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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________to____________
Commission File Number: 0-12231
BAY COMMERCIAL SERVICES
(Exact name of small business issuer as specified in its charter)
California 94-2760444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1495 East 14th Street
San Leandro, California 94577
(Address of principal executive offices)
(510) 357-2265
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--------- ---------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at
April 30, 1995
Common stock, no par value 1,080,220 shares
Transitional Small Business Disclosure Format
YES NO X
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<PAGE> 2
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FINANCIAL STATEMENTS
BAY COMMERCIAL SERVICES
CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994*
--------- ------------
(000'S OMITTED)
ASSETS
<S> <C> <C>
Cash and due from banks........................................ $ 5,629 $ 5,476
Federal funds sold............................................. 8,000 2,530
------- -------
Cash and cash equivalents.................................... 13,629 8,006
Securities available for sale, stated at market value
(amortized cost of $7,217 for 1995 and $11,399 for 1994)..... 7,122 11,165
Securities held to maturity (market values of $14,214 for 1995;
$14,146 for 1994)........................................... 14,646 14,823
Loans held for sale............................................ 4,564 3,929
Loans.......................................................... 48,171 47,637
Allowance for loan losses.................................... (770) (756)
------- -------
Net loans.................................................... 51,965 50,810
Premises and equipment, net.................................... 2,243 2,286
Interest and fees receivable................................... 643 539
Other real estate owned........................................ 60 854
Other assets................................................... 657 710
------- -------
Total assets................................................. $90,965 $89,193
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand................................... $25,192 $24,252
Savings and interest-bearing demand.......................... 27,954 28,593
Time......................................................... 22,630 21,123
Certificates of deposit, $100,000 and over................... 5,227 5,290
------- -------
Total deposits............................................... 81,003 79,258
Securities sold under agreements to repurchase................. 957 1,036
Interest payable and other liabilities......................... 753 953
------- -------
Total liabilities............................................ 82,713 81,247
Commitments and contingent liabilities......................... 0 0
Shareholders' equity:
Common stock - no par value: authorized 20,000,000
shares; issued & outstanding 1,080,220 in 1995 and
1,079,985 in 1994 ......................................... 3,696 3,695
Retained earnings............................................ 4,614 4,389
Net unrealized loss on securities available for sale......... (58) (138)
------- -------
Total shareholders' equity................................... 8,252 7,946
------- -------
Total liabilities and shareholders' equity................... $90,965 $89,193
======= =======
</TABLE>
* 1994 figures are derived from the audited consolidated balance sheet included
in the Company's 1994 annual report to shareholders.
See accompanying notes to consolidated condensed financial statements.
<PAGE> 3
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BAY COMMERCIAL SERVICES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
------ ------
(000'S OMITTED)
<S> <C> <C>
Interest income:
Loans, including fees....................... $1,378 $1,069
Federal funds sold.......................... 73 14
Investment securities:
Taxable................................... 298 237
Nontaxable................................ 28 33
------ ------
Total interest income..................... 1,777 1,353
Interest expense:
Deposits:
Savings & interest-bearing demand......... 175 143
Time...................................... 291 172
Certificates of deposit, $100,000 and over 65 66
Other borrowed funds........................ 10 7
------ ------
Total interest expense.................... 541 388
------ ------
Net interest income....................... 1,236 965
Provision for loan losses..................... 0 0
------ ------
Net interest income after
provision for loan losses............... 1,236 965
Noninterest income:
Service charges and fees.................... 55 70
Loan servicing.............................. 46 49
Net gain on sale of OREO.................... 75 54
Gain on sale of loans....................... 0 7
Securities gains............................ 0 11
Other....................................... 60 73
------ ------
Total noninterest income.................. 236 264
Noninterest expenses:
Salaries and employee benefits.............. 597 607
Occupancy................................... 150 156
Data processing............................. 68 53
Professional services....................... 47 101
FDIC insurance.............................. 43 49
