DELTA NATIONAL BANCORP, 10-Q, 1996-11-06

DELTA NATIONAL BANCORP
10-Q, 1996-11-06
NATIONAL COMMERCIAL BANKS

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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934

For Quarter Ended SEPTEMBER 30, 1996

Commission file number 2-79261

DELTA NATIONAL BANCORP
(Exact name of registrant as specified in its charter)

California 94-2839814
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

611 North Main Street, Manteca, California 95336-3740
(Address of principal executive offices) (Zip code)

(209) 824-4050
(Registrant's telephone number, including area code)

Indicate by 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 for 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 [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 30, 1996:

Common Stock, no par value - 376,782 shares.
<PAGE>

DELTA NATIONAL BANCORP
FORM 10-Q CROSS REFERENCE INDEX

- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION Page
- --------------------------------------------------------------------------------

Item 1. Financial Statements

Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 4

Consolidated Statements of Income -
Three months ended September 30, 1996
and nine months ended September 30, 1996 5
Three months ended September 30, 1995
and nine months ended September 30, 1995 6

Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 7

Notes to Consolidated Financial Statements 9

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17

- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION Page
- --------------------------------------------------------------------------------

Item 1. Legal Proceedings 26

Item 2. Changes in Securities 26

Item 3. Defaults Upon Senior Securities 26

Item 4. Submission of Matters to a Vote of Security Holders 26

Item 5. Other Information 26

Item 6. Exhibits and Reports on Form 8-K 26

<PAGE>

PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

DELTA NATIONAL BANCORP

CONSOLIDATED BALANCE SHEETS
(In Thousands)

Unaudited

Sept. 30, Dec. 31,
1996 1995
ASSETS

Cash and due from banks ............................... $ 4,338 $ 4,330
Federal funds sold .................................... 3,800 7,600
-------- --------
Total cash and cash equivalents (notes A10
and B) ........................................ 8,138 11,930

Interest bearing deposits in banks .................... 686 51

Securities available for sale (notes A3 and C) ........ 11,766 12,926
Securities held to maturity (notes A2 and C) .......... 17,126 20,351
-------- --------
28,892 33,277

Loans, net (notes A4, A5 and D) ....................... 49,000 46,520
Property and equipment (note A6) ...................... 1,638 1,343
Interest receivable, other assets and other
real estate owned (notes A7 and F) .................... 2,227 1,803
-------- --------

TOTAL ASSETS .......................................... $ 90,581 $ 94,924
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing .............................. 14,233 15,980
Interest bearing .................................. 65,691 68,859
-------- --------
Total deposits ................................ 79,924 84,839

Accrued interest/other liabilities .................... 385 314

Stockholders' equity:
Common stock, no par value
Authorized - 5,000,000 shares
Issued and outstanding - 376,782 shares ......... 3,532 3,532
Retained earnings ................................. 6,787 6,194
Net unrealized appreciation (depreciation) on
securities available-for-sale, net of tax of
($33,039) and $31,827 at September 30, 1996
and December 31, 1995, respectively ............. (47) 45
-------- --------

Total stockholders' equity .................... 10,272 9,771

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 90,581 $ 94,924
======== ========

The accompanying notes are an integral part of this statement.
<PAGE>

PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

DELTA NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
EXCEPT PER SHARE DATA

Unaudited
3 Months 9 Months
Ending Ending
Sept. 30, Sept. 30,
1996 1996
--------- ---------
Interest income:
Interest and fees on loans ...................... $ 1,478 $ 4,312
Securities available-for-sale ................... 183 565
Securities held-to-maturity ..................... 283 897
Interest-bearing deposits in banks .............. 3 7
Federal funds sold .............................. 69 203
------- -------
Total interest income ....................... 2,016 5,984

Interest expense on deposits ........................ 683 2,084
------- -------
Net interest income ......................... 1,333 3,900

Provision for loan losses ........................... (51) 160
------- -------
Net interest income after provision
for possible loan losses ................... 1,384 3,740

Other income
Service charges on deposits ..................... 134 389
Other income .................................... 301 551
------- -------
435 940
------- -------

Other expenses
Salaries, wages and employee benefits ........... 535 1,542
Occupancy and equipment ......................... 200 528
Other operating expenses ........................ 512 1,166
------- -------
1,247 3,236
------- -------
Earning before income taxes ................. 572 1,444

Income taxes (note A8) .............................. 230 587
------- -------
NET EARNINGS ................................ $ 342 $ 857
======= =======

Net earnings per share (note A9) .................... $ .90 $ 2.27
======= =======

The accompanying notes are an integral part of this statement.
<PAGE>

PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

DELTA NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
EXCEPT PER SHARE DATA

Unaudited

3 Months 9 Months
Ending Ending
Sept. 30, Sept. 30,
1995 1995
--------- ---------
Interest income:
Interest and fees on loans ...................... $ 1,414 $ 4,164
Securities available-for-sale ................... 251 802
Securities held-to-maturity ..................... 287 638
Interest-bearing deposits in banks .............. 0 0
Federal funds sold .............................. 88 221
------- -------
Total interest income ....................... 2,040 5,825

Interest expense on deposits ........................ 802 2,239
------- -------

Net interest income ......................... 1,238 3,586

Provision for loan loss ............................. 100 299
------- -------
Net interest income after provision
for possible loan losses ................... 1,138 3,287

Other income
Service charges on deposits ..................... 125 358
Other income .................................... 57 173
------- -------
182 531
------- -------

Other expenses
Salaries, wages and employee benefits ........... 464 1,349
Occupancy and equipment ......................... 194 509
Other operating expenses ........................ 232 794
------- -------
890 2,652
------- -------
Earning before income taxes ................. 430 1,166

Income taxes (note A8) .............................. 176 456
------- -------

NET EARNINGS ................................ $ 254 $ 710
======= =======

Net earnings per share (note A9) .................... $ .67 $ 1.88
======= =======

The accompanying notes are an integral part of this statement.
<PAGE>

PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

DELTA NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

Unaudited

9 MONTHS ENDING
SEPTEMBER 30,
1996 1995
Increase (decrease) in cash and cash equivalents

Cash flows from operating activities:
Net earnings ....................................... $ 857 $ 710
Adjustments to reconcile net earnings to net
cash provided by operating activities
(Gain)/Loss on sale of assets ................ 0 16
(Gain)/Loss on sale of OREO .................. (6) (26)
Provision for possible loan losses ........... 160 299
Provision for OREO ........................... 92 38
Provision for depreciation and
amortization ................................ 418 345
Decrease (increase) in interest
receivable and other assets .................. (234) (397)
Increase (decrease) in interest payable
and other liabilities ....................... (21) 47
------- -------
Net cash provided by operating
activities ............................... 1,266 1,032
------- -------

