U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] 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, 1997
Common stock, no par value 1,076,720 shares
Transitional Small Business Disclosure Format
YES_____ NO X
This report contains a total of 15 pages.
<PAGE>
<TABLE>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
March 31,
1997 December 31,
(Dollars in thousands): (unaudited) 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,046 $ 6,945
Federal funds sold 4,500 0
- -------------------------------------------------------------------------------
Cash and cash equivalents 12,546 6,945
- -------------------------------------------------------------------------------
Securities available for sale, stated at market value
(amortized cost of $9,267 for 1997; $9,364 for 1996) 9,171 9,339
Securities held to maturity (market values of $6,705
for 1997; $6,743 for 1996) 6,749 6,704
Loans held for sale 2,314 2,923
Loans held for investment 68,268 68,439
Allowance for loan losses (954) (971)
- -------------------------------------------------------------------------------
Net loans 69,628 70,391
- -------------------------------------------------------------------------------
Premises and equipment, net 2,247 2,164
Interest and fees receivable 678 585
Other assets 578 641
- -------------------------------------------------------------------------------
Total assets $101,597 $ 96,769
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 27,152 $ 26,198
Savings and interest-bearing demand 23,926 23,250
Time 28,724 27,823
Certificates of deposit, $100,000 and over 9,165 6,020
- ------------------------------------------------------------------------------
Total deposits 88,967 83,291
- ------------------------------------------------------------------------------
Securities sold under agreements to repurchase 2,206 2,304
Federal funds purchased 0 500
Interest payable and other liabilities 868 1,256
- ------------------------------------------------------------------------------
Total liabilities 92,041 87,351
- ------------------------------------------------------------------------------
Commitments and contingent liabilities 0 0
Shareholders' equity:
Common stock - no par value: authorized 20,000,000
shares; issued & outstanding 1,076,720 in 1997
and 1996 3,662 3,662
Retained earnings 5,953 5,771
Net unrealized loss on securities available for sale (59) (15)
- -------------------------------------------------------------------------------
Total shareholders' equity 9,556 9,418
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $101,597 $ 96,769
===============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
Consolidated Condensed Statements of Income (unaudited)
<CAPTION>
Three Months Ended
March 31,
(In thousands, except per share amounts): 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans, including fees $1,731 $1,525
Federal funds sold 48 35
Investment securities:
Taxable 197 262
Nontaxable 45 36
- ---------------------------------------------------------------------
Total interest income 2,021 1,858
- ---------------------------------------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing demand 154 154
Time 365 319
Certificates of deposit, $100,000 and over 118 72
Other borrowed funds 28 25
- ---------------------------------------------------------------------
Total interest expense 665 570
- ---------------------------------------------------------------------
Net interest income 1,356 1,288
Provision for loan losses 0 0
- ---------------------------------------------------------------------
Net interest income after
provision for loan losses 1,356 1,288
- ---------------------------------------------------------------------
Noninterest income:
Service charges and fees 68 65
Bankcard income 66 57
Loan servicing 35 36
Gain on sale of loans 0 63
Gains (losses) on sales of investment securities 0 0
Other 25 41
- ---------------------------------------------------------------------
Total noninterest income 194 262
- ---------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 708 612
Occupancy 174 146
Data processing 77 74
Bankcard processing expense 52 44
Professional services 36 47
Other 205 177
- ---------------------------------------------------------------------
Total noninterest expenses 1,252 1,100
- ---------------------------------------------------------------------
Income before income tax expense 298 450
Income tax expense 116 179
- ---------------------------------------------------------------------
Net income $ 182 $ 271
=====================================================================
Net income per common and equivalent share $ 0.15 $ 0.22
=====================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
(In thousands): 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 182 $ 271
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 74 78
Unamortized deferred loan fees, net (27) (305)
Originations of SBA loans held for sale (146) (268)
Proceeds from the sale of SBA loans held for sale 0 1,742
Change in interest and fees receivable and other assets (3) (209)
Change in interest payable and other liabilities (65) (268)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 15 1,041
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 97 115
Proceeds from maturities of securities held to maturity 160 1,131
Purchase of securities held to maturity (205) (541)
Net change in loans 936 (459)
Purchases of premises and equipment (157) (14)
- -------------------------------------------------------------------------------
Net cash provided by investing activities 831 232
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits 5,676 1,296
Net change in securities sold under
agreements to repurchase (98) 14
Net change in federal funds purchased (500) 0
Cash dividends paid (323) (323)
- -------------------------------------------------------------------------------
Net cash provided by financing activities 4,755 987
- -------------------------------------------------------------------------------
Net change in cash and cash equivalents 5,601 2,260
Cash and cash equivalents at beginning of period 6,945 11,757
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $12,546 $14,017
===============================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 655 $ 585
Income taxes 0 391
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
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, 1997 and December 31, 1996 and
the results of its operations and its cash flows for the three month
periods ended March 31, 1997 and 1996 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, 1996.
