<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
----------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------------- ------------------
For Quarter Ended June 30, 1996 Commission file number 0-17719
------------------- -------------
AUBURN BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2827787
----------------------- --------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
540 WALL STREET, AUBURN, CALIFORNIA 95603
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (916) 888-8405
------------------
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes___. No___.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock - Issued and outstanding 1,004,955 shares at June 30, 1996.
1
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
Form 10-Q
For the Quarter Ended June 30, 1996
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Following are the financial statements of Auburn Bancorp and subsidiary as of
and for the quarter and six months ended June 30, 1996 and 1995. The financial
statements are unaudited. However, in the opinion of management, all adjustments
have been made for a fair presentation of the financial condition and results of
operations of Auburn Bancorp and subsidiary.
2
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
------------ ------------
Cash and Due from Banks ...................... $ 4,569,340 $ 5,263,475
Federal Funds Sold ........................... 700,000 8,300,000
Loans Held for Sale .......................... 6,505,472 4,473,733
Available-for-Sale Investment
Securities(Note 2) ........................... 6,206,000 6,316,500
Loans, Less Allowance for Loan Losses of
$767,423 at June 30, 1996 and $732,483
at December 31, 1995 (Notes 3 and 5) ......... 51,350,009 45,237,229
Bank Premises and Equipment, Net ............. 2,965,758 3,092,082
Goodwill and Other Intangibles ............... 419,475 454,477
Accrued Interest Receivable and
Other Assets ................................. 3,275,081 2,990,713
------------ ------------
$ 75,991,135 $ 76,128,209
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-Interest Bearing ......................... $ 14,032,597 $ 15,025,492
Interest Bearing ............................. 53,003,866 52,221,000
------------ ------------
Total Deposits ............................... 67,036,463 67,246,492
Long-Term Debt ............................... 540,355 556,529
Accrued Interest Payable and
Other Liabilities ............................ 515,159 525,512
------------ ------------
Total Liabilities ............................ 68,091,977 68,328,533
============ ============
Commitments (Note 4)
Stockholders' Equity:
Preferred Stock - no par value;
10,000,000 shares authorized;
none issued
Common Stock - no par value;
10,000,000 shares authorized;
1,004,955 and 985,498 shares
issued and outstanding on
June 30, 1996 and December 31,
1995, respectively ........................... 5,211,667 5,107,501
Unrealized Gain on
Available-for-Sale Investment
Securities, Net of Tax Benefit ............... 3,751 60,296
Retained Earnings ............................ 2,683,740 2,631,879
------------ ------------
Total Stockholders' Equity ................... 7,899,158 7,799,676
------------ ------------
$ 75,991,135 $ 76,128,209
============ ============
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans .................. $ 1,341,997 $ 1,177,453 $ 2,541,516 $ 2,353,746
Interest on Investment Securities ........... 94,631 108,621 192,718 217,242
Interest on Federal Funds Sold .............. 17,765 68,878 77,804 116,733
Interest on Loans Held for Sale ............. 152,694 139,587 286,660 245,034
------------ ------------ ------------ ------------
Total Interest Income ..................... 1,607,087 1,494,539 3,098,698 2,932,755
------------ ------------ ------------ ------------
Interest Expense:
Interest on Deposits ........................ 429,085 405,483 840,246 765,729
Interest on Federal Funds Purchased ......... 1,015 1,015
Interest on Long-Term Debt .................. 11,599 12,262 23,369 24,682
------------ ------------ ------------ ------------
Total Interest Expense ................... 441,699 417,745 864,630 790,411
------------ ------------ ------------ ------------
Net Interest Income ....................... 1,165,388 1,076,794 2,234,068 2,142,344
Provision for Loan Losses (Note 3) ............ 40,000 10,000 70,000 10,000
------------ ------------ ------------ ------------
Net Interest Income After
Provision for Loan Losses ............... 1,125,388 1,066,794 2,164,068 2,132,344
------------ ------------ ------------ ------------
Non-Interest Income:
Service Charges ............................. 120,233 95,739 240,802 170,604
Loan Servicing Income ....................... 99,344 81,530 221,729 167,524
