FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended MARCH 31, 1997
Commission file number 2-79261
DELTA NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 94-2839814
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
611 North Main Street, Manteca, California 95336-3740
(Address of principal executive offices) (Zip code)
(209) 824-4050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 31, 1997:
Common Stock, no par value - 376,782 shares.
<PAGE>
DELTA NATIONAL BANCORP
FORM 10-Q CROSS REFERENCE INDEX
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PART I. FINANCIAL INFORMATION Page
- --------------------------------------------------------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1996 and March 31, 1997 4
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
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PART II. OTHER INFORMATION Page
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
DELTA NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Unaudited
March 31, Dec 31,
1997 1996
ASSETS
Cash and due from banks .................................... $ 4,431 $ 5,052
Federal funds sold ......................................... 9,800 7,600
------- -------
Total cash and cash equivalents (notes A10 and B)... 14,231 12,652
Interest bearing deposits in banks ......................... 103 676
Securities available for sale (notes A3 and C) ............. 9,490 10,350
Securities held to maturity (notes A2 and C) ............... 15,580 15,428
------- -------
25,070 25,778
Loans, net (notes A4, A5 and D) ............................ 47,668 49,394
Property and equipment (note A6) ........................... 1,697 1,720
Interest receivable, other assets and other
real estate owned (notes A7 and F) ......................... 1,959 1,805
------- -------
TOTAL ASSETS ............................................... $90,728 $92,025
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ................................... 14,872 16,703
Interest bearing ....................................... 64,534 64,350
------- -------
Total deposits ..................................... 79,406 81,053
Accrued interest/other liabilities ......................... 420 365
Stockholders' equity:
Common stock, no par value
Authorized - 5,000,000 shares
Issued and outstanding - 376,782 shares .............. 3,532 3,532
Retained earnings ...................................... 7,341 7,058
Net unrealized appreciation (depreciation) on
securities available-for-sale, net of tax of
$20,648 and $12,302 at March 31, 1997
and December 31, 1996, respectively .................. 29 17
------- -------
Total stockholders' equity ......................... 10,902 10,607
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $90,728 $92,025
======= =======
The accompanying notes are an integral part of this statement.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
DELTA NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
( In Thousands)
EXCEPT PER SHARE DATA
Unaudited
3 Months 3 Months
Ending Ending
March 31, March 31,
1997 1996
--------- ---------
Interest income:
Interest and fees on loans ....................... $1,366 $1,384
Securities available-for-sale .................... 157 194
Securities held-to-maturity ...................... 191 354
Interest-bearing deposits in banks ............... 2 1
Federal funds sold ............................... 144 69
------ ------
Total interest income ........................ 1,860 2,002
Interest expense on deposits ......................... 642 724
------ ------
Net interest income .......................... 1,218 1,278
Provision for loan losses ............................ 0 0
------ ------
Net interest income after provision
for possible loan losses .................... 1,218 1,278
Other income
Service charges on deposits ...................... 119 128
Other income ..................................... 72 90
------ ------
191 218
------ ------
Other expenses
Salaries, wages and employee benefits ............ 473 521
Occupancy and equipment .......................... 170 168
Other operating expenses ......................... 290 264
------ ------
933 953
------ ------
Earning before income taxes .................. 476 543
Income taxes (note A8) ............................... 193 222
------ ------
NET EARNINGS ................................. $ 283 $ 321
====== ======
Net earnings per share (note A9) ..................... $ .75 $ .85
====== ======
The accompanying notes are an integral part of this statement.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
DELTA NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Unaudited
3 MONTHS ENDING MARCH 31,
1997 1996
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings ....................................... $ 283 $ 321
Adjustments to reconcile net earnings to net
cash provided by operating activities
(Gain)/Loss on sale of assets ................ 12 1
(Gain)/Loss on sale of OREO .................. 0 0
Provision for possible loan losses ........... 0 0
Provision for OREO ........................... 0 0
Provision for depreciation and amortization .. 200 123
Decrease (increase) in interest
receivable and other assets .................. 27 (219)
Increase (decrease) in interest payable
and other liabilities ....................... 55 121
------- -------
Net cash provided by operating activities . 577 347
------- -------
Cash flows from investing activities:
Proceeds from maturities of securities
available-for-sale ............................... 878 0
Proceeds from maturities of securities
held-to-maturity ................................. 1,273 1,770
Purchase of securities available-for-sale .......... 0 0
Purchase of securities held-to-maturity ............ (1,535) (1,983)
Net (increase) decrease in loans ................... 1,726 378
Purchase of property and equipment ................. (80) (16)
Purchase/additions to OREO ......................... (187) (236)
Proceeds from sale of property and equipment ....... 0 0
Proceeds from sale of OREO ......................... 0 0
Net (Inc.) dec. Int. Bearing Deposits Other Inst ... 573 (571)
------- -------
Net cash (used in) provided by
investing activities ...................... 2,648 (658)
------- -------
The accompanying notes are an integral part of this statement.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
DELTA NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)
Unaudited
3 MONTHS ENDING MARCH 31,
1997 1996
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
money market accounts and savings accounts ....... (1,117) (3,459)
Net (decrease) increase in time deposits ........... (529) (173)
Cash dividends ..................................... 0 0
-------- --------
Net cash provided by financing
activities ................................ (1,646) (3,632)
-------- --------
Net increase (decrease) in cash and
cash equivalents ..................................... 1,579 (3,943)
Cash and cash equivalents at beginning of period ..... 12,652 11,930
-------- --------
Cash and cash equivalents at end of period ........... $ 14,231 $ 7,987
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................................... 411 493
Income Taxes ................................. 197 341
Noncash investing and financing activities:
The Bank foreclosed on loans with balances of $849,147 in 1996. No loans were
foreclosed upon during the first quarter of 1997.
During 1996, the Bank recognized a decrease in the unrealized gain on
available-for-sale securities of $47,052. As a result, the deferred tax asset
was increased by $19,525 and equity was reduced by $27,527.
During the first quarter of 1997, the Bank recognized an increase in the
unrealized gain on available-for-sale securities of $20,113. As a result, the
deferred tax asset was decreased by $8,347 and equity was increased by
$11,766.