Cash flows from investing activities:
Proceeds from maturities of securities
available-for-sale ............................... 1,140 5,434
Proceeds from maturities of securities
held-to-maturity ................................. 4,949 2,987
Purchase of securities available-for-sale .......... (149) 0
Purchase of securities held-to-maturity ............ (1,983) (9,473)
Net (increase) decrease in loans ................... (2,640) (790)
Purchase of property and equipment ................. (448) (693)
Purchase/additions to OREO ......................... (175) (34)
Proceeds from sale of property and equipment ....... 7 10
Proceeds from sale of OREO ......................... 56 497
Net (inc.) dec. Int. Bearing Deposits Other Inst.... (635) 0
------- -------
Net cash (used in) provided by
investing activities ...................... 122 (2,062)
------- -------

The accompanying notes are an integral part of this statement.
<PAGE>

PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

DELTA NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)

Unaudited

9 MONTHS ENDING
SEPTEMBER 30,
1996 1995
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
money market accounts and savings accounts ....... (3,675) 3,981
Net (decrease) increase in time deposits ........... (1,241) 188
Cash dividends ..................................... (264) (264)
-------- --------
Net cash provided by financing
activities ................................ (5,180) 3,905
-------- --------

Net increase (decrease) in cash and
cash equivalents ..................................... (3,792) 2,875

Cash and cash equivalents at beginning of period ..... 11,930 6,149
-------- --------

Cash and cash equivalents at end of period ........... $ 8,138 $ 9,024
======== ========

Supplemental disclosures of cash flow information:

Cash paid during the period for:
Interest ..................................... 1,878 2,042
Income Taxes ................................. 607 736

Noncash investing and financing activities:

The Bank recognized a decrease of $156,306 in the fair value of its
available-for-sale securities in the nine months ending September 30, 1996,
and an increase of $730,537 in the fair value of its available-for-sale
securities for the year ended December 31, 1995.

The accompanying notes are an integral part of this statement.
<PAGE>

PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

NOTE A - Summary of Accounting Policies

Delta National Bancorp (the Company) was incorporated under the laws of the
State of California on December 21, 1981, for the purpose of serving as a bank
holding company under the Bank Holding Company Act of 1956. The Company's wholly
owned subsidiary, Delta National Bank (the Bank), operates as a commercial bank
in the cities of Manteca, Riverbank, Denair and Modesto, California. The
Company's headquarters are located at the Manteca Branch at 611 North Main
Street, Manteca, California. Through its branches the Bank provides traditional
commercial banking services to individuals and small and medium-sized businesses
located in the California Central Valley.

The accounting and reporting policies of the Company and the Bank conform with
generally accepted accounting principles and general practice within the banking
industry. The consolidated financial statements of the Company include the
accounts of the Company and the Bank. A summary of the significant accounting
policies applied in the preparation of the accompanying financial statements
follows.

There have been no material changes in Delta National Bancorp's significant
accounting policies during the nine months ended September 30, 1996. Management
has presented, for comparison purposes its unaudited consolidated balance sheet
as of September 30, 1996, its unaudited consolidated statements of earning for
three months and nine months ending September 30, 1996, and 1995 and cash flows
for the nine months ended September 30, 1996, and 1995. The financial statements
contain, in the opinion of management, all necessary normal recurring
adjustments and are not intended to be indicative of results that can be
expected for a full year.

1. Consolidation

The consolidated financial statements of the Company include the accounts of the
Company and the Bank. Significant intercompany transactions and amounts have
been eliminated.

2. Securities held-to-maturity

Bonds, notes and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts that are recognized as adjustments to
interest income over the period to maturity.

3. Securities available-for-sale

Available-for-sale securities consist of bonds, notes and debentures not
classified as trading securities or held-to-maturity securities. Unrealized
holding gains and losses, net of tax, are reported as a net amount in a separate
component of stockholders' equity until realized. Gains and losses on the sale
of available-for-sale securities are determined using the specific
identification method. The amortization of premiums and accretion of discounts
are recognized as adjustments to interest income over the period to maturity.
<PAGE>

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

4. Loans

Loans are reported at the principal amount outstanding, net of unearned income,
deferred loan fees, and the allowance for loan losses (interim financial
statements will also be reported net of deferred profit on OREO sales). Unearned
discounts on installment loans are recognized as income over the terms of the
loans. Interest on other loans is calculated by using the simple interest method
on the daily balance of the principal amount outstanding.

Loan fees net of certain direct costs of origination, which represent an
adjustment to interest yield, are deferred and amortized over the contractual
term of the loan.

Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full and timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed against
current period interest income. Income on such loans is then recognized only to
the extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are brought
fully current with respect to interest and principal and when, in the judgment
of management, the loans are estimated to be fully collectible as to both
principal and interest.

5. Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses
charged to expenses. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans and commitments to extend credit, based on
evaluations of collectibility and prior loss experience of loans and commitments
to extend credit. The evaluations take into consideration such factors as
changes in the nature and volume of the portfolio, overall portfolio quality,
loan concentrations, specific problem loans, commitments and current economic
conditions that may affect the borrowers' ability to pay.

6. Property and equipment

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the lives of
the improvements or the terms of the related leases, whichever is shorter. The
straight-line method of depreciation is followed for financial reporting
purposes, but accelerated methods are used for tax purposes. Deferred income
taxes have been provided for the resulting depreciation differences.

<PAGE>

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

7. Foreclosed assets

Real estate properties acquired through foreclosure are initially recorded at
fair value at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of (1) cost, or (2) fair market value minus
estimated costs to sell. The net carrying value (included in other assets on the
balance sheet) of foreclosed real estate was $571,440 for the period ending
September 30, 1996, and $560,600 for the period ending December 31, 1995.

Other assets repossessed by the Bank are initially recorded at fair value at the
date of repossession, establishing a new cost basis. Valuations are periodically
performed by management and the asset is carried at the lower of (1) cost, or
(2) fair market value minus estimated costs to sell. The net carrying value
(included in other assets on the balance sheet) of other repossessed assets was
$257,272 for the period ending September 30, 1996. There were no other
repossessed assets as of December 31, 1995.

8. Income taxes

Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.

9. Earnings per share

Earnings per share amounts are computed on the basis of the weighted average
number of share outstanding during each year. The weighted average number of
shares outstanding for September 30, 1996, and December 31, 1995, was 376,782.

10. Cash and cash equivalents

For the purposes of the statement of cash flow, the Bank considers due from
banks and federal funds sold for one-day periods to be cash equivalents.

