FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31,
1995
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
Commission file number 2-79261
DELTA NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 94-2839814
(State of incorporation or organization) (IRS Employer Identification No.)
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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
Aggregate Market Value of
Date Market Value Non-Affiliate Stock Holdings
December 31,1995 $19.50/Share $ 7,347,249
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of December 31, 1995: Common Stock, no par value - 376,782
shares.
<PAGE>
FORM 10-K CROSS REFERENCE INDEX
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Part I Page
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Item I. Business
Financial Review 8-19
Selected Statistical Information 4, 9-20
Description of Business 5-7
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a vote of security holders 20
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Part II Page
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Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters 4, 20
Item 6. Selected Financial Data 4, 19-20
Item 7. Management Discussion and Analysis of Financial
Condition and Results of Operations 8-19
Item 8. Financial Statements and Supplementary Data
Delta National Bancorp and Subsidiaries -
Consolidated Financial Statements 21-25
Notes to Consolidated Financial Statements 26-37
Independent Auditors' Report 38
Selected Statistical Information 4, 9-20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
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Part III Page
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Item 10. Directors and Executive Officers of the Registrant 39-40
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management 41-42
Item 13. Certain Relationships and Related Transactions 42
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Part IV Page
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Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 43
(a) (1) Financial Statements (See Item 8 for a listing
of all financial statements
(2) Financial Statement Schedules
All schedules normally required by Form
10-K are omitted since they either are not
applicable or the required information is
shown in the financial statements and notes
thereto.
(3) Exhibits
(b) No reports on Form 8-K have been filed
during the fourth quarter of the last year.
<PAGE>
<TABLE>
<CAPTION>
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FIVE YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION
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Year Ended December 31:
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(Amounts in thousands) 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income .......................................... $ 7,865 $ 6,612 $ 6,560 $ 7,385 $ 7,724
Interest expense ......................................... 3,019 2,310 2,280 2,892 3,566
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Net interest income .................................. 4,846 4,302 4,280 4,493 4,158
Provision for loan losses ................................ 624 192 642 465 87
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Net interest income after provision for loan losses .. 4,223 4,110 3,638 4,028 4,071
Non-interest income ...................................... 675 692 906 1,142 717
Non-interest expense ..................................... 3,485 3,442 3,239 3,328 3,261
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Income before income taxes ............................... 1,412 1,360 1,305 1,842 1,527
Income taxes ......................................... 552 539 514 720 577
Net Earnings ............................................. $ 860 $ 821 $ 791 $ 1,122 $ 950
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Earnings per share
Net income per share ................................. 2.28 2.18 2.10 2.98 2.52
Cash dividends per share ............................. .70 .70 .70 .70 .70
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At Year End
Cash and due from banks .................................. $ 4,381 $ 3,349 $ 5,987 $ 4,496 $ 5,436
Investment securities .................................... 33,278 33,028 29,425 28,833 21,844
Federal funds sold ....................................... 7,600 2,800 4,300 3900 4,500
Loans, net ............................................... 46,520 47,044 42,598 47,057 49,254
Other assets ............................................. 3,145 2,968 3,252 2,626 2,903
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Total assets ............................................. $ 94,924 $ 89,189 $ 85,562 $ 86,912 $ 83,937
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Demand deposits .......................................... $ 29,893 $ 28,329 $ 30,866 $ 31,114 $ 28,703
Time and savings deposits ................................ 54,946 51,892 45,962 47,223 47,706
Other liabilities ........................................ 314 221 135 530 341
Stockholders' equity ..................................... 9,771 8,747 8,599 8,045 7,187
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Total liabilities & stockholders' Equity ................. $ 94,924 $ 89,189 $ 85,562 $ 86,912 $ 83,937
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Selected Ratios (1)
Return on equity ......................................... 8.73% 9.18% 9.43% 15.44% 14.60%
Return on assets ......................................... .93% .94% .93% 1.34% 1.26%
Equity-to-assets ......................................... 10.69% 10.19% 9.86% 8.68% 8.63%
Capital Ratios
Leverage ratio ........................................... 10.02% 9.92% 9.65% 8.90% 8.56%
Risk based capital
Tier I ratio ......................................... 16.88% 14.49% 13.43% 11.70% 9.40%
Total capital ratio .................................. 18.14% 15.47% 14.22% 13.13% 11.96%
Average Balances
Total assets ............................................. $ 92,197 $ 87,812 $ 85,075 $ 83,739 $ 75,410
Earning assets ........................................... 85,566 80,977 77,315 76,774 70,148
Loans .................................................... 47,806 45,480 46,798 46,952 45,598
Total deposits ........................................... 81,579 78,305 76,132 75,881 68,123
Stockholders' equity ..................................... 9,852 8,945 8,385 7,266 6,505
Common Share and Stockholder Data
Market price, end of year ................................ $ 21.00 $ 16.75 $ 16.00 $ 15.00 $ 12.00
Book value, end of year .................................. 25.93 23.22 22.82 21.34 19.06
Common dividends ......................................... 263,747 263,747 263,747 263,747 263,747
Dividend payout ratio .................................... 30.67% 32.11% 33.32% 23.51% 27.75%
Average common shares outstanding ........................ 376,782 376,782 376,782 376,782 376,782
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(1) Ratios are based on average balances
</TABLE>
<PAGE>
DESCRIPTION OF BUSINESS
BUSINESS
Delta National Bancorp (the "Company") is a single bank holding company,
registered under the Bank Holding Company Act of 1956. The Company was
incorporated under the laws of the State of California on December 21, 1981. The
Company's principal office is located at 611 N. Main Street, Manteca,
California. The Company owns all of the capital stock of its subsidiary, Delta
National Bank (the "Bank").
The Company was organized at the direction of the Board of Directors for the
purpose of becoming a bank holding company pursuant to a Plan of Reorganization
and Agreement of a Merger which was consummated on June 27, 1983, following
receipt of the required regulatory and shareholder approval. On that date, (1)
Delta National Bank was merged into the New Delta National Bank, (an "interim"
California Banking Corporation organized as a wholly-owned subsidiary of the
Company for the purpose of facilitating the formation of the Company), (2) the
name of the New Delta National Bank was changed to "Delta National Bank" , and
(3) the shareholders of the Bank (with the exception of those shareholders who
perfected their rights as deserting shareholders) became shareholders of the
Company.
The Bank was organized in 1973 as a national banking association under the name
First National Bank of Riverbank; its present name was adopted in 1975 when the
Bank moved its headquarters location from Riverbank, California to Manteca,
California. At the present time, the Bank operates four branches serving the
communities of Manteca, Riverbank, Denair and Modesto, California. The service
area of the Bank is located in the heart of California's Central Valley. The
entire region consists of rich, flat farmland that benefits from a long growing
season. The Bank has grown over the years, which is a direct result from the
growth in the valley, both in employment and new construction, which has come
from a prosperous agriculture industry.
Through its branches, the Bank provides a wide range of commercial banking
services to individuals and small and medium-sized businesses. Services include
those traditionally offered by commercial banks, such as checking and savings
accounts, commercial, real estate, personal, home improvement, automobile and
other installment and term loans, travelers' checks, safe deposit boxes, escrow
services, collection services, computer payroll and accounting services, night
depository facilities, and wire transfers. The Bank does not have a trust
department; however, the Bank will make arrangements with its correspondent
institution to provide trust services, investment and international banking
services.
Competition: The banking business in California, especially in the market areas
served by the Bank, is highly competitive. The Bank competes for loans and
deposits with other commercial banks, savings and loan associations, finance
companies, money market funds, and credit unions for deposit and loan business.
Further, large commercial banks have greater lending limits than the Bank and
perform certain other functions, including trust services, which the Bank does
not offer directly. In competing for banking business, including deposits and
other related activities, the Bank employs personal contact, localized
advertising, interest rate competition and availability of specialized services
in order to meet the needs of various types of customers.
The Bank's loan portfolio consists of both secured and unsecured loans with a
significant portion either real estate secured or real estate related.
The latest available information indicates there were approximately 128 banking
offices including the Bank's four offices operating throughout San Joaquin and
Stanislaus county. The banking offices held approximately five billion in
deposits of which approximately 85 million were held by the Bank. The Bank's
deposit market share varies within the communities served by its offices ranging
from 2% in Modesto, 15% in Manteca, 100% in Riverbank and 100% in Denair.
Supervision, Regulation and Government Policies: The Bank as a National Banking
Association, is subject to primary supervision, examination and regulation by
the Comptroller of the Currency. It is also a member of the Federal Reserve
System and as such, is subject to applicable provisions of the Federal Reserve
Act and regulations issued thereunder. The deposits of the Bank are insured by
the Federal Deposit Insurance Corporation to the maximum extent provided by law.
The Bank is also subject to applicable provisions of California laws, insofar as
they do not conflict with or are not preempted by Federal banking law.
<PAGE>
Various requirements and restrictions under the laws of the United States and
the State of California affect the operations of the Bank. Federal statutes and
regulations relate to many aspects of the Bank's operations, including reserves
against deposits, interest rates payable on loans, investments, mergers and
acquisitions, borrowings, dividends, location of branch offices, and capital
levels.
In addition, from time to time, legislation is proposed which has the effect of
increasing the cost of doing business, limiting permissible activities or
affecting the competitive balance between banks and other financial
institutions. Changes in rates by the FDIC for deposit insurance will also
effect the cost of business.
Risk-adjusted capital guidelines were issued by bank regulatory authorities
early in 1989. These guidelines assign risk weighting to assets and off-balance
sheet items and place increased emphasis on common equity. The guidelines
currently require a minimum Tier I (core) capital ratio of 4% and a total risk
weighted capital ratio of 8% in order for an institution to be classified as
adequately capitalized. Institutions which maintain a Tier I ratio of 6% and
total capital ratio of 10% are defined as well capitalized. The Bank's Tier I
and total risk-weighted ratios at December 31, 1995 were 16.88% and 18.14%,
respectively.
In addition to the risk weighted ratios, the highest rated banks are required to
maintain a minimum leverage ratio of 3%. All other banks are expected to
maintain higher leverage ratios, to be determined on an individual basis. This
ratio is defined as Tier I capital to average total assets for the most recent
quarter. The Bank's leverage ratio at December 31, 1995 was 10.02%.