The accompanying notes are an integral part of this statement.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE A - Summary of Accounting Policies
Delta National Bancorp (the Company) was incorporated under the laws of the
State of California on December 21, 1981, for the purpose of serving as a bank
holding company under the Bank Holding Company Act of 1956. The Company's wholly
owned subsidiary, Delta National Bank (the Bank), operates as a commercial bank
in the cities of Manteca, Riverbank, Denair and Modesto, California. The
Company's headquarters are located at the Manteca Branch at 611 North Main
Street, Manteca, California. Through its branches the Bank provides traditional
commercial banking services to individuals and small and medium-sized businesses
located in the California Central Valley.
The accounting and reporting policies of the Company and the Bank conform with
generally accepted accounting principles and general practice within the banking
industry. The consolidated financial statements of the Company include the
accounts of the Company and the Bank. A summary of the significant accounting
policies applied in the preparation of the accompanying financial statements
follows.
There have been no material changes in Delta National Bancorp's significant
accounting policies during the three months ended March 31, 1997. Management has
presented, for comparison purposes its unaudited consolidated balance sheet as
of March 31, 1997, its unaudited consolidated statements of earning for three
months ending March 31, 1997, and 1996 and cash flows for the three months ended
March 31, 1997 and 1996. The financial statements contain, in the opinion of
management, all necessary normal recurring adjustments and are not intended to
be indicative of results that can be expected for a full year.
1. Consolidation
The consolidated financial statements of the Company include the accounts of the
Company and the Bank. Significant intercompany transactions and amounts have
been eliminated.
2. Securities held-to-maturity
Bonds, notes and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts that are recognized as adjustments to
interest income over the period to maturity.
3. Securities available-for-sale
Available-for-sale securities consist of bonds, notes and debentures not
classified as trading securities or held-to-maturity securities. Unrealized
holding gains and losses, net of tax, are reported as a net amount in a separate
component of stockholders' equity until realized. Gains and losses on the sale
of available-for-sale securities are determined using the specific
identification method. The amortization of premiums and accretion of discounts
are recognized as adjustments to interest income over the period to maturity.
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
4. Loans
Loans are reported at the principal amount outstanding, net of unearned income,
deferred loan fees, and the allowance for loan losses (interim financial
statements will also be reported net of deferred profit on OREO sales). Unearned
discounts on installment loans are recognized as income over the terms of the
loans. Interest on other loans is calculated by using the simple interest method
on the daily balance of the principal amount outstanding.
Loan fees net of certain direct costs of origination, which represent an
adjustment to interest yield, are deferred and amortized over the contractual
term of the loan.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full and timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed against
current period interest income. Income on such loans is then recognized only to
the extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are brought
fully current with respect to interest and principal and when, in the judgment
of management, the loans are estimated to be fully collectible as to both
principal and interest.
5. Allowance for loan losses
The allowance for loan losses is established through a provision for loan losses
charged to expenses. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans and commitments to extend credit, based on
evaluations of collectibility and prior loss experience of loans and commitments
to extend credit. The evaluations take into consideration such factors as
changes in the nature and volume of the portfolio, overall portfolio quality,
loan concentrations, specific problem loans, commitments and current economic
conditions that may affect the borrowers' ability to pay.
6. Property and equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the lives of
the improvements or the terms of the related leases, whichever is shorter. The
straight-line method of depreciation is followed for financial reporting
purposes, but accelerated methods are used for tax purposes. Deferred income
taxes have been provided for the resulting depreciation differences.
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
7. Foreclosed assets
Real estate properties acquired through, or in lieu of, foreclosure are to be
sold and are initially recorded at the lower of carrying amount or fair value
less cost to sell at the date of foreclosure. After foreclosure, valuations are
periodically performed by management. Any subsequent revisions in estimates of
fair value less cost to sell are reported as adjustments to the carrying amount
of the real estate provided that the adjusted carrying amount does not exceed
the original carrying amount at the date of foreclosure. Revenue and expenses
from operations and changes in the valuation allowance are included in other
operating expenses. The net carrying value (included in other assets on the
balance sheet) of foreclosed real estate was $688,554 for the period ending
March 31, 1997, and $500,000 for the period ending December 31, 1996.
Other assets repossessed by the Bank are to be sold and are initially recorded
at the lower of carrying amount or fair value less cost to sell at the date of
repossession. After repossession, valuations are periodically performed by
management. Any subsequent revisions in estimates of fair value less cost to
sell are reported as adjustments to the carrying amount of the asset provided
that the adjusted carrying amount does not exceed the original carrying amount
at the date of repossession. Revenue and expenses from operations and changes in
the valuation allowance are included in other operating expenses. There were no
other repossessed assets as of March 31, 1997, and December 31, 1996.
8. Income taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
9. Earnings per share
Earnings per share amounts are computed on the basis of the weighted average
number of share outstanding during each year. The weighted average number of
shares outstanding for March 31, 1997, and December 31, 1996, was 376,782.
10. Cash and cash equivalents
For the purposes of the statement of cash flow, the Bank considers due from
banks and federal funds sold for one-day periods to be cash equivalents.
11. Stock based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation." This Statement requires entities to disclose the fair value of
their employee stock options, but permits entities to continue to account for
employee stock options under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The Bank has determined that it will
continue to use the method prescribed by APB Opinion No. 25, which recognizes
compensation cost to the extent of the difference between the quoted market
price of the stock at the date of grant and the amount an employee must pay to
acquire the stock. The Bank grants stock options to employees with an exercise
price greater than or equal to the quoted market price of the stock at the date
of grant. Accordingly no compensation cost is recognized for stock option
grants.
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
12. New accounting pronouncement
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for transfers of financial
assets and servicing of financial assets and extinguishments of liabilities.
Those standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial assets and servicing assets
it controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The Bank adopted this Statement as of January 1, 1997.