Gain on Sale of Loans ....................... 200,624 115,249 281,558 234,534
Other ....................................... 21,558 14,177 47,619 32,176
------------ ------------ ------------ ------------
Total Non-Interest Income ................. 441,759 306,695 791,708 604,838
------------ ------------ ------------ ------------
Other Expenses:
Salaries and Employee
Benefits (Note 6) ......................... 684,204 500,648 1,297,058 1,095,083
Occupancy Expense ........................... 58,579 70,456 119,594 133,089
Equipment ................................... 97,519 105,474 193,186 215,316
Other ....................................... 378,715 347,529 672,991 678,319
------------ ------------ ------------ ------------
Total Other Expenses ...................... 1,219,017 1,024,107 2,282,829 2,121,807
------------ ------------ ------------ ------------
Income Before Income Taxes ................ 348,130 349,382 672,947 615,375
Income Taxes .................................. 161,400 157,600 299,500 278,200
------------ ------------ ------------ ------------
Net Income ................................ $ 186,730 $ 191,782 $ 373,447 $ 337,175
============ ============ ============ ============
Earnings Per Share ............................ $ .19 $ .19 $ .37 $ .33
===== ===== ===== =====
Weighted Average Number of Shares ............. 1,004,955 1,010,120 997,685 1,010,120
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Six Months Ended June 30, 1996
and Year Ended December 31, 1995
<TABLE>
<CAPTION>
Unrealized
(Loss)Gain on
Available-
for-Sale
Common Stock Retained Investment
Shares Amount Earnings Securities Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 ..................... 1,041,053 $ 5,525,420 $ 2,064,511 $ (114,785) $ 7,475,146
Cash Dividend
$.30 per Share ...................... (312,317) (312,317)
Stock Options Exercised
and Related Tax
Benefits ............................ 723 4,228 4,228
Redemption of Common
Stock ............................... (56,278) (422,147) (422,147)
Net Income ............................ 879,685 879,685
Net Change in Unreal-
ized (Loss) Gain on
Available-for-Sale
Investment Securi-
ties, Net of Taxes .................. 175,081 175,081
------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1995 ................. 985,498 5,107,501 2,631,879 60,296 7,799,676
Stock Options Exercised ............... 19,457 104,166 104,166
Cash Dividend
$.32 per Share ...................... (321,586) (321,586)
Net Income ............................ 373,447 373,447
Net Change in Unrealized
Gain on Available-
for-Sale Investment
Securities, Net of
Taxes ............................... (56,545) (56,545)
------------ ------------ ------------ ------------ ------------
Balance,
June 30, 1996 ..................... 1,004,955 $ 5,211,667 2,683,740 $ 3,751 $ 7,899,158
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Month Periods Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Cash Flows from Operating Activities:
Net Income ................................... $ 373,447 $ 337,175
Adjustments to Reconcile Net
Income to Net Cash Used in
Operating Activities:
Depreciation and Amortization ................ 206,927 231,278
Provision for Loan Losses .................... 70,000 10,000
Net Gain on Sale of Fixed Assets ............. (9,174)
Loss on Sale of Other Real Estate ............ 14,183
Increase (Decrease) in Deferred Loan
Origination Fees and Costs, Net .............. 9,601 (45,173)
Net Increase in Unamortized Discount on
Retained Portion of Sold Loans ............... 35,305 14,269
Net Increase in the Present Value of
Future Servicing Income ...................... (20,831) (1,957)
Increase in Loans Held for Sale .............. (2,031,739) (3,291,333)
Increase in Accrued Interest Receivable
and Other Assets ............................. (305,551) (354,944)
(Decrease) Increase in Accrued Interest
Payable and Other Liabilities ................ (10,353) 133,129
------------ ------------
Net Cash Used in Operating
Activities ................................... (1,668,185) (2,967,556)
------------ ------------
Cash Flows From Investing Activities:
Purchase of Available-for-Sale
Investment Securities ........................ (493,836)
Proceeds from Matured Available-
for-Sale Investment Securities ............... 500,000
Net Increase in Loans ........................ (6,227,685) (1,251,087)
Proceeds from Sale of Other Real Estate ...... 69,437
Proceeds from Sale of Fixed Assets ........... 18,292 3,795
Purchases of Bank Premises and
Equipment .................................... (48,535) (39,798)
------------ ------------
Net Cash Used in
Investing Activities ......................... (6,182,327) (1,287,090)
------------ ------------
The accompanying notes are an integral
part of these financial statements.