In September, 1995, FDICIA 305 was implemented and requires the banking agencies
to revise their risk based capital standards to ensure that those standards take
adequate account of interest rate risk. This rule amends the capital standards
to specify that the banking agencies will include in their evaluations of
capital adequacy an assessment of the exposure to declines in the economic value
of the bank's capital due to changes in interest rates. A bank may be required
to hold additional capital for interest rate risk if it has a significant
exposure or a weak interest rate risk management process. To date, the final
rule does not codify a measurement framework for assessing the level of a bank's
interest rate risk exposure nor does it specify a level of exposure above which
a bank will be required to hold more capital. The Bank is currently exempt from
certain reporting of interest rate risk but is prudently managing its interest
rate risk through risk management practices which include risk measurement, risk
management and risk control.
In 1993, federal bank regulatory agencies issued a statement imposing certain
limitations in the inclusion of net deferred tax assets calculated under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109") in regulatory capital. Deferred tax assets that are dependent
on future taxable income or the institution's tax planning strategies may only
be counted as a component of Tier I capital to the extent they do not exceed the
lesser of: (1) 10% of Tier 1 capital, or (2) the amount of such benefits which
may be realized based on one year's projected earnings. The Company adopted FAS
109 on January 1, 1993 at which time this regulation became applicable in
determination of its capital ratios. The effect of this new standard on income
tax expense for the year ended December 31, 1993 was not material.
The Federal Deposit Insurance Corporation Act of 1991 ("FDICIA"), enacted on
December 19, 1991 in connection with the recapitalization of the Banks Insurance
Fund ("BIF"), required the FDIC to set semi-annual assessment rates at levels
sufficient to increase the BIF's reserve ratio to a designated level within a
prescribed period of time. In August, 1995, the FDIC announced that, effective
June 1, 1995, it had significantly reduced the deposit insurance premiums paid
by most banks. Under the new rate structure, the best-rated institutions insured
by the BIF pay 4 cents per $100 of domestic deposits, down from the prior rate
of 23 cents per $100. The weakest institutions continue to pay 31 cents per $100
of domestic deposits depending on their risk classification. This risk
classification is based on an institution's capital group and supervisory
subgroup assignments. The FDIC has assigned the Bank the lowest premium
possible.
<PAGE>
In November, 1995, the FDIC announced that, starting in January 1996, it will
further reduce the deposit insurance premiums paid by most banks. Under the new
rate structure for the BIF, assessment rates will be lowered by four cents per
$100 of domestic deposits. Given the four cent reduction, the highest-rated
institutions will pay the statutory annual minimum of $2,000 for FDIC insurance.
Rates for all other institutions will be reduced by four cents per $100 as well,
leaving a premium range of 3-27 cents per $100, instead of the current 4-31
cents per $100.
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 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. Risk-based and leverage capital ratios will not reflect the
impact of unrealized gains or losses on securities available-for-sale as a
result of the regulatory and industry concerns about the potential for
volatility in regulatory capital ratios.
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". This statement, which
is 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.
Employees: The number of persons employed by the registrant is 61, as of
December 31, 1995.
Economic Conditions and Governmental Monetary Policies: The Bank continues to be
localized to two area counties with services provided to certain adjacent
counties. Local economic conditions have steadily, but slowly improved during
the year. Reductions in employment in the banking and finance industry, military
and governmental agencies and in family owned small businesses have impacted the
area significantly. Detrimental effects have been largely mitigated by the
strong starter home construction market and consistent agricultural production.
By capitalizing on the niche markets the Bank has identified, earnings have
improved over the preceding year. Cost controls, liability pricing assessment
and aggressive asset pricing have produced desirable margin management.
While not directly affected by conditions in all areas of the state, the
performance of California has a secondary, but significant influence in the
local banking community. Anticipated state improvements in revenues appears to
be altering the aggressiveness of area businesses and spurs the purchasing
appetite of the consumer. The ability of California to positively adapt to the
enormous defense cutbacks and large corporate workforce reductions bodes well in
the nations financial markets and company boardrooms allowing the state to be
considered as a desirable location for expansion.
The area of greatest concern and uncertainty is the unresolved federal budgeting
process. The national economy has slowed considerably and confidence in the
governmental process has diminished. Typically, the monetary policy of the
Federal Reserve Board greatly influences business, but with no identifiable
resolution to the budget because of deep political differences, interest rate
adjustments will not likely have as great an impact. Management assesses all
factors in determining strategies, planning and procedures for reacting to swift
changes in governmental and monetary policy.
<PAGE>
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 audited financial
statements and footnotes appearing elsewhere in this report.
At December 31, 1995, the Company's total assets were $94,924,333, net loans
amounted to $46,519,819, stockholders' equity was $9,771,029 and the allowance
for loan losses was $1,219,304. This compares to total assets of $89,189,024,
net loans of $47,043,601, stockholders' equity of $8,747,535 and allowance for
loan losses of $599,422 at December 31, 1994.
Net income for 1995 amounted to $859,877 or $2.28 per share, as compared with
$821,397 or $2.18 per share earned in 1994. A significant portion of the
increase in net income from a year ago was due to increased interest and fees on
loans and interest income earned on securities.
Earnings as measured by return on assets remained constant at .93% for 1995 and
.94% in the prior year. Return on equity approximated 8.73% in 1995 compared to
9.18% in 1994. The decrease in the return on equity is primarily due to a
substantial increase in the reserve for loan loss made at the end of 1995.
Non-accrual loans at year end amounted to $1,694,556, up from $10,267 at
December 31, 1994. One large commercial loan makes up the major portion of the
non-accrual loans. At December 31, 1995, other real estate owned ("OREO")
totaled $560,600 compared with OREO of $939,381 at December 31, 1994.
Restructured loans, loans outstanding whose original terms have been modified,
totaled $1,146,080 at December 31, 1995, which consisted of one real estate
loan. There were no restructured loans at December 31, 1994.
Although there was an increase in the provision for loan losses, net charge-offs
continued to decrease significantly in 1995 over the previous year. The
provision for loan losses was $624,014, up from $191,750 for 1994. Net
charge-offs amounted to $4,132 in 1995 versus $399,871 in 1994.
Net interest income and net interest margin in 1995 were $4,846,567 and 5.66%,
respectively, compared to $4,301,578 and 5.32%, respectively, for 1994. Net
interest income increased approximately 13% in 1995.
Non-interest income amounted to $674,677 in 1995, compared to $692,648 in 1994.
Income related to the service charges on deposits decreased $29,674 while other
income increased $11,703.
Operating expenses amounted to $3,485,353 in 1995, compared to 3,442,079 in
1994. FDIC assessments decreased $78,096 in 1995 while employee benefits
increased by approximately 38% due to a contribution that was made in 1995 to
the employee profit sharing plan.
<PAGE>
EARNINGS PERFORMANCE
Distribution of Average Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differential: The following table sets forth consolidated
average daily balances of each principal category of assets, liabilities and
stockholders' equity, interest on interest earning assets, and interest on
interest bearing liabilities, and the average yields earned or rates paid
thereon for the years ended December 31, 1995, 1994 and 1993. The table also
shows the net interest earnings and the net yield on average earning assets.
Averages were computed based upon daily balances.
<TABLE>
<CAPTION>
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1995 1994 1993
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Interest Average Interest Average Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(In Thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Deposits with other institutions $ 1 $ - - $ - $ - - $ 5 $ - -
Investment Securities:
U. S. treasury ................ 1,638 68 4.15% 2,797 119 4.25% 1,313 58 4.42%
U. S. government agency ....... 25,612 1,676 6.54% 18,170 944 5.20% 16,679 894 5.36%
Obligations of states
and political subdivisions(2).. 2,536 118 4.65% 4,082 176 4.31% 1,412 80 5.67%
Corporate bonds ............... 2,919 135 4.62% 4,730 238 5.03% 7,146 443 6.20%
Other ......................... 55 3 5.45% 55 2 3.64% 55 3 5.45%
Federal funds sold ................ 4,999 301 6.02% 5,663 243 4.29% 3,907 122 3.12%
Loans-interest & fees(1)(4) ....... 47,806 5,564 11.64% 45,480 4,890 10.75% 46,798 4,960 10.60%
------- ------- ------ ------- ------- ------ ------- ------- -------
Total Earning Assets .......... $85,566 $ 7,865 9.19% $80,977 $ 6,612 8.17% $77,315 $ 6,560 8.48%
------- ------- ------ ------- ------- ------ ------- ------- -------
Cash and due from banks ............... 3,972 4,400 4,861
Premises and equipment ................ 695 513 829
Other Assets .......................... 1,964 1,922 2070
------- ------- -------
Total Assets ...................... $92,197 $87,812 $85,075
======= ======= =======
Deposits:
Non-interest bearing .............. $12,786 $ - - $12,072 $ - - $11,238 $ - -
Interest bearing .................. 68,793 3,019 4.39% 66,233 2,310 3.49% 64,894 2,280 3.51%
------- ------- ------ ------- ------- ------ ------- ------- -------
Total Deposits .................... $81,579 $ 3,019 3.70% $78,305 $ 2,310 2.95% $76,132 $ 2,280 3.00%
------- ------- ------ ------- ------- ------ ------- ------- -------
Other liabilities ..................... 766 562 558
Stockholders' equity .................. 9,852 8,945 8,385
------- ------- -------
Total Liabilities and
stockholders' equity ............ $92,197 $87,812 $85,075
======= ======= =======
As a percentage of earning assets:
Interest and fee income ............... $ 7,865 9.19% $ 6,612 8.17% $ 6,560 8.48%
Interest expense ...................... 3,019 3.53% 2,310 2.85% 2,280 2.95%
------- ------- ------- ------ ------- -------
Net interest income/net
interest margin (3) ................... $ 4,846 5.66% $ 4,302 5.32% $ 4,280 5.53%
======= ====== ======= ====== ======= =======
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<FN>
(1) Loan interest includes loan fees of $431,406, $472,036 and $549,148 in 1995,1994 and 1993 respectively.
(2) Tax exempt interest income includes $48,000, $65,000 and $30,000 in 1995, 1994 and 1993 respectively to adjust to
a fully taxable equivalent basis using the Federal statutory rate of 34%.
(3) Net interest margin is computed by dividing net interest income by total average earning assets.
(4) Non-accruing loans not yet charged off are included in the loan balance.
(5) Average available-for-sale securities totaled $17,650,000, $17,422,000 in 1995 and 1994, respectively, not available for
1993. Average held-to-maturity securities totaled $15,055,000, $12,357,000 in 1995 and 1994, respectively, not
available for 1993.
</FN>
</TABLE>
<PAGE>
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 13% to $4,846,567
for the year ended December 31, 1995 compared to $4,301,578 in 1994 and
$4,279,657 in 1993.
Net interest margin increased to 5.66% for 1995 from 5.32% for 1994, and 5.53%
in 1993. The increase in income is a result of sound lending and investing
practices, cost control methods and prudent management decisions.