NOTE B - CASH AND DEPOSITS

The Bank is required to maintain reserves by the Federal Reserve Bank. The
average reserve requirements are based on a percentage of deposit liabilities.
The Bank has met or exceeded the average reserve requirements for the periods
presented in the financial statements. In addition, the Federal Reserve requires
the Bank to maintain a certain minimum balance at all times, and such
requirement was met by the Bank during the periods presented in the financial
statements.
<PAGE>

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

NOTE C - SECURITIES

Effective December 31, 1993, the Bank adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." These securities are
classified into one of three categories: held-to-maturity, available-for-sale,
or trading. Held-to-maturity securities are measured at amortized cost and
available-for-sale and trading securities are measured at fair value. Unrealized
holding gains and losses for available-for-sale securities are excluded from
earnings and reported as a net amount in a separate component of stockholders'
equity until realized.

Amortized cost (book values) and estimated fair value of investment securities
for September 30, 1996, and December 31, 1995, are as follows:
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------------------------------
September 30, 1996 December 31, 1995
Gross Gross
Unrealized Estimated Unrealized Estimated
Amortized Gains Fair Amortized Gains Fair
Cost (Losses) Value Cost (Losses) Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
U.S. treasury securities . $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Obligations of other U.S.
government agencies .... 11,252 (206) 11,046 12,189 (66) 12,123
Obligations of state and
political subdivisions . 390 126 516 606 142 748
Corporate bonds and other 204 0 204 55 0 55
------- ------- ------- ------- ------- -------

Total ...................... $11,846 $ (80) $11,766 $12,850 $ 76 $12,926
======= ======= ======= ======= ======= =======

Held-to-maturity securities:
U.S. treasury securities . $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Obligations of other U.S.
government agencies .... 16,846 153 16,999 18,252 142 18,394
Obligations of state and
political subdivisions . 280 0 280 696 (2) 694
Corporate bonds and other 0 0 0 1,404 (8) 1,396
------- ------- ------- ------- ------- -------

Total ...................... $17,126 $ 153 $17,279 $20,352 $ 132 $20,484
======= ======= ======= ======= ======= =======

- ---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

NOTE D - LOANS

The composition of the Bank's loan portfolio at September 30, 1996, and December
31, 1995, is as follows:

- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
Commercial, financial and agricultural ..... $22,571,047 $ 22,755,013
Real estate - construction ..... 13,108,616 9,175,475
Real estate - mortgage ..... 12,930,150 14,090,502
Installment loans to individuals ..... 1,885,822 2,073,749
------------ ------------
$50,495,635 $48,094,739

Unearned discount ..... (67,522) (80,189)
Allowance for loan losses ..... (1,059,749) (1,219,304)
Deferred loan fees ..... (273,235) (275,427)
Deferred profit on OREO sales (1) .... (94,894)
------------ ------------
Loans, net ..... $49,000,235 $ 46,519,819
============ ============

- --------------------------------------------------------------------------------
(1) Audited financial statements for December 31, 1995, do not include Deferred
profit on OREO sales due to not being material in amount.

The following table summarizes the changes in the allowance for loan losses for
the periods ending September 30, 1996, and December 31, 1995:

- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
Balance at January 1 ........................... $ 1,219,304 $ 599,422
Charge Offs:
Commercial, financial and agricultural ..... (373,037)
Real Estate - construction ................. (61,638)
Real Estate - mortgage .....................
Installment loans to individuals ........... (33,962) (112,366)
----------- -----------
Total Charge Offs ...................... (468,637) (112,366)
----------- -----------
Recoveries:
Commercial, financial and agricultural ..... 1,390
Real Estate - construction ................. 116,898 80,425
Real Estate - mortgage ..................... 1,600 2,200
Installment loans to individuals ........... 30,018 24,219
----------- -----------
Total Recoveries ....................... 148,516 108,234
----------- -----------
Net charge offs ................................ (320,121) (4,132)
Additions charged to operations ................ 160,566 624,014
----------- -----------
$ 1,059,749 $ 1,219,304
=========== ===========
- --------------------------------------------------------------------------------
<PAGE>
DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

Impaired Loans: In May 1993, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 114 entitled
"Accounting by Creditors for Impairment of a Loan." This statement, which became
effective January 1, 1995, requires that impaired loans, as defined, be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The Bank adopted and implemented SFAS No. 114 as of
January 1, 1995.

The carrying value of impaired loans totaled $1,541,536 at September 30, 1996,
of which $1,134,379 is the result of a troubled debt restructuring. There was no
allowance relating to these loans as of September 30, 1996, due to the fair
value of the collateral exceeding the carrying value of the impaired loans.
Total cash collected on impaired loans for the first nine months of 1996
approximated $698,382 of which $601,695 was credited to the principal balance
outstanding, and the remainder was recognized as interest income. As of
September 30, 1996, an impaired loan in the amount of $236,238 was transferred
to OREO of which $61,638 was charged off and $174,600 booked as OREO. Another
large commercial-agricultural loan in the amount of $612,909 was transferred to
other repossessed assets of which $299,909 was charged off and $313,000
transferred.

A loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Amounts due according to the
contractual terms include both principal and interest. The Company has
determined that the definition of impaired loans will include any loans placed
on nonaccrual status and any loans that have had a modification of terms under
troubled debt restructuring. Loans in the amount of $300,000 or more will be
evaluated individually. Large groups of smaller-balance homogenous loans, under
$300,000, will be evaluated on a composite basis using historical data, such as
average recovery period and average amount recovered, along with a composite
rate of interest as a means of measuring for impairment. Loans that are not
evaluated individually will be grouped together by similar risk characteristics.
The following categories will be grouped together: Agricultural, Commercial, RE
Construction, Residential RE, Consumer, and Commercial RE loans.

Loan impairment is measured by estimating the present value of expected future
cash flows discounted at the loan's effective interest rate, its observable
market price, or the fair value of collateral if the loan is collateral
dependent. When it has been substantiated that a loss is evident and should be
recognized, the impaired loan will be charged off. The recorded investment in
these loans and the valuation allowance for loan losses related to loan
impairment are as follows:

- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
Principal amount of Principal amount of
impaired loans ........... $1,539,730 impaired loans........ $2,840,637
Accrued Interest ........... 1281 Accrued Interest ..... 267
Deferred loan costs ........ 525 Deferred loan costs .. 1,408
---------- ----------
1,541,536 2,842,312
Less valuation Less valuation
allowance ................ 0 allowance .......... 334,981
========== ==========
Total carrying value ....... $1,541,536 Total carrying value . $2,507,331
========== ==========

Valuation allowance at Valuation allowance at
beginning of period ...... $ 334,981 beginning of period $ 0
Net charges to operations Net charges to operations
for impairment ........... 26,565 for impairment ..... 334,981
Direct write-downs ......... 361,546 Direct write-downs ... 0
Recoveries ................. 0 Recoveries ........... 0
---------- ----------
Valuation allowance at Valuation allowance at
end of period ............ $ 0 end of period ...... $ 334,981
========== ==========
- --------------------------------------------------------------------------------
<PAGE>

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

NOTE E - RELATED PARTY TRANSACTIONS

The Bank, in the ordinary course of business, makes loans and receives deposits
from its directors and stockholders. The following sets forth information for
all directors and officers (and their families) who had loans with the bank, or
who were otherwise indebted to the Bank in an amount in excess of $60,000.

