<PAGE> 1
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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, 1996
/ / 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.
<TABLE>
<CAPTION>
Class Outstanding at
May 1, 1996
<S> <C>
Common stock, no par value 1,076,720 shares
</TABLE>
Transitional Small Business Disclosure Format
YES NO X
This report contains a total of 16 pages
<PAGE> 2
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FINANCIAL STATEMENTS
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995*
---- ----
(000'S OMITTED)
ASSETS
<S> <C> <C>
Cash and due from banks ........................................ $ 5,317 $ 5,057
Federal funds sold ............................................. 8,700 6,700
------- -------
Cash and cash equivalents .................................... 14,017 11,757
------- -------
Securities available for sale, stated at market value
(amortized cost of $12,931 for 1996; $13,045 for 1995) ....... 12,916 13,199
Securities held to maturity (market values of $6,628
for 1996; $7,339 for 1995) .................................. 6,614 7,211
Loans held for sale ............................................ 3,637 4,984
Loans .......................................................... 53,792 53,168
Allowance for loan losses .................................... (969) (982)
------- -------
Net loans .................................................... 56,460 57,170
------- -------
Premises and equipment, net .................................... 2,081 2,139
Interest and fees receivable ................................... 756 600
Other real estate owned ........................................ 359 359
Other assets ................................................... 443 384
------- -------
Total assets ................................................. $93,646 $92,819
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand ................................... $22,986 $26,841
Savings and interest-bearing demand .......................... 26,303 24,516
Time ......................................................... 27,216 23,773
Certificates of deposit, $100,000 and over ................... 5,044 5,123
------- -------
Total deposits ............................................... 81,549 80,253
------- -------
Securities sold under agreements to repurchase ................. 2,217 2,203
Interest payable and other liabilities ......................... 945 1,596
------- -------
Total liabilities ............................................ 84,711 84,052
------- -------
Commitments and contingent liabilities ......................... 0 0
Shareholders' equity:
Common stock - no par value: authorized 20,000,000
shares; issued & outstanding 1,076,720 in 1996 and
1995 ....................................................... 3,662 3,662
Retained earnings ............................................ 5,282 5,011
Net unrealized gain(loss) on securities available for sale ... (9) 94
------- -------
Total shareholders' equity ................................... 8,935 8,767
------- -------
Total liabilities and shareholders' equity ................... $93,646 $92,819
======= =======
</TABLE>
* 1995 figures are derived from the audited consolidated balance sheet included
in the Company's 1995 annual report to shareholders.
See accompanying notes to consolidated condensed financial statements.
<PAGE> 3
3
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
(000'S OMITTED)
<S> <C> <C>
Interest income:
Loans, including fees ................................ $1,525 $1,378
Federal funds sold ................................... 35 73
Investment securities:
Taxable ............................................ 262 298
Nontaxable ......................................... 36 28
------ ------
Total interest income .............................. 1,858 1,777
------ ------
Interest expense:
Deposits:
Savings & interest-bearing demand .................. 154 175
Time ............................................... 319 291
Certificates of deposit, $100,000 and over ......... 72 65
Other borrowed funds ................................. 25 10
------ ------
Total interest expense ............................. 570 541
------ ------
Net interest income ................................ 1,288 1,236
Provision for loan losses .............................. 0 0
------ ------
Net interest income after
provision for loan losses ........................ 1,288 1,236
------ ------
Noninterest income:
Service charges and fees ............................. 65 55
Gain on sale of loans ................................ 63 0