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
Amortized cost (book values) and estimated fair values of investment securities
as of March 31, 1997 and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
March 31, 1997 December 31, 1996
Gross Gross
Unrealized Estimated Unrealized Estimated
Amortized Gains Fair Amortized Gains Fair
Cost (Losses) Value Cost (Losses) Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
U.S. treasury securities ... $ - $ - $ - $ - $ - $ -
Obligations of other U.S.
government agencies ...... 8,846 (72) 8,774 9,726 (105) 9,621
Obligations of state and
political subdivisions ... 390 122 512 390 135 525
Corporate bonds and other .. 204 - 204 204 - 204
------- ------- ------- ------- ------- -------
Total ........................ $ 9,440 $ 50 $ 9,490 $10,320 $ 30 $10,350
======= ======= ======= ======= ======= =======
Held-to-maturity securities:
U.S. treasury securities ... $ - $ - $ - $ - $ - $ -
Obligations of other U.S.
government agencies ...... 14,545 195 14,740 15,428 112 15,540
Obligations of state and
political subdivisions ... - - - - - -
Corporate bonds and other .. 1,035 (33) 1,002 - - -
------- ------- ------- ------- ------- -------
Total ........................ $15,580 $ 162 $15,742 $15,428 $ 112 $15,540
======= ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE D - LOANS
The composition of the Bank's loan portfolio at March 31, 1997 and December 31,
1996, is as follows:
- --------------------------------------------------------------------------------
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
Commercial, financial and agricultural ....... $ 21,132,155 $ 21,428,989
Real estate - construction ................... 13,410,663 13,404,461
Real estate - mortgage ....................... 12,950,312 14,160,539
Installment loans to individuals ............. 1,743,770 1,837,465
------------ ------------
49,236,900 50,831,454
Unearned discount ....................... (64,930) (61,208)
Allowance for loan losses ............... (1,111,456) (1,082,278)
Deferred loan fees ...................... (257,824) (293,845)
Deferred profit on OREO sales (1) ....... (134,672)
------------ ------------
Loans, net ......................... $ 47,668,018 $ 49,394,123
============ ============
- --------------------------------------------------------------------------------
(1) Audited financial statements for December 31, 1996, do not include Deferred
profit on OREO sales due to not being material in amount.
The following table summarizes the changes in the allowance for loan losses for
the periods ending March 31, 1997, and December 31, 1996:
- --------------------------------------------------------------------------------
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
Balance at January 1 ........................... $ 1,082,278 $ 1,219,304
Charge Offs:
Commercial, financial and agricultural ..... (1,223) (324,340)
Real Estate - construction ................. - (61,638)
Real Estate - mortgage ..................... - (48,696)
Installment loans to individuals ........... (11,420) (53,934)
- --------------------------------------------------------------------------------
Total Charge Offs ...................... (12,643) (488,608)
- --------------------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural ..... 545 -
Real Estate - construction ................. 33,527 123,139
Real Estate - mortgage ..................... - 2,000
Installment loans to individuals ........... 7,749 40,903
- --------------------------------------------------------------------------------
Total Recoveries ....................... 41,821 166,042
- --------------------------------------------------------------------------------
Net charge offs ................................ 29,178 (322,566)
Additions charged to operations ................ - 185,540
- --------------------------------------------------------------------------------
$ 1,111,456 $ 1,082,278
- --------------------------------------------------------------------------------
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
Impaired Loans: Impaired loans, as defined, are 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 carrying value of impaired loans totaled $2,503,306 at March 31, 1997, and
$1,183,747 at December 31, 1996, of which $1,134,700 and $1,135,752,
respectively, is the result of a troubled debt restructuring. The total
allowance relating to these loans is $270,925 and $281,345, respectively, for
the first quarter of 1997 and year end 1996. Total cash collected on impaired
loans for the first three months of 1997 approximated $18,089, none of which was
credited to the principal balance outstanding, and the entire amount was
recognized as interest income.
A loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Amounts due according to the
contractual terms include both principal and interest. The Company has
determined that the definition of impaired loans will include any loans placed
on nonaccrual status and any loans that have had a modification of terms under
troubled debt restructuring. Loans in the amount of $300,000 or more will be
evaluated individually. Large groups of smaller-balance homogenous loans, under
$300,000, will be evaluated on a composite basis using historical data, such as
average recovery period and average amount recovered, along with a composite
rate of interest as a means of measuring for impairment. Loans that are not
evaluated individually will be grouped together by similar risk characteristics.
The following categories will be grouped together: Agricultural, Commercial, RE
Construction, Residential RE, Consumer, and Commercial RE loans.
Loan impairment is measured by estimating the present value of expected future
cash flows discounted at the loan's effective interest rate, its observable
market price, or the fair value of collateral if the loan is collateral
dependent. When it has been substantiated that a loss is evident and should be
recognized, the impaired loan will be charged off. The recorded investment in
these loans and the valuation allowance for loan losses related to loan
impairment are as follows:
- --------------------------------------------------------------------------------
Recorded Investment March 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Principal amount of impaired loans $ 2,770,287 $ 1,460,793
Accrued Interest 3,516 4,068
Deferred loan costs 428 231
------------ ------------
2,774,231 1,465,092
Less valuation allowance 270,925 281,345
------------ ------------
Total carrying value $ 2,503,306 $ 1,183,747
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Valuation Allowance March 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Valuation allowance at
beginning of period $ 281,345 $ 334,981
Net charges to operations
for impairment (1) (10,420) 307,911
Direct write-downs - (361,547)
Recoveries - -
------------ ------------
Valuation allowance at end of period $ 270,925 $ 281,345
- --------------------------------------------------------------------------------
(1) Impaired loans is a separate component of the loan loss reserve.
$10,420 was re-allocated to the allowance for loan losses component.
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE E - RELATED PARTY TRANSACTIONS
The Bank, in the ordinary course of business, makes loans and receives deposits
from its directors and stockholders. The following sets forth information for
all directors and officers (and their families) who had loans with the bank, or
who were otherwise indebted to the Bank in an amount in excess of $60,000.
In 1997, the Bank extended credit to Valerie Rossi, 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 $20,000. As of March 31, 1997, the principal balance owing was
$19,729. This loan is secured and bears interest at a fixed rate of 10%. This
loan matures on February 27, 2002. In addition, a loan to Valerie Rossi which
was extended in 1991 in the amount of $16,595 was paid off in March 1997.
