<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 March 31, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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 March 31, 1996.
1
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
Form 10-Q
For the Quarter Ended March 31, 1996
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Following are the financial statements of Auburn Bancorp and subsidiary as
of and for the three month periods ended March 31, 1996 and 1995. The financial
statements are unaudited. However, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) have been made for a fair
presentation of the financial position, results of operations, and cash flows of
Auburn Bancorp and subsidiary.
2
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31,
1996 December 31,
ASSETS (Unaudited) 1995
Cash and Due from Banks ...................... $ 4,670,675 $ 5,263,475
Federal Funds Sold ........................... 5,200,000 8,300,000
Loans Held for Sale .......................... 6,275,588 4,473,733
Available-for-Sale Investment
Securities (Note 2) ......................... 5,770,500 6,316,500
Loans, Less Allowance for Loan Losses of
$726,837 at March 31, 1996 and $732,483
at December 31, 1995 (Note 3) .............. 47,681,627 45,237,229
Bank Premises and Equipment, Net ............. 3,040,716 3,092,082
Goodwill and Other Intangibles ............... 436,976 454,477
Accrued Interest Receivable and
Other Assets ............................... 3,046,583 2,990,713
----------- -----------
$76,122,665 $76,128,209
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-Interest Bearing ....................... $14,060,566 $15,025,492
Interest Bearing ........................... 53,084,294 52,221,000
----------- -----------
Total Deposits ...................... 67,144,860 67,246,492
Long-Term Debt ............................... 548,528 556,529
Accrued Interest Payable and
Other Liabilities .......................... 685,136 525,512
----------- -----------
Total Liabilities ................... 68,378,524 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
March 31, 1996 and December 31,
1995, respectively ....................... 5,211,667 5,107,501
Retained Earnings .......................... 2,497,010 2,631,879
Unrealized Gain on
Available-for-Sale Investment
Securities, Net of Taxes (Note 2) ........ 35,464 60,296
----------- -----------
Total Stockholders' Equity .......... 7,744,141 7,799,676
----------- -----------
$76,122,665 $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)
Quarter Ended
March 31,
1996 1995
----------- -----------
Interest Income:
Interest and Fees on Loans ................. $ 1,199,519 $ 1,176,293
Interest on Investment Securities .......... 98,087 108,621
Interest on Federal Funds Sold ............. 60,039 47,855
Interest on Loans Held for Sale ............ 133,966 105,447
----------- -----------
Total Interest Income .................. 1,491,611 1,438,216
----------- -----------
Interest Expense
Interest on Deposits ....................... 411,161 360,246
Interest on Long-Term Debt ................. 11,770 12,420
----------- -----------
Total Interest Expense ................. 422,931 372,666
----------- -----------
Net Interest Income .................... 1,068,680 1,065,550
Provision for Loan Losses (Note 3) ........... 30,000
----------- -----------
Net Interest Income After
Provision for Loan Losses ............ 1,038,680 1,065,550
----------- -----------
Non-Interest Income:
Service Charges ............................ 120,569 74,865
Loan Servicing Income ...................... 122,385 85,994
Gain on Sale of Loans ...................... 80,934 119,285
Other ...................................... 26,061 17,999
----------- -----------
Total Non-Interest Income .............. 349,949 298,143
----------- -----------
Other Expenses:
Salaries and Employee Benefits (Note 6) .... 612,854 594,435
Occupancy Expense .......................... 61,015 62,633
Equipment .................................. 95,667 109,842
Other ...................................... 294,276 330,790
----------- -----------
Total Other Expenses ................... 1,063,812 1,097,700
----------- -----------
Income Before Income Taxes ............. 324,817 265,993
Income Taxes ................................. 138,100 120,600
----------- -----------
Net Income ............................. $ 186,717 $ 145,393
=========== ===========
Earnings Per Share ........................... $ .19 $ .14
=========== ===========
Weighted Average Number of Shares Outstanding 990,470 1,066,297
=========== ===========
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 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 (Unaudited) 19,457 104,166 104,166
Cash Dividend, $.32 per
Share (Unaudited) .... (321,586) (321,586)