Bankcard income ...................................... 57 46
Loan servicing ....................................... 36 46
Net gain on sale of OREO ............................. 0 75
Securities gains.(losses) ............................ 0 0
Other ................................................ 41 14
------ ------
Total noninterest income ........................... 262 236
------ ------
Noninterest expenses:
Salaries and employee benefits ....................... 612 597
Occupancy ............................................ 146 150
Data processing ...................................... 74 68
Professional services ................................ 47 47
Bankcard processing expense .......................... 44 36
FDIC insurance ....................................... 1 43
Other ................................................ 176 161
------ ------
Total noninterest expenses ......................... 1,100 1,102
------ ------
Income before income tax expense ................... 450 370
Income tax expense ..................................... 179 145
------ ------
Net income ......................................... $ 271 $ 225
====== ======
Net income per common and equivalent share ......... $ 0.22 $ 0.20
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 4
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BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
(000'S OMITTED)
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 271 $ 225
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization .............................. 78 6
Unamortized deferred loan fees, net ........................ (305) 1
Originations of SBA loans held for resale .................. (268) (476)
Proceeds from the sale of SBA loans held for resale ........ 1,742 0
Loss on sale of equipment .................................. 0 2
Change in interest and fees receivable and other assets .... (209) (109)
Change in interest payable and other liabilities ........... (268) 16
------- -------
Net cash provided by (used in) operating activities .......... 1,041 (335)
------- -------
Cash flows from investing activities:
Proceeds from maturities of securities held for sale ........... 115 10,000
Proceeds from maturities of securities held to maturity ........ 1,131 466
Purchase of securities held for sale ........................... 0 (5,934)
Purchase of securities held to maturity ........................ (541) (113)
Net change in loans ............................................ (459) 114
Purchases of premises and equipment ............................ (14) (26)
------- -------
Net cash provided by investing activities .................... 232 4,507
------- -------
Cash flows from financing activities:
Net change in noninterest-bearing demand deposits .............. (3,855) 940
Net change in savings and interest-bearing demand deposits ..... 1,787 (639)
Net change in time deposits .................................... 3,443 1,507
Net change in certificates of deposit, $100,000 and over ....... (79) (63)
Net change in securities sold under agreement to repurchase .... 14 (79)
Exercise of stock option ....................................... 0 1
Cash dividends paid ............................................ (323) (216)
------- -------
Net cash provided by financing activities .................... 987 1,451
------- -------
Net change in cash and cash equivalents ...................... 2,260 5,623
Cash and cash equivalents at beginning of period ................. 11,757 8,006
------- -------
Cash and cash equivalents at end of period ....................... $14,017 $13,629
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................... $ 585 $ 534
Income taxes ............................................... 391 148
Noncash investing activities during the period:
Loan made in connection with sale of OREO .................. $ 0 $ 794
</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, 1996 and December 31, 1995 and
the results of its operations and its cash flows for the three month
periods ended March 31, 1996 and 1995 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) 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, 1995.
3) Net income per share for the three month periods ended March 31, 1996
and 1995 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 common and equivalent shares outstanding was
1,207,738 and 1,144,609 for the three month periods ended March 31, 1996
and 1995, 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 40% and 39% for the three month periods ended March 31, 1996 and