(Continued)
6
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
Six Month Periods Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
------------ ------------
Cash Flows from Financing Activities:
Net (Decrease) Increase in Demand,
Interest Bearing and Savings Deposits ........ $ (2,479,066) $ 3,946,572
Net Increase in Time Deposits ................ 2,269,037 4,183,574
Principal Payments on Long-Term Debt ......... (16,174) (14,860)
Payments to Redeem Common Stock .............. (422,147)
Proceeds from Exercise of Stock Options ...... 104,166 3,398
Payments of Cash Dividends ................... (321,586) (312,317)
------------ ------------
Net Cash (Used in) Provided by
Financing Activities ......................... (443,623) 7,384,220
------------ ------------
(Decrease) Increase in Cash and
Cash Equivalents ............................. (8,294,135) 3,129,574
Cash and Cash Equivalents at Beginning
of Year ...................................... 13,563,475 11,604,454
------------ ------------
Cash and Cash Equivalents at End of Period ... $ 5,269,340 $ 14,734,028
============ ============
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for:
Interest Expense ............................. $ 896,055 $ 586,887
Income Taxes ................................. $ 405,133 $ 316,045
Non-Cash Investing Activities:
Real Estate Acquired through
Foreclosure .................................. $ 203,611
Net Change in Unrealized Gain (Loss) on
Available-for-Sale Investment Securities ..... $ (98,154) $ 167,300
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accounting and reporting policies of Auburn Bancorp (the Company) and
its subsidiary conform with generally accepted accounting principles and
prevailing practices within the banking industry.
Certain reclassifications have been made to the prior year's balances to
conform to classifications used in 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary, which is wholly-owned. All material intercompany
balances and transactions have been eliminated in consolidation.
Loans Held For Sale
Loans held for sale consist of mortgage and Small Business Administration
(SBA) guaranteed loans and are carried at the lower of cost or market
value. Loans held for sale subsequently transferred to the loan portfolio
are transferred at the lower of cost or market value at the date of
transfer. Any difference between the carrying amount of the loan and its
outstanding principal balance is recognized as an adjustment to yield by
the interest method. Unrealized gains or losses on loans held for sale are
included in other expense. Realized gains or losses are determined on the
specific identification method and are reflected in non-interest income or
expense.
In May 1995, the Financial Accounting Standards Board issued SFAS 122,
Accounting for Mortgage Servicing Rights. This Statement requires that the
rights to service mortgage loans for others, whether those servicing rights
are acquired through the purchase or origination of the related loans, be
recognized as separate assets. In addition, capitalized mortgage servicing
rights must be evaluated for impairment based on the fair value of the
rights. The Bank adopted SFAS 122 on January 1, 1996. However, as of and
for the six month period ended June 30, 1996, the activity associated with
the Bank's mortgage servicing rights was not material.
Earnings Per Share
Earnings per share are calculated using the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. The dilutive effect of stock options outstanding from the application
of the treasury stock method has been considered in the computation of
common stock equivalents.
8
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Serviced For Others
Loans with unpaid balances of approximately $53,414,000 and $50,329,000
were being serviced for others at June 30, 1996 and December 31, 1995,
respectively.
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of available-for-sale
investment securities at June 30, 1996 and December 31, 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury
securities ................... $ 493,838 $ 162 $ 494,000
U.S. Government
agencies ..................... 3,000,000 3,000,000
Obligations of states
and political sub-
divisions .................... 2,565,461 6,039 2,571,500
Federal Reserve Bank
Stock ........................ 140,500 140,500
------------ ------------ ------------ ------------
$ 6,199,799 $ 6,201 $ -- $ 6,206,000
============ ============ ============ ============
</TABLE>
Net unrealized gains on available-for-sale investment securities totaling
$6,201 were recorded net of $2,450 in tax liabilities as a separate
component of stockholders' equity. There were no sales or transfers of
investment securities in 1996.