Other....................................... 197 182
------ ------
Total noninterest expenses................ 1,102 1,148
------ ------
Income before income tax expense.......... 370 81
Income tax expense............................ 145 32
------ ------
Net income................................. $ 225 $ 49
====== ======
Net income per common and equivalent share $0.20 $0.05
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 4
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BAY COMMERCIAL SERVICES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
------ -------
(000'S OMITTED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 225 $ 49
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization........................... 6 44
Unamortized deferred loan fees, net..................... 1 (25)
Securities gains........................................ 0 (11)
Originations of mortgage loans held for resale.......... 0 (1,594)
Originations of SBA loans held for resale............... (476) (691)
Proceeds from the sale of mortgage loans held for resale 0 1,387
Proceeds from the sale of SBA loans held for resale..... 0 221
Receipts net of expenses due to OREO.................... (75) 0
Loss (gain) on sale of equipment........................ 2 (1)
Change in interest and fees receivable and other assets. (109) 76
Change in interest payable and other liabilities........ 16 (149)
------- -------
Net cash used in operating activities..................... (410) (694)
Cash flows from investing activities:
Proceeds from sales of securities available for sale........ 0 261
Proceeds from maturities of securities...................... 10,466 10,879
Purchase of securities...................................... (6,047) (7,943)
Net change in loans......................................... 114 620
Proceeds from sale of OREO.................................. 75 0
Purchases of premises and equipment......................... (26) (30)
Proceeds from sale of equipment............................. 0 2
------- -------
Net cash provided by investing activities................. 4,582 3,789
Cash flows from financing activities:
Net change in noninterest-bearing demand deposits........... 940 282
Net change in savings and interest-bearing demand deposits.. (639) 524
Net change in time deposits................................. 1,507 1,237
Net change in certificates of deposit, $100,000 and over.... (63) 474
Net change in securities sold under agreement to repurchase. (79) (66)
Exercise of stock option.................................... 1 0
Cash dividends paid......................................... (216) 0
------- -------
Net cash provided by financing activities................. 1,451 2,451
------- -------
Net change in cash and cash equivalents................... 5,623 5,546
Cash and cash equivalents at beginning of period.............. 8,006 5,126
------- -------
Cash and cash equivalents at end of period.................... $13,629 $10,672
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $534 $365
Noncash investing activities during the period:
Loan in connection with sale of OREO.................... $794 $0
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 5
5
BAY COMMERCIAL SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
1) All adjustments (consisting only of normal recurring accruals) which, in
the opinion of Management, are necessary for a fair presentation of the
Company's financial position at March 31, 1995 and December 31, 1994 and
the results of its operations and its cash flows for the three months
ended March 31, 1995 and 1994 have been included. The results of
operations and cash flows for the periods presented are not necessarily
indicative of the results for a full year.
2) Except as noted in Note 5 below, the accompanying unaudited financial
statements have been prepared on a basis consistent with the accounting
principles and policies reflected in the Company's annual report for the
year ended December 31, 1994.
3) Net income per share for the three month periods ended March 31, 1995 and
1994 was computed by dividing net income by the weighted average number
of shares of common stock outstanding during the periods, including the
dilutive effects of stock options, if material. The weighted average
number of shares outstanding was 1,144,609 and 1,079,985 for the three
month periods ended March 31, 1995 and 1994, respectively.
4) The provision for income taxes for the periods presented is based on a
projected tax rate for the entire year. The Company's effective tax rate
was 39% for the three month periods ended March 31, 1995 and 1994.
5) On January 1, 1995, Financial Accounting Standards Board (FASB) Statement
No. 114, "Accounting by Creditors for Impairment of a Loan" and Statement
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures", became effective. Statement 114 provides
new rules for measuring losses on impaired loans. Impaired loans are
required to be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Statement
118 amends Statement 114 and eliminates its provisions regarding how a
creditor should report income on an impaired loan and, as a result,
allows creditors to continue to use existing methods for recognizing
income on impaired loans. The implementation of these Statements for the
first quarter of 1995 had no impact on the Company's financial
statements.