Net Income (Unaudited) . 186,717 186,717
Net Change in Unrealized
Gain on Available-
for-Sale Investment
Securities, Net of
Taxes(Unaudited) ..... (24,832) (24,832)
---------- ---------- ---------- ---------- ----------
Balance,
March 31, 1996
(Unaudited) ........ 1,004,955 $5,211,667 $2,497,010 $ 35,464 $7,744,141
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Month Periods Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net Income ................................. $ 186,717 $ 145,393
Adjustments to Reconcile Net
Income to Net Cash Used in
Operating Activities:
Depreciation and Amortization .......... 104,412 114,794
Decrease in Deferred Loan
Origination Fees and Costs, Net ...... (691) (23,054)
Net Increase in Unamortized Discount on
Retained Portion of Sold Loans ....... 24,435 1,304
Net Increase in the Present Value of
Future Servicing Income .............. (10,541) (7,533)
Provision for Loan Losses .............. 30,000
Gain on Sale of Assets, Net ............ (9,100)
Loss on Sale of Other Real Estate ...... 14,183
Net Increase in Loans Held for Sale .... (1,801,855) (1,864,512)
(Increase) Decrease in Interest
Receivable and Other Assets .......... (110,917) 32
Increase in Interest Payable and
Other Liabilities .................... 159,624 137,677
----------- -----------
Net Cash Used in
Operating Activities ............... (1,413,733) (1,495,899)
----------- -----------
Cash Flows From Investing Activities:
Net Increase in Loans ...................... (2,498,142) (1,336,082)
Proceeds from Sale of Assets ............... 18,217
Additions to Bank Premises and
Equipment ................................ (41,526) (19,390)
Proceeds from Sale of Other Real Estate .... 69,437
Proceeds from Matured Available-
for-Sale Investment Securities ........... 500,000
----------- -----------
Net Cash Used in
Investing Activities ............... (1,952,014) (1,355,472)
----------- -----------
(Continued)
6
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
Three Month Periods Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand,
Interest Bearing and Savings Deposits .... $ 494,249 $ (514,086)
Net (Decrease) Increase in Time Deposits ... (595,881) 3,164,294
Principal Payments on Long-Term Debt ....... (8,001) (7,351)
Proceeds from Exercise of Stock Options .... 104,166 3,399
Payments of Cash Dividends ................. (321,586) (312,317)
----------- -----------
Net Cash (Used in) Provided by
Financing Activities ............... (327,053) 2,333,939
----------- -----------
Decrease in Cash
and Cash Equivalents ............... (3,692,800) (517,432)
Cash and Cash Equivalents at Beginning
of Year .................................... 13,563,475 11,604,454
----------- -----------
Cash and Cash Equivalents at End of Period ... $ 9,870,675 $11,087,022
=========== ===========
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for:
Interest Expense ......................... $ 395,044 $ 275,814
Income Taxes ............................. $ 69,000 $ 62,045
Non-Cash Investing Activities:
Real Estate Acquired through
Foreclosure .............................. $ 203,611
Net Change in Unrealized Gain (Loss) on
Available-for-Sale Investment Securities . $ (42,864) $ 92,203
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 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 three month period ended March 31, 1996, the Bank's mortgage
servicing rights and the activity associated with the Bank's mortgage
servicing rights were not material for disclosure purposes. In the
financial statements, mortgage servicing rights are included in accrued
interest receivable and other assets.
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.
Loans Serviced For Others
Loans with unpaid balances of approximately $52,278,000 and $50,329,000
were being serviced for others at March 31, 1996 and December 31, 1995,
respectively.
8
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at
March 31, 1996 and December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Available-for-Sale:
1996
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
-------------------------------------------------
U.S. Government
agencies .............. $2,999,884 $ 4,116 $3,004,000
Obligations of states
and political sub-
divisions ............. 2,568,625 57,375 2,626,000
Federal Reserve Bank
Stock ................. 140,500 140,500
---------- ---------- ---------- ----------
$5,709,009 $ 61,491 $ -- $5,770,500
========== ========== ========== ==========
</TABLE>
Net unrealized gains on available-for-sale investment securities totaling
$61,491 were recorded net of $26,027 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>
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.
9
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities at
March 31, 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.