Changes in the Company's net interest income are a function of both changes in
rates and changes in volumes of interest-earning assets and interest-bearing
liabilities. The following table summarizes the changes in net interest income
for the major categories of interest-earning assets and interest-bearing
liabilities for 1995 and 1994. The total change is segmented into the change
attributable to variations in volume (changes in volume multiplied by old rate)
and the change attributable to variations in interest rates (changes in rates
multiplied by old volume). Changes not solely attributable to volume or rate
have been allocated to volume.
Non-accrual loans are included in average loans used to compute this table.
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1995 Over 1994 1994 over 1993
(In Thousands) Volume Rate Total Volume Rate Total
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Increase/(Decrease) in:
Loans, net of unearned income
and deferred loan fees ..... $ 225 $ 450 $ 675 $(188) $ 118 $ (70)
Interest-bearing deposits
placed with banks ......... - - - - - -
Taxable securities ........... 200 354 554 70 (136) (66)
Tax-exempt securities (1) .... (45) 12 (33) 118 (51) 67
Federal funds sold ........... (29) 86 57 55 65 120
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Total interest income ..... $ 351 $ 902 $1,253 $ 55 $ (4) $ 51
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Total interest bearing
deposits.................... $ 89 $ 619 $ 708 $ 47 $ (17) $ 30
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Total interest expense .... $ 89 $ 619 $ 708 $ 47 $ (17) $ 30
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Changes in net interest
income...................... $ 262 $ 283 $ 545 $ 8 $ 13 $ 21
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(1) Interest income is reflected on a fully tax equivalent basis.
Provision for Loan Losses: The provision for loan losses totaled $624,014 for
1995, compared to $191,750 in 1994 and $642,000 in 1993. The increase in the
provision in 1995 was primarily a response to the current state of the dairy
industry which has somewhat deteriorated in recent months. One dairy loan in
particular accounts for a significant portion of the increase to the allowance.
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 $674,677 for 1995, down
from $692,648 in 1994 and $906,587 in 1993. Service charges on deposits declined
approximately 5.7% in 1995. Included in 1995 income is a pre-tax gain on the
sale of one OREO property.
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(In Thousands) 1995 1994 1993
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Service charges on deposit accounts ........... $486,673 $516,347 $656,056
Gain on sale of OREO .......................... 26,128 - -
Gain on sale of fixed assets .................. - 2,912 19,880
Other income .................................. 161,876 173,389 230,651
-------- -------- --------
Total ..................................... $674,677 $692,648 $906,587
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<PAGE>
Non-Interest Expense: Non-interest expense amounted to $3,485,353 in 1995,
compared to $3,442,079 in 1994 and $3,238,790 in 1993. Employee benefits expense
increased in 1995 over 1994 due to a contribution of $100,000 that was made to
the employee profit sharing plan. No contribution was made to the plan in 1994
or 1993.
- --------------------------------------------------------------------------------
(In Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Salaries and wages ................ $1,589,306 $1,502,791 $1,490,436
Employee benefits ................. 307,076 222,797 242,256
Occupancy and equipment ........... 673,222 586,905 525,680
Data processing ................... 20,088 21,448 26,250
Stationary and supplies ........... 84,328 91,022 103,784
Professional fees ................. 155,132 137,757 136,655
FDIC assessments .................. 129,117 207,213 206,864
Other operating ................... 510,084 672,146 506,865
Loss on sale of available-for-sale
security .......................... 17,000 - -
- --------------------------------------------------------------------------------
Total ......................... $3,485,353 $3,442,079 $3,238,790
- --------------------------------------------------------------------------------
INCOME TAXES
For the year ended December 31, 1995, the Company filed a consolidated Federal
income tax return and State return. At December 31, 1995, the Company had a
$450,000 net deferred tax asset. Income tax expense reflects rates on earnings
before income taxes of 39.1% and 39.6% for the two years ended December 31, 1995
and 1994, respectively.
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 1995, the Company continued to maintain a
high level of liquidity. Highly liquid assets consisting of cash, deposits
placed with banks, Federal funds sold and securities available for sale averaged
approximately $26,622,000 or 28.9% of average total assets as compared with
approximately $27,485,000 or 31.3% of average total assets for 1994. At year
end, the Bank had a liquidity ratio of 22.48%.
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 which
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 December 31,
1995. 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
0 - 30 31 - 90 3 - 6 6 - 12 1 - 5 More than
(In Thousands) Days Days Months Months Years 5 Years Total
- ----------------------------------------------------------------------------------------- -------------------------------
Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Fed funds sold .......................... $ 7,600 $ -- $ -- $ -- $ -- $ -- $ 7,600
Deposit accounts with other banks ....... 51 -- -- -- -- -- 51
Securities: (3)
U.S. Treasury ......................... -- -- -- -- -- --
U.S. government agencies .............. -- 15,511 14,403 500 -- 27 30,441
Municipals ............................ -- -- 220 691 -- 390 1,301
Corporate bonds (6) ................... -- 701 703 -- -- -- 1,404
Loans: (1)
Commercial-fixed ...................... 609 1,843 806 1,735 2,754 167 7,914
Commercial-variable(2) ................ 14,792 -- -- -- -- -- 14,792
Real estate-fixed ..................... 71 195 332 154 999 51 1,802
Real estate-variable .................. 21,464 -- -- -- -- -- 21,464
Installment (4) ....................... 22 10 62 88 1,270 -- 1,452
-------- -------- -------- -------- -------- -------- --------
Total loans ............................. $ 36,958 $ 2,048 $ 1,200 $ 1,977 $ 5,023 $ 218 $ 47,424
-------- -------- -------- -------- -------- -------- --------
Total assets ............................ $ 44,609 $ 18,260 $ 16,526 $ 3,168 $ 5,023 $ 635 $ 88,221
======== ======== ======== ======== ======== ======== ========
Source of Funds:
Deposits:
Interest-bearing demand deposits ...... 13,913 -- -- -- -- -- 13,913
Time deposits greater than
$100,000 .............................. 3,719 3,004 5,923 10,554 1,660 -- 24,860
Time deposits less than
$100,000 .............................. 1,058 1,479 3,696 2,389 2,088 -- 10,710
Passbook time deposits-variable ....... 8,236 -- -- -- -- -- 8,236
Savings (5) ........................... -- 9,542 -- -- -- -- 9,542
-------- -------- -------- -------- -------- -------- --------
Total deposits .......................... $ 26,926 $ 14,025 $ 9,619 $ 12,943 $ 3,748 $ -- $ 67,261
-------- -------- -------- -------- -------- -------- --------
Total liabilities ....................... $ 26,926 $ 14,025 $ 9,619 $ 12,943 $ 3,748 $ -- $ 67,261
======== ======== ======== ======== ======== ======== ========
Gap ..................................... $ 17,683 $ 4,235 $ 6,907 $ (9,775) $ 1,275 $ 635 $ 20,960
-------- -------- -------- -------- -------- -------- --------
Cumulative interest sensitivity gap ..... $ 17,683 $ 21,918 $ 28,825 $ 19,050 $ 20,325 $ 20,960 $ 20,960
- -------------------------------------------------------------------------------------------------------------------------
<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 affect on net interest income. As illustrated by the
table, the Company maintained a positive gap at December 31, 1995. The Company,
therefore, was asset sensitive and was positioned for increased net interest
income given a rise in interest rates in 1995. The degree of positive gap is not
so large that a significant detrimental impact would result from stable or
declining interest rates.
BALANCE SHEET ANALYSIS
Cash and Due from Banks: Average cash and due from banks for the year ended
December 31, 1995 was $3,972,362, down 9.7% from the prior year average of
$4,399,198 due to increased loan activity and lower cash balance requirements.
<PAGE>
Securities: The fair value of available-for-sale securities totaled $12,926,352
at December 31, 1995, as compared to $21,231,071 at the end of 1994, with
balances averaging approximately $ 17,650,000 and $17,422,000, respectively. The
decrease in available-for-sale securities was primarily due to investments that
matured during the year. New securities purchased in 1995 were placed in the
held-to-maturity category due to the Banks intent to hold these funds until they
mature. One available-for-sale security was sold in 1995 resulting in a loss of
$17,000.
The Company's short-term investments, consisting of securities
available-for-sale and federal funds sold averaged approximately $22,649,000 for
1995, compared to approximately $23,085,000 for 1994. These investments amounted
to $20,526,352 at year-end 1995, compared to $24,031,071 for 1994. In 1995, the
securities portfolio consisted primarily of U.S. government agency securities,
municipals and corporate bonds. In 1995, federal funds sold averaged
approximately $4,999,000 as compared to approximately $5,663,000 in 1994. The
amortized cost of held-to-maturity securities totaled $20,351,537 in 1995,
compared to $11,797,037 in 1994.
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 1995 and 1994:
- --------------------------------------------------------------------------------
At December 31, (In Thousands) 1995 1994
- --------------------------------------------------------------------------------
Available-for-sale:
U. S. Treasury ................... $ -- $ 1,996,348
U. S. government agencies ........ 12,188,734 16,187,511
States & political subdivisions .. 605,656 2,281,382
Corporate bonds and other ........ 55,350 1,419,755
- --------------------------------------------------------------------------------
Total ........................ $12,849,740 $21,884,996
- --------------------------------------------------------------------------------
Held-to-maturity:
U. S. Treasury ................... $ -- $ --
U. S. government agencies ........ 18,252,276 7,695,521
States & political subdivisions .. 695,578 1,328,028
Corporate bonds and other ........ 1,403,683 2,773,488
- --------------------------------------------------------------------------------
Total ........................ $20,351,537 $11,797,037
- --------------------------------------------------------------------------------
The following tables show the amortized cost (book value) and maturities of
securities at December 31, 1995 and the weighted average yields (1).
<TABLE>
<CAPTION>
Securities/Maturities - December 31, 1995
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:
U. S. Treasury ..................... $ -- -- $ -- -- $ -- -- $ -- --
U.S. government agencies ........... 2,200,160 4.56% 2,246,917 6.59% 7,741,657 6.87% -- --
States & political subdivisions(2).. 215,086 6.48% -- -- -- -- 390,570 13.55%
Corporate bonds (2)(3).............. -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ----------- ----- ---------- -----
Total .......................... $2,415,246 4.70% $2,246,917 6.59% $ 7,741,657 6.87% $ 390,570 13.55%
========== ==== ========== ==== =========== ==== ========== =====
Held-to-maturity:
U. S. Treasury ..................... $ -- $ -- $ -- $ --
U.S. government agencies ........... 31,647 7.50% 2,584,291 8.38% 13,279,388 7.36% 2,356,950 8.14%
States & political subdivisions(2).. 695,578 5.10% -- -- -- -- -- --
Corporate bonds (2)................. 1,403,683 4.64% -- -- -- -- -- --
---------- ----- ---------- ----- ----------- ----- ---------- -----
Total .......................... $2,130,908 4.80% $2,584,291 8.38% $13,279,388 7.36% $2,356,950 8.14%
========== ==== ========== ==== =========== ==== ========== =====
(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 not included in balance.