<PAGE> 6
6
BAY COMMERCIAL SERVICES
THE TABLE BELOW ILLUSTRATES CHANGES IN MAJOR CATEGORIES
OF THE AVERAGE BALANCE SHEETS AND STATEMENTS OF INCOME
AND IN CERTAIN PERFORMANCE RATIOS
<TABLE>
<CAPTION>
Three Months Ended Increase
March 31, (Decrease)
1995 1994 $ %
------- ------- ------ ------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Assets *................................... $89,114 $83,422 $5,692 6.8%
Securities - taxable*...................... 20,831 20,848 (17) (0.1)
Securities - nontaxable.................... 1,897 2,186 (289) (13.2)
Total loans................................ 51,750 48,454 3,296 6.8
Nonaccrual loans........................... 625 1,162 (537) (46.2)
Other real estate owned.................... 710 834 (124) (14.9)
Deposits................................... 79,253 74,197 5,056 6.8
Shareholders' equity *..................... 8,216 7,657 559 7.3
Interest-earning assets.................... 79,044 72,196 6,848 9.5
Interest-bearing liabilities............... 56,273 54,352 1,921 3.5
Income Statements:
Interest income (1)........................ 1,790 1,370 420 30.7
Interest expense........................... 541 388 153 39.4
------- ------- ------ ------
Net interest income (1).................. 1,249 982 267 27.2
Taxable equivalent adjustment.............. 13 17 (4) (23.5)
Net interest income...................... 1,236 965 271 28.1
Provision for loan losses.................. 0 0 0 0
------- ------- ------ ------
Net interest income after provision
for loan losses........................ 1,236 965 27 28.1
Noninterest income......................... 236 264 (28) (10.6)
Noninterest expenses....................... 1,102 1,148 (46) (4.0)
Income tax expense......................... 145 32 113 353.1
------- ------- ------ ------
Net income............................... $ 225 $ 49 $ 176 359.2%
======= ======= ====== ======
</TABLE>
* Before unrealized loss on securities available for sale
<TABLE>
<CAPTION>
Change
------
<S> <C> <C> <C>
Performance Ratios: (2)
Yield on average earning assets............ 9.12% 7.60% 1.52%
Yield on average earning assets (1)........ 9.18% 7.70% 1.49%
Interest rate on average interest-bearing
liabilities............................ 3.90% 2.90% 1.00%
Interest expense as a percent of average
earning assets......................... 2.78% 2.18% 0.60%
Net yield on average earning assets........ 6.34% 5.42% 0.92%
Net yield on average earning assets (1).... 6.41% 5.52% 0.89%
</TABLE>
(1) Federal taxable equivalent basis.
(2) Ratios have been annualized and are not necessarily indicative of results
for a full year.
<PAGE> 7
7
BAY COMMERCIAL SERVICES AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1994
OVERVIEW
Net income of Bay Commercial Services ("the Company") was $225,000 for the first
quarter of 1995 compared to $49,000 for the first quarter of 1994. Net income
per share was $0.20 for the 1995 quarter compared to $0.05 for the 1994 quarter.
The $176,000 or 359% increase in net income for the 1995 quarter compared to the
1994 quarter was principally due to a $271,000 or 28% increase in net interest
income and a $46,000 or 4% reduction in noninterest expenses. These improvements
were partially offset by a $113,000 or 353% increase in income tax expense and a
$28,000 or 11% decrease in noninterest income.
Total assets were $90,965,000 at March 31, 1995, representing a $1,772,000 or 2%
increase over December 31, 1994. Total deposits and total loans each increased
2% during the quarter by $1,745,000 and $1,155,000, respectively. Securities
available for sale which matured during the quarter were principally reinvested
in overnight federal funds sold with the result that March 31, 1995 federal
funds sold balances were $5,470,000 or 216% above December 31, 1994.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the principal source of the Company's earnings, is the
amount by which interest and fees generated by interest earning assets, loans
and investments, exceed the interest cost of deposits and other interest-bearing
liabilities. Net interest income is affected by changes in interest rates as
well as the composition and volume of interest-earning assets and
interest-bearing liabilities.