In 1991 the Bank extended credit to Valerie Salas, daughter of Andrew Rossi,
President, Chief Executive Officer and Director of the Company and sister of
Toinette Rossi, Vice President/Manager and Director of the Company, in the
amount of $16,595. As of September 30, 1996, the principal balance owing was
$5,237. This loan is unsecured and bears interest at a fixed rate of 13%. This
loan matures on April 23, 1997.

In 1995, the Bank funded an unsecured line of credit to John Rossi, son of
Andrew Rossi, President, Chief Executive Officer and Director of the Company and
sister of Toinette Rossi, Vice President/Manager and Director of the Company, in
the amount of $303,250. On September 30, 1996, the principal balance owing was
$303,250. This line of credit bears interest at the Bank's reference rate plus
2.5% and is scheduled to mature November 1, 1996. John Rossi also guarantees a
small secured loan which was originated 3/18/96 in the amount of $5,194. This
loan has an interest rate of 14.75% and matures 3/14/97. As of September 30,
1996, the principal balance owed was $2,696.

As of September 30, 1996, the Bank had loans exceeding $60,000 extended to
Joseph Freitas and various family members. The following table summarizes those
loans with a total indebtedness of $60,460.

- -------------------------------------------------------------------------------------------------------------
Balance as Current
Note of Sept. 30, Note Maturity Interest Secured/
Name on Loan Relationship Amount 1996 Date Date Rate Unsecured
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph Freitas ..... Director $ 13,055 $ 7,518 4/19/96 4/21/97 7.75% Secured
Fixed
Joseph Freitas ..... Director $ 30,000 $ 30,000 8/26/96 10/03/96 8.00% Secured
Fixed
Linda Abeldt ....... Daughter $ 9,000 $ 6,787 3/22/95 3/22/00 10.00% Unsecured
Fixed
Linda Abeldt ....... Daughter $ 12,000 $ 6,155 1/25/94 1/25/99 7.00% Unsecured
Fixed
Melissa Braun ...... Granddaughter $ 10,000 $ 10,000 9/26/96 7/2/97 8.00% Secured
Fixed
- -------------------------------------------------------------------------------------------------------------
Total Indebtedness ........................... $ 60,460
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

DELTA NATIONAL BANCORP

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

NOTE F - FORECLOSED ASSETS

Foreclosed real estate owned includes real estate acquired through foreclosure,
or by obtaining a deed in lieu of foreclosure. Real estate properties acquired
through foreclosure are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed and the real estate is carried at the lower of (1) cost
or (2) fair market value minus estimated costs to sell. Total foreclosed real
estate (before the valuation allowance) was $958,793 at September 30, 1996, this
consisted of three properties, two of which represented bare land. The third
property is a condominium complex consisting of eight units that were completed
and placed in service as rental units by the Bank. The valuation allowance at
September 30, 1996, totaled $387,353.

- --------------------------------------------------------------------------------
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Real estate owned:
Foreclosed assets $ 958,793 $ 856,167
Less valuation allowance 387,353 295,567
- --------------------------------------------------------------------------------
OREO, net $ 571,440 $ 560,600
- --------------------------------------------------------------------------------

Changes in the valuation allowance for foreclosed real estate for the periods
ending September 30, 1996, and December 31, 1995, are as follows:

Balance at January 1, $ 295,567 $ 257,644
Provision charged to operations 112,560 37,923
Charge-offs, net of recoveries (l) (20,774) 0
- --------------------------------------------------------------------------------
Balance at end of period $ 387,353 $ 295,567
- --------------------------------------------------------------------------------
(1) Net recovery consists of one property sold in the third quarter.

Other repossessed assets acquired by the Bank include all assets except real
estate. As with other real estate owned, assets acquired by repossession are
initially recorded at fair value at the date of repossession establishing a new
cost basis. After repossession, valuations are periodically performed and the
asset is carried at the lower of (1) cost or (2) fair market value minus the
estimated costs to sell. Total other repossessed assets (before the valuation
allowance) was $257,272. This consisted of cattle used in dairy production. The
Bank has been managing the dairy production since foreclosure. As cattle are
sold at auction, the asset is reduced and a corresponding gain or loss is
recorded. The original amount taken into other repossessed assets was $313,000
and no valuation allowance has been made to date. The corresponding loss on
cattle sold at auction amounted to $19,200 as of September 30, 1996.
<PAGE>

PART 1 - FINANCIAL INFORMATION
Item II - Financial Condition and Results of Operations

DELTA NATIONAL BANCORP

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FINANCIAL REVIEW

PERFORMANCE SUMMARY

The following discussion is intended to provide information to facilitate the
understanding and assessment of significant changes in trends related to the
financial condition of Delta National Bancorp ("the Company") and its results of
operations. It should be read in conjunction with the unaudited financial
statements and footnotes appearing elsewhere in this report.

At September 30, 1996, the Company's total assets were $90,581,460, net loans
amounted to $49,000,234, stockholders' equity was $10,272,519 and the allowance
for loan losses was $1,059,749. This compares to total assets of $94,924,333,
net loans of $46,519,819, stockholders' equity of $9,771,029 and allowance for
loan losses of $1,219,304 at December 31, 1995.

Net income for the first nine months of 1996 amounted to $856,676 or $2.27 per
share, as compared with $710,286 or $1.88 per share earned for the same period
in 1995. A significant portion of the increase in net income from a year ago was
due to increased interest income earned on commercial and real estate loans and
a decrease in interest expense. Net non-interest income also increased in the
first nine months of 1996, compared to 1995.

The carrying value of nonaccrual loans at quarter end amounted to $407,157, down
from $1,694,556 at December 31, 1995. Nonaccrual loans consisted of one real
estate loan and one commercial loan. At September 30, 1996, other real estate
owned ("OREO") (net of the valuation allowance) totaled $571,440, compared with
OREO of $560,600 at December 31, 1995. Restructured loans, loans outstanding
whose original terms have been modified, totaled $1,134,379 at September 30,
1996, which consisted of one real estate loan, compared to $l,147,775 at
December 31, 1995.

There was a decrease in the provision for loan losses. As of September 30, 1996,
the provision was $160,567, compared to a $299,000 accrual for the same period
in 1995. Net charge-offs increased for the first nine months in 1996 over the
previous year. Net loans charged off amounted to $320,121 for the first nine
months of 1996 versus a net recovery of $9,550 for the same period in 1995.