</TABLE>
<PAGE>
Loan Composition: The loan portfolio totaled $46,519,819 at December 31, 1995
with a 1.1% decrease over $47,043,601 in 1994. There was a shift from real
estate mortgage loans to commercial and real estate construction loans. Consumer
loans declined by over $1,000,000 due to recessionary influences and
competition. Commercial real estate mortgages declined due to refinancings
because of lower interest rates. Significant gains were shown in real estate
construction. The provision for loan losses increased primarily due to the
condition of the dairy industry.
The composition of the Bank's loan portfolio as of December 31, is as follows:
- --------------------------------------------------------------------------------
Percentage Percentage
of Total of Total
1995 Loans 1994 Loans
- --------------------------------------------------------------------------------
Commercial, financial and
agricultural.............. $22,755,013 47.30% $20,991,617 43.70%
Real Estate - construction . 9,175,475 19.10% 7,352,440 15.30%
Real Estate - mortgage ..... 14,090,502 29.30% 16,610,145 34.50%
Installment loans to
individuals............... 2,073,749 4.30% 3,101,692 6.50%
----------- ------ ----------- ------
$48,094,739 100.00% $48,055,894 100.00%
====== ======
Unearned discount .......... (80,189) (167,027)
Allowance for possible
loan losses............... (1,219,304) (599,422)
Deferred loan fees ......... (275,427) (245,844)
----------- -----------
Loans, net ............. $46,519,819 $47,043,601
=========== ===========
- --------------------------------------------------------------------------------
(1) There were no lease financing or foreign loans
Loan maturities as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RE RE
Comc'l Comc'l Const. Const. Other Other
Total Fixed Variable Fixed Variable Fixed Variable
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One year or less ................. $19,460,770 $ 5,058,370 $ 5,634,051 $ 184,338 $ 4,018,760 $ 943,065 $ 3,622,186
After one year through
five years ..................... 26,553,441 2,855,720 8,395,616 0 4,972,377 2,075,514 8,254,214
After five years ................. 2,080,528 0 811,256 0 0 51,099 1,218,173
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total ........................ $48,094,739 $ 7,914,090 $14,840,923 $ 184,338 $ 8,991,137 $ 3,069,678 $13,094,573
=========== =========== =========== =========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank's customers are primarily located in Stanislaus County and San Joaquin
County. Approximately 48% of the Bank's loans are for real estate and
construction and approximately 47% 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 or 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 which 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.
<PAGE>
The Bank has collateral management policies in place so that collateral lending
of all types is on a basis which 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 provision 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 $1,219,304 or
2.54% of total gross loans at December 31, 1995 compared to $599,422 or 1.25% at
December 31, 1994 and $807,543 or 1.84% at December 31, 1993. The increase in
the allowance in 1995 was primarily a response to the current state of the dairy
industry which has somewhat deteriorated in recent months. One dairy loan in
particular accounts for a significant portion of the increase to the allowance.
The decrease in the allowance in 1994 over 1993 generally corresponds to the
decrease in total charge offs over the previous years.
The provision 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 provision to be quite manageable. Of
particular importance is the three year trend of decreasing net charged off
loans which reflects strong management of the loan portfolio. Loans totaling
$112,366 were charged off during the period and $108,234 was collected in
recoveries. Loans charged off totaled $563,719 in 1994 and $644,965 in 1993,
while recoveries totaled $163,848 and $220,812 respectively. As a percent of
average loans outstanding during the year, net loans charged off were .009% in
1995, .88% in 1994 and .91% in 1993.
The following table summarizes the loan loss experience of the Company for 1995,
1994 and 1993:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Balance at January 1 ....... $ 599,422 $ 807,543 $ 589,696
Charge Offs:
Commercial, financial and
agricultural............ (357,634) (301,781)
Real Estate-construction.. (238,211)
Real Estate-mortgage...... (163,896) ( 25,072)
Installment loans
to individuals.......... (112,366) ( 42,189) ( 79,901)
----------- ----------- -----------
Total Charge Offs (112,366) (563,719) (644,965)
Recoveries:
Commercial, financial and
agricultural............ 1,390 3,448 88,328
Real Estate-construction.. 80,425 80,436 6,868
Real Estate-mortgage...... 2,200 60,292 100,083
Installment loans
to individuals.......... 24,219 19,672 25,533
---------- ---------- ----------
Total Recoveries 108,234 163,848 220,812
Net charge offs ............ ( 4,132) (399,871) (424,153)
Additions charged to
operations ............... 624,014 191,750 642,000
---------- ---------- ----------
Balance at December 31, .... $1,219,304 $ 599,422 $ 807,543
========== ========== ==========
Ratio of net charge-offs
during period to average
loans outstanding .......... .009% .879% .906%
- --------------------------------------------------------------------------------
<PAGE>
The following table sets forth the allocation for loan losses to each loan
category and the percentage of each loan category to total loans for the past
two years. The allocation of the allowance for loan losses should not be
interpreted as an indication that charge-offs will occur in these amounts or
that the allocation indicates future charge-off trends. Furthermore, the portion
allocated to each loan category is not the total amount available for future
losses that might occur within such categories.
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Percentage Percentage
of Loans of Loans
in each in each
Category to Category to
Total Total
Allowance Loans Allowance Loans
- --------------------------------------------------------------------------------
Commercial, financial and
agricultural .......... $ 599,783 47.30% $ 295,212 43.68%
Real Estate-construction. 262,944 19.10% 96,601 15.30%
Real Estate-mortgage .... 313,455 29.30% 147,491 34.56%
Installment loans to
individuals ........... 43,122 4.30% 60,118 6.46%
Unallocated - -
- --------------------------------------------------------------------------------
Total Reserves ..... $1,219,304 100.00% $ 599,422 100.00%
- --------------------------------------------------------------------------------
Total loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention (including nonaccrual loans and troubled debt restructuring)
at December 31, 1995 and 1994 were $9,189,084 and $2,111,775 respectively. Of
the total classified none of the loans were classified as doubtful at the end of
1995, and $42,238 were classified doubtful at the end of 1994. Management is not
aware of any other material credit which there is serious doubt regarding the
ability to repay other than those reflected in classified loans and in the
allowance for possible loan losses.
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.
Impaired loans totaled $2,840,637 at December 31, 1995, of which $1,146,080 is
the result of a troubled debt restructuring. The average investment in impaired
loans during 1995 was approximately $1,572,000. The total allowance for loans
losses relating to these loans was $334,981. Total cash collected on impaired
loans during 1995 approximated $78,800, of which $6,300 was credited to the
principal balance outstanding, and $72,500 was recognized as interest income.
Interest income that would have been recognized on impaired loans was
approximately $210,000 for the year ended December 31, 1995.
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 which 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,
Real Estate Construction, Residential Real Estate, Consumer, and Commercial Real
Estate loans.
<PAGE>
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:
- --------------------------------- ----------------------------------------
December 31, 1995 December 31, 1995
- --------------------------------- ----------------------------------------
Principal amount Valuation allowance at
of impaired loans $ 2,840,637 beginning of period $ -
Accrued interest 267 Net charges to operations
Deferred loan costs 1,408 for impairment 334,981
------------- Direct write-downs -
2,842,312 Recoveries -
Less valuation ------------
allowance 334,981 Valuation allowance at
------------- end of period $ 334,981
Total carrying ============
value $ 2,507,331
=============
- --------------------------------- ----------------------------------------
Non-Accrual Loans, Restructured Loans and Real Estate Owned: Information
regarding non-accrual loans, past due loans and restructured loans is presented
below.
- --------------------------------------------------------------------------------
At December 31, 1995 1994
- --------------------------------------------------------------------------------
Non-accrual loans:
Commercial loans ............. $ 1,200,342 $ -
Real estate loans ............ 494,214 -
Consumer loans ............... - 10,267
------------ -------------
Total non-accrual loans .. $ 1,694,556 $ 10,267
- --------------------------------------------------------------------------------
Loans past due 90 days or more
still accruing interest ........ - 1,003
- --------------------------------------------------------------------------------
Troubled debt restructuring ...... $ 1,146,080 $ -
- --------------------------------------------------------------------------------
Non-accrual loans at year-end amounted to $1,694,556, up from $10,267 at
December 31, 1994. One large agricultural/commercial loan makes up the major
portion of the non-accrual loans. 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 1995 and 1996 was $115,869 and $1,187 respectively. There was no
interest income included in net income for the period for non-accrual loans.
There were no loans past due 90 days or more which were still accruing interest.
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 is no longer
past due and unpaid, or the loan otherwise becomes well secured and in the
process of collection.
<PAGE>
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
$1,146,080 at December 31, 1995. There were no restructured loans at the end of
1994. All restructured loans were current as to principal and interest.
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 was $856,167 at December 31, 1995, this consisted of three properties,
two of which represented bare land. The third property is a condominium complex
consisting of eight units which were completed and placed in service as rental
units by the Bank. The valuation allowance at the end of 1995 totaled $295,567.
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Real estate owned:
Foreclosed assets $ 856,167 $ 1,197,025
Less valuation allowance 295,567 257,644
------------ ------------
OREO, net $ 560,600 $ 939,381
- -------------------------------------------------------------------------------
FUNDING SOURCES
Deposits: Total deposits amounted to $84,839,377 at December 31, 1995, compared
to $80,220,761 at the end of 1994, and increase of 5.8%. Average deposits during
the year increased 4.2%, averaging approximately $81,579,000 and $78,305,000,
respectively, for 1995 and 1994.
Non-interest bearing demand deposits averaged approximately $12,786,000 in 1995,
compared to $12,072,000 in 1994. Interest bearing deposits averaged
approximately $68,793,000 in 1995, an increase of 3.9%, or $2,560,000 from the
average for 1994.