Net interest income of $1,236,000 for the first quarter of 1995 increased
$271,000 or 28% compared to the first quarter of 1994. The increase reflected a
$6,848,000 or 10% growth in average earning assets and an increase in the net
interest margin to 6.34% for the 1995 quarter from 5.42% for the 1994 quarter.
The growth in average interest-earning assets between the 1995 and 1994 quarters
was due to growth of $3,833,000 or 8% in average earning loans and $3,321,000 or
178% in average federal funds sold. The yield on average earning assets
increased to 9.12% for the 1995 quarter compared to 7.60% for the 1994 quarter,
reflecting higher market interest rates between the periods and the asset
sensitive position of the Bank.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between market interest rates and
net interest income due to the repricing characteristics of assets and
liabilities. If more assets than liabilities reprice in a given period (an asset
sensitive position), market interest rate changes will be reflected more quickly
in asset rates. If interest rates decline, an asset sensitive position could
adversely affect net interest income. Alternatively, where liabilities reprice
more quickly than assets in a given period (a liability sensitive position) a
decline in market rates could benefit net interest income. The results would
reverse if market rates were to increase.
The following table presents the Company's interest rate sensitivity gap
position at March 31, 1995. For any given period, the repricing is matched when
an equal amount of assets and liabilities reprice. The repricing of a fixed rate
asset or liability is considered to occur at its contractual maturity or, for
those assets which are held for sale, within the time period during which sale
may reasonably be expected to be accomplished. Floating rate assets or
liabilities are considered to reprice in the period during which the rate can
contractually change. Any excess of either assets or liabilities in a period
results in a gap, or mismatch, shown in the table. A positive gap indicates
asset sensitivity and a negative gap indicates liability sensitivity.
<PAGE> 8
8
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
------------------------------------
(000's OMITTED)
3 Over 3 Over 1
months months to year to Over 5
or less 1 year 5 years years Total
<S> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Loans (net of nonaccrual)..... $41,715 $ 1,348 $ 4,832 $ 4,181 $52,076
Securities (before unrealized
loss on securities
available for sale)......... 5,964 1,133 9,959 4,807 21,863
Federal funds sold............ 8,000 0 0 0 8,000
------- ------- ------- ------- -------
Total....................... 55,679 2,481 14,791 8,988 81,939
Interest rate sensitive
liabilities:
Interest-bearing
transaction accounts........ 6,309 0 0 0 6,309
Savings deposits.............. 21,645 0 0 0 21,645
Time deposits >$100,000....... 10,241 1,913 1,431 0 13,585
Other time deposits........... 8,880 2,846 2,545 1 14,272
Other borrowed funds.......... 957 0 0 0 957
------- ------- ------- ------- -------
Total 48,032 4,759 3,976 1 56,768
------- ------- ------- ------- -------
Interest rate sensitivity gap... $ 7,647 $(2,278) $10,815 $ 8,987 $25,171
------- ------- ------- ------- -------
Cumulative interest rate
sensitivity gap................ $ 7,647 $ 5,369 $16,184 $25,171
Cumulative interest rate
sensitivity gap to total assets 8.4% 5.9% 17.8% 27.7%
</TABLE>
This table presents a static gap, which is a position at a point in time. It
does not address the interest rate sensitivity of assets or liabilities which
would be added through growth, nor does it anticipate the future interest rate
sensitivity of assets and liabilities once they have repriced, and it assumes
equivalent elasticity of assets and liabilities. The interest rate sensitivity
analysis at March 31, 1995, indicates that the Company, on a cumulative gap
basis, is asset sensitive over all the time periods shown. This suggests that if
interest rates were to rise, net interest income could rise while in a declining
interest rate environment, net interest income could fall.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company provides for potential loan losses by a charge to operating income
based upon the current composition of the loan portfolio, past loan loss
experience, current and projected economic conditions, an evaluation of the risk
elements in the loan portfolio and other factors that, in Management's judgment,
deserve recognition in estimating loan losses. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to make additions to the allowance based on their evaluations of information
available to them at the time of their examination. Management will charge off
loans to the allowance when it determines there has been a permanent impairment
of the related carrying values.