In 1996, the Bank refinanced an unsecured line of credit to John Rossi, son of
Andrew Rossi, President, Chief Executive Officer and Director of the Company and
sister of Toinette Rossi, Vice President/Manager and Director of the Company, in
the amount of $303,250. This loan was paid off in February 1997. John Rossi also
guaranteed a small secured loan which was originated 1996 in the amount of
$5,194. This loan was also paid off in March 1997.
As of March 31, 1997, the Bank had loans extended to Joseph Freitas and various
family members. The following table summarizes those loans with a total
indebtedness of $36,854.
- --------------------------------------------------------------------------------
Balance as Current
Note of March Note Maturity Interest Secured/
Name on Loan Relationship Amount 31, 1997 Date Date Rate Unsecured
- --------------------------------------------------------------------------------
Joseph Freitas Director $13,055 $ 2,860 4/19/96 4/21/97 7.75% Secured
Fixed
Joseph Freitas Director $30,000 $28,036 10/2/96 4/3/97 8.00% Secured
Fixed
Linda Abeldt Daughter $ 9,000 $ 5,958 3/22/95 3/22/00 10.00% Unsecured
Fixed
- --------------------------------------------------------------------------------
Total Indebtedness $36,854
- --------------------------------------------------------------------------------
<PAGE>
DELTA NATIONAL BANCORP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE F - FORECLOSED ASSETS
Foreclosed real estate owned includes real estate acquired through foreclosure,
or by obtaining a deed in lieu of foreclosure. Real estate properties acquired
through, or in lieu of, foreclosure are to be sold and are initially recorded at
the lower of carrying amount or fair value less cost to sell at the date of
foreclosure. After foreclosure, valuations are periodically performed by
management. Any subsequent revisions in estimates of fair value less cost to
sell are reported as adjustments to the carrying amount of the real estate
provided that the adjusted carrying amount does not exceed the original carrying
amount at the date of foreclosure. Revenue and expenses from operations and
changes in the valuation allowance are included in other operating expenses.
Total foreclosed real estate (before the valuation allowance) was $972,747 at
March 31, 1997, this consisted of one piece of property which is a condominium
complex consisting of eight units that were completed and placed in service as
rental units by the Bank. The Bank is currently building out twelve additional
units at a cost of approximately $750,000. The valuation allowance at March 31,
1997, totaled $284,193.
- --------------------------------------------------------------------------------
March 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Real estate owned:
Foreclosed assets $ 972,747 $ 784,193
Less valuation allowance 284,193 284,193
- --------------------------------------------------------------------------------
OREO, net $ 688,554 $ 500,000
- --------------------------------------------------------------------------------
Changes in the valuation allowance for foreclosed real estate for the periods
ending March 31, 1997, and December 31, 1996, are as follows:
- --------------------------------------------------------------------------------
March 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Balance at January 1, $ 284,193 $ 295,567
Provision charged to operations - 112,560
Charge-offs, net of recoveries (l) - (123,934)
- --------------------------------------------------------------------------------
Balance at end of period $ 284,193 $ 284,193
- --------------------------------------------------------------------------------
(1) Net recovery consists of one property sold in the third quarter of 1996.
Other repossessed assets acquired by the Bank include all assets except real
estate. As with other real estate owned, assets acquired by repossession are
required to be sold and are initially recorded at the lower of carrying amount
or fair value less cost to sell at the date of repossession. After repossession,
valuations are periodically performed by management. Any subsequent revisions in
estimates of fair value less cost to sell are reported as adjustments to the
carrying amount of the asset provided that the adjusted carrying amount does not
exceed the original carrying amount at the date of repossession. Revenue and
expenses from operations and changes in the valuation allowance are included in
other operating expenses. There were no other repossessed assets as of March 31,
1997 and December 31, 1996.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item II - Financial Condition and Results of Operations
DELTA NATIONAL BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
PERFORMANCE SUMMARY
The following discussion is intended to provide information to facilitate the
understanding and assessment of significant changes in trends related to the
financial condition of Delta National Bancorp ("the Company") and its results of
operations. It should be read in conjunction with the unaudited financial
statements and footnotes appearing elsewhere in this report.
At March 31, 1997, the Company's total assets were $90,727,873, net loans
amounted to $47,668,018, stockholders' equity was $10,902,307 and the allowance
for loan losses was $1,111,456. This compares to total assets of $92,025,115,
net loans of $49,394,123, stockholders' equity of $10,607,355 and allowance for
loan losses of $1,082,278, at December 31, 1996. Total assets decreased 1.4%
which was primarily due to a decrease in the loan portfolio of 3.5% and
securities portfolio of 2.7%. Total deposits also decreased by 2.0%, primarily
in the non-interest bearing category.
Net income for the first three months of 1997 amounted to $283,185 or $.75 per
share, as compared with $321,364 or $.85 per share earned for the same period in
1996. A significant portion of the 11.9% decrease in net income from a year ago
was due to decreased interest income earned on securities of 20.20% and a
decrease in non-interest income of 12.34%. While interest and non-interest
income decreased, interest and non-interest expense also decreased in the first
quarter of 1997. Interest expense on deposits decreased by 11.3% and
non-interest expense decreased 2.08% over the same period in 1996.
The carrying value of nonaccrual loans at quarter end amounted to $1,639,531, up
from $329,609 at December 31, 1996. Nonaccrual loans consists of three real
estate loans and two commercial loans. At March 31, 1997, other real estate
owned ("OREO") (net of the valuation allowance) totaled $688,554, compared with
OREO of $500,000 at December 31, 1996. Restructured loans, loans outstanding
whose original terms have been modified, totaled $1,134,700 at March 31, 1997,
which consisted of one real estate loan, compared to $1,135,752 at December 31,
1996.
There was no change in the provision for loan losses. As of March 31, 1997 and
the same period in 1996, there were no additional provisions from operations
made to the allowance for loan losses. Net loans charged off amounted to a net
recovery of $29,178 for the first three months of 1997 versus a net charge off
of $30,942 for the same period in 1996.