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------
<S> <C> <C> <C> <C>
U.S. Government
agencies ................... $ 3,499,856 $ 10,546 $ (402) $ 3,510,000
Obligations of states
and political sub-
divisions .................. 2,571,789 94,211 2,666,000
Federal Reserve Bank
Stock ...................... 140,500 140,500
------------ ------------ ------------ ------------
$ 6,212,145 $ 104,757 $ (402) $ 6,316,500
============ ============ ============ ============
</TABLE>
9
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
2. INVESTMENT SECURITIES (Continued)
Net unrealized gains on available-for-sale investment securities totaling
$104,355 were recorded net of $44,059 in tax liabilities as a separate
component of stockholders' equity. There were no sales or transfers of
investment securities during 1995.
The amortized cost and estimated market value of investment securities at
June 30, 1996 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because the issuers of the
securities may have the right to call or prepay obligations with or without
call or prepayment penalties.
June 30, 1996
---------------------------
Available-for-Sale
---------------------------
Estimated
Amortized Market
Cost Value
------------ ------------
Due in one year
or less ................................... $ 4,493,838 $ 4,496,500
Due after five
years through
ten years ................................. 1,565,461 1,569,000
Federal Reserve
Bank stock ................................ 140,500 140,500
------------ ------------
$ 6,199,799 $ 6,206,000
============ ============
10
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
3. LOANS
Outstanding loans at June 30, 1996 and December 31, 1995 are summarized
below:
June 30, December 31,
1996 1995
------------ ------------
Commercial ............................. $ 8,866,184 $ 7,901,397
Real estate - mortgage ................. 36,055,191 32,282,575
Real estate - construction ............. 3,323,433 2,791,456
Installment ............................ 3,980,613 3,092,672
------------ ------------
52,225,421 46,068,100
Deferred loan fees ..................... (107,989) (98,388)
Allowance for loan losses .............. (767,423) (732,483)
------------ ------------
$ 51,350,009 $ 45,237,229
============ ============
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, December 31,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of
year ................................. $ 732,483 $ 741,323 $ 741,323
Provision charged to
operations ........................... 70,000 10,000 70,000
Losses charged to
allowance ............................ (36,217) (48,234) (130,465)
Recoveries ............................. 1,157 2,384 51,625
------------ ------------ ------------
Balance, end of
period .......................... $ 767,423 $ 705,473 $ 732,483
============ ============ ============
</TABLE>
The recorded investment in loans that were considered to be impaired under
SFAS 114 totaled $700,764 and $604,717 at June 30, 1996 and December 31,
1995, respectively. The related allowance for loan losses on these loans at
June 30, 1996 and December 31, 1995 totaled $97,679 and $75,590,
respectively. The average recorded investment in impaired loans during the
quarter and six month period ended June 30, 1996 was approximately $612,588
and $599,914, respectively. For the quarter and six month period ended June
30, 1996 the Bank did not recognize any interest on impaired loans.
Salaries and employee benefits totaling $146,533 and $260,305 have been
deferred as loan origination costs for the six month period ended June 30,
1996 and year ended December 31, 1995, respectively.
11
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
4. COMMITMENTS
Agreement and Plan of Reorganization
On March 27, 1996, the Company entered into an Agreement and Plan of
Reorganization whereby Auburn Bancorp ("Auburn") will be merged with and
into ValliCorp Holdings, Inc.("ValliCorp"). The merger will be accounted
for as a purchase. In connection with the merger, The Bank of Commerce,
N.A., a wholly-owned subsidiary of Auburn, will be merged with and into
ValliWide Bank, a wholly-owned subsidiary of ValliCorp. To effect the
merger, each share of Auburn's common stock will be converted into .8209
shares of ValliCorp common stock, provided that the total number of
ValliCorp shares to be issued does not exceed 926,768 shares. The
conversion ratio will be adjusted downward if the total number of shares to
be issued by ValliCorp for (1) the shares of Auburn common stock
outstanding and (2) the number of shares of Auburn common stock available
upon exercise of Auburn stock options assumed by ValliCorp exceeds this
number. The merger is subject to the approval of the Federal Reserve Board
and the Auburn stockholders and is subject to certain other conditions, to
include the receipt of an opinion that the merger will qualify as a
tax-free reorganization. Shareholders will vote on the Agreement at the
Company's annual meeting to be held on September 6, 1996.