The allowance for loan losses reflects an amount sufficient to cover estimated
loan losses and is maintained at a level which, in Management's opinion, is
adequate to absorb potential credit losses inherent in loans, outstanding loan
commitments and standby letters of credit.
As of March 31, 1995, the allowance for loan losses was $770,000 compared to
$756,000 at December 31, 1994. The increased allowance reflected net loan
recoveries during the first quarter of 1995. The ratio of the allowance for loan
losses to total loans was 1.5% at March 31, 1995, and at December 31, 1994.
While Management uses available information to provide for losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. Based upon information currently available, Management believes that
the allowance for loan losses at March 31, 1995, is adequate to absorb future
possible losses. However, no assurance can be given that the Company may not
sustain charge-offs which are in excess of the size of the allowance in any
given period. Due to reductions in nonperforming loans and recoveries on loans
previously written off, in addition to moderate loan growth and the level of the
allowance in relation to both nonperforming and total outstanding loans, no
provision for loan losses was made during either the first quarter of 1995 or
1994.
<PAGE> 9
9
Information on nonperforming loans for the periods ending March 31, 1995,
December 31, 1994, and March 31, 1994, is summarized in the following table.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
(000's OMITTED)
<S> <C> <C> <C>
Net loan charge-offs (recoveries)..... $(14) $ 10 $ (84)
Ratio of net loan charge-offs
(recoveries) to average loans....... 0% 0% (0.2)%
Nonperforming loans:
Nonaccrual loans...................... $659 $626 $1,081
Accruing loans past due
90 days or more................... 0 0 0
--------- ---------- ----------
Total nonperforming loans......... $659 $626 $1,081
Ratio of nonperforming loans
to total loans...................... 1.2% 1.2% 2.2%
Ratio of allowance for loan
losses to nonperforming loans....... 116.8% 120.8% 87.9%
Other real estate owned............... $60 $854 $834
</TABLE>
Total nonperforming loans of $659,000 at March 31, 1995, increased $33,000 or 5%
from the level at December 31, 1994, and decreased $422,000 or 39% compared to
March 31, 1994.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) of $60,000 at March 31, 1995, declined $794,000
or 93% compared to December 31, 1994. The reduction represented the sale of two
OREO properties during the quarter. OREO consists of real estate acquired as a
result of legal foreclosure or through receipt of a deed in lieu of foreclosure.
OREO amounts are carried at the lower of cost or fair value less estimated
disposal costs. When the property is acquired, any excess of the loan balance
over fair value of the property is charged to the allowance for loan losses.
Subsequent write-downs, if any, and disposition gains and losses are included in
noninterest income or noninterest expense. OREO assets are not being depreciated
and any rental income is applied against current expenses or the recorded
balance of the asset.
NONINTEREST INCOME
Total noninterest income of $236,000 for the first quarter of 1995 declined
$28,000 or 11% compared to the first quarter of 1994. An increase of $21,000 or
39% in net gain on the sale of OREO was offset by decreases in the remaining
categories of income. Service charges and fees declined principally due to
reduced deposit account analysis service charges, reflecting increased earnings
allowances on business deposit accounts in the 1995 period. A decrease in SBA
loan activity during the 1995 quarter and the closure of the Bank's mortgage
division in late 1994 reduced loan servicing income. The decline in other
noninterest interest income between the quarters principally reflected larger
recoveries during the 1994 quarter of prior years' loan expenses.
NONINTEREST EXPENSE
Total noninterest expenses of $1,102,000 for the first quarter of 1995 declined
$46,000 or 4% compared to the same quarter in 1994. While average total assets
grew 6.8% between the quarters, the ratio of overhead (total noninterest
expenses) to average total assets declined to 1.2% for the 1995 quarter from
1.4% during the 1994 quarter. The most significant change in noninterest
expenses was a $54,000 or 54% decrease for the 1995 quarter in professional
services charges, principally legal fees related to problem loans. Expenses
which increased during the 1995 quarter compared to the 1994 quarter included
data processing, up $15,000 or 28%, and other noninterest expenses up a net
$15,000 or 8%. The most significant single change within other noninterest
expenses was a $17,000 or 90% increase in directors' fees.