<PAGE>
Net interest income was $1,218,406 at March 31, 1997, compared to $1,278,556 for
March 31, 1996. Net interest income decreased due to a reduction in interest
income on securities. Interest on securities was $494,148 and $ 619,110 in 1997
and 1996, respectively. Interest on U.S. Government Agency securities decreased
$190,557 due to securities that matured and were not replaced during the year.
Interest expense decreased 6.99% due to lower rates on deposits and decreased
interest bearing balances. Interest expense was $642,437 and $724,371 in 1997
and 1996, respectively.
Non-interest income amounted to $191,094 as of March 31, 1997, compared to
$217,988 for March 31, 1996. Income related to service charges on deposits
decreased 6.54% while income on other real estate owned decreased 19.59% and
mortgage department fee income decreased 73.18%. Total non-interest income
decreased 12.34% over the same period in 1996.
Operating expenses amounted to $932,848 for the three months ending March 31,
1997, compared to $952,708 for the same period in 1996 which represents an 2.08%
decrease. Expenses pertaining to professional fees decreased significantly in
1997. There were no operating expenses relating to the valuation allowance for
other real estate owned in the first quarter of 1997 or 1996.
EARNINGS PERFORMANCE
Net Income: Net income for the first three months of 1997 amounted to $283,185
or $.75 per share, as compared with $321,364 or $.85 per share earned for the
same period in 1996. A significant portion of the 11.9% decrease in net income
from a year ago was due to decreased interest income earned on securities of
20.20% and a decrease in non-interest income of 12.34%. The decrease in
securities interest income was primarily in the U. S. Government Agency
portfolio due to bonds that matured and were not replaced in 1996 or the first
part of 1997. While interest and non-interest income decreased, interest and
non-interest expense also decreased in the first quarter of 1997. Interest
expense on deposits decreased by 11.3% and non-interest expense decreased 2.08%
over the same period in 1996. Although net earnings were slightly lower in the
first quarter over the same quarter in 1996, the Bank does not anticipate any
changes from previous year earnings at this time.
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 was $1,218,406 at March 31,
1997, compared to $1,278,556 for March 31, 1996. Net interest income decreased
due to a reduction in interest income on securities. Interest on securities
totaled $494,148 in March 1997 and $619,110 in March 1996. Interest on U.S.
Government Agency securities decreased $190,557 due to securities that matured
and were not replaced during the year. Interest expense decreased 6.99% in the
first quarter of 1997, compared to the same period in 1996 due to reduced rates
on deposits and a decline in interest bearing balances. Interest expense was
$642,437 and $724,371 in 1997 and 1996, respectively. The decline in expense was
primarily in the certificates of deposits over $100,000 class.
Provision for Loan Losses: There were no changes in the provision for loan
losses. As of March 31, 1997, and the same period in 1996, there were no
provisions from operations made to the allowance for loan losses. Net loans
charged off amounted to a net recovery of $29,178 for the first three months of
1997 versus a net charge off of $30,942 for the same period in 1996. 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.
<PAGE>
Non-Interest Income: Non-interest income amounted to $191,094 as of March 31,
1997, compared to $217,988 for March 31, 1996. Income related to service charges
on deposits decreased 6.54% while income on other real estate owned declined
19.59% and mortgage department fee income was reduced by 73.18%. Total
non-interest income decreased 12.34% over the same period in 1996. Income on
other real estate owned is expected to increase in the last quarter of 1997 due
to additional units currently under construction at a condominium complex the
Bank currently holds as OREO. Mortgage department income has declined due to
increased rates in the home loan market.
- --------------------------------------------------------------------------------
(In thousands) March 31, 1997 March 31, 1996
- --------------------------------------------------------------------------------
Service charges on deposit accounts $ 119,530 $ 127,894
Mortgage department fees 8,064 30,063
Other real estate owned (OREO) 12,022 14,950
Other repossessed assets 9,763 -
Gain on sale of OREO 73 144
Gain on sale of fixed assets - -
Other income 41,642 44,937
- --------------------------------------------------------------------------------
Total $ 191,094 $ 217,988
- --------------------------------------------------------------------------------
Non-Interest Expense: Non-interest expense amounted to $932,848 for the three
months ending March 31, 1997, compared to $952,708 for the same period in 1996
which represents an 2.08% decrease. Expenses pertaining to professional fees
decreased significantly in 1997. There were no significant operating expenses
relating to the valuation allowance for other real estate owned in the first
quarter of 1997 or 1996.
- --------------------------------------------------------------------------------
(In thousands) March 31, 1997 March 31, 1996
- --------------------------------------------------------------------------------
Salaries and wages $ 422,182 $ 465,862
Employee benefits 51,198 55,587
Occupancy and equipment 175,948 173,611
Stationary and supplies 23,665 27,763
Professional fees 23,262 45,070
Assessments 7,208 10,253
Other operating 206,900 165,853
Writedown of OREO - 67
OREO expenses 6,153 7,581
Other repossessed assets expenses 4,249 -
Loss on sale of other repossessed assets - -
Loss on sale of OREO - -
Loss on sale of fixed assets 12,083 1,061
Loss on sale of available-for-sale security - -
- --------------------------------------------------------------------------------
Total $ 932,848 $ 952,708
- --------------------------------------------------------------------------------
ASSET LIABILITY MANAGEMENT
Liquidity: For the Company, as with most commercial banking institutions,
liquidity is the ability to roll over substantial amounts of maturing
liabilities and to acquire new liabilities at levels consistent with
management's financial targets. During the first three months of 1997, the
Company continued to maintain a high level of liquidity. Highly liquid assets
consist of cash, deposits placed with banks, Federal funds sold and securities
available for sale. At quarter end, the Bank had a liquidity ratio of 22.26%.
<PAGE>
Interest Rate Sensitivity Management: The primary objectives of the asset liab-
ility management process are to provide a stable net interest margin, generate
net interest income to meet the Company's earnings' objectives and manage
balance sheet risks. These risks include liquidity risk, capital adequacy and
overall interest rate risk inherent in the Company's balance sheet. In order to
manage its interest rate sensitivity, the Company has adopted policies that at-
tempt to limit the change in pre-tax net interest income assuming various int-
erest rate scenarios. This is accomplished by adjusting the repricing character-
istics 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.
