- ------------------------------------------------------------------------------------------------------------------------------------
Over thirty Over three Over one
Assets and liabilities which Immediately and days and months and year and Over five
mature or reprice: within 30 days within three within one within five years Total
months year years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 19,800 $ 19,800
Investment securities 498 $ 5,689 $ 3,774 $ 24,012 $ 1,308 35,281
Loans 52,161 956 15,392 10,870 5,029 84,408
- ------------------------------------------------------------------------------------------------------------------------------------
Period total 72,459 6,645 19,166 34,882 6,337 139,489
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative total 72,459 79,104 98,270 133,152 139,489
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Interest bearing demand 38,661 38,661
Savings 36,912 36,912
Time certificates 5,982 4,470 19,228 5,938 35,618
Other borrowings 1,187 1,187
- ------------------------------------------------------------------------------------------------------------------------------------
Period total 81,555 5,657 19,228 5,938 -- $ 112,378
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative total $ 81,555 $ 87,212 $ 106,440 $ 112,378 $ 112,378
- ------------------------------------------------------------------------------------------------------------------------------------
Amounts
Interest rate sensitivity gap (9,096) 988 (62) 28,944 6,337
Cumulative interest rate (9,096) (8,108) (8,170) 20,774 27,111
sensitivity gap
Ratios:
Interest rate sensitivity gap 0.89 1.17 1.00 5.87 n/a
Cumulative interest rate 0.89 0.91 0.92 1.18 1.24
sensitivity gap
</TABLE>
Management has historically maintained a negative (less than 1.00) cumulative
interest rate sensitivity gap within one year. This mismatch in gap is largely a
result of the Bank's practice of pricing its demand and savings accounts on a
floating rate index based on the prime rate. Volatile interest rate fluctuations
are detrimental to the net interest margin in the instance of rapidly rising
interest rates. In a rising interest rate environment, certificates of deposit
are priced to encourage a lengthening in average maturity and reduce the
mismatch in gap.
CAPITAL RESOURCES
The Company has been able to sustain its growth in capital through profit
retention and the exercise of stock options by directors and officers of the
Company. In the third quarter of 1995, the Company declared and paid its fifth
consecutive cash dividend to shareholders. In the first nine months of 1995
shareholders' equity grew by $897,000 through retention of earnings and
appreciation in investments held as available-for-sale, offset by distributions
of $287,000 to shareholders in payment of the dividend.
The Company and Bank are subject to capital adequacy guidelines issued by the
Federal Reserve Board of Governors (FRB) and the Office of the Comptroller of
the Currency (OCC). The FRB and the OCC have adopted risk based capital
guidelines for bank holding companies and national banks. For 1995, the Company
and the Bank are required to maintain capital equal to a least 8% of assets and
commitments to extend credit, weighted by risk ("risk-adjusted" assets).
Further, capital equal to at least 4% of risk-adjusted assets must consist
primarily of common equity (including retained earnings) and the remainder may
consist of subordinated debt, cumulative
-20-
<PAGE> 21
preferred stock or a limited amount of loan loss reserves. Certain assets and
commitments to extend credit present less risk than others and will be assigned
to lower risk weighted categories requiring less capital allocation than the 8%
total ratio. For example, cash and government securities are assigned to a 0%
risk weighted category; most home mortgage loans are assigned to a 50% risk
weighted category requiring a 4% capital allocation; and commercial loans are
assigned to a 100% risk weighted category requiring an 8% capital allocation.
In addition, the FRB and the OCC require the Company and the Bank to maintain a
3% minimum leverage ratio as a supplement to the risk weighted capital
guidelines. The minimum leverage ratio is intended to limit the ability of
banking organizations to leverage their equity capital base by increasing assets
and liabilities without increasing capital proportionately. The 3% ratio
constitutes a minimum ratio for well-run banking organizations under the FRB's
standards and organizations experiencing or anticipating significant growth or
failing to meet such standards will be required to maintain a minimum leverage
ratio ranging from 100 to 200 basis points in excess of the 3% ratio.