PROVISION FOR INCOME TAXES
The provision for income tax expense was $145,000 for the first quarter of 1995
compared to $32,000 for the first quarter of 1994. The increased income tax
expense reflected higher taxable income during the 1995 quarter. The effective
income tax rates were 39% for both the 1995 and 1994 quarters.
<PAGE> 10
10
FINANCIAL CONDITION
LOANS AND INVESTMENTS
Total loans of $52,735,000 at March 31, 1995 increased $1,169,000 or 2% from
December 31, 1994. Average total loans for the first quarter of 1995 increased
6.8% compared to the first quarter of 1994. Total securities at March 31, 1995,
declined $4,220,000 as maturing short-term securities were reinvested in
overnight federal funds sold. The $5,470,000 or 216% increase in federal funds
sold compared to year-end 1994 allowed the Bank to maintain a strong liquidity
position and still earn a high short-term rate of return.
OTHER ASSETS AND OTHER LIABILITIES
As previously discussed, OREO assets at March 31, 1995, declined $794,000 or 93%
from December 31, 1994, due to the sale of two properties. Interest and fees
receivable increased $104,000 or 19% during the first quarter of 1995,
reflecting the increased volume of and higher yield on earning assets. Interest
payable and other liabilities at March 31, 1995 declined $200,000 from year-end
1994 due to the payment of a cash dividend in 1995.
LIQUIDITY
Liquidity is defined as the ability of the Company to meet present and future
obligations either through the sale or maturity of existing assets, or by the
acquisition of funds through liability management. The Company manages its
liquidity to provide adequate funds to support both the borrowing needs of its
customers and fluctuations in deposit flows. The Company defines liquid assets
to include cash and noninterest-bearing deposit balances, federal funds sold,
all marketable securities less liabilities that are secured by any of the
securities, and loans held for sale, less any reserve requirements being met by
any of the above. Net deposits and short term liabilities include all deposits,
federal funds purchased, repurchase agreements and other borrowings and debt due
in one year or less. The liquidity ratio is calculated by dividing total liquid
assets by net deposits and short term liabilities. The Company's liquidity ratio
by this measure was 45% at March 31, 1995, and 42% at December 31, 1994.
In addition, the Bank has informal, non-binding, federal funds borrowing
arrangements totaling $4,000,000 with two correspondent banks and a $3,000,000
reverse repurchase facility to meet unforeseen outflows. As of March 31, 1995,
no borrowed funds were outstanding on these lines. As of March 31, 1995, the
Bank did not carry any brokered deposit balances.
CAPITAL
The Company and the Bank are subject to Federal Reserve Board guidelines and
regulations of the FDIC governing capital adequacy. The Federal Reserve Board
has established final risk-based and leverage capital guidelines for bank
holding companies which are substantially the same as the FDIC's capital
regulations for nonmember banks.
The Federal Reserve Board capital guidelines for bank holding companies and the
FDIC's regulations for nonmember banks set total capital requirements and define
capital in terms of "core capital elements" (comprising Tier 1 capital) and
"supplemental capital elements" (comprising Tier 2 capital). Tier 1 capital is
generally defined as the sum of the core capital elements less goodwill, with
core capital elements including (i) common stockholders' equity; (ii) qualifying
noncumulative perpetual preferred stock; and (iii) minority interests in the
equity accounts of consolidated subsidiaries. Supplementary capital elements
include: (i) allowance for loan and lease losses (which cannot exceed 1.25% of
risk weighted assets); (ii) perpetual preferred stock not qualifying as core
capital; (iii) hybrid capital instruments and mandatory convertible debt
instruments; and (iv) term subordinated debt and intermediate-term preferred
stock. The maximum amount of supplemental capital elements which qualifies as
Tier 2 capital is limited to 100% of Tier 1 capital, net of goodwill.