The following table sets out the maturity and rate sensitivity of the Company's
interest-earning assets and interest-bearing liabilities as of March 31, 1997.
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 Over 5
(In Thousands) Days Days Months Months Years Years Total
- ----------------------------------------------------------------------------------------------------------------------
Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Fed funds sold .............. $ 9,800 $ - $ - $ - $ - $ - $ 9,800
Deposit accounts with
other banks ................. 103 - - - - - 103
Securities: (3)
U. S. gov. agencies ..... - 13,446 9,925 - - 21 23,392
Municipals .............. - - - - - 390 390
Corporate bonds (6) ..... - - - - - 1,035 1,035
- ----------------------------------------------------------------------------------------------------------------------
Total securities ............ $ - $ 13,446 $ 9,925 $ - $ - $ 1,446 $ 24,817
- ----------------------------------------------------------------------------------------------------------------------
Loans: (1)
Commercial-fixed ........ $ 960 $ 1,020 $ 924 $ 556 $ 3,244 $ - $ 6,704
Commercial-variable(2)... 14,678 - - - - - 14,678
Real estate-fixed ....... 697 330 5 162 384 50 1,628
Real estate-variable..... 25,059 - - - - - 25,059
Installment (4) ......... 44 11 33 82 1,021 - 1,191
- ----------------------------------------------------------------------------------------------------------------------
Total loans ................. $ 41,438 $ 1,361 $ 962 $ 800 $ 4,649 $ 50 $ 49,260
- ----------------------------------------------------------------------------------------------------------------------
Total assets ................ $ 51,341 $ 14,807 $ 10,887 $ 800 $ 4,649 $ 1,496 $ 83,980
- ----------------------------------------------------------------------------------------------------------------------
Source of Funds:
Deposits:
Interest-bearing
demand deposits ......... $ 13,954 $ - $ - $ - $ - $ - $ 13,954
Time deposits greater
than $100,000 ......... 5,679 4,982 1,933 7,824 1,065 - 21,483
Time deposits less
than $100,000 ......... 1,641 5,675 2,692 2,231 918 - 13,157
Passbook time deposits
- variable .............. 4,938 - - - - - 4,938
Savings (5) ............. - 9,169 - - - - 9,169
- ----------------------------------------------------------------------------------------------------------------------
Total deposits .............. $ 26,212 $ 19,826 $ 4,625 $ 10,055 $ 1,983 $ - $ 62,701
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities ........... $ 26,212 $ 19,826 $ 4,625 $ 10,055 $ 1,983 $ - $ 62,701
- ----------------------------------------------------------------------------------------------------------------------
Gap ......................... $ 25,129 $ (5,019) $ 6,262 $ (9,255) $ 2,666 $ 1,496 $ 21,279
- ----------------------------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap ............. $ 25,129 $ 20,110 $ 26,372 $ 17,117 $ 19,783 $ 21,279 $ 21,279
- ----------------------------------------------------------------------------------------------------------------------
<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 and other stock is not included in the balance.
</FN>
</TABLE>
<PAGE>
The gap is considered positive when the amount of interest rate sensitive assets
which reprice over a given time period exceeds the amount of interest rate
sensitive liabilities which reprice over the same time period and is considered
negative when the reverse is true. During a period of rising interest rates, a
positive gap tends to result in increased net interest income while a negative
gap would have an adverse effect on net interest income. As illustrated by the
table, the Company maintained a positive gap at March 31, 1997. The Company,
therefore, was asset sensitive and was positioned for increased net interest
income given a rise in interest rates in 1997. 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: Cash and due from banks for the quarter ended March 31,
1997, was $4,430,654, compared to $5,052,387 at December 31, 1996. Cash and due
from banks fluctuates on an ongoing basis depending on the Banks cash activity
at quarter end.
Securities: The fair value of available-for-sale securities totaled $9,490,086,
compared to $10,349,542 at December 31, 1996. The decrease in available-for-sale
securities was primarily due to investments that matured during the first part
of 1997. The Bank had approximately $878,000 in available-for-sale securities
mature in the first quarter of 1997. All new securities purchased in the first
three months of 1997 were placed in the held-to-maturity category due to the
Banks intent to hold these funds until they mature. As of March 31, 1997, the
Bank had approximately $1,273,000 in held-to-maturity securities mature and
approximately $1,535,000 in securities purchased. As of March 31, 1997,
available-for-sale securities made up 37% of the securities portfolio while
held-to-maturity securities made up 63% of the portfolio. The majority of the
securities are variable in rate at 94% of the securities portfolio and 6% are
fixed rate.
The securities portfolio consisted primarily of U.S. government agency
securities and one municipal bond and one corporate bond. The amortized cost of
held-to-maturity securities totaled $15,580,289 at quarter end compared to
$15,428,286 at December 31, 1996.
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 March 31, 1997, and December 31, 1996:
- --------------------------------------------------------------------------------
(In thousands) March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
Available-for-sale:
U. S. Treasury ................................. $ - $ -
U. S. government agencies ...................... 8,846,493 9,725,856
States & political subdivisions ................ 389,570 389,776
Corporate bonds and other ...................... 204,350 204,350
- --------------------------------------------------------------------------------
Total ...................................... $ 9,440,413 $10,319,982
- --------------------------------------------------------------------------------
Held-to-maturity:
U. S. Treasury ................................. $ - $ -
U. S. government agencies ...................... 14,545,568 15,428,286
States & political subdivisions ................ - -
Corporate bonds and other ...................... 1,034,721 -
- --------------------------------------------------------------------------------
Total ...................................... $15,580,289 $15,428,286
- --------------------------------------------------------------------------------
<PAGE>
The following tables show the amortized cost (book value) and maturities of
securities at March 31, 1997, and the weighted average yields (1).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Securities/Maturities - March 31, 1997
--------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
Available-for-sale:(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury .......... $ - - $ - - $ - - $ - -
U.S. government
agencies ................ - - 3,495,455 6.73% 5,351,038 6.68% - -
States & political
subdivisions (2) ........ - - - - - - 389,570 13.50%
Corporate bonds(2)(3) ... - - - - - - - -
- --------------------------------------------------------------------------------------------------------------------
Total ............... $ - - $ 3,495,455 6.73% $ 5,351,038 6.68% $ 389,570 13.50%
- --------------------------------------------------------------------------------------------------------------------
Held-to-maturity: (1)
U. S. Treasury .......... $ - - $ - - $ - - $ - -
U.S. government
agencies ................ - - 3,586,991 7.94% 9,406,619 7.18% 1,551,958 7.98%
States & political
subdivisions (2) ........ - - - - - - - -
Corporate bonds (2) ..... - - - - 1,034,721 6.90% - -
- --------------------------------------------------------------------------------------------------------------------
Total ............... $ - - $ 3,586,991 7.94% $10,441,340 7.15% $ 1,551,958 7.98%
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) Yields are calculated on a tax equivalent basis using the Federal statutory rate of 34%.