1995, respectively.
<PAGE> 6
6
BAY COMMERCIAL SERVICES AND SUBSIDIARY
THE TABLE BELOW ILLUSTRATES CHANGES IN MAJOR CATEGORIES
OF THE AVERAGE BALANCE SHEETS AND STATEMENTS OF INCOME
AND IN CERTAIN PERFORMANCE RATIOS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Increase
March 31, (Decrease)
1996 1995 $ %
---- ---- ----- -----
(000'S OMITTED)
<S> <C> <C> <C> <C>
Average balances:
Assets * ............................. $90,400 $89,114 $ 1,286 1.4%
Securities - taxable* ................ 16,763 20,831 (4,068) (19.5)
Securities - nontaxable .............. 2,976 1,897 1,079 56.9
Total loans .......................... 59,110 51,750 7,360 14.2
Nonaccrual loans ..................... 62 625 (563) (90.1)
Other real estate owned .............. 359 710 (351) (49.4)
Deposits ............................. 78,180 79,253 (1,073) (1.4)
Shareholders' equity * ............... 8,839 8,216 623 7.6
Interest-earning assets .............. 81,531 79,044 2,487 3.1
Interest-bearing liabilities ......... 56,166 56,273 (107) (0.2)
Income Statements:
Interest income (1) .................. $ 1,875 $ 1,790 $ 85 4.7%
Interest expense ..................... 570 541 29 5.4
------- ------- ------- -----
Net interest income (1) ............ 1,305 1,249 56 4.5
Taxable equivalent adjustment ........ 17 13 4 30.8
Net interest income ................ 1,288 1,236 52 4.2
Provision for loan losses ............ 0 0 0 0
------- ------- ------- -----
Net interest income after provision
for loan losses .................. 1,288 1,236 52 4.2
Noninterest income ................... 262 236 26 11.0
Noninterest expenses ................. 1,100 1,102 (2) (0.2)
Income tax expense ................... 179 145 34 23.4
------- ------- ------- -----
Net income ......................... $ 271 $ 225 $ 46 20.4%
======= ======= ======= =====
</TABLE>
* Excluding unrealized gain or loss on securities available for sale
<TABLE>
<CAPTION>
Change
------
<S> <C> <C> <C>
Performance Ratios: (2)
Yield on average earning assets 9.14% 9.12% 0.02%
Yield on average earning assets (1) 9.22% 9.19% 0.03%
Interest rate on average
interest-bearing liabilities 4.07% 3.90% 0.17%
Interest expense as a percent of
average earning assets 2.80% 2.78% 0.02%
Net yield on average earning assets 6.34% 6.34% 0.00%
Net yield on average earning
assets (1) 6.42% 6.41% 0.01%
</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, 1996 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1995
OVERVIEW
Net income of Bay Commercial Services ("the Company") was $271,000 for the first
quarter of 1996 compared to $225,000 for the first quarter of 1995. Net income
per share was $0.22 for the 1996 quarter compared to $0.20 for the 1995 quarter.
The $46,000 or 20% increase in net income for the 1996 quarter compared to the
1995 quarter was principally due to a $52,000 or 4% increase in net interest
income and a $26,000 or 11% increase in noninterest income. These improvements
were partially offset by a $34,000 or 23% increase in income tax expense.
Total assets were $93,646,000 at March 31, 1996, representing an $827,000 or 1%
increase over December 31, 1995. During the same period, total deposits
increased $1,296,000 and total loans decreased $723,000. Although total loans
were lower as of March 31, 1996 as a result of the sale of $1,584,000 in loans
guaranteed by the Small Business Administration ("SBA") late in the quarter, the
Company experienced overall growth in average outstanding loans during the first
quarter of 1996. Average total loans increased by $3,629,000 or 6% compared to
the fourth quarter of 1995.
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 $1,288,000 for the first quarter of 1996 increased
$52,000 or 4% compared to the first quarter of 1995. The increase reflected a
$2,487,000 or 3% growth in average earning assets. The net interest margin was
6.34% for both the 1996 and 1995 quarters.
The growth in average interest-earning assets between the 1996 and 1995 quarters
was due to growth of $7,923,000 or 16% in average earning loans which was
partially offset by decreases of $2,989,000 or 13% in debt securities and
$2,447,000 or 47% in federal funds sold. The yield on average earning assets for
the first quarter of 1996 rose slightly to 9.14% compared to 9.12% for the 1995
quarter despite lower market interest rates during the 1996 quarter. The higher
yield for the 1996 quarter reflected an increase in the percentage of average
earning assets invested in higher yielding loans to 72% compared to 65% for the
1995 quarter.