- -------------------------------------------------------------------------------
1995 1994
Average Average Average Average
Balance Rate Balance Rate
- -------------------------------------------------------------------------------
Interest bearing deposits
Checking accounts $ 14,368,972 2.12% $ 16,753,519 2.13%
Savings 21,271,869 3.91% 13,588,857 3.93%
Time deposits (1) 33,152,076 5.59% 35,891,313 4.75%
Non-interest bearing deposits 12,786,029 12,071,705
- -------------------------------------------------------------------------------
(1) Included at December 31, 1995 are $24,859,848 in time certificates of
$100,000 or more, of which $6,722,445 matures in 3 months or less,
$5,923,039 matures in 3 to 6 months, $10,553,604 matures in 6 to 12
months, and $1,660,760 matures in more than 12 months.
Other Borrowings: There were no other borrowings as of December 31, 1995 or
December 31, 1994.
<PAGE>
Capital: Retained earnings from operations has been the primary source of new
capital for the Company. As of December 31, 1995, stockholders' equity was
$9,771,029, compared to $8,747,535 at year-end 1994. 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, are 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 December 31, 1995, 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 December 31, 1995 were as follows:
- -------------------------------------------------------------------------------
Minimum 1995 1994 1993
- -------------------------------------------------------------------------------
Risk Based Capital Ratio 8.00% 18.14% 15.47% 14.22%
Tier I Ratio 4.00% 16.88% 14.49% 13.43%
Leverage Ratio 3.00% 10.02% 9.92% 9.65%
- -------------------------------------------------------------------------------
SELECTED STATISTICAL INFORMATION
FINANCIAL RATIOS
The following table shows key financial ratios for the Company for 1995, 1994
and 1993:
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Net income as a percentage of:
Average stockholders' equity ................ 8.73% 9.18% 9.43%
Average total assets ........................ .93% .94% .93%
Average earning assets ...................... 1.01% 1.01% 1.02%
Stockholders' equity at year-end
as a percentage of:
Total assets at year-end .................... 10.29% 9.81% 10.05%
Net loans at year-end ....................... 21.00% 18.60% 20.19%
Total deposits at year-end .................. 11.52% 10.90% 11.19%
Average stockholders' equity as
a percentage of:
Average assets .............................. 10.69% 10.19% 9.86%
Average loans ............................... 20.61% 19.67% 17.92%
Average deposits ............................ 12.08% 11.42% 11.01%
- -------------------------------------------------------------------------------
PROPERTIES
Manteca Branch - In 1981 the Bank acquired the property located at 611 North
Main Street , for $308,000. The Company's headquarters and administrative
offices are also located there. The property consists of 2.4 acres and a
building of approximately 13,000 square feet. On December 31, 1987, the property
was transferred to the Company.
Riverbank Branch - Prior to 1995, the Bank leased the facility located at 3300
Santa Fe in Riverbank, California. Under the terms of the lease which expired in
1995 the Bank pays $2,332 per month. The Bank did not renew the lease in 1995
and is currently renting on a month to month basis. Land was purchased by the
Bank in 1995 for the purpose of building a new Riverbank facility. The facility
is projected to be open by the end of 1996 or beginning of 1997.
Denair Branch - The Bank currently leases the facility located at 4701 Main
Street, Denair, California. Under the terms of the lease the Bank currently pays
$3,100. The lease expires in the year 2008.
Modesto Branch - The Bank currently leases the facility located at 1901 McHenry
Ave, Modesto, California. Under the terms of the lease the Bank currently pays
$1,721. The lease expires in the year 2000 with one ten year option available.
<PAGE>
LEGAL PROCEEDINGS
Except for minor and usual collection litigation there are no pending claims
against the company, or its subsidiary which in counsel's reasonable opinion
will result in a substantial loss.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation of
proxies or otherwise.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed with A. G. Edwards, Inc. The Company's
stock is not listed with the National Association of Securities Dealers
automated quotations system. There has been a limited trading market in the
stock.
The following table states the high and low sales prices of the Company's stock
for all quarters in 1995 and 1994:
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
High Low High Low
First Quarter .......... $ 17.50 $ 16.50 $ 16.75 $ 16.00
Second Quarter .......... 17.00 16.75 17.00 16.50
Third Quarter ........... 19.50 19.00 16.75 16.50
Fourth Quarter .......... 21.00 19.50 16.75 16.50
- ------------------------------------------------------------------------------
There can be no assurance that an established public market for the common stock
will develop and the Company presently has no intention to seek the listing of
the common stock on any Securities Exchange or quotation on the NASDAQ inter
dealer quotation system, in the foreseeable future.
As of December, 1995, the Company had approximately 321 holders of record of
Delta National Bancorp Stock. The shareholders of the Company will be entitled
to receive dividends when and as declared.
The following table shows the dividends declared and paid by the Company for the
years 1995, 1994 and 1993:
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
Cash Dividends Paid ............... $ 263,747 $ 263,747 $ 263,747
Dividend payout ratio ............. 30.67% 32.11% 33.32%
Book value at year end ............ $ 25.93 $ 23.22 $ 22.82
Market price/book value at year end 80.99% 72.13% 70.42%
- ------------------------------------------------------------------------------
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DELTA NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash and due from banks ............................................................. $ 4,330,351 $ 3,348,915
Federal funds sold .................................................................. 7,600,000 2,800,000
------------ ------------
Total cash and cash
equivalents (notes A11 and B) ............................................ 11,930,351 6,148,915
Interest-bearing deposits in banks .................................................. 51,043 --
Securities available-for-sale (notes A4 and C) ...................................... 12,926,352 21,231,071
Securities held-to-maturity (notes A3 and C) ........................................ 20,351,537 11,797,037
Loans, net (notes A5, A6, and D) .................................................... 46,519,819 47,043,601
Property and equipment (notes A7 and E) ............................................. 1,342,500 902,405
Interest receivable and other assets (notes A8, F and J) ............................ 1,802,731 2,065,995
------------ ------------
$ 94,924,333 $ 89,189,024
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - non interest-bearing ................................................... $ 15,980,639 $ 13,214,461
Demand - interest-bearing ....................................................... 13,912,667 15,114,308
Regular savings ................................................................. 19,375,825 17,815,121
Time, under $100,000 (note G) ................................................... 10,710,398 12,535,049
Time, $100,000 and over (note G) ................................................ 24,859,848 21,541,822
------------ ------------
Total deposits ........................................................... 84,839,377 80,220,761
Accrued interest and other liabilities .............................................. 313,927 220,728
------------ ------------
Total liabilities ........................................................ 85,153,304 80,441,489
Stockholders' equity
Common stock, no par value
Authorized - 5,000,000 shares
Issued and outstanding - 376,782 shares ...................................... 3,531,886 3,531,886
Retained earnings ............................................................... 6,194,358 5,598,228
Net unrealized appreciation (depreciation)
on securities available-for-sale, net of tax of
$31,827 and $271,346 at December 31,
1995 and 1994, respectively (note C) ......................................... 44,785 (382,579)
------------ ------------
Total stockholders' equity ............................................... 9,771,029 8,747,535
------------ ------------
$ 94,924,333 $ 89,189,024
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DELTA NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
1995 1994 1993
---------- ---------- ----------
Interest income
Interest and fees on loans ........... $5,564,417 $4,889,682 $4,960,279
Securities available-for-sale ........ 1,023,444 1,004,370 --
Securities held-to-maturity .......... 976,537 474,260 --
Investment securities ................ -- -- 1,477,263
Federal funds sold ................... 300,467 243,408 122,576
Interest-bearing deposits in banks ... 215 50 148
---------- ---------- ----------
Total interest income ............. 7,865,080 6,611,770 6,560,266
Interest expense on deposits (note I) ... 3,018,513 2,310,192 2,280,609
---------- ---------- ----------
Net interest income ............... 4,846,567 4,301,578 4,279,657
Provision for loan losses ............... 624,014 191,750 642,000
---------- ---------- ----------
Net interest income after
provision for loan losses ....... 4,222,553 4,109,828 3,637,657
Other income
Service charges on deposits .......... 486,673 516,347 656,056
Other ................................ 188,004 176,301 250,531
---------- ---------- ----------
674,677 692,648 906,587
---------- ---------- ----------
Other expenses
Salaries and wages ................... 1,589,306 1,502,791 1,490,436
Employee benefits .................... 307,076 222,797 242,256
Occupancy and equipment .............. 673,222 586,905 525,680
Data processing ...................... 20,088 21,448 26,250
Stationery and supplies .............. 84,328 91,022 103,784
Professional fees .................... 155,132 137,757 136,655
FDIC assessments ..................... 129,117 207,213 206,864
Other operating ...................... 527,084 672,146 506,865
---------- ---------- ----------
3,485,353 3,442,079 3,238,790
---------- ---------- ----------
Earnings before income taxes ...... 1,411,877 1,360,397 1,305,454
Income taxes (notes A9 and J) ........... 552,000 539,000 514,000
---------- ---------- ----------
NET EARNINGS ...................... $ 859,877 $ 821,397 $ 791,454
========== ========== ==========
Net earnings per share (note A10) ....... $ 2.28 $ 2.18 $ 2.10
========== ========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
DELTA NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three years ended December 31, 1995
<TABLE>
<CAPTION>
Net change
in available-
Common stock Retained for-sale
Shares Amount earnings securities Total
<S> <C> <C> <C> <C> <C>
Balances at
January 1, 1993 ....... 376,782 $ 3,531,886 $ 4,512,871 $ -- $ 8,044,757
Cash dividends
paid ($.70 per share) . -- -- (263,747) -- (263,747)
Net changes in
unrealized appreciation
on available-for-sale
securities ............ -- -- -- 26,243 26,243
Net earnings ............. -- -- 791,454 -- 791,454
----------- ----------- ----------- ----------- -----------
Balances at
December 31, 1993 ..... 376,782 3,531,886 5,040,578 26,243 8,598,707
Cash dividends
paid ($.70 per share) . -- -- (263,747) -- (263,747)
Net changes in
unrealized depreciation
on available-for-sale
securities ............ -- -- -- (408,822) (408,822)
Net earnings ............. -- -- 821,397 -- 821,397
----------- ----------- ----------- ----------- -----------
Balances at
December 31, 1994 ..... 376,782 3,531,886 5,598,228 (382,579) 8,747,535
Cash dividends
paid ($.70 per share) . -- -- (263,747) -- (263,747)
Net changes in
unrealized appreciation
on available-for-sale
securities ............ -- -- -- 427,364 427,364
Net earnings ............. -- -- 859,877 -- 859,877
----------- ----------- ----------- ----------- -----------
Balances at
December 31, 1995 ..... 376,782 $ 3,531,886 $ 6,194,358 $ 44,785 $ 9,771,029
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
DELTA NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in cash and
cash equivalents
Cash flows from operating activities:
Net earnings ............................... $ 859,877 $ 821,397 $ 791,454
Adjustments to reconcile net
earnings to net cash provided
by operating activities
Loss (gain) on sale of assets ...... 6,654 (2,914) (21,689)
Provision for loan losses .......... 624,014 191,750 642,000
Provision for depreciation and
amortization ..................... 467,219 340,759 328,042
(Increase) decrease in interest
receivable and other assets ...... (510,394) 669,121 (227,701)
Increase (decrease) in interest
payable and other liabilities .... 93,199 85,875 (395,232)
------------ ------------ ------------
Net cash provided by
operating activities ....... 1,540,569 2,105,988 1,116,874
------------ ------------ ------------
Cash flows from investing activities:
Net (increase) decrease in interest-
bearing deposits in banks ............... (51,043) 5,397 (148)
Proceeds from sales of securities
available-for-sale ...................... 483,000 -- --
Proceeds from maturities of securities
available-for-sale ...................... 8,485,510 2,547,296 --
Proceeds from maturities of securities
held-to-maturity ........................ 4,253,496 6,529,093 --
Proceeds from sales and maturities
of securities ........................... -- -- 8,696,160
Purchase of securities available-for-sale .. -- (6,257,374) --
Purchase of securities held-to-maturity .... (12,984,116) (7,230,577) --
Purchase of securities ..................... -- -- (9,386,410)
Net (increase) decrease in loans ........... (100,233) (5,012,193) 2,995,046
Purchase of property and equipment ......... (707,079) (280,859) (259,131)
Proceeds from sale of property and
equipment ............................... 9,850 16,000 --
Proceeds from sale of foreclosed
real estate ............................. 496,613 316,293 500,522
------------ ------------ ------------
Net cash (used in) provided by
investing activities ....... (114,002) (9,366,924) 2,546,039
------------ ------------ ------------
</TABLE>
<PAGE>
DELTA NATIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposit and
savings accounts ........................... 3,125,241 3,233,049 696,138
Net increase (decrease) in time deposits ...... 1,493,375 159,377 (2,204,897)
Cash dividends ................................ (263,747) (263,747) (263,747)
------------ ------------ ------------
Net cash provided by (used in)
financing activities ............. 4,354,869 3,128,679 (1,772,506)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents .............................. 5,781,436 (4,132,257) 1,890,407
Cash and cash equivalents at
beginning of year .......................... 6,148,915 10,281,172 8,390,765
------------ ------------ ------------
Cash and cash equivalents at
end of year ................................ $ 11,930,351 $ 6,148,915 $ 10,281,172
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................. $ 2,970,959 $ 2,251,309 $ 2,332,325
Income taxes ............................. $ 982,000 $ 188,000 $ 921,000
</TABLE>
Noncash investing and financing activities:
The Bank foreclosed on loans with balances of $375,051 and $821,973 in
1994 and 1993, respectively. No loans were foreclosed on during 1995.