(2) There were no securities which exceeded 10% of stockholders' equity.
(3) Federal Reserve Stock and other stock are not included in balance.
</FN>
</TABLE>
Loan Composition: The loan portfolio totaled $47,668,018 at March 31, 1997,
compared to $49,394,123 at December 31, 1996. There was a slight reduction in
real estate mortgage loans and a small increase in real estate construction.
Total gross loans decreased 3.13% in the first three months of 1997. Consumer
loans continue to decline due to recessionary influences and competition. The
composition of the Bank's loan portfolio is as follows:
- --------------------------------------------------------------------------------
Percentage Percentage
March 31, of Total December 31, of Total
1997 Loans 1996 Loans
- --------------------------------------------------------------------------------
Commercial, financial
and agricultural ........... $ 21,132,155 42.92% $ 21,428,989 42.16%
Real Estate-construction ... 13,410,663 27.24% 13,404,461 26.37%
Real Estate-mortgage ....... 12,950,312 26.30% 14,160,539 27.86%
Installment loans to
individuals ................ 1,743,770 3.54% 1,837,465 3.61%
- --------------------------------------------------------------------------------
$ 49,236,900 100.00% $ 50,831,454 100.00%
Unearned discount .......... (64,930) (61,208)
Allowance for possible
loan losses ................ (1,111,456) (1,082,278)
Deferred loan fees ......... (257,824) (293,845)
Deferred profit on OREO
sales (2) .................. (134,672) -
- --------------------------------------------------------------------------------
Loans, net ............. $ 47,668,018 $ 49,394,123
- --------------------------------------------------------------------------------
(1) There were no lease financing or foreign loans
(2) Audited financial statements for December 31, 1996, do not include deferred
profit on OREO sales since it is not considered material in amount.
The Bank's customers are primarily located in Stanislaus County and San Joaquin
County. Approximately 54% of the Bank's loans are for real estate and construc-
tion and approximately 43% 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.
<PAGE>
Neither the Bank nor the regulators have placed any limitations on the
composition of the Bank's loan portfolio. There were no concentrations of loans
exceeding 10% of total loans that were not otherwise disclosed as a category of
loans in the above table. Unsecured loans are not a significant portion of the
loan portfolio depicted in the above table. There were no other interest bearing
assets at the end of the period.
The Bank has collateral management policies in place so that collateral lending
of all types is on a basis that it believes is consistent with regulatory
lending standards. Valuation analyses are utilized to take into consideration
the potentially adverse economic conditions under which liquidation of
collateral could occur. It is generally the Bank's policy to fully collateralize
all loans with loan-to-value ratios determined on an individual loan basis
taking into account the financial stability of each borrower and the value and
type of the collateral.
Allowance for Loan Losses: The allowance for loan losses is based upon
management's evaluation of the adequacy of the existing allowance for loans
outstanding. These evaluations take into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, loan
concentrations, specific loan problems and current economic conditions that may
affect the borrower's ability to repay. The allowance for loan losses is
increased by provisions charged to expense and reduced by loan charge-offs net
of recoveries. Early recognition of problem credits is critical to avoid
shortages in the allowance. The allowance for loan losses totaled $1,111,456 or
2.26% of total gross loans at March 31, 1997, compared to $1,082,278 or 2.13% of
total gross loans at December 31, 1996. As of March 31, 1997, the allowance
primarily consists of one commercial retail center that is experiencing
difficulty in leases and cash flow.
The allowance for loan losses is a product of the Bank's allowance for loan loss
methodology that reflects the potential losses in the loan portfolio. The Bank's
conservative lending philosophy allows this allowance to be quite manageable.
Loans totaling $12,643 were charged off during the period and $41,821 was
collected in recoveries as of March 31, 1997, compared to $70,302 in loans
charged off and $39,360 in recoveries for the same period of 1996. Loans charged
off totaled $488,608 as of December 31, 1996, and $166,042 was collected in
recoveries.
Total loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention (including nonaccrual loans and troubled debt restructuring)
at March 31, 1997, were $2,790,708. At December 31, 1996, total loans classified
for regulatory purposes was $3,945,378. Of the total classified, $71,634 was
classified as doubtful at March 31, 1997, and December 31, 1996. Management is
not aware of any other material credit that there is serious doubt regarding the
ability to repay other than those reflected in classified loans and in the
allowance for possible loan losses.
Non-Accrual Loans, Restructured Loans and Real Estate Owned: Information
regarding non-accrual loans, past due loans and restructured loans is presented
below.
- --------------------------------------------------------------------------------
March 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
Non-accrual loans: (1)
Commercial, financial and agricultural ....... $ 81,702 $ -
Real estate loans ............................ 1,557,829 329,609
Consumer loans (2)............................ - -
- --------------------------------------------------------------------------------
Total non-accrual loans .................. $ 1,639,531 $ 329,609
- --------------------------------------------------------------------------------
Loans past due 90 days or more still
accruing interest $ 6,000 -
- --------------------------------------------------------------------------------
Troubled debt restructuring (1) .................. $ 1,134,700 $ 1,135,752
- --------------------------------------------------------------------------------
(1) Carrying value before impaired allowance
(2) Credit cards
<PAGE>
Non-accrual loans at quarter end amounted to $1,639,531, up from $329,609 at
December 31, 1996. The major portion of the non-accrual loans consists of one
real estate loan totaling $1,228,001. Gross interest income that would have been
recorded for non-accrual loans if loans had been current in accordance with
original terms and had been outstanding throughout the period or since
origination for year to date 1997 and December 31, 1996, was $68,777 and
$29,694, respectively. There was no interest income included in net income for
the period for non-accrual loans.