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, 1996. 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,
<PAGE> 8
8
shown in the table. A positive gap indicates asset sensitivity and a negative
gap indicates liability sensitivity.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
------------------------------------------
(000'S OMITTED)
3 Over 3 Over 1
months months year to Over 5
or less to 1 year 5 years years Total
------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Loans (net of nonaccrual) $41,244 $ 1,168 $ 7,173 $ 8,320 $57,905
Securities (before unrealized
gain or loss on securities
available for sale) 2,501 1,382 8,462 7,200 19,545
Federal funds sold 8,700 0 0 0 8,700
------- ------- ------- ------- -------
Total 52,445 2,550 15,635 15,520 86,150
------- ------- ------- ------- -------
Interest rate sensitive liabilities:
Interest-bearing
transaction accounts 5,502 0 0 0 5,502
Savings deposits 20,802 0 0 0 20,802
Time deposits greater than $100,000 13,726 2,216 903 0 16,845
Other time deposits 10,119 4,049 1,246 0 15,414
Other borrowed funds 2,127 90 0 0 2,217
------- ------- ------- ------- -------
Total 52,276 6,355 2,149 0 60,780
------- ------- ------- ------- -------
Interest rate sensitivity gap $ 169 $(3,805) $13,486 $15,520 $25,370
------- ------- ------- ------- -------
Cumulative interest rate
sensitivity gap $ 169 $(3,636) $ 9,850 $25,370
------- ------- ------- -------
Cumulative interest rate
sensitivity gap to total assets 0.2% (3.9)% 10.5% 27.1%
</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, 1996, indicates that the Company is asset sensitive over
all periods except the 3 months to 1 year period during which it is liability
sensitive.
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.
<PAGE> 9
9
As of March 31, 1996, the allowance for loan losses was $969,000 compared to
$982,000 at December 31, 1995. The decreased allowance reflected net loan
chargeoffs of $13,000 during the first quarter of 1996. The ratio of the
allowance for loan losses to total loans was 1.7% at March 31, 1996, and at
December 31, 1995. 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, 1996, 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 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 1996 or 1995.
Information on nonperforming loans for the periods ending March 31, 1996 and
December 31, 1995 are summarized in the following table.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(000's OMITTED)
<S> <C> <C>
Net loan (charge-offs) recoveries ........ $(13) $381
Ratio of net loan (charge-offs)
recoveries to average loans ............ 0% 0.7%
Nonperforming loans:
Nonaccrual loans ....................... $110 $ 0
Accruing loans past due
90 days or more ...................... 449 99
---- ----
Total nonperforming loans ............ $559 $ 99
==== ====
Ratio of nonperforming loans
to total loans ......................... 1.0% 0.2%
Ratio of allowance for loan
losses to nonperforming loans .......... 173% 992%
Other real estate owned .................. $359 $359
</TABLE>
Total nonperforming loans increased from $99,000 at December 31, 1995 to
$559,000 at March 31, 1996. The current ratio of nonperforming loans to total
loans at 1.0% is well below industry averages. The loans in this category are
generally well secured and Management believes they represent a relatively low
risk of loss.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) of $359,000 at March 31, 1996, was unchanged
since December 31, 1995, and consists of three properties acquired through
foreclosure. 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 $262,000 for the first quarter of 1996 increased
$26,000 or 11% compared to the first quarter of 1995. The most significant
increase was a $63,000 gain on the sale of loans during the first quarter of
1996. Other income increased $27,000 or 193% principally due to larger
recoveries during the 1996 quarter of prior years' expenses related to problem
loans. These increases were partially offset by a $75,000 decrease in net gain
on sale of OREO, as there were no sales of OREO property during the 1996
quarter.
<PAGE> 10
10
NONINTEREST EXPENSE
Total noninterest expenses of $1,100,000 for the first quarter of 1996 were
nearly unchanged from $1,102,000 for the first quarter of 1995. The most
significant change in noninterest expenses was a $42,000 or 98% decrease for the
1996 quarter in assessment fee paid to the Federal Deposit Insurance Corporation
(FDIC). The lower assessment reflected a reduction in deposit insurance rates
for the Bank Insurance Fund.
PROVISION FOR INCOME TAXES
The provision for income tax expense was $179,000 for the first quarter of 1996
compared to $145,000 for the first quarter of 1995. The increased income tax
expense reflected higher taxable income during the 1996 quarter. The effective
income tax rates were 40% and 39% for the 1996 and 1995 quarters.