The Bank recognized an increase of $730,537 in the fair value of its
available-for-sale securities for the year ended December 31, 1995, a
decline of $698,841 in the fair value of its available-for-sale
securities for the year ended December 31, 1994, and an increase of
$44,916 in the fair value of its available-for-sale securities for the
year ended December 31, 1993.
The accompanying notes are an integral part of these statements.
<PAGE>
DELTA NATIONAL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
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. 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.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows.
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. Fair values of financial instruments
The financial statements include various estimated fair value information as
of December 31, 1995, as required by Financial Accounting Standards Board
Statement 107. Such information, which pertains to the Bank's financial
instruments, is based on the requirements set forth in Statement 107 and does
not purport to represent the aggregate net fair value of the Bank. Further,
the fair value estimates are based on various assumptions, methodologies and
subjective considerations, which vary widely among different financial
institutions and which are subject to change.
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. Securities purchased
under repurchase agreements are carried at the contract price.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
credit standing of the counterparties.
Deposit liabilities: The fair values estimated for demand deposits (interest
and non-interest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of the aggregate expected monthly maturities on
time deposits. The carrying amount of accrued interest payable approximates
its fair value.
Short-term borrowings: The carrying amounts of borrowings under repurchase
agreements and other short term borrowings approximate their fair values.
3. 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, which are recognized as adjustments
to interest income over the period to maturity.
4. 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.
5. Loans
Loans are reported at the principal amount outstanding, net of unearned
income, deferred loan fees, and the allowance for loan losses. 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.
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. 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.
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 is 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 financial impact of this pronouncement was not
significant.
7. 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.
8. Foreclosed real estate
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 $560,600 and $939,381 at
December 31, 1995 and 1994, respectively. Revenue and expenses from
operations and additions to the valuation allowance (note F) are included in
other expenses.
9. 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.
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. Earnings per share
Earnings per share amounts are computed on the basis of the weighted average
number of shares outstanding during each year. The weighted average number of
shares outstanding for 1995, 1994 and 1993 was 376,782.
11. Cash and cash equivalents
For purposes of the statement of cash flows, 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.
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 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 and estimated fair values of debt securities as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Obligations of other U.S.
government agencies .......................................... $12,188,734 $ 14,960 $ (80,692) $12,123,002
Obligations of states and
political subdivisions ....................................... 605,656 142,415 (71) 748,000
Corporate bonds and other ...................................... 55,350 -- -- 55,350
----------- ----------- ----------- -----------
Total .......................................................... $12,849,740 $ 157,375 $ (80,763) $12,926,352
=========== =========== =========== ===========
Held-to-maturity securities:
Obligation of other U.S.
government agencies .......................................... $18,252,276 $ 145,215 $ (2,931) $18,394,560
Obligation of states and
political subdivisions ....................................... 695,578 -- (1,918) 693,660
Corporate bonds and other ...................................... 1,403,683 -- (7,981) 1,395,702
----------- ----------- ----------- -----------
Total .......................................................... $20,351,537 $ 145,215 $ (12,830) $20,483,922
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTE C - SECURITIES
As of December 31, 1995, approximately 61% of the Bank's securities portfolio
consisted of Small Business Administration Guaranteed Loan Pool Certificates.
Credit risk related to such securities is greater than that of U.S.
Treasuries.
Proceeds from sales of available-for-sale securities were approximately
$483,000 in 1995. Gross losses of $17,000 were realized on these sales.
The amortized cost and estimated fair value of debt securities at December
31, 1995, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
----------- -----------
Available-for-sale securities:
Due in one year or less .......................... $ 2,415,246 $ 2,392,518
Due after one year through five years ............ 498,340 490,262
Due after ten years .............................. 445,920 587,944
Not due at a single date ......................... 9,490,234 9,455,628
----------- -----------
$12,849,740 $12,926,352
=========== ===========
Held-to-maturity securities:
Due in one year or less .......................... $ 2,099,261 $ 2,089,362
Not due at a single date ......................... 18,252,276 18,394,560
----------- -----------
$20,351,537 $20,483,922
=========== ===========
Amortized cost and estimated fair values of debt securities as of December
31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Obligations of other U.S
government agencies .......................................... $18,183,859 $ 317 $ (703,116) $17,481,060
Obligations of states and
political subdivisions ....................................... 2,281,382 88,433 (10,984) 2,358,831
Corporate bonds and other ...................................... 1,419,755 -- (28,575) 1,391,180
----------- ----------- ----------- -----------
Total .......................................................... $21,884,996 $ 88,750 $ (742,675) $21,231,071
=========== =========== =========== ===========
Held-to-maturity securities:
Obligation of other U.S.
government agencies .......................................... $ 7,695,521 $ 4,358 $ (43,454) $ 7,656,425
Obligation of states and
political subdivisions ....................................... 1,328,028 29 (30,609) 1,297,448
Corporate bonds and other ...................................... 2,773,488 349 (71,904) 2,701,933
----------- ----------- ----------- -----------
Total .......................................................... $11,797,037 $ 4,736 $ (145,967) $11,655,806
=========== =========== =========== ===========
</TABLE>
Investment securities carried at $10,802,942 and having a fair value of
$10,943,601 at December 31, 1995 were pledged to secure public deposits as
required or permitted by law. Pledged securities at December 31, 1994 had a
carrying value of $10,161,557 and a fair value of $9,857,870.
<PAGE>
NOTE D - LOANS
The composition of the Bank's loan portfolio at December 31, is as follows:
1995 1994
------------ ------------
Commercial, financial
and agricultural ..................... $ 22,755,013 $ 20,991,617
Real estate - construction ............. 9,175,475 7,352,440
Real estate - mortgage ................. 14,090,502 16,610,145
Installment ............................ 2,073,749 3,101,692
------------ ------------
48,094,739 48,055,894
Unearned discount .................. (80,189) (167,027)
Allowance for loan losses .......... (1,219,304) (599,422)
Deferred loan fees ................. (275,427) (245,844)
------------ ------------
Loans, net .................... $ 46,519,819 $ 47,043,601
============ ============
Non-performing assets are loans which are not accruing interest, and real
estate acquired through foreclosure. At December 31, 1995 and 1994,
non-performing assets amounted to $2,550,723 and $949,648, respectively.
Changes in the allowance for loan losses for the years ended December 31, are
summarized as follows:
1995 1994 1993
----------- ----------- -----------
Balance at January 1, ............. $ 599,422 $ 807,543 $ 589,696
Provision charged to operations ... 624,014 191,750 642,000
Recoveries of loans previously
charged off ..................... 108,234 163,848 220,812
Loans charged off ................. (112,366) (563,719) (644,965)
----------- ----------- -----------
Balance at December 31, ........... $ 1,219,304 $ 599,422 $ 807,543
=========== =========== ===========
Impaired loans aggregated approximately $2,841,000 at December 31, 1995, of
which $1,146,000 is the result of a troubled debt restructuring. The average
investment in impaired loans during 1995 was approximately $1,572,000. The
total allowance for loan losses relating to these loans approximates
$335,000. Total cash collected on impaired loans during 1995 approximated
$78,800, of which $6,300 was credited to the principal balance outstanding,
and $72,500 was recognized as interest income. Interest income that would
have been recognized on impaired loans was approximately $210,000 for the
year ended December 31, 1995.
The Bank's customers are primarily located in Stanislaus County and San
Joaquin County. Approximately 48% of the Bank's loans are for real estate and
construction and approximately 47% of the Bank's loans are for general
commercial uses including professional, retail, agricultural and small
business. Agricultural loans make up approximately 22% of the Bank's loan
portfolio. 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.
