U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] 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 October 31, 1998
- ------ -------------------------------
Common stock, no par value 1,080,570 shares
Transitional Small Business Disclosure Format
YES NO X
----- -----
This report contains a total of 22 pages.
<PAGE>
<TABLE>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30,
1998 DECEMBER 31,
(DOLLARS IN THOUSANDS): (UNAUDITED) 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks ..................................................... $ 9,769 $ 7,548
Federal funds sold and reverse repurchase agreements ........................ 13,300 --
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents ................................................. 23,069 7,548
- ----------------------------------------------------------------------------------------------------
Securities available for sale, stated at fair value
(amortized cost of $17,107 for 1998; $24,663 for 1997) .................... 17,265 24,651
Securities held to maturity (fair values of $9,499 for 1998;
$8,057 for 1997) ......................................................... 9,251 7,929
Federal Home Loan Bank stock ................................................ 354 --
Loans held for sale ......................................................... 1,096 1,501
Loans held for investment ................................................... 82,649 72,628
Allowance for loan losses ................................................. (936) (1,000)
- ----------------------------------------------------------------------------------------------------
Net loans ................................................................. 82,809 73,129
- ----------------------------------------------------------------------------------------------------
Premises and equipment, net ................................................. 1,949 2,111
Interest and fees receivable ................................................ 624 566
Other assets ................................................................ 456 435
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS .............................................................. $135,777 $116,369
====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand ................................................ $ 35,499 $ 29,076
Savings and interest-bearing demand ....................................... 39,141 29,203
Time ...................................................................... 30,666 30,022
Certificates of deposit, $100 and over .................................... 17,076 12,834
---------------------------------------------------------------------------------------------------
Total deposits ............................................................ 122,382 101,135
---------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase .............................. 1,219 1,290
Federal funds purchased ..................................................... -- 2,500
Interest payable and other liabilities ...................................... 1,064 1,271
- ----------------------------------------------------------------------------------------------------
Total liabilities ......................................................... 124,665 106,196
- ----------------------------------------------------------------------------------------------------
Commitments and contingent liabilities -- --
Shareholders' equity:
Common stock - no par value: authorized 20,000,000 shares;
issued & outstanding 1,080,570 in 1998; 1,078,720 in 1997 ............... 3,622 3,671
Retained earnings ......................................................... 7,393 6,509
Net unrealized gain (loss) on securities available for sale, net of taxes.. 97 (7)
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity ................................................ 11,112 10,173
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $135,777 $ 116,369
====================================================================================================
See accompanying notes to consolidated condensed financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Dollars in thousands, except per share amounts): 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C> <C>
Loans, including fees ................................. $6,085 $5,327 $2,114 $1,801
Federal funds sold and reverse repurchase agreements... 317 199 124 59
Securities:
Taxable ............................................. 904 741 349 328
Tax exempt .......................................... 198 143 74 51
- ------------------------------------------------------------------------------------------------------
Total interest income ............................. 7,504 6,410 2,661 2,239
- ------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing demand ................. 777 496 298 177
Time ................................................ 1,134 1,166 373 415
Certificates of deposit, $100 and over .............. 613 398 229 153
Other borrowed funds .................................. 49 73 15 23
- ------------------------------------------------------------------------------------------------------
Total interest expense ............................ 2,573 2,133 915 768
- ------------------------------------------------------------------------------------------------------
Net interest income ............................... 4,931 4,277 1,746 1,471
Provision for loan losses ............................... 99 52 30 5
- ------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses ....................... 4,832 4,225 1,716 1,466
- ------------------------------------------------------------------------------------------------------
Noninterest income:
Bankcard income ....................................... 309 225 104 80
Service charges and fees .............................. 228 200 80 67
Gain on sale of loans ................................. 88 57 -- --
Loan servicing ........................................ 62 99 13 37
Other ................................................. 36 198 6 6