Net interest income was $3,900,021 at September 30, 1996, compared to $3,585,388
for September 30, 1995. Net interest income increased due to increased interest
income on commercial and real estate loans and a decrease in interest expense on
deposits. Interest expense decreased 6.99% due to lower rates on deposits and
decreased interest bearing balances.

Non-interest income amounted to $940,171 as of September 30, 1996, compared to
$531,191 for September 30,1995. Income related to service charges on deposits
increased 8.65% while an increase in other income was attributed to income on
other real estate owned and other repossessed assets as well as an increase in
mortgage department fee income. Total non-interest income increased 76.99% over
the same period in 1995.
<PAGE>

Operating expenses amounted to $3,236,186 for the nine months ending September
30 1996, compared to $2,652,211 for the same period in 1995 which represents a
22.02% increase. FDIC assessments decreased significantly in 1996 while
professional fees and salaries and wages increased due to normal operating
expenditures. Other operating expenses increased due to additions made to the
valuation allowance for other real estate owned and expenses for other
repossessed assets that were not made in 1995.

EARNINGS PERFORMANCE

Net Income: Net income for the first nine months of 1996 amounted to $856,676 or
$2.27 per share, as compared with $710,286 or $1.88 per share earned for the
same period in 1995. A significant portion of the increase in net income from a
year ago was due to increased interest income earned on securities as well as
commercial and real estate loans. Interest on commercial and real estate loans
increased by 3.16% and 6.91%, respectively. Total net income increased 20.61%
over the same period in 1995. There were no significant changes to information
presented for the three months ending September 30, 1996, and 1995 that has not
been discussed elsewhere in this report.

Net Interest Income: The Company's operating results depend primarily on net
interest income. A primary factor affecting the level of net interest income is
the Company's interest rate margin between the yield earned on interest-earning
assets and the rate paid on interest-bearing liabilities as well as the
difference between the relative amounts of average interest-earning assets and
interest-bearing liabilities. Net interest income increased 8.78% to $3,900,021
for the quarter ending September 30, 1996, compared to $3,585,388 at September
30, 1995. Net interest income increased primarily due to increased income on
commercial and real estate loans and a decrease in interest expense on deposits.
Interest expense decreased 6.99% over 1995 which was primarily due to lower
interest rates and falling interest bearing deposit balances.

Provision for Loan Losses: The provision for loan losses totaled $160,567 as of
September 30, 1996, compared to a $299,014 accrual as of September 30, 1995. The
provision for loan losses reflects management's on-going evaluation of the risk
inherent in the loan portfolio, which includes consideration of numerous
factors, such as economic conditions, relative risks in the loan portfolio, loan
loss experience and review and monitoring of individual loans for identification
and resolution of potential problems.

Non-Interest Income: Non-interest income amounted to $940,171 for the first nine
months of 1996, up from $531,191 in 1995. Service charges on deposits increased
approximately 8.65% in 1996. Total non-interest income increased 76.99% over the
same period in 1995 which was due to increased income on other real estate owned
and other repossessed assets as well as an increase in mortgage department fee
income.

- --------------------------------------------------------------------------------
Sept. 30, Sept. 30,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Service charges on deposit accounts .............. $389,158 $358,184
Mortgage department fees ......................... 83,520 10,545
Other real estate owned (OREO) ................... 47,647 13,798
Other repossessed assets ......................... 273,825 --
Gain on sale of OREO ............................. 5,547 26,002
Gain on sale of fixed assets ..................... -- --
Other income ..................................... 140,474 122,662
- --------------------------------------------------------------------------------
Total ........................................ $940,171 $531,191
- --------------------------------------------------------------------------------
<PAGE>

Non-Interest Expense: Non-interest expense amounted to $3,236,186 in 1996,
compared to $2,652,211 in 1995. FDIC assessments decreased 73.39% in 1996 due to
reduced BIF assessments. Professional fees increased 14.78% due to legal
expenses incurred in 1996 and not made in 1995. Salaries and wages increased due
to normal operating expenditures. Total operating expenses increased 22.02% over
the same period in 1995. Other operating expenses increased due to additions
made to the valuation allowance for other real estate owned and expenses
relating to other repossessed assets that were not made in 1995.

- --------------------------------------------------------------------------------
Sept. 30, Sept. 30,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Salaries and wages .......................... $1,366,443 $1,198,228
Employee benefits ........................... 175,149 150,444
Occupancy and equipment ..................... 546,268 527,217
Stationary and supplies ..................... 28,417 34,863
Professional fees ........................... 104,996 91,473
Assessments ................................. 29,676 111,510
Other operating ............................. 560,786 464,944
Writedown of OREO ........................... 112,560 37,923
OREO expenses ............................... 16,455 19,828
Other repossessed assets expenses ........... 275,887 --
Loss on sale of other repossessed assets .... 19,200 --
Loss on sale of OREO ........................ -- --
Loss on sale of fixed assets ................ 349 15,781
Loss on sale of available-for-sale security . -- --
- --------------------------------------------------------------------------------
Total ................................... $3,236,186 $2,652,211
- --------------------------------------------------------------------------------

ASSET LIABILITY MANAGEMENT

Liquidity: For the Company, as with most commercial banking institutions,
liquidity is the ability to roll over substantial amounts of maturing
liabilities and to acquire new liabilities at levels consistent with
management's financial targets. During the first nine months of 1996, the
Company continued to maintain a high level of liquidity. Highly liquid assets
consist of cash, deposits placed with banks, Federal funds sold and securities
available for sale. At quarter end, the Bank had a liquidity ratio of 20.04%.

Interest Rate Sensitivity Management: The primary objectives of the asset
liability management process are to provide a stable net interest margin,
generate net interest income to meet the Company's earnings' objectives and
manage balance sheet risks. These risks include liquidity risk, capital adequacy
and overall interest rate risk inherent in the Company's balance sheet. In order
to manage its interest rate sensitivity, the Company has adopted policies that
attempt to limit the change in pre-tax net interest income assuming various
interest rate scenarios. This is accomplished by adjusting the repricing
characteristics of the Company's assets and liabilities as interest rates
change. The Company's Asset Liability Committee chooses strategies in
conformance with its policies to achieve an appropriate trade off between
interest rate sensitivity and the volatility of pre-tax net interest income and
net interest margin.

<PAGE>
The following table sets out the maturity and rate sensitivity of the Company's
interest-earning assets and interest -bearing liabilities as of September 30,
1996. The cumulative interest sensitivity gap ("gap") as reflected in the table
represents the difference between interest-earning assets and interest-bearing
liabilities maturing or repricing, whichever is earlier, at a given point in
time and is not necessarily indicative of the position on other dates.