Other Commitments
At June 30, 1996 and December 31, 1995, the Bank had outstanding loan
commitments and letters of credit totaling $10,683,000 and $11,478,000,
respectively.
5. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions
with related parties, including Directors and affiliates. These
transactions include borrowings from the Bank with substantially the same
terms, including rates and collateral, as loans to unrelated parties.
Aggregate related party borrowings totaled $1,305,914 and $1,300,077 at
June 30, 1996 and December 31, 1995, respectively.
6. PROFIT SHARING PLAN
Effective January 1, 1987, the Bank adopted The Bank of Commerce, N.A.,
401(k) Profit Sharing Plan and Trust. The Plan was revised to a 401(k)
Profit Sharing Stock Ownership Plan on January 1, 1995. The Plan is
available to employees meeting certain service requirements. The Bank's
contribution to the Plan is discretionary and is allocated in the same
ratio as each participants compensation bears to total compensation of all
participants. Such contributions may be made in cash or invested in shares
of the Company's common stock and vest over a six-year period.
Contributions to the profit sharing plan for the six months ended June 30,
1996 and 1995 totaled $24,000 and $39,000, respectively.
12
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Condition
Total assets of $76.0 million at June 30, 1996 represents a nominal decline from
the $76.1 million reported at December 31, 1995. However, the composition of the
assets underwent significant changes as strong loan demand resulted in a shift
from federal funds sold into loans.
Net loans totaled $51.4 million at June 30, 1996, representing a 13.5% increase
from $45.2 million at December 31, 1995. Loans held for sale increased $2
million to $6.5 million at June 30, 1996 from $4.5 million at December 31, 1995.
Total deposits remained relatively unchanged during the same period. However,
time certificates of deposits increased 15.4% to $17.2 million at June 30, 1996
from $14.9 million at December 31, 1995. The loan to deposit ratio increased to
76.6% at June 30, 1996 from 67.3% at December 31, 1995. Federal funds sold
decreased $7.6 million to $.7 million at June 30, 1996 from $8.3 million at
December 31, 1995, providing the primary funding for growth in both portfolio
loans and loans held for sale.
In Management's opinion, the allowance for loan losses, totaling $767,423 at
June 30, 1996, adequately provides for possible loan losses. The allowance
represents 1.5% of gross loans outstanding at the end of the second quarter of
1996.
The Company declared a cash dividend of $.32 per share on February 14, 1996,
which was paid on March 29, 1996 to shareholders of record on March 15, 1996.
This compares to the cash dividend of $.30 per share paid during the first
quarter of 1995.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established the following capital levels for determining that a bank meets the
highest capital standards and is determined to be a "well capitalized"
institution:
June 30, June 30, December 31,
1996 1995 1995
------------ ------------ ------------
Total Risk-Based Capital Ratio
Regulatory Requirement ........... 10.0% 10.0% 10.0%
Bank Ratio ....................... 12.9% 12.9% 13.1%
Tier 1 Risk-Based Capital Ratio
Regulatory Requirement ........... 6.0% 6.0% 6.0%
Bank Ratio ....................... 11.6% 10.9% 11.8%
Leverage Ratio
Regulatory Requirement ........... 5.0% 5.0% 5.0%
Bank Ratio ....................... 9.2% 8.8% 9.1%
As noted in the above schedule, The Bank of Commerce, N.A. meets all the
regulatory capital requirements of a "well capitalized" institution.
13
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Financial Condition (Continued)
On March 27, 1996, the Company entered into an Agreement and Plan of
Reorganization whereby Auburn Bancorp ("Auburn") will be merged with and into
ValliCorp Holdings, Inc. ("ValliCorp"). The merger will be accounted for as a
purchase and is expected to be completed late in the third quarter of 1996. In
connection with the merger, The Bank of Commerce, N.A., a wholly-owned
subsidiary of Auburn, will be merged with and into ValliWide Bank, a
wholly-owned subsidiary of ValliCorp. The resulting bank will be called
ValliWide Bank upon consummation of the transaction.