- ------------------------------------------------------------------------------------------------------
Total noninterest income .......................... 723 779 203 190
- ------------------------------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits ........................ 2,380 2,116 819 695
Occupancy ............................................. 513 511 170 164
Data processing ....................................... 260 233 86 78
Bankcard processing expense ........................... 264 179 89 62
Professional services ................................. 96 90 28 21
Other ................................................. 680 638 223 235
- ------------------------------------------------------------------------------------------------------
Total noninterest expenses ........................ 4,193 3,767 1,415 1,255
- ------------------------------------------------------------------------------------------------------
Income before income tax expense .................. 1,362 1,237 504 401
Income tax expense ...................................... 478 457 177 146
- ------------------------------------------------------------------------------------------------------
NET INCOME ........................................ $ 884 $ 780 $ 327 $ 255
======================================================================================================
NET INCOME PER COMMON SHARE - BASIC ............... $ 0.82 $ 0.72 $ 0.30 $ 0.24
Weighted average common shares - basic............. 1,080,286 1,076,720 1,080,022 1,076,720
NET INCOME PER COMMON SHARE - DILUTED ............. $ 0.69 $ 0.62 $ 0.26 $ 0.20
Weighted average common shares - .diluted.......... 1,280,216 1,252,542 1,279,831 1,260,098
======================================================================================================
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
(Dollars in thousands): 1998 1997
- -----------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income ........................................................... $ 884 $ 780
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .................................... (192) 51
Provision for loan losses ........................................ 99 52
Unamortized deferred loan fees, net .............................. (94) (59)
Originations of SBA loans held for sale .......................... (1,071) (659)
Proceeds from the sale of SBA loans held for sale ................ 1,764 1,095
Loss on sale of fixed assets ..................................... 2 --
Change in interest and fees receivable and other assets........... (62) 104
Change in interest payable and other liabilities.................. 56 (123)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities .......................... 1,386 1,241
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities or calls of securities available for sale ... 73,001 17,464
Proceeds from maturities or calls of securities held to maturity ..... 2,382 1,271
Purchases of securities available for sale ........................... (65,060) (26,532)
Purchases of securities held to maturity ............................. (4,043) (1,139)
Net change in loans .................................................. (10,400) 1,585
Purchases of premises and equipment .................................. (48) (198)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities .............................. (4,168) (7,549)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits ............................................... 21,247 15,815
Net change in securities sold under agreements to repurchase ......... (71) (572)
Net change in federal funds purchased ................................ (2,500) (500)
Exercise of stock options ............................................ 35 --
Repurchase and retirement of common stock ............................ (84) --
Cash dividends paid .................................................. (324) (323)
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities .......................... 18,303 14,420
- -----------------------------------------------------------------------------------------------
Net change in cash and cash equivalents ............................ 15,521 8,112
Cash and cash equivalents at beginning of year .......................... 7,548 6,945
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 23,069 $ 15,057
===============================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .......................................................... $ 2,615 $ 2,171
Income taxes ...................................................... 388 413
Noncash investing activities during the period:
Loss on disposition of equipment .................................... 2 --
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<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 September 30, 1998 and December 31, 1997
and the results of its operations and its cash flows for the three and nine
month periods ended September 30, 1998 and 1997 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 condensed 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,
1997.
3) Net income per common share - basic for the three and nine month periods
ended September 30, 1998 and 1997 was computed by dividing net income by
the weighted average number of outstanding common shares. Net income per
common share - diluted for the three and nine month periods ended September
30, 1998 and 1997 is computed by dividing net income by the weighted
average number of outstanding common shares including the dilutive effect
of stock options. The weighted average number of outstanding common shares
for the three and nine month periods ended September 30, 1998 was 1,080,286
and 1,080,022, respectively. The weighted average number of outstanding
common shares for the three and nine month periods ended September 30, 1997
was 1,076,720. The weighted average number of outstanding common shares
including the dilutive effect of stock options for the three and nine month
periods ended September 30, 1998 was 1,280,216 and 1,279,831, respectively.