At September 30, 1995, the Bank and the Company were in compliance with the
risk-based capital and leverage ratios noted above. The following table sets
forth the Company's risk-based capital and leverage ratios:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
Dollars in thousands Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RISK BASED CAPITAL RATIOS
Tier 1 capital $ 16,896 15.6% $ 16,303 15.5%
Total capital $ 18,089 16.7% $ 17,621 16.7%
Total risk adjusted assets $108,191 $105,461
LEVERAGE RATIOS
Tier 1 capital to average $ 16,303 10.3% $ 16,303 12.1%
total assets
Quarterly average total assets $158,658 $134,776
</TABLE>
On December 19, 1991, the President signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). The FDICIA, among other matters,
substantially revises banking regulations and establishes a framework for
determination of capital adequacy of financial institutions. Under the FDICIA,
financial institutions are placed into one of five capital adequacy categories
as follows: (1) Well capitalized, consisting of institutions with a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater and a leverage ratio of 5% or greater, and the institution is not
subject to an order, written agreement, capital directive or prompt corrective
action directive; (2) Adequately capitalized, consisting of institutions with a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater and a leverage ratio of 4% or greater, and the
institution does not meet the definition of a well capitalized institution; (3)
Undercapitalized, consisting of institutions with a total risk-based capital
ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a
leverage ratio of less than 4%; (4) Significantly undercapitalized, consisting
of institutions with a total risk-based capital ratio of less than 6%, a Tier 1
risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%;
(5) Critically undercapitalized, consisting of an institution with a ratio of
tangible equity to total assets that is equal to or less than 2%.
-21-
<PAGE> 22
Financial institutions classified as undercapitalized or below are subject to
various limitations including, among other matters, certain supervisory actions
by bank regulatory authorities and restrictions related to (1) growth of assets,
(2) payment of interest on subordinated indebtedness, (3) payment of dividends
or other capital distributions, and (4) payment of management fees to a parent
holding company. The FDICIA requires the bank regulatory authorities to initiate
corrective action regarding financial institutions which fail to meet minimum
capital requirements. Such action may include orders to, among other matters,
augment capital and reduce total assets. Critically undercapitalized financial
institutions may also be subject to appointment of a receiver or conservator
unless the financial institution submits an adequate capitalization plan.
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily because
its assets and liabilities are largely monetary. In general, inflation primarily
affects the Company indirectly through its effect on market rates of interest,
and thus the ability of the Bank to attract loan customers. Inflation affects
the growth of total assets by increasing the level of loan demand, and
potentially adversely affects the Company's capital adequacy because loan growth
in inflationary periods can increase at rates higher than the rate that capital
grows through retention of earnings which the Company may generate in the
future. In addition to its effects on interest rates, inflation directly affects
the Company by increasing the Company's operating expenses.
The effect of inflation was not material to the Company's results of operations
during the periods covered by this report.
-22-
<PAGE> 23
PART II --- OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in securities.
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
None
Item 5. Other information.
None.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(27.1) Financial Data Schedule
(b) Reports on Form 8-K - One report on Form 8-K dated July 21, 1995
reporting $.08 per share cash dividend declared for shareholders of record
August 9, 1995 and payable August 23, 1995.
-23-
<PAGE> 24
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.
November 10, 1995 SOUTH VALLEY BANCORPORATION
By
Richard L. Conniff, Chief Financial Officer
(Principal Financial & Accounting Officer)
-24-
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Number Description Page Number
- -------------- ----------- -----------
<S> <C> <C>
27.1 Financial Data Schedule 26
</TABLE>
-25-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,754
<INT-BEARING-DEPOSITS> 110,147
<FED-FUNDS-SOLD> 19,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,339
<INVESTMENTS-CARRYING> 18,772
<INVESTMENTS-MARKET> 18,677
<LOANS> 87,206
<ALLOWANCE> (1,227)
<TOTAL-ASSETS> 162,991
<DEPOSITS> 143,312
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,530
<LONG-TERM> 0
<COMMON> 11,331
0
0
<OTHER-SE> 5,818
<TOTAL-LIABILITIES-AND-EQUITY> 162,991
<INTEREST-LOAN> 7,498
<INTEREST-INVEST> 1,245
<INTEREST-OTHER> 661
<INTEREST-TOTAL> 9,404
<INTEREST-DEPOSIT> 2,910
<INTEREST-EXPENSE> 2,988
<INTEREST-INCOME-NET> 6,416
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,245
<INCOME-PRETAX> 1,800
<INCOME-PRE-EXTRAORDINARY> 1,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,116
<EPS-PRIMARY> $.93
<EPS-DILUTED> $.93
<YIELD-ACTUAL> .094
<LOANS-NON> 1,783
<LOANS-PAST> 314
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,165
<CHARGE-OFFS> 29
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,227
<ALLOWANCE-DOMESTIC> 1,227
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