March 31, 1996
---------------------------
Available-for-Sale
---------------------------
Estimated
Amortized Market
Cost Value
----------- -----------
Due in one year
or less ............................... $ 3,999,884 $ 4,012,000
Due after five
years through
ten years ............................. 1,568,625 1,618,000
Federal Reserve
Bank stock ............................ 140,500 140,500
----------- -----------
$ 5,709,009 $ 5,770,500
=========== ===========
10
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
3. LOANS
Outstanding loans at March 31, 1996 and December 31, 1995 are summarized
below:
March 31, December 31,
1996 1995
----------- -----------
Commercial............................... $ 7,916,991 $ 7,901,397
Real estate - mortgage .................. 34,086,298 32,282,575
Real estate - construction .............. 3,386,745 2,791,456
Installment.............................. 3,116,128 3,092,672
----------- -----------
48,506,161 46,068,100
Deferred loan fees ...................... (97,697) (98,388)
Allowance for loan losses ............... (726,837) (732,483)
----------- -----------
$47,681,627 $45,237,229
=========== ===========
Changes in the allowance for loan losses were as follows:
Three Months Ended March 31, December 31,
1996 1995 1995
---------- ---------- ----------
Balance, beginning of
year .................. $ 732,483 $ 741,323 $ 741,323
Provision charged to
operations ............ 30,000 70,000
Losses charged to
allowance ............. (36,217) (1,479) (130,465)
Recoveries .............. 571 1,198 51,625
---------- ---------- ----------
Balance, end of
period ........... $ 726,837 $ 741,042 $ 732,483
========== ========== ==========
The recorded investment in loans that were considered to be impaired under
SFAS 114, as discussed in Note 1, totaled $568,500 and $604,717 at March
31, 1996 and December 31, 1995, respectively. The average recorded
investment in impaired loans for the three-month period ended March 31,
1996 and the year ended December 31, 1995 totaled $587,000 and $424,000,
respectively. The related allowance for loan losses on these loans at March
31, 1996 and December 31, 1995 totaled $71,061 and $75,590, respectively.
The Bank did not recognize any income on impaired loans in the first
quarter of 1996 or 1995.
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 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.
Other Commitments
At March 31, 1996 and December 31, 1995, the Bank had outstanding loan
commitments and letters of credit totaling $10,330,000 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 $1,355,026 and $1,300,077 at
March 31, 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 each of the three month
periods ended March 31, 1996 and 1995 totaled $19,000.
12
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended March 31, 1996
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Condition
Total assets remained stable at $76.1 million as of March 31, 1996 and December
31, 1995. Total deposits decreased by .2% to $67.1 million at March 31, 1996
from $67.2 million at December 31, 1995. Although total assets and deposits were
relatively unchanged in the first quarter of 1996, shifts were made within
various asset categories. Cash and due from banks decreased $.6 million to $4.7
million at March 31, 1996 from $5.3 million at December 31, 1995. Federal funds
sold decreased $3.1 million to $5.2 million at March 31, 1996 from $8.3 million
at December 31, 1995. Investment in available-for-sale investment securities
declined $.5 million to $5.8 million at March 31, 1996 from $6.3 million at
December 31, 1995. Decreases in these asset categories were the result of strong
loan demand. Net loans increased $2.4 million to $47.7 million at March 31, 1996
from $45.2 million at December 31, 1995. In addition, loans held for sale
increased $1.8 million to $6.3 million at March 31, 1996 from $4.5 million at
December 31, 1995.
Net loans totaled $47.7 million at March 31, 1996, representing a 71% loan to
deposit ratio, compared to net loans of $45.2 million at December 31, 1995,
representing a 67.3% loan to deposit ratio. Loans are expected to continue to
grow during the remainder of 1996. In Management's opinion, the allowance for
loan losses, totaling $726,837 at March 31, 1996, adequately provides for
possible loan losses. This allowance represents 1.5% of gross loans outstanding
at the end of the first quarter.
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.
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:
March 31, March 31, December 31,
1996 1995 1995
---------- ---------- ----------
Total Risk-Based Capital Ratio
Regulatory Requirement ........... 10.0% 10.0% 10.0%
Bank Ratio ....................... 13.0% 12.8% 13.1%
Tier 1 Risk-Based Capital Ratio
Regulatory Requirement ........... 6.0% 6.0% 6.0%
Bank Ratio ....................... 11.8% 11.6% 11.8%
Leverage Ratio
Regulatory Requirement ........... 5.0% 5.0% 5.0%
Bank Ratio ....................... 8.8% 9.3% 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 March 31, 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 Bank of Commerce, N.A. 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.
Results of Operations
Interest income increased 3.7% to $1,491,611 for the three month period ended
March 31, 1996 from $1,438,216 for the three month period ended March 31, 1995.
The increased interest income was primarily due to an increase in average loans
outstanding during the first quarter of 1996 as compared to the first quarter of
1995.
Interest expense increased 13.5% to $422,931 for the three month period ended
March 31, 1996 from $372,666 for the three month period ended March 31, 1995.
The increase in interest expense was primarily the result of an increase in
average deposits in the first quarter of 1996 as compared to the first quarter
of 1995.