The weighted average number of outstanding common shares including the
dilutive effect of stock options for the three and nine month periods ended
September 30, 1997 was 1,252,542 and 1,260,098, 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 35% and 37% for the nine month periods ended September 30, 1998 and
1997, respectively. The Company's effective tax rate was 35% and 36% for
the three month periods ended September 30, 1998 and 1997, respectively.
5) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
Statement requires disclosure of total nonowner changes in shareholders'
equity as comprehensive income. Comprehensive income includes net income
and net unrealized gain (loss) on securities available for sale, net of
taxes. Total comprehensive income was $988,000 and $788,000 for the nine
months ended September 30, 1998 and 1997, respectively. Total comprehensive
income was $407,000 and $280,000 for the three months ended September 30,
1998 and 1997, respectively.
<PAGE>
6) In June 1998, the Financial Accounting Standards Board Issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 1999. Because of
the Company's minimal use of derivatives, Management does not anticipate
that the adoption of the new Statement will have a significant effect on
earnings or the financial position of the Company.
<PAGE>
<TABLE>
<CAPTION>
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)
NINE MONTHS ENDED INCREASE
SEPTEMBER 30, (DECREASE)
(Dollars in thousands): 1998 1997 $ %
- ----------------------------------------------------------------------------------------------
Average Balances:
<S> <C> <C> <C> <C>
Assets (1) ......................................... $122,830 $104,094 $ 18,736 18.0%
Securities - taxable (1) ........................... 20,368 15,926 4,442 27.9
Securities - tax exempt ............................ 5,153 3,618 1,535 42.4
Federal funds sold and reverse repurchase agreements 7,593 5,025 2,568 51.1
Total loans ........................................ 79,810 70,318 9,492 13.5
Nonaccrual loans ................................... 311 374 (63)
Deposits ........................................... 109,958 91,381 18,577 20.3
Shareholders' equity (1) ........................... 10,613 9,836 777 7.9
Interest-earning assets (1) ........................ 112,613 94,513 18,100 19.2
Interest-bearing liabilities ....................... 79,915 66,221 13,694 20.7
Income Statements:
Interest income (2) ................................ $ 7,595 $ 6,476 $ 1,119 17.3%
Interest expense ................................... 2,573 2,133 440 20.6
- ---------------------------------------------------------------------------------------------- ----
Net interest income (2) .......................... 5,022 4,343 679 15.6
Taxable equivalent adjustment ...................... 91 66 25 37.9
- ---------------------------------------------------------------------------------------------- ----
Net interest income .............................. 4,931 4,277 654 15.3
Provision for loan losses .......................... 99 52 47 90.4
- ---------------------------------------------------------------------------------------------- ----
Net interest income after provision
for loan losses ................................ 4,832 4,225 607 14.4
- ---------------------------------------------------------------------------------------------- ----
Noninterest income ................................. 723 779 (56) 7.2
Noninterest expenses ............................... 4,193 3,767 426 11.3
Income tax expense ................................. 478 457 21 4.6
- ---------------------------------------------------------------------------------------------- ----
NET INCOME ....................................... $ 884 $ 780 $ 104 13.3%
============================================================================================== ====
</TABLE>
<TABLE>
<CAPTION>
Performance Ratios: (3) Change
------
<S> <C> <C> <C>
Yield on average interest-earning assets ............ 8.91% 9.07% (0.16)%
Yield on average interest-earning assets (2) ........ 9.02% 9.16% (0.14)%
Interest rate on average interest-bearing
liabilities ..................................... 4.30% 4.31% (0.01)%
Interest expense as a percent of average
interest-earning assets ......................... 3.05% 3.02% 0.03 %
Net yield on average interest-earning assets ........ 5.86% 6.05% (0.19)%
Net yield on average interest-earning assets (2) .... 5.97% 6.14% (0.17)%
<FN>
(1) Before unrealized gain or loss on securities available for sale.
(2) Federal taxable equivalent basis.