Risk-based capital ratios are calculated with reference to risk-weighted assets,
including both on and off-balance sheet exposures, which are multiplied by
certain risk weights assigned by the Federal Reserve Board to those assets. Both
bank holding companies and nonmember banks are required to maintain a minimum
ratio of qualifying total capital to risk-weighted assets of 8%, at least
one-half of which must be in the form of Tier 1 capital.
The Federal Reserve Board and the FDIC also have established a minimum leverage
ratio of 3% of Tier 1 capital to total assets for bank holding companies and
nonmember banks that have received the highest composite regulatory rating and
are not anticipating or experiencing any significant growth. All other
institutions will be required to maintain a leverage ratio of at least 100 to
200 basis points above the 3% minimum.
<PAGE> 11
11
The following tables present the Company's and the Bank's regulatory capital
positions at March 31, 1995, and average assets over the three month period
ended March 31, 1995:
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO
(000's OMITTED)
Company Bank
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Tier 1 Capital................................. $8,310 13.3% $8,091 13.0%
Tier 1 Capital minimum requirement............. 2,497 4.0 2,491 4.0
------ ----- ------ -----
Excess......................................... $5,813 9.3% $5,600 9.0%
Total Capital.................................. $9,080 14.5% $8,861 14.2%
Total Capital minimum requirement.............. 4,995 8.0 4,982 8.0
------ ----- ------ -----
Excess......................................... $4,085 6.5% $3,879 6.2%
------ ----- ------ -----
Risk weighted assets........................... $62,433 $62,280
</TABLE>
<TABLE>
<CAPTION>
LEVERAGE RATIO
(000's OMITTED)
Company Bank
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Tier 1 Capital to average total assets......... $8,310 9.3% $8,091 9.1%
Range of minimum leverage requirement.......... 2,673- 3.0- 2,669- 3.0-
4,456 5.0% 4,448 5.0%
------ ----- ------ -----
Range of excess................................ 3,854- 4.3- 3,643- 4.1-
$5,637 6.3% $5,422 6.1%
------ ----- ------ -----
Average total assets........................... $89,114 $88,962
</TABLE>
The Company currently does not have any material commitments for capital
expenditures, and in the opinion of Management, the Company's and the Bank's
capital positions are sufficient to meet their respective needs.
INFLATION
It is Management's opinion that the effects of inflation on the consolidated
financial statements for the periods ended March 31, 1995 and 1994 have not been
material.
<PAGE> 12
12
PART II - OTHER INFORMATION
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company for the
quarter ended March 31, 1995.
<PAGE> 13
13
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.
BAY COMMERCIAL SERVICES
(Registrant)
Date: May 10, 1995 By R. M. Kahler
----------------------------
R. M. Kahler
President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1995 By R. D. Greenfield
----------------------------
R. D. Greenfield
Chief Financial Officer
(Principal Accounting Officer)
<PAGE> 14
Exhibit Index
Ex. 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 5,629
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,122
<INVESTMENTS-CARRYING> 14,646
<INVESTMENTS-MARKET> 14,214
<LOANS> 52,735
<ALLOWANCE> 770
<TOTAL-ASSETS> 90,965
<DEPOSITS> 81,003
<SHORT-TERM> 957
<LIABILITIES-OTHER> 753
<LONG-TERM> 0
<COMMON> 3,696
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 90,965
<INTEREST-LOAN> 1,378
<INTEREST-INVEST> 326
<INTEREST-OTHER> 73
<INTEREST-TOTAL> 1,777
<INTEREST-DEPOSIT> 531
<INTEREST-EXPENSE> 541
<INTEREST-INCOME-NET> 1,236
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,102
<INCOME-PRETAX> 370
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 6.34
<LOANS-NON> 659
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 659
<ALLOWANCE-OPEN> 756
<CHARGE-OFFS> 0
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 770
<ALLOWANCE-DOMESTIC> 770
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 299
</TABLE>