The increase in interest income was closely paralleled by increased interest
expense. Net interest income increased $3,130 to $1,068,680 in the first quarter
of 1996 from $1,065,550 in the first quarter of 1995.
14
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended March 31, 1996
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Results of Operations (Continued)
The following table reflects repricing options that are included in the balance
sheet that are sensitive to changes in interest rate. At March 31, 1996, the
cumulative one-year gap was a negative $20.1 million, representing 31.4% of
earning assets. This means that $20.1 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>
(Dollars in Thousands)
1-90 days 91-365 days 1-5 years 5-10 years 10+ years
<S> <C> <C> <C> <C> <C>
Earning Assets ............... $ 41,768 $ 4,897 $ 10,941 $ 4,907 $ 1,527
Net sources .................. 59,188 7,563 394 0 549
Incremental gap .............. (17,420) (2,666) 10,547 4,907 978
Cumulative gap ............... (17,420) (20,086) (9,539) (4,632) (3,654)
% of earning assets .......... (27.2) (31.4) (14.9) (7.2) (5.7)
</TABLE>
Non-interest income increased 17.4% to $349,949 for the first three months of
1996 from $298,143 for the first three months of 1995. Increased service charges
on deposit accounts and servicing income from the growing loan servicing
portfolio are the primary reasons for the growth in non-interest income.
The provision for loan losses totaled $30,000 in the first quarter of 1996.
Management did not make a provision to the Allowance for Loan Losses in the
first quarter of 1995. Net charge-offs totaled $35,646 and $281 for the first
quarter of 1996 and 1995 respectively. Based upon loan portfolio growth,
charge-off experience, and a detailed quarterly evaluation of the risk in the
loan portfolio, it is Management's opinion that the $30,000 provision expense in
the first quarter of 1996 was sufficient to maintain the allowance for loan
losses at an adequate level.
Other expenses decreased 3.1% to $1,063,812 for the first three months of 1996
from $1,097,700 for the three month period ended March 31, 1995. These expenses
represent the operational and administrative expenses of the Company.
Net income for the three months ended March 31, 1996 totaled $186,717 as
compared to net income of $145,393 for the three months ended March 31, 1995.
This increase in net income was primarily the result of the increase in loan
servicing income and service charges coupled with a decrease in other expenses.
These changes were partially offset by the decrease in gains from the sale of
SBA loans and the increased provision for loan losses recognized in the first
quarter of 1996.
15
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended March 31, 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 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
A. Exhibits Filed
(3) Articles of Incorporation filed as exhibit to Registrant's 1988
S-4, Registration No. 33-20889 and all subsequent amendments
filed as exhibit to Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
(3a) Bylaws filed as exhibit to Registrant's 1988 S-4, Registration
No. 33- 20889 and all subsequent amendments filed as exhibit to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
(10) Employment Agreement of John G. Briner, filed as exhibit to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
(10a)Employment Agreement of Mark A. Lund, filed as exhibit to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
(10b)Employment Agreement of Thomas L. Walker, filed as exhibit to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
B. Reports on 8-K
No Reports on Form 8-K have been filed during the quarter ended
March 31, 1996.
16
<PAGE>
AUBURN BANCORP AND SUBSIDIARY
FORM 10-Q
(Continued)
For the Quarter Ended March 31, 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: May 14, 1996
AUBURN BANCORP
By /s/ JOHN G. BRINER
------------------------------
John G. Briner
President,
Chief Executive Officer and
Chief Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,670,675
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,770,500
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 54,684,052
<ALLOWANCE> 726,837
<TOTAL-ASSETS> 76,122,665
<DEPOSITS> 67,144,860
<SHORT-TERM> 0
<LIABILITIES-OTHER> 685,136
<LONG-TERM> 548,528
0
0
<COMMON> 5,211,667
<OTHER-SE> 2,532,474
<TOTAL-LIABILITIES-AND-EQUITY> 76,122,665
<INTEREST-LOAN> 1,333,485
<INTEREST-INVEST> 158,126
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,491,611
<INTEREST-DEPOSIT> 411,161
<INTEREST-EXPENSE> 422,931
<INTEREST-INCOME-NET> 1,068,680
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,063,812
<INCOME-PRETAX> 324,817
<INCOME-PRE-EXTRAORDINARY> 324,817
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186,717
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 6.69
<LOANS-NON> 569,000
<LOANS-PAST> 112,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 732,483
<CHARGE-OFFS> 36,217
<RECOVERIES> 571
<ALLOWANCE-CLOSE> 726,837
<ALLOWANCE-DOMESTIC> 726,837
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