3) Net income per share for the three month periods ended March 31, 1997 and
1996 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 for the three month
periods ended March 31, 1997 and 1996 was 1,247,261 and 1,207,738,
respectively.
In February 1997, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of 1997 and
will restate at that time earnings per share (EPS) data for prior periods
to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. If SFAS 128 had been
in effect during the current and prior year periods, basic EPS would have
been $0.17 and $0.25 for the quarters ended March 31, 1997 and 1996,
respectively. Diluted EPS under SFAS 128 would not have been significantly
different than EPS currently reported for the periods.
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% and 40% for the three month periods ended March 31, 1997 and 1996,
respectively.
<PAGE>
<TABLE>
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)
<CAPTION>
Three Months Ended Increase
March 31, (Decrease)
(Dollars in thousands): 1997 1996 $ %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Balances:
Assets * $99,507 $90,400 $ 9,107 10.1%
Securities - taxable* 12,565 16,763 (4,198) (25.0)
Securities - nontaxable 3,426 2,976 450 15.1
Total loans 70,234 59,110 11,124 18.8
Nonaccrual loans 261 62 199 321.0
Other real estate owned 0 359 (359) (100.0)
Deposits 86,735 78,180 8,555 10.9
Shareholders' equity * 9,561 8,839 722 8.2
Interest-earning assets 89,821 81,531 8,290 10.2
Interest-bearing liabilities 63,259 56,166 7,093 12.6
Income Statements:
Interest income (1) $ 2,042 $ 1,875 $ 167 8.9%
Interest expense 665 570 95 16.7
- -------------------------------------------------------------------------------
Net interest income (1) 1,377 1,305 72 5.5
Taxable equivalent adjustment 21 17 4 26.4
- -------------------------------------------------------------------------------
Net interest income 1,356 1,288 68 5.3
Provision for loan losses 0 0 0 0
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,356 1,288 68 5.3
- -------------------------------------------------------------------------------
Noninterest income 194 262 (68) (26.0)
Noninterest expenses 1,252 1,100 152 13.8
Income tax expense 116 179 (63) (35.2)
- -------------------------------------------------------------------------------
Net income $ 182 $ 271 $ (89) (32.8)%
===============================================================================
<FN>
* before unrealized gain or loss on securities available for sale
</FN>
</TABLE>
<TABLE>
<CAPTION>
Change
<S> <C> <C> <C>
Performance Ratios: (2)
Yield on average earning assets 9.13% 9.14% (0.01)%
Yield on average earning assets (1) 9.22% 9.22% (0.00)%
Interest rate on average
interest-bearing liabilities 4.26% 4.07% 0.19 %
Interest expense as a percent of
average earning assets 3.00% 2.80% 0.20 %
Net yield on average earning assets 6.13% 6.34% (0.21)%
Net yield on average earning assets (1) 6.22% 6.42% (0.20)%
<FN>
(1) Federal taxable equivalent basis
(2) Ratios have been annualized and are not necessarily indicative of results
for a full year.