- -----------------------------------------------------------------------------------------------------------------------------
0 - 30 31 - 90 3 - 6 6 - 12 1 - 5 5
(In Thousands) Days Days Months Months Years Years Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Fed funds sold ........................ $ 3,800 $ -- $ -- $ -- $ -- $ -- $ 3,800
Deposit accounts with other banks..... 686 -- -- -- -- -- 686
Securities: (3)
U. S. government agencies.......... -- 16,749 11,326 -- -- 23 28,098
Municipals ........................ 280 -- -- -- -- 390 670
Corporate bonds (6) ............... -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total securities ...................... $ 280 $16,749 $11,326 $ -- $ -- $ 413 $28,768
- -----------------------------------------------------------------------------------------------------------------------------
Loans: (1)
Commercial - fixed ................ 688 350 1,004 4,678 1,948 1,206 9,874
Commercial - variable (2).......... 11,700 -- -- -- -- -- 11,700
Real estate - fixed ............... -- 69 1,790 2,158 4,700 555 9,272
Real estate - variable ............ 17,832 -- -- -- -- -- 17,832
Installment (4) ................... 48 12 32 106 1,102 -- 1,300
- -----------------------------------------------------------------------------------------------------------------------------
Total loans ........................... $30,268 $ 431 $ 2,826 $ 6,942 $ 7,750 $ 1,761 $49,978
- -----------------------------------------------------------------------------------------------------------------------------
Total assets .......................... $35,034 $17,180 $14,152 $ 6,942 $ 7,750 $ 2,174 $83,232
- -----------------------------------------------------------------------------------------------------------------------------
Source of Funds:
Deposits:
Interest-bearing demand deposits .. 13,581 -- -- -- -- -- 13,581
Time deposits greater than $100,000 3,149 6,849 1,345 5,211 4,159 -- 20,713
Time deposits less than $100,000 .. 1,014 3,538 2,612 5,547 906 -- 13,617
Passbook time deposits - variable . 6,151 -- -- -- -- -- 6,151
Savings (5) ....................... -- 9,932 -- -- -- -- 9,932
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits ........................ $23,895 $20,319 $ 3,957 $10,758 $ 5,065 $ -- $63,994
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities ..................... $23,895 $20,319 $ 3,957 $10,758 $ 5,065 $ -- $63,994
- -----------------------------------------------------------------------------------------------------------------------------
Gap ................................... $11,139 $(3,139) $10,195 $(3,816) $ 2,685 $ 2,174 $19,238
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap ....................... $11,139 $ 8,000 $18,195 $14,379 $17,064 $19,238 $19,238
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Non-accruing loans not yet charged off are included in the loan balance.
(2) Overdrafts are not included in the loan balance.
(3) Securities are stated at amortized cost.
(4) Credit Cards are not included in the loan balance.
(5) IRA's and Christmas Club accounts are not included in the balance.
(6) FRB stock is not included in the balance.
</FN>
</TABLE>

The gap is considered positive when the amount of interest rate sensitive assets
which reprice over a given time period exceeds the amount of interest rate
sensitive liabilities which reprice over the same time period and is considered
negative when the reverse is true. During a period of rising interest rates, a
positive gap tends to result in increased net interest income while a negative
gap would have an adverse effect on net interest income. As illustrated by the
table, the Company maintained a positive gap at September 30, 1996. The Company,
therefore, was asset sensitive and was positioned for increased net interest
income given a rise in interest rates in 1996. The degree of positive gap is not
so large that a significant detrimental impact would result from stable or
declining interest rates.
<PAGE>

BALANCE SHEET ANALYSIS

Cash and Due from Banks: Cash and due from banks for the quarter ended September
30, 1996, was $4,338,145, compared to $4,330,351 at December 31, 1995.

Securities: The fair value of available-for-sale securities totaled $11,766,532,
compared to $12,926,352 at December 31, 1995. The decrease in available-for-sale
securities was primarily due to investments that matured during the year. New
securities purchased in the first nine months of 1996 were placed in the
held-to-maturity category due to the Banks intent to hold these funds until they
mature. As of September 30, 1996, available-for-sale securities made up 40% of
the securities portfolio while held-to-maturity securities made up 60% of the
portfolio. The majority of the securities are variable at 96% of the securities
portfolio and 4% are fixed rate.

The securities portfolio consisted primarily of U.S. government agency
securities and two municipal bonds. The amortized cost of held-to-maturity
securities totaled $17,125,667 at quarter end compared to $20,351,537 at
December 31, 1995.

The following table shows the amortized cost (book value) of the Company's
portfolio of available-for-sale and held-to-maturity securities for the periods
ending September 30,1996 and December 31, 1995:

- --------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------

Available-for-sale:

U. S. Treasury $ 0 $ 0

U. S. government agencies 11,251,891 12,188,734

States & political subdivisions 389,985 605,656

Corporate bonds and other 204,350 55,350
- --------------------------------------------------------------------------------
Total $ 11,846,226 $ 12,849,740
- --------------------------------------------------------------------------------

Held-to-maturity:

U. S. Treasury $ 0 $ 0

U. S. government agencies 16,845,667 18,252,276

States & political subdivisions 280,000 695,578

Corporate bonds and other 0 1,403,683
- --------------------------------------------------------------------------------
Total $ 17,125,667 $ 20,351,537
- --------------------------------------------------------------------------------
<PAGE>
The following tables show the amortized cost (book value) and maturities of
securities at September 30, 1996, and the weighted average yields (1).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Securities/Maturities - September 30, 1996
--------------------------------------------------------------------------------------
After 1 but After 5 but
Within 1 year Within 5 Years Within 10 Years After 10 Years
--------------------- -------------------- -------------------- ----------------------
Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:(1)
U. S. Treasury .... $ -- $ -- $ --
U.S. government
agencies .......... 2,871,207 4.81% 1,215,770 6.67% 7,164,914 6.72% $ --
States & political
subdivisions (2)... -- -- -- 389,985 13.50%
Corporate bonds(2)(3) -- -- -- --

- --------------------------------------------------------------------------------------------------------------
Total ......... $2,871,207 4.81% $ 1,215,770 6.67% $ 7,164,914 6.72% $ 389,985 13.50%
- --------------------------------------------------------------------------------------------------------------
Held-to-maturity:(1)
U. S. Treasury .... $ -- $ -- $ -- $ --
U.S. government
agencies .......... 40,078 8.11% 3,339,578 7.50% 11,787,311 7.29% 1,678,700 8.06%
States & political
subdivisions (2)... 280,000 4.89% -- -- --
Corporate bonds (2) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total ......... $ 320,078 5.29% $ 3,339,578 7.50% $11,787,311 7.29% $1,678,700 8.06%
- --------------------------------------------------------------------------------------------------------------
<FN>
(1) Yields are calculated on a tax equivalent basis using the Federal statutory rate of 34%.
(2) There were no securities which exceeded 10% of stockholders' equity.
(3) Federal Reserve Stock and other stock not included in balance.
</FN>
</TABLE>