ValliWide Bank is a super-community bank with 54 branches throughout Central
California and $1.3 billion in assets. Like the Bank of Commerce, N.A.,
ValliWide focuses on small and medium size business clients as well as personal
deposit and loan products. The Bank of Commerce, N.A. will bring its expertise
in the SBA lending area to the new combined institution and will solidify
ValliWide's presence in the greater Sacramento area.
To effect the merger, each share of Auburn common stock will be converted into
.8209 shares of ValliCorp common stock, provided that the total number of
ValliCorp shares to be issued does not exceed 926,768 shares. The conversion
ratio will be adjusted downward if the total number of shares to be issued by
ValliCorp for (1) the shares of Auburn common stock outstanding and (2) the
number of shares of Auburn common stock available upon exercise of Auburn stock
options assumed by ValliCorp exceeds this number. The merger is subject to the
approval of the Federal Reserve Board and the Auburn stockholders and is subject
to certain other conditions, to include the receipt of an opinion that the
merger will qualify as a tax free reorganization. The Auburn stockholders will
vote on the merger at the annual meeting to be held on September 6, 1996.
Results of Operations for the Quarter Ended June 30, 1996
Interest income increased 7.5% to $1,607,087 for the quarter ended June 30, 1996
from $1,494,539 for the quarter ended June 30, 1995. Although overall interest
rates were lower in the second quarter of 1996 compared to the same period in
1995, interest income increased as a result of greater average outstanding loan
balances.
Interest expense increased 5.7% to $441,699 for the quarter ended June 30, 1996
from $417,745 for the quarter ended June 30, 1995. The increase in interest
expense is primarily the result of increases in the level of time certificates
of deposit.
14
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Results of Operations for the Quarter Ended June 30, 1996 (Continued)
Non-interest income increased 44% to $441,759 for the quarter ended June 30,
1996 from $306,695 for the quarter ended June 30, 1995. Service charges
increased 25.6% to $120,233 for the quarter ended June 30, 1996 from $95,739 for
the quarter ended June 30, 1995. The primary reason for this increase was an
increase in the service charge schedules for checking and savings accounts. In
addition, loan servicing income increased 21.9% to $99,344 for the quarter ended
June 30, 1996 from $81,530 for the quarter ended June 30, 1995 due to continued
growth in the servicing portfolio of SBA loans. Gains on the sale of loans
increased 74.1% or $85,375 for the same period as SBA loan originations and
sales increased.
The allocation to the Provision for Loan Losses for the second quarter of 1996
was $40,000 compared to $10,000 in the second quarter of 1995. This increase was
due to the increase in loans outstanding at June 30, 1996 of $7.3 million over
loans outstanding at June 30, 1995. Net charge-offs for the quarter ended June
30, 1996 totaled $35,060 as compared to net charge-offs which totaled $45,850
for the same period in 1995.
Other expenses increased 19.0% to $1,219,017 for the quarter ended June 30, 1996
from $1,024,107 for the quarter ended June 30, 1995. The increase is primarily a
result of increased salary and benefit expenses relating to employee severance
payments in anticipation of the proposed merger.
Net income for the quarter ended June 30, 1996 totaled $186,730 as compared to
net income of $191,782 for the quarter ended June 30, 1995. Increases in net
interest income, gain on the sale of loans, and service charges, were offset by
a greater provision for loan losses and increased salary and benefits expense.
15
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Results of Operations for the Six Months Ended June 30, 1996
Interest income increased 5.66% to $3,098,698 for the six month period ended
June 30, 1996 from $2,932,755 for the six month period ended June 30, 1995. The
increased interest income on loans and investments was primarily due to an
increase in average loans outstanding offsetting slightly lower interest rates.
Interest income on loans held for sale increased in the first half of 1996 as
the average outstanding loan balance increased substantially over the same
period in 1995.
Interest expense increased 9.4% to $864,630 for the six month period ended June
30, 1996 from $790,411 for the six month period ended June 30, 1995. Although
total deposits remained relatively unchanged from June 30, 1995, the composition
changed. Increased interest expense in the first half of 1996 reflects the shift
in the Bank's deposit base towards certificates of deposit which earn a higher
rate of interest than the Bank's other deposit products.