Management is constantly aware of the need for maintaining high credit
standards. The Company is not involved in foreign lending and is not engaged in
high yield, high risk loans. A loan is placed on nonaccrual status when either
principal or interest is in default for 90 days more, or when external factors
indicate that payment in full of principal and interest appears unlikely unless
the loan is well secured and in the process of collection. When a loan is placed
on nonaccrual status, all interest previously accrued but uncollected shall be
reversed against the appropriate income account. In most cases, if the loan is
rated substandard or better, payments shall be applied to interest first and
then principal provided no loss is anticipated. If a loss is anticipated, all
payments shall be applied to principal first and then interest. When one loan of
a customer is placed on nonaccrual status related borrowings will be evaluated
as to whether they should also be placed on nonaccrual status. Nonaccrual loans
will be restored to an accruing status when principal and interest are no longer
past due and unpaid, or the loan otherwise becomes well secured and in the
process of collection.
A troubled debt restructuring occurs when the Bank for economic or legal reasons
related to the debtor's financial difficulties, grants a concession to the
debtor that it would not ordinarily consider. Troubled debt restructuring can
occur in a variety of forms, such as transferring assets in a full or partial
settlement of the debt, issuing debt, or modifying terms including reducing the
stated interest rate, extending maturity dates, reducing the face amount or
maturity of the debt, or reducing accrued interest. Restructured loans totaled
$1,134,700 at March 31, 1997, and $1,135,752 at December 31, 1996. All
restructured loans were current as to principal and interest.
FUNDING SOURCES
Deposits: Total deposits amounted to $79,405,638 as of March 31,1997, compared
to $81,052,506 at December 31, 1996, a decrease of 2.03%. The decrease between
December 31, 1996, and March 31, 1997, was primarily in non-interest bearing
deposits. Historically, the Bank retains 90% or more of its deposits.
Non-interest bearing deposits decreased 10.96% while interest bearing demand
deposits increased 8.10%. Total time and savings deposits remained constant at a
slight reduction of 1.61%.
Non-interest bearing demand deposits averaged approximately $13,807,325 at March
31, 1997, and $13,987,382 at December 31, 1996. Interest bearing deposits
averaged approximately $67,201,711 at the end of March and $67,571,770 at year
end December 31, 1996.
- --------------------------------------------------------------------------------
March 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate
- --------------------------------------------------------------------------------
Interest bearing deposits
Checking accounts ..... $15,432,841 1.52% $14,186,109 1.88%
Savings ............... 16,234,560 4.24% 18,142,195 4.24%
Time deposits (1) ..... 35,534,310 4.97% 35,243,466 4.13%
Non-interest bearing deposits .. 13,807,325 13,987,382
- --------------------------------------------------------------------------------
(1) Included at March 31, 1997 are $21,482,909 in time certificates of $100,000
or more, of which $10,660,409 matures in 3 months or less, $1,933,059 matures in
3 to 6 months, $7,823,812 matures in 6 to 12 months, and $1,065,629 matures in
more than 12 months.
<PAGE>
Other Borrowings: There were no other borrowings as of March 31, 1997,
or December 31, 1996.
Capital: Retained earnings from operations have been the primary source of new
capital for the Company. As of March 31, 1997, stockholders' equity was
$10,873,283, compared to $10,607,355 at year-end 1996. Risk-adjusted capital
guidelines, issued by bank regulatory agencies, assign risk weighting to assets
and off-balance sheet items and place increased emphasis on common equity. The
guidelines require adequately capitalized institutions to maintain a Tier I
(core) capital ratio of 4% and a combined Tier I and Tier II capital ratio of
8%. Institutions whose Tier I and total capital ratios meet or exceed 6% and
10%, respectively, is deemed to be well capitalized. For the Company, Tier I
capital consists of common stockholders' equity. In addition to the
risk-weighted ratios, all banks are expected to maintain leverage ratios, to be
determined on an individual basis, but not below a minimum of 3%. This ratio is
defined as Tier I capital to average total assets for the most recent quarter.
At March 31, 1997, 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 March 31, 1997, and December 31, 1996, and 1995 were as follows:
- --------------------------------------------------------------------------------
Minimum March 31, December 31, December 31,
1997 1996 1995
- --------------------------------------------------------------------------------
Risk Based Capital Ratio .... 8.00% 19.99% 19.76% 18.14%
Tier I Ratio ................ 4.00% 18.73% 18.50% 16.88%
Leverage Ratio .............. 3.00% 11.55% 11.23% 10.02%
- --------------------------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - None other than in the ordinary course of business.
Item 2 - Change in securities - None
Item 3 - Defaults Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - No Change.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
Registrant's Articles of Incorporation and Bylaws are
furnished by way of incorporation by reference to Exhibit 3 to
registrant's registration statement on Form S-14, as filed
under the Securities Act of 1933 on September 10, 1982, and
declared effective on October 8, 1982.
Plan of Reorganization and Agreement of Merger is furnished by
reference to registrant's Form S-14 as filed under the
Securities Act of 1933 on September 10, 1982, and effective on
October 8, 1982.
b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the
period ending March 31, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELTA NATIONAL BANCORP
(Registrant)
DATE: April 30, 1997 /s/ Andrew Rossi
Andrew Rossi
President/Chief Executive Officer
Director
(Principal Executive Officer)
DATE: April 30, 1997 /s/ Warren E. Wegge
Warren E. Wegge
Executive Vice President
(Principal Financial Officer)
DATE: April 30, 1997 /s/ Toinette Rossi
Toinette Rossi
Vice President and Manager
Director
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