Loan Composition: The loan portfolio totaled $49,000,234 at September 30, 1996,
compared to $46,519,819 at December 31, 1995. There was a slight shift from
commercial loans to real estate construction and real estate mortgage loans.
Total gross loans increased 4.99% in the first nine months of 1996. Consumer
loans continue to decline due to recessionary influences and competition. The
composition of the Bank's loan portfolio is as follows:

- --------------------------------------------------------------------------------
Percentage Percentage
Sept.30, of Total Dec. 31, of Total
1996 Loans 1995 Loans
- --------------------------------------------------------------------------------
Commercial, financial
and agricultural .......... $22,571,047 44.70% $22,755,013 47.30%
Real Estate - construction .. 13,108,616 25.96% 9,175,475 19.10%
Real Estate - mortgage ...... 12,930,150 25.61% 14,090,502 29.30%
Installment loans to individuals 1,885,822 3.73% 2,073,749 4.30%
- --------------------------------------------------------------------------------
$50,495,635 100.00% $48,094,739 100.00%

Unearned discount ........... (67,522) (80,189)
Allowance for possible loan
losses ...................... (1,059,749) (1,219,304)
Deferred loan fees .......... (273,235) (275,427)
Deferred profit on OREO
sales (2) ................... (94,894)
- --------------------------------------------------------------------------------
Loans, net .............. $49,000,235 $46,519,819
- --------------------------------------------------------------------------------
(1) There were no lease financing or foreign loans
(2) Audited financial statements for December 31, 1995, do not include Deferred
profit on OREO sales due to not being material in amount.

<PAGE>

The Bank's customers are primarily located in Stanislaus County and San Joaquin
County. Approximately 52% of the Bank's loans are for real estate and
construction and approximately 45% of the Bank's loans are for general
commercial uses including professional, retail, agricultural and small business.
Generally real estate loans are secured by real property and commercial and
other loans are secured by funds on deposit, business or personal assets.
Repayment is generally expected from the proceeds of the sales of property for
real estate construction loans, and from cash flows of the borrower for other
loans.

Neither the Bank nor the regulators have placed any limitations on the
composition of the Bank's loan portfolio. There were no concentrations of loans
exceeding 10% of total loans that were not otherwise disclosed as a category of
loans in the above table. Unsecured loans are not a significant portion of the
loan portfolio depicted in the above table. There were no other interest bearing
assets at the end of the period.

The Bank has collateral management policies in place so that collateral lending
of all types is on a basis that it believes is consistent with regulatory
lending standards. Valuation analyses are utilized to take into consideration
the potentially adverse economic conditions under which liquidation of
collateral could occur. It is generally the Bank's policy to fully collateralize
all loans with loan-to-value ratios determined on an individual loan basis
taking into account the financial stability of each borrower and the value and
type of the collateral.

Allowance for Loan Losses: The allowance for loan losses is based upon
management's evaluation of the adequacy of the existing allowance for loans
outstanding. These evaluations take into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, loan
concentrations, specific loan problems and current economic conditions that may
affect the borrower's ability to repay. The allowance for loan losses is
increased by provisions charged to expense and reduced by loan charge-offs net
of recoveries. Early recognition of problem credits is critical to avoid
shortages in the allowance. The allowance for loan losses totaled $1,059,749 or
2.10% of total gross loans at September 30,1996 compared to $1,219,304 or 2.54%
of total gross loans at December 31, 1995. The increase in the allowance in 1995
was primarily a response to the current state of the dairy industry which had
somewhat deteriorated and has now improved in the first nine months of 1996. One
dairy loan in particular accounted for a significant portion of the allowance
for loan losses in 1995 and has since been charged-off and transferred to other
repossessed assets. As of September 30, 1996, the allowance primarily consists
of one commercial retail center that is experiencing difficulty in leases and
cash flow.

The allowance for loan losses is a product of the Bank's allowance for loan loss
methodology that reflects the potential losses in the loan portfolio. The Bank's
conservative lending philosophy allows this allowance to be quite manageable.
Loans totaling $468,637 were charged off during the period and $148,516 was
collected in recoveries. Loans charged off totaled $112,366 as of December 31,
1995, and $108,234 was collected in recoveries. The increase in charged off
loans was primarily due to one dairy loan that was brought down to fair value
and transferred to other repossessed assets in the second quarter of 1996.

Total loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention (including nonaccrual loans and troubled debt restructuring)
at September 30, 1996, were $6,448,249. At December 31, 1995, total loans
classified for regulatory purposes was $9,189,084. Of the total classified, none
of the loans were classified as doubtful at the end of September 30, 1996, or
December 31, 1995. Management is not aware of any other material credit that
there is serious doubt regarding the ability to repay other than those reflected
in classified loans and in the allowance for possible loan losses.

<PAGE>

Non-Accrual Loans, Restructured Loans and Real Estate Owned: Information
regarding non-accrual loans, past due loans and restructured loans is presented
below.

- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
Non-accrual loans: (1)
Commercial, financial and agricultural .. $ 149,181 $ 1,200,342
Real estate loans ....................... 257,976 494,214
Consumer loans .......................... -- --
---------- -----------
Total non-accrual loans ............. $ 407,157 $ 1,694,556
- --------------------------------------------------------------------------------
Loans past due 90 days or more
still accruing interest (2) ................. $ 11,948 --
- --------------------------------------------------------------------------------
Troubled debt restructuring ................. $1,134,379 $ 1,146,080
- --------------------------------------------------------------------------------
(1) Carrying Value
(2) Credit Cards

Non-accrual loans at quarter end amounted to $407,157, down from $1,694,556 at
December 31, 1995. One large agricultural/commercial loan made up the major
portion of the non-accrual loans in 1995. Gross interest income that would have
been recorded for non-accrual loans if loans had been current in accordance with
original terms and had been outstanding throughout the period or since
origination for year to date 1996 and December 31, 1995, was $22,936 and
$115,869, respectively. There was no interest income included in net income for
the period for non-accrual loans.

Management is constantly aware of the need for maintaining high credit
standards. The Company is not involved in foreign lending and is not engaged in
high yield, high risk loans. A loan is placed on nonaccrual status when either
principal or interest is in default for 90 days more, or when external factors
indicate that payment in full of principal and interest appears unlikely unless
the loan is well secured and in the process of collection. When a loan is placed
on nonaccrual status, all interest previously accrued but uncollected shall be
reversed against the appropriate income account. In most cases, if the loan is
rated substandard or better, payments shall be applied to interest first and
then principal provided no loss is anticipated. If a loss is anticipated, all
payments shall be applied to principal first and then interest. When one loan of
a customer is placed on nonaccrual status related borrowings will be evaluated
as to whether they should also be placed on nonaccrual status. Nonaccrual loans
will be restored to an accruing status when principal and interest are no longer
past due and unpaid, or the loan otherwise becomes well secured and in the
process of collection.