The following table reflects repricing options that are included in the balance
sheet that are sensitive to changes in interest rate. At June 30, 1996, the
cumulative one-year gap was a negative $20.4 million, representing 31.2% of
earning assets. This means that $20.4 million of earning assets should reprice
slower than sources of funds reprice in a one year time horizon. The negative
gap position indicates that the Bank's net interest margin should decrease in a
period of rising interest rates and increase in a period of falling interest
rates. However, the relationship is not always accurate as interest rates paid
on deposits have historically lagged behind changes in interest rates earned on
the Bank's assets.
<TABLE>
<CAPTION>
1-90 days 91-365 days 1-5 years 5-10 years 10+ years
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earning Assets $ 44,714 $ 1,419 $ 10,078 $ 6,341 $ 2,835
Net sources 55,614 10,949 474 0 540
Incremental gap (10,900) (9,530) 9,604 6,341 2,295
Cumulative gap (10,900) (20,430) (10,826) (4,485) (2,190)
% of earning assets (16.7) (31.2) (16.6) (6.9) (3.4)
</TABLE>
Non-interest income increased 30.9% to $791,708 for the first six months of 1996
from $604,838 for the first six months of 1995. Service charges increased 41.2%
to $240,802 for the first six months of 1996 from $170,604 for the same period
in 1995. The primary reason for this increase was an increase in the service
charge schedules for checking and savings accounts. In addition, loan servicing
income increased 32.4% to $221,729 for the first six months of 1996 from
$167,524 for the first six months of 1995 due to continued growth in the
servicing portfolio of SBA loans. Originations and sales of SBA loans increased
in the first half of 1996, providing an additional $47,024 in gains on sale over
the same period in 1995.
16
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Results of Operations for the Six Months Ended June 30, 1996 (Continued)
The allocation to the Provision for Loan Losses for the first six months of 1996
was $70,000. The allocation for the same period in 1995 was $10,000. The
increase was due to the increase in loans outstanding at June 30, 1996 of $7.3
million over loans outstanding at June 30, 1995. Net charge-offs for the six
month period ended June 30, 1996 totaled $35,060 as compared to $45,850 for the
same period in 1995.
Other expenses increased 7.6% to $2,282,829 for the first six months of 1996
from $2,121,807 for the six month period ended June 30, 1995. Severance expenses
related to the proposed merger make up the majority of this increase. Salaries
and benefit expense increased $201,975 over the same period in 1995.
Net income for the six months ended June 30, 1996 totaled $373,447 as compared
to net income of $337,175 for the six months ended June 30, 1995. A 4.3%
increase in net interest income and 30.9% increase in non interest income offset
a 7.6% increase in other expenses to achieve a 10.8% increase in net income.
17
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter ended June 30, 1995.
18
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended June 30, 1996
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.
Date: August 14, 1996
AUBURN BANCORP
By /s/ JOHN G. BRINER
-----------------------------
President,
Chief Executive Officer and
Chief Accounting Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,569,340
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,206,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 58,622,904
<ALLOWANCE> 767,423
<TOTAL-ASSETS> 75,991,135
<DEPOSITS> 67,036,463
<SHORT-TERM> 0
<LIABILITIES-OTHER> 515,159
<LONG-TERM> 540,355
0
0
<COMMON> 5,211,667
<OTHER-SE> 2,687,491
<TOTAL-LIABILITIES-AND-EQUITY> 75,991,135
<INTEREST-LOAN> 2,828,176
<INTEREST-INVEST> 270,522
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,098,698
<INTEREST-DEPOSIT> 840,246
<INTEREST-EXPENSE> 864,630
<INTEREST-INCOME-NET> 2,234,068
<LOAN-LOSSES> 70,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,282,829
<INCOME-PRETAX> 672,947
<INCOME-PRE-EXTRAORDINARY> 672,947
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373,447
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> 6.85
<LOANS-NON> 700,764
<LOANS-PAST> 382,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 732,483
<CHARGE-OFFS> 36,217
<RECOVERIES> 1,157
<ALLOWANCE-CLOSE> 767,423
<ALLOWANCE-DOMESTIC> 767,423
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