</FN>
</TABLE>
<PAGE>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1996
OVERVIEW
Certain matters discussed in this Management's Discussion and Analysis are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, among others,
(1) significant increases in competitive pressure in the banking industry; (2)
changes in the interest rate environment reduce margins; (3) general economic
conditions, either nationally or regionally, are less favorable than expected,
resulting in, among other things, a deterioration in credit quality; (4)
changes in the regulatory environment; (5) changes in business conditions and
inflation; and (6) changes in securities markets. Therefore, the information
set forth in such forward-looking statements should be carefully considered
when evaluating the business prospects of Bay Commercial Services Company (the
"Company") and Bay Bank of Commerce (the "Bank").
Net income of the Company was $182,000 for the first quarter of 1997 compared
to $271,000 for the first quarter of 1996. Net income per share was $0.15 for
the 1997 quarter compared to $0.22 for the 1996 quarter.
The $89,000 or 33% decrease in net income for the first quarter of 1997
compared to the first quarter of 1996 was principally due to a $152,000 or 14%
increase in noninterest expenses and a $68,000 or 26% decrease in noninterest
income. A significant portion of the increase in noninterest expenses was
attributable to the San Ramon branch of the Bank which opened in December 1996.
The decrease in noninterest income for the 1997 quarter compared to 1996
quarter principally reflected a 1996 gain of $63,000 from the sale of loans
guaranteed by the Small Business Administration ("SBA"). There were no loan
sales in the first quarter of 1997. The changes in noninterest income and
noninterest expense were partially offset by a $68,000 or 5% increase in net
interest income and a $63,000 or 35% reduction in income tax expense for the
1997 quarter compared to the 1996 quarter.
Total assets were $101,597,000 at March 31, 1997, representing a $4,828,000 or
5% increase from December 31, 1996. At March 31, 1997, total deposits of
$88,967,000 grew $5,676,000 or 7% from year-end 1996. Cash and cash equivalents
increased $5,601,000 or 81% and total loans decreased $780,000 or 1% compared
to December 31, 1996. The decline in total loans reflected greater loan payoffs
than fundings during the 1997 quarter.
<PAGE>
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 $1,356,000 for the first quarter of 1997 increased
$68,000 or 5% compared to the first quarter of 1996. The increase reflected a
$8,290,000 or 10% growth in average earning assets. The net interest margin for
the 1997 quarter declined, however, to 6.13% compared to 6.34% for the 1996
quarter due to a slight drop in the yield on earning assets and an increase in
the cost of interest-bearing liabilities between the quarters.
The increase in average interest-earning assets between the 1997 and 1996
quarters was principally due to growth of $10,925,000 or 19% in average earning
loans and $1,113,000 or 41% in average federal funds sold. These increases were
partially offset by a net $3,748,000 or 19% decrease in average investment
securities. The yield on average earning assets for the first quarter of 1997
declined to 9.13% compared to 9.14% for the 1996 quarter. The decrease
reflected the decline in yield earned on loans to 10.03% for the 1997 quarter
from 10.36% for the 1996 quarter, which was attributable to a higher average
prime lending rate during the 1996 quarter.
Average interest-bearing liabilities increased $7,093,000 or 13% between the
1997 and 1996 quarters. The average rate paid for interest-bearing liabilities
increased to 4.26% for the 1997 quarter compared to 4.07% for the 1996 quarter.
The higher average rate paid during the 1996 quarter principally reflected a
shift in the deposit mix. The proportion of total interest-bearing liabilities
that were higher cost time deposits increased to 59% for the 1997 quarter
compared to 53% for the 1996 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), interest rate changes will be reflected more quickly
in rates on earning assets. 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, 1997. 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.