A troubled debt restructuring occurs when the Bank for economic or legal reasons
related to the debtor's financial difficulties, grants a concession to the
debtor that it would not ordinarily consider. Troubled debt restructuring can
occur in a variety of forms, such as transferring assets in a full or partial
settlement of the debt, issuing debt, or modifying terms including reducing the
stated interest rate, extending maturity dates, reducing the face amount or
maturity of the debt, or reducing accrued interest. Restructured loans totaled
$1,134,379 at September 30, 1996, and $1,147,775 at December 31, 1995. All
restructured loans were current as to principal and interest.

<PAGE>

FUNDING SOURCES

Deposits: Total deposits amounted to $79,924,252 as of September 30, 1996,
compared to $84,839,377 at December 31, 1995, a decrease of 5.79 %. The decrease
between December 31, 1995, and September 30, 1996, was primarily due to falling
deposit rates in the savings category. The Bank currently has a savings product
that is tied to the prime rate. As the prime rate decreases, as it has in the
last several months, deposits are redistributed to time deposits or move out of
the bank.
Historically, the Bank retains 90% or more of its deposits.

Non-interest bearing demand deposits averaged approximately $13,506,674 at
September 30, 1996, and $12,786,000 at December 31, 1995. Interest bearing
deposits averaged approximately $68,159,440 at end of September and $68,792,917
at year end December 31, 1995.

- --------------------------------------------------------------------------------
September 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate
- --------------------------------------------------------------------------------
Interest bearing deposits
Checking accounts ... $14,246,880 1.88% $14,368,972 2.12%
Savings ............. 18,526,185 4.24% 21,271,869 3.91%
Time deposits (1) ... 35,386,375 4.13% 33,152,076 5.59%
Non-interest bearing deposits 13,506,674 12,786,029
- --------------------------------------------------------------------------------
(1) Included at September 30, 1996 $20,712,824 in time certificates of
$100,000 or more, of which $9,997,860 matures in 3 months or less,
$1,345,041 matures in 3 to 6 months, $5,211,182 matures in 6 to 12 months,
and $4,158,741 matures in more than 12 months.

Other Borrowings: There were no other borrowings as of September 30, 1996, or
December 31, 1995.

Capital: Retained earnings from operations have been the primary source of new
capital for the Company. As of September 30, 1996, stockholders' equity was
$10,272,519, compared to $9,771,029 at year-end 1995. Risk-adjusted capital
guidelines, issued by bank regulatory agencies, assign risk weighting to assets
and off-balance sheet items and place increased emphasis on common equity. The
guidelines require adequately capitalized institutions to maintain a Tier I
(core) capital ratio of 4% and a combined Tier I and Tier II capital ratio of
8%. Institutions whose Tier I and total capital ratios meet or exceed 6% and
10%, respectively, is deemed to be well capitalized. For the Company, Tier I
capital consists of common stockholders' equity. In addition to the
risk-weighted ratios, all banks are expected to maintain leverage ratios, to be
determined on an individual basis, but not below a minimum of 3%. This ratio is
defined as Tier I capital to average total assets for the most recent quarter.
At September 30, 1996, the Company exceeded its capital requirements. Based on
the guidelines, the Bank's Tier I and combined Tier I and Tier II risk-weighted
ratios at September 30, 1996, and December 31, 1995, and 1994 were as follows:

- --------------------------------------------------------------------------------
September 30, December 31, December 31,
Minimum 1996 1995 1994
- --------------------------------------------------------------------------------
Risk Based Capital Ratio 8.00% 19.32% 18.14% 15.47%
Tier I Ratio 4.00% 18.06% 16.88% 14.49%
Leverage Ratio 3.00% 10.96% 10.02% 9.92%
- --------------------------------------------------------------------------------
<PAGE>

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings - None other than in the ordinary course of business.

Item 2 - Change in securities - None

Item 3 - Defaults Upon Senior Securities - None

Item 4 - Submission of Matters to a Vote of Security Holders

a) The Annual Meeting of Shareholders of Delta National Bancorp was
held on April 22, 1996.

b) The following five individuals were re-elected to the Board of
Directors of the Company:

Jack Dozier Andrew J. Rossi
Joseph A. Freitas Toinette Rossi
Theodore Poulos

c) The following matters were voted upon at the annual meeting:

1) Election of Directors. Election of the following five (5)
persons to the Board of Directors of the Company to serve until
the 1997 Annual Meeting of Shareholders and until their
successors are elected and have qualified:

No. of Votes
For Against Withheld Abstain
Jack Dozier 271,296 0 3,198 0
Joseph A. Freitas 271,296 0 3,198 0
Theodore Poulos 271,296 0 3,198 0
Andrew J. Rossi 271,296 0 3,198 0
Toinette Rossi 271,296 0 3,198 0

2) 1996 Combined Incentive and Non-Qualified Stock Option Plan.
Approving the Company's 1996 Combined Incentive and
Non-Qualified Stock Option Plan covering thirty percent (30%)
of the Company's outstanding Common Stock.

No. of Votes
For Against Withheld Abstain

254,642 13,031 0 6,821

3) Ratification of Appointment of Independent Public Accountants.
Ratifying the selection of Grant Thornton LLP as the Company's
independent public accountants for 1996.
No. of Votes
For Against Withheld Abstain

271,960 0 0 2,534

Item 5 - Other Information - No Change.

Item 6 - Exhibits and Reports on Form 8-K

a) Exhibits

Registrant's Articles of Incorporation and Bylaws are
furnished by way of incorporation by reference to Exhibit 3 to
registrant's registration statement on Form S-14, as filed
under the Securities Act of 1933 on September 10, 1982, and
declared effective on October 8, 1982.

Plan of Reorganization and Agreement of Merger is furnished by
reference to registrant's Form S-14 as filed under the
Securities Act of 1933 on September 10, 1982, and effective on
October 8, 1982.

b) Reports on Form 8-K

The registrant did not file any reports on Form 8-K during the
period ending September 30, 1996

<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.

DELTA NATIONAL BANCORP
(Registrant)

DATE: October 23, 1996 /s/ Andrew Rossi
Andrew Rossi
President/Chief Executive Officer
Director
(Principal Executive Officer)

DATE: October 23, 1996 /s/ Warren E. Wegge
Warren E. Wegge
Executive Vice President
(Principal Financial Officer)

DATE: October 23, 1996 /s/ Toinette Rossi
Toinette Rossi
Vice President and Manager
Director

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