<PAGE>
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consists of the following at
December 31:
1995 1994
---------- ----------
Land ................................. $ 636,117 $ 85,000
Building and improvements ............ 444,475 444,475
Furniture, fixtures and equipment .... 1,704,532 1,784,367
Leasehold improvements ............... 143,428 138,382
Automobiles .......................... 64,042 75,821
Construction in progress ............. 46,238 --
---------- ----------
3,038,832 2,528,045
Less accumulated depreciation and
amortization ....................... 1,696,332 1,625,640
---------- ----------
$1,342,500 $ 902,405
========== ==========
Depreciation expense on property and equipment was $241,353, $231,468 and
$185,082 in 1995, 1994 and 1993, respectively.
During 1995, the Bank purchased land and prepared for the construction of a
branch in the town of Riverbank, California.
NOTE F - FORECLOSED REAL ESTATE
Changes in the allowance for losses for foreclosed real estate for the years
ended December 31, are as follows:
1995 1994 1993
--------- --------- ---------
Balance at January 1, ............... $ 257,644 $ -- $ --
Provision charged to operations ..... 37,923 261,544 --
Charge-offs, net of recoveries ...... -- (3,900) --
--------- --------- ---------
Balance at December 31, ............. $ 295,567 $ 257,644 $ --
========= ========= =========
NOTE G - TIME DEPOSITS
At December 31, 1995, the scheduled maturities of certificates of deposit are
as follows:
1996 $ 31,821,511
1997 2,581,421
1998 673,188
1999 441,450
2000 52,676
---------------
$ 35,570,246
===============
NOTE H - EMPLOYEE BENEFIT PLANS
Under the terms of the employee profit-sharing plan, a portion of the Bank's
profits, determined annually by the Directors, will be set aside and
maintained in a trust fund for the benefit of qualified employees.
Contributions to the plan, included in employee benefits on the statements of
earnings, were $100,000 in 1995. No contribution was made to the plan for
1994 or for 1993.
During 1995, the Bank adopted a defined contribution 401(k) plan (the Plan).
The Plan is available to all employees who are at least 18 years of age and
who have worked a minimum of six months for the Bank. Eligible employees who
elect to participate, may choose to contribute to the Plan, up to 10% of
their compensation for the plan year. The Bank may also elect to make
matching contributions to the Plan. The Bank did not make any matching
contributions to the Plan in 1995.
<PAGE>
NOTE I - INTEREST EXPENSE ON DEPOSITS
Interest expense on deposits was comprised of the following for the years
ended December 31:
1995 1994 1993
---------- ---------- ----------
Demand deposits and regular savings ..... $1,209,711 $ 755,796 $ 734,203
Time deposits greater than $100,000 ..... 522,539 559,932 1,019,095
Time deposits under $100,000 ............ 1,286,263 994,464 527,311
---------- ---------- ----------
$3,018,513 $2,310,192 $2,280,609
========== ========== ==========
NOTE J - INCOME TAXES
Effective January 1, 1993, the Bank adopted SFAS No. 109, "Accounting for
Income Taxes", which requires the use of the liability method in accounting
for income taxes. The effect of this new standard on income tax expense for
the year ended December 31, 1993 was not material.
The provision for income taxes for the years ended December 31, consists of
the following:
1995 1994 1993
--------- --------- ---------
Current:
Federal ............. $ 632,000 $ 429,000 $ 420,000
State ............... 241,000 167,000 153,000
--------- --------- ---------
873,000 596,000 573,000
--------- --------- ---------
Deferred:
Federal ............. (240,000) (55,000) (52,000)
State ............... (81,000) (2,000) (7,000)
--------- --------- ---------
(321,000) (57,000) (59,000)
--------- --------- ---------
$ 552,000 $ 539,000 $ 514,000
========= ========= =========
A reconciliation of income taxes computed at the federal statutory rate and
the provision for income taxes for the years ended December 31, are as
follows:
1995 1994 1993
--------- --------- ---------
Income taxes at statutory rates ......... $ 480,000 $ 463,000 $ 444,000
Reduction for tax exempt interest ....... (38,000) (53,000) (27,000)
State income taxes, net of federal
income tax benefit .................... 106,000 103,000 96,000
Other ................................... 4,000 26,000 1,000
--------- --------- ---------
$ 552,000 $ 539,000 $ 514,000
========= ========= =========
The tax effect of temporary differences giving rise to the Bank's deferred
income tax asset at December 31, is as follows:
1995 1994
Deferred tax assets:
Allowance for loan losses .......................... $ 318,000 $ 60,000
Foreclosed real estate ............................. 142,000 127,000
Unrealized loss on available-for-sale securities ... -- 272,000
State income taxes ................................. 80,000 54,000
--------- ---------
540,000 513,000
--------- ---------
Deferred tax liabilities:
Depreciation on property and equipment ............. (52,000) (75,000)
Unrealized gain on available-for-sale securities ... (32,000) --
Accretion on investment securities ................. (6,000) (5,000)
--------- ---------
(90,000) (80,000)
--------- ---------
Deferred income tax asset (included in other
assets on the balance sheet) ....................... $ 450,000 $ 433,000
========= =========
<PAGE>
NOTE K - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases the Riverbank, Denair, and Modesto facilities under
operating leases with initial terms expiring in 1996, 1998 and 2000,
respectively.
At December 31, 1995 the future minimum rental payments under operating
leases are as follows:
Year ending December 31,
-----------------------
1996 $ 67,745
1997 57,857
1998 42,357
1999 20,657
2000 3,443
Thereafter --
--------
$192,059
========
Rent expense under operating leases was $88,705, $86,973 and $80,973 for the
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE L - FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments include commitments to extend credit in the form
of loans or through standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The contract amounts of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Contract
Amount
--------
Financial instruments whose contract amounts
represent credit risk:
Undisbursed loan commitments $ 6,266,356
Visa/Mastercard lines 1,693,481
Standby letters of credit 68,000
-----------
$ 8,027,837
===========
<PAGE>
NOTE L - FINANCIAL INSTRUMENTS - CONTINUED
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation. Collateral held varies
but may include accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties. All of the Bank's
commitments are variable rate with no caps or floors.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
The following table provides summary information on the fair value of
financial instruments at December 31, 1995:
Carrying Estimated
Amount Fair Value
----------- -----------
Financial assets:
Cash and cash equivalents .......................... $11,930,351 $11,930,351
Interest-bearing deposits in banks ................. 51,043 51,043
Securities available-for-sale ...................... 12,926,352 12,926,352
Securities held-to-maturity ........................ 20,351,537 20,483,922
Loans receivable ................................... 48,094,739 47,877,723
Accrued interest receivable ........................ 814,267 814,267
Financial liabilities:
Deposits ........................................... (84,839,377) (84,854,153)
Accrued interest payable ........................... (199,188) (199,188)
Off-balance-sheet liabilities:
Commitments and letters of credit .................. -- (157,000)
The carrying amounts include $1,694,556 of non-accrual loans (loans that are
not accruing interest) at December 31, 1995. Management has determined that
primarily because of the uncertainty and the difficulty of predicting the
timing of such cash flows excessive amounts of time and money would be
incurred to estimate the fair values of nonperforming assets. The following
aggregate information is provided about the contractual provisions of these
assets:
Aggregate carrying amount $ 1,694,556
Effective rate 11.25%
Average term to maturity 19 months
NOTE M - RELATED-PARTY TRANSACTIONS
The Bank, in the ordinary course of business, makes loans and receives
deposits from its directors and stockholders. As of December 31, 1995 and
1994 such loans amounted to $39,700 and $25,100, respectively. In
management's opinion, these transactions were on substantially the same terms
as comparable transactions with other customers of the Bank.
<PAGE>
NOTE N - CONDENSED FINANCIAL DATA
The following is the condensed financial data for Delta National Bancorp
(parent company only):
BALANCE SHEETS
December 31,
ASSETS
1995 1994
---------- ----------
Cash ................................................. $ 42,426 $ 35,652
Investment in subsidiary ............................. 9,399,721 8,855,561
Property and equipment, net .......................... 284,097 294,447
---------- ----------
$9,726,244 $9,185,660
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued expenses and other liabilities ............. $ -- $ 55,546
Stockholders' equity ................................. 9,726,244 9,130,114
---------- ----------
$9,726,244 $9,185,660
========== ==========
STATEMENTS OF EARNINGS
Year ended December 31,
1995 1994 1993
-------- -------- --------
Income
Interest .............................. $ 943 $ 2,487 $ 3,594
Rent .................................. 83,698 74,800 66,800
Other ................................. 475 315 135
-------- -------- --------
85,116 77,602 70,529
-------- -------- --------
Expenses
General and administrative ............ 31,049 28,513 37,707
Depreciation .......................... 10,350 10,350 10,350
-------- -------- --------
41,399 38,863 48,057
-------- -------- --------
Earnings before income taxes
and equity in earnings of
subsidiary ...................... 43,717 38,739 22,472
Income tax expense ...................... 18,000 16,000 13,400
-------- -------- --------
25,717 22,739 9,072
Equity in earnings of
Delta National Bank ................... 834,160 798,658 782,382
-------- -------- --------
NET EARNINGS ............................ $859,877 $821,397 $791,454
======== ======== ========
<PAGE>
NOTE N - CONDENSED FINANCIAL DATA - CONTINUED
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings ................................. $ 859,877 $ 821,397 $ 791,454
Adjustment to reconcile net earnings
to net cash provided by operating activities
Provision for depreciation and
amortization ........................... 10,350 10,350 10,350
(Decrease) increase in accrued expenses
and other liabilities .................. (55,546) 16,179 13,400
Undistributed earnings of subsidiary ..... (834,160) (798,658) (782,382)
--------- --------- ---------
Net cash (used in) provided by
operating activities ................. (19,479) 49,268 32,822
Cash flows from investing activities:
Cash dividends from subsidiary ............... 290,000 87,500 275,000
--------- --------- ---------
Net cash provided by
investing activities ................. 290,000 87,500 275,000
Cash flows from financing activities:
Cash dividends ............................... (263,747) (263,747) (263,747)
--------- --------- ---------
Net cash used in financing activities .. (263,747) (263,747) (263,747)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ............................. 6,774 (126,979) 44,075
Cash and cash equivalents at beginning of year .... 35,652 162,631 118,556
--------- --------- ---------
Cash and cash equivalents at end of year .......... $ 42,426 $ 35,652 $ 162,631
========= ========= =========
</TABLE>
NOTE O - CAPITAL REQUIREMENTS
Banks are required to maintain a minimum leverage-capital ratio of Tier I
capital (as defined) to total assets based on bank ratings under its
regulatory rating system. Currently, a rating of "one" is required to
maintain a minimum leverage-capital ratio of 3 percent. Institutions with
other ratings are required to maintain ratios of 4 percent to 5 percent. In
addition, banks must maintain a ratio of total capital to risk-weighted
assets of 8 percent (risk-based capital ratio) and a ratio of Tier I capital
to risk-weighted assets of 4 percent (Tier I capital ratio). The Bank
exceeded its capital requirements at December 31, 1995.