<TABLE>
<CAPTION>
Interest Sensitivity Period
--------------------------------------
3 Over Over 1
months 3 months year to Over 5
(Dollars in thousands) or less to 1 year 5 years years Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate sensitive assets:
Loans (net of nonaccrual) $ 46,592 $ 4,209 $ 8,216 $11,707 $70,724
Securities (before unrealized loss on
securities available for sale) 2,000 2,109 6,350 5,558 16,017
Federal funds sold 4,500 0 0 0 4,500
- ---------------------------------------------------------------------------------------
Total 53,092 6,318 14,566 17,265 91,241
- ---------------------------------------------------------------------------------------
Interest rate sensitive liabilities:
Interest-bearing transaction accounts 6,228 0 0 0 6,228
Savings deposits 17,698 0 0 0 17,698
Time deposits >$100,000 16,848 3,249 818 100 21,015
Other time deposits 11,211 4,156 1,507 0 16,874
Other borrowed funds 2,206 0 0 0 2,206
- ---------------------------------------------------------------------------------------
Total 54,191 7,405 2,325 100 64,021
- ---------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (1,099) $(1,087) $12,241 $17,165 $27,220
- ---------------------------------------------------------------------------------------
Cumulative interest rate
sensitivity gap $ (1,099) $(2,186) $10,055 $27,220
- ---------------------------------------------------------------------------------------
Cumulative interest rate
sensitivity gap to total assets (1.1%) (2.2%) 9.9% 26.8%
</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, 1997, indicates that the
Company is liability sensitive in time periods of a year or less and asset
sensitive over the remaining time periods.
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.
<PAGE>
The provision for loan losses reflects an amount sufficient to cover estimated
loan losses and to maintain the allowance for loan losses 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, 1997, the allowance for loan losses was $954,000 compared to
$971,000 at December 31, 1996. The reduced allowance reflected net loan
chargeoffs of $17,000 during 1997. The ratio of the allowance for loan losses
to total loans was 1.4% at March 31, 1997 and December 31, 1996. Due to the
level of the allowance in relation to both nonperforming and total outstanding
loans, no provision for loan losses was made during the first quarter of either
1997 or 1996. 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, 1997 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.
Information on nonperforming loans and other real estate owned for the quarters
ended March 31, 1997 and 1996 and the year ended December 31, 1996 is
summarized in the following table.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousand)s 1997 1996 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loan charge-offs $17 $11 $13
Ratio of net loan charge-offs to average loans 0 0 0
Nonperforming loans:
Nonaccrual $384 $208 $110
Accruing loans past due
90 days or more 224 227 449
- ------------------------------------------------------------------------------
Total nonperforming loans $608 $435 $559
- ------------------------------------------------------------------------------
Ratio of nonperforming loans to total loans 0.9% 0.6% 1.0%
Ratio of allowance for loan losses to
nonperforming loans 157% 223% 173%
Other real estate owned 0 0 $359
</TABLE>
Because 43% of total nonperforming loans at March 31, 1997 are guaranteed by
the SBA, any potential loss would be proportionately reduced. Management
believes that the increases in nonperforming loans as of March 31, 1997 are not
representative of any specific trend within the loan portfolio.
<PAGE>
NONINTEREST INCOME
Total noninterest income of $194,000 for the first quarter of 1997 decreased
$68,000 or 26% compared to the first quarter of 1996. Noninterest income during
the 1996 quarter benefited from a $63,000 gain on sale of SBA loans, while
there were no loan sales during the 1997 quarter. Other noninterest income
declined $16,000 or 39% principally due to larger recoveries during the 1996
quarter of prior years' expenses related to problem loans.
NONINTEREST EXPENSE
Total noninterest expenses of $1,252,000 for the first quarter of 1997
increased $152,000 or 14% compared to the first quarter of 1996. The most
significant change was a $96,000 or 16% increase in salaries and employee
benefits, which principally reflected additional staff and salary increases in
the Bank's headquarters office in San Leandro and additional staff associated
with the Bank's newly opened San Ramon branch. The opening of the Bank's San
Ramon branch was also the principal source of a $28,000 or 19% increase in
occupancy expense and a $28,000 or 16% increase in other noninterest expenses
for the 1997 quarter compared to the 1996 quarter.