FINANCIAL CONDITION
LOANS AND INVESTMENTS
Total loans of $57,429,000 at March 31, 1996 declined $723,000 or 1% from
December 31, 1995, due to the loan sale during the first quarter of 1996. As
previously discussed, average total loans during the first quarter of 1996
increased $3,629,000 or 6% compared to the fourth quarter of 1995. Total
securities at March 31, 1996, declined $880,000 or 4% while overnight federal
funds sold increased $2,000,000 compared to year-end 1995.
OTHER ASSETS AND OTHER LIABILITIES
Interest and fees receivable increased $156,000 or 26% during the first quarter
of 1996, reflecting the increased volume of earning assets. Interest payable and
other liabilities at March 31, 1996 declined $651,000 from year-end 1995 due to
the payment in 1996 of a cash dividend of $323,000 and payment of 1995 income
taxes.
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 40% at March 31, 1996, and 41% at December 31, 1995.
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, 1996,
no borrowed funds were outstanding on these lines. As of March 31, 1996, 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's
risk-based and leverage capital guidelines for bank holding companies 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:
<PAGE> 11
11
(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.
The following tables present the Company's and the Bank's regulatory capital
positions at March 31, 1996, and average assets over the three month period
ended March 31, 1996:
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO
(000's OMITTED)
Company Bank
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Tier 1 Capital................................. $8,944 13.9% $8,740 13.7%
Tier 1 Capital minimum requirement 2,565 4.0 2,559 4.0
------ ---- ------ ----
Excess......................................... $6,379 9.9% $6,181 9.7%
Total Capital.................................. $9,748 15.2% $9,542 14.9%
Total Capital minimum requirement.............. 5,130 8.0 5,118 8.0
------ ---- ------ ----
Excess $4,618 7.2% $4,424 6.9%
------ ---- ------ ----
Risk weighted assets........................... $64,124 $63,979
</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........ $8,944 9.9% $8,740 9.7%
Range of minimum leverage..................... 2,712- 3.0- 2,708- 3.0-
requirement................................. 4,520 5.0% 4,513 5.0%
----- --- ----- ---
Range of excess................................ 4,424- 4.9- 4,227- 4.7-
$6,232 6.9% $6,032 6.7%
----- --- ----- ---
Average total assets........................... $90,400 $90,257
</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.
<PAGE> 12
12
INFLATION
It is Management's opinion that the effects of inflation on the consolidated
financial statements for the periods ended March 31, 1996 and 1995 have not been
material.
<PAGE> 13
13
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, 1996.
<PAGE> 14
14
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, 1996 /s/ R. M. Kahler
----------------------------
R. M. Kahler
President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1996 /s/ R. D. Greenfield
----------------------------
R. D. Greenfield
Chief Financial Officer
(Principal Accounting Officer)
<PAGE> 15
Exhibit Index
Exhibit No.
- -----------
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,317
<INT-BEARING-DEPOSITS> 58,563
<FED-FUNDS-SOLD> 8,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,916
<INVESTMENTS-CARRYING> 19,545
<INVESTMENTS-MARKET> 19,545
<LOANS> 57,429
<ALLOWANCE> 969
<TOTAL-ASSETS> 96,646
<DEPOSITS> 85,549
<SHORT-TERM> 2,217
<LIABILITIES-OTHER> 945
<LONG-TERM> 0
0
0
<COMMON> 3,662
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 93,646
<INTEREST-LOAN> 1,525
<INTEREST-INVEST> 297
<INTEREST-OTHER> 36
<INTEREST-TOTAL> 1,858
<INTEREST-DEPOSIT> 545
<INTEREST-EXPENSE> 570
<INTEREST-INCOME-NET> 1,288
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,100
<INCOME-PRETAX> 450
<INCOME-PRE-EXTRAORDINARY> 450
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 6.34
<LOANS-NON> 110
<LOANS-PAST> 449
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 559
<ALLOWANCE-OPEN> 982
<CHARGE-OFFS> 14
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 969
<ALLOWANCE-DOMESTIC> 969
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 470
</TABLE>