NOTE P - SIGNIFICANT FOURTH-QUARTER ADJUSTMENTS
In December 1995, the Bank increased its allowance for loan losses through a
provision for loan losses charged to operations by approximately $325,000
($.86 per share).
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Delta National Bancorp
We have audited the accompanying consolidated balance sheets of Delta National
Bancorp and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Delta National
Bancorp and Subsidiary as of December 31, 1995 and 1994, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As described in note J, during the year ended December 31, 1993, the Company
changed to the liability method of accounting for income taxes. As described in
note C, the Company changed its method of accounting for securities as of
December 31, 1993.
/s/ Grant Thornton, LLP
Stockton, California
January 19, 1996
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosures during the fiscal years ending December 31, 1995 and 1994.
DIRECTORS & EXECUTIVE COMPENSATION
Identification of directors: The names of each director of the Company and
certain information about them, is set forth below:
- --------------------------------------------------------------------------------
Director
Director Age Principal Occupation Since
- --------------------------------------------------------------------------------
Andrew J. Rossi .... 63 President and Chief Executive 1973
Officer - Delta National Bank
(Executive Officer)
President - A. Rossi, Inc.
Jack Dozier ........ 80 Attorney - Atherton & Dozier 1976
Joseph A. Freitas .. 68 Secretary to the Board 1973
Public Relations-Delta National Bank
- Retired 1991
Theodore Poulos .... 67 Chairman of the Board-Delta National Bank 1973
Public Relations-Delta National Bank
President-Manteca Drug, Inc. - Retired 1994
Toinette Rossi ..... 37 Vice President & Manager 1994
Delta National Bank (Executive Officer)
- --------------------------------------------------------------------------------
Each of the directors has been engaged in his/her principal occupation set forth
above during the past five years.
Identification of executive officers: The names of each executive officer of the
Company not already listed in the table above and certain information about
them, is set forth below:
- --------------------------------------------------------------------------------
Executive Principal Occupations with Period
Officer Age Delta National Bank Served
- --------------------------------------------------------------------------------
Warren E. Wegge .... 47 Executive Vice President 1994
Senior Vice President/Credit 1991
Administrator
Vice President/Corporate Banking Officer 1988
Chad B. Meyer (1) .. 42 Senior Vice President/Credit 1994
Administrator
Vice President/Corporate Banking Officer 1991
Ronald P. Dalben ... 39 Vice President (Investment Officer 1987
& Appraiser)
Various other positions 1980
Barbara Jordan ..... 54 Vice President/Operations 1992
Assistant Vice President/Operations 1990
Various other positions 1983
Eileen Pastenieks .. 34 Vice President/Accounting 1994
Assistant Vice President/Note Dept. 1993
Operations Officer 1990
- --------------------------------------------------------------------------------
(1) Prior to his employment with Delta National Bank, Mr. Meyer was the
Chief Financial Officer of a construction firm.
<PAGE>
Family relationships: Except for Andrew Rossi and Toinette Rossi, who are
related to each other, there are no other family relationships between any other
director or executive officer of the Company.
Directorships: The following individuals hold other directorships as indicated
below:
- -------------------------------------------------------------------------------
DIRECTOR/EXECUTIVE OFFICER OTHER DIRECTORSHIPS HELD
- -------------------------------------------------------------------------------
Theodore Poulos ................... Doctors Hospital of Manteca
Virotechnology, Inc.
Joseph A. Freitas ................. Manteca Boys & Girls Club
Jack C. Dozier .................... Cal Cedar Products
Duraflame, Inc.
Rylock Ltd.
Cal Mills
- -------------------------------------------------------------------------------
Involvement in certain legal proceedings: None of the directors or executive
officers named above have been involved in certain legal proceedings.
EXECUTIVE COMPENSATION
Director Compensation Table: The following table sets forth information
concerning compensation for Directors in 1995. (See "Summary Compensation
Table" for additional information on Executive Officers)
- -------------------------------------------------------------------------------
Annual Annual
BCORP Bank
Director Director Committee
Name Fees Fees Retainer Fees (1) Other (2)
- -------------------------------------------------------------------------------
Andrew J. Rossi ...... $4,800 $ - $ - $ - $ -
Jack Dozier .......... 4,800 7,200 28,800 - -
Joseph A. Freitas .... 4,800 7,200 - - -
Theodore Poulos ...... 4,800 7,200 - 15,600 27,450
Toinette Rossi ....... 4,800 - - - -
- -------------------------------------------------------------------------------
(1) Finance Committee Annual Fee
(2) Salary from Bank $24,000 for Public Relations and Past Due Meetings $1,650,
$1,800 Club Membership Dues
<PAGE>
Summary Compensation Table: The following table shows, as to the Chief Executive
Officer and each of the four other most highly compensated executive officers,
information concerning compensation for services to the Company in all
capacities. (Also see "Director Compensation Table")
- -------------------------------------------------------------------------------
Club or Profit
Organization Sharing
Name and Principal Salary Bonus ($) Automobile Membership Plan
Position Year ($) (1) Use Fees (2)
- -------------------------------------------------------------------------------
Andrew J. Rossi 1995 $112,000 $10,000 $ 1,500 $ 2,300 $13,944
President and Chief 1994 100,000 -- 4,081
Executive Officer 1993 88,860 10,000 3,897
Warren E. Wegge 1995 $ 78,000 $13,500 $ -- $ -- $ 9,680
Executive Officer 1994 65,460 2,500 2,397
1993 60,660 7,595 2,200
Chad B. Meyer 1995 $ 62,400 $ 6,750 $ -- $ -- $ 6,086
Senior Vice 1994 60,000 1,000 775
President/Credit 1993 53,400 4,716 603
Administrator
Toinette Rossi 1995 $ 60,000 $ 5,316 $ -- $ -- $ 9,577
Vice President & 1994 57,600 1,822 3,970
Manager 1993 54,780 1,480 3,913
Ronald P. Dalben 1995 $ 52,000 3,600 $ -- $ -- $ 7,133
Vice President 1994 50,000 2,000 2,537
1993 47,640 3,800 2,451
- -------------------------------------------------------------------------------
(1) 1995 Bonuses were actually paid in 1995 for services rendered in 1995
(2) Profit Sharing
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MANAGEMENT
The following table sets forth as of December 31, 1995 information relating to
the beneficial owners of the Company's Common Stock by each person known by the
Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock.
- ------------------------------------------------------------------------------
Total Shares Percent of
Name Address Owned Class
- ------------------------------------------------------------------------------
Andrew J. Rossi 611 North Main St. 94,509 25.10%
Manteca, CA 95336
- ------------------------------------------------------------------------------
<PAGE>
Common Stock Ownership of Directors and Executive Officers: The following table
reflects shares of Common Stock beneficially owned by each director of the
Company, each of the executive officers named in the Summary Compensation Table
appearing elsewhere herein, and by all directors and executive officers as a
group, as of December 31, 1995.
- -------------------------------------------------------------------------------
Direct Indirect Total Approximate
Shares Shares Shares Percentage
Name Position Owned Owned Owned Owned
- -------------------------------------------------------------------------------
Jack C. Dozier ..... Director 5,190 -- 5,190 1.38%
Joseph A. Freitas .. Director 11,185 -- 11,185 2.97%
Theodore Poulos .... Chairman of the 12,100 1,142 13,242 3.52%
. Board/Director
Andrew J. Rossi(1).. President & CEO/ 75,539 18,970 94,509 25.10%
Director
Toinette Rossi ..... V.P. & Manager/ 2,708 -- 2,708 less than
Director 1%
Warren E. Wegge .... Executive Vice 100 -- 100 less than
President 1%
Ronald P. Dalben ... Vice President 100 -- 100 less than
1%
- -------------------------------------------------------------------------------
All directors and executive
officers as a group: 127,034 33.74%
- -------------------------------------------------------------------------------
(1) Indirect 5.04% of class
Direct 20.06% of class
CERTAIN RELATIONSHIPS & RELATED PARTIES
In 1995 the Bank renewed an extension of credit to Joseph A. Freitas, Director
of the Company, in the amount of $17,353. As of December 31, 1995, the principal
balance owing was $15,621. This loan bears interest at the a fixed rate of 8%
and is scheduled to mature on April 19, 1996. The loan is collateralized by a
Certificate of Deposit.
In 1994 the Bank funded an unsecured loan to Linda Abeldt, daughter of Joseph
Freitas, Director of the Company, in the amount of $12,000. In 1995 the Bank
funded an additional unsecured loan in the amount of $9,000. In addition, there
was an unsecured line of credit issued in the amount of $50,000. The first two
loans bear interest at a fixed rate of 7% and 10% while the line of credit bears
interest at the Bank's reference rate plus 2%. As of December 31, 1995, the
principal balance owing was $10,316. and $9,000. respectively on the two loans.
There was no balance owed on the line of credit. The loans are scheduled to
mature on January 25, 1999, March 22, 2000 and April 20, 1996 respectively.
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 December 31, 1995, the principal balance owing was
$7,979. 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
brother of Toinette Rossi, Vice President/Manager and Director of the Company,
in the amount of $303,250. On December 31, 1995, there was no principal balance
owed. This loan bears interest at the Bank's reference rate plus 2.5% and is
scheduled to mature on November 1, 1996.
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) 1. Financial Statements: Delta National Bancorp and Subsidiary
See Item 8 for a listing of all financial statements.
2. Financial Statement Schedules
Additional Supplementary Data not included in this section
have been omitted because the information required has been
included in the financial statements or notes thereto or are
not applicable or not required.
3. 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 declared
effective on October 8, 1982.
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the
ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Andrew Rossi
President and Chief Executive
Officer/Director
March 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the indicated capacities, on March 10, 1996.
/s/ Andrew Rossi /s/ Theodore Poulos
Andrew Rossi Theodore Poulos
President and Chairman of the Board
Chief Executive Officer and Director
and Director
(Principal Executive Officer)
/s/ Joseph Freitas /s/ Eileen Pastenieks
Joseph Freitas Eileen Pastenieks
Secretary of the Board and Staff Vice President/Accounting
Director (Principal Accounting Officer)
/s/ Warren Wegge /s/ Toinette Rossi
Warren Wegge Toinette Rossi
Executive Vice President Vice President and Manager
and (Principal Financial Officer) Director
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