PROVISION FOR INCOME TAXES
The provision for income tax expense was $116,000 for the first quarter of 1997
compared to $179,000 for the first quarter of 1996. The $63,000 or 35% decrease
in income tax expense reflected reduced taxable income for the 1997 quarter.
The effective income tax rates were 39% and 40% for the 1997 and 1996 quarters,
respectively.
FINANCIAL CONDITION
LOANS AND INVESTMENTS
Total loans of $70,582,000 at March 31, 1997 declined $780,000 or 1% from
December 31, 1996, principally due to loan payoffs. Total securities declined
$123,000 or 1% due to maturities. The funds provided by deposit growth, loan
payoffs and securities maturities were principally invested in overnight
federal funds sold which were $4,500,000 higher at March 31, 1997 than at
December 31, 1996.
DEPOSITS AND OTHER BORROWED FUNDS
Total deposits of $88,967,000 at March 31, 1997 increased $5,676,000 or 7% from
December 31, 1996. The greatest growth was experienced in time certificates of
deposit of $100,000 or more which grew $3,145,000 or 52% compared to year-end
1996. Growth in other deposit categories included $954,000 or 4% in
noninterest-bearing demand, $676,000 or 3% in savings and interest-bearing
demand and $901,000 or 3% in other time deposits. The deposit growth was
generated principally through the Bank's San Ramon branch and a $2,000,000
certificate of deposit sold to the State of California. Securities sold under
agreements to repurchase remained relatively unchanged at $2,206,000 at March
31, 1997 compared to $2,304,000 at December 31, 1996.
OTHER ASSETS AND OTHER LIABILITIES
Interest and fees receivable increased $93,000 or 16% during the first quarter
of 1997, reflecting the increased volume of earning assets. Interest payable
and other liabilities at March 31, 1997 declined $388,000 or 31% from year-end
1996 principally due to the payment in 1997 of a cash dividend of $323,000.
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 27% at March 31, 1997 and 28% at December
31, 1996. It is the opinion of Management that the Company's and the Bank's
liquidity positions are sufficient to meet their respective needs.
In addition, the Bank has informal, non-binding, federal funds borrowing
arrangements totaling $5,000,000 with a correspondent bank and also has
repurchase facilities to meet unforeseen outflows. As of March 31, 1997, no
borrowed funds were outstanding from these credit facilities. As of March 31,
1997, the Bank did not carry any brokered deposit balances.
CAPITAL
The following tables present the Company's and the Bank's regulatory capital
positions at March 31, 1997, and average assets over the three month period
ended March 31, 1997:
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital. $ 9,615 12.5% $ 9,456 12.3%
Tier 1 Capital minimum requirement 3,088 4.0 3,083 4.0
- ------------------------------------------------------------------------------
Excess $ 6,527 8.5% $ 6,373 8.3%
Total Capital $10,569 13.7% $10,410 13.5%
Total Capital minimum requirement 6,176 8.0 6,166 8.0
- ------------------------------------------------------------------------------
Excess $ 4,393 5.7% $ 4,244 5.5%
Risk weighted assets $77,204 $77,075
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEVERAGE RATIO
Company Bank
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital to average total assets $9,615 9.7% $9,456 9.5%
Range of minimum leverage 2,985- 3.0- 2,981- 3.0-
requirement 4,975 5.0% 4,969 5.0%
- ------------------------------------------------------------------------------
Range of excess 4,640- 4.7- 4,487- 4.5-
$6,630 6.7% $6,475 6.5%
Average total assets $99,507 $99,376
</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, 1997 and 1996 have not
been material.
<PAGE>
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, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAY COMMERCIAL SERVICES
(Registrant)
Date: May 2, 1997 /s/ R. M. Kahler
R. M. Kahler
President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 2, 1997 /s/ R. D. Greenfield
R. D. Greenfield
Chief Financial Officer
(Principal Accounting Officer)
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