(3) Ratios have been annualized and are not necessarily indicative of results for a full year.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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)
THREE MONTHS ENDED INCREASE
SEPTEMBER 30, (DECREASE)
(Dollars in thousands): 1998 1997 $ %
- -----------------------------------------------------------------------------------------------
Average Balances:
<S> <C> <C> <C> <C>
Assets (1) ......................................... $130,359 $109,163 $ 21,196 19.4%
Securities - taxable (1) ........................... 24,148 21,353 2,795 13.1
Securities - nontaxable ............................ 5,760 3,941 1,819 46.2
Federal funds sold and reverse repurchase agreements 8,763 4,283 4,480 104.6
Total loans ........................................ 81,731 70,722 11,009 15.6
Nonaccrual loans ................................... 210 490 (280) (57.1)
Deposits ........................................... 117,167 96,351 20,816 21.6
Shareholders' equity (1) ........................... 10,905 10,122 783 7.7
Interest-earning assets (1) ........................ 120,192 99,809 20,383 20.4
Interest-bearing liabilities ....................... 85,238 69,841 15,397 22.0
Income Statements:
Interest income (2) ................................ $ 2,695 $ 2,262 $ 433 19.1%
Interest expense ................................... 915 768 147 19.1
- -----------------------------------------------------------------------------------------------
Net interest income (2) .......................... 1,780 1,494 286 19.1
Taxable equivalent adjustment ...................... 34 23 11 47.8
- -----------------------------------------------------------------------------------------------
Net interest income .............................. 1,746 1,471 275 18.7
Provision for loan losses .......................... 30 5 25 500.0
- -----------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses ................................ 1,716 1,466 250 17.1
Noninterest income ................................. 203 190 13 6.8
Noninterest expenses ............................... 1,415 1,255 160 12.7
Income tax expense ................................. 177 146 31 21.2
- ----------------------------------------------------------------------------------------------
NET INCOME ....................................... $ 327 $ 255 $ 72 28.2%
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Performance Ratios: (3) Change
------
<S> <C> <C> <C>
Yield on average interest-earning assets 8.78% 8.90% (0.12)%
Yield on average interest-earning assets (2) 8.90% 8.99% (0.09)%
Interest rate on average interest-bearing
liabilities 4.26% 4.36% (0.10)%
Interest expense as a percent of average
interest-earning assets 3.02% 3.05% (0.03)%
Net yield on average interest-earning assets 5.76% 5.85% (0.09)%
Net yield on average interest-earning assets (2) 5.88% 5.94% (0.06)%
<FN>
(1) Before unrealized gain or loss on securities available for sale
(2) Federal taxable equivalent basis.
(3) 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
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1997
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 (the "Company") and Bay Bank
of Commerce (the "Bank").
Net income of the Company was $884,000 for the first nine months of 1998
compared to $780,000 for the first nine months of 1997. Net income per common
share - basic was $0.82 and $0.72 for the first nine months of 1998 and 1997,
respectively. Net income per common share - diluted was $0.69 and $0.62 for the
first nine months of 1998 and 1997, respectively.
The $104,000 or 13% growth in net income for the first nine months of 1998
compared to the first nine months of 1997 reflected strong growth in net
interest income which was partially offset by an increase in noninterest
expenses, a decrease in noninterest income and higher income tax expense. Net
interest income increased $654,000 or 15% in the 1998 period principally due to
strong growth in average interest-earning assets. Noninterest expenses increased
$426,000 or 11%, largely due to higher salaries and employee benefits associated
with staff growth in the Bank. Noninterest income dropped $56,000 or 7% between
the two periods principally due to a 1997 recovery of $149,000 in loan
collection expenses.
Total assets reached $135,777,000 at September 30, 1998, representing a
$19,408,000 or 17% increase from December 31, 1997. Total deposits of
$122,382,000 at September 30, 1998 grew $21,247,000 or 21%. Funds from the
deposit growth and from securities which matured or were called during the
period were principally invested in federal funds sold and reverse repurchase
agreements ("overnight investments") and in loans. Overnight investments
increased $13,300,000 and loans increased $9,616,000 or 13% during the first
nine months of 1998.
<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 $4,931,000 for the first nine months of 1998 increased
$654,000 or 15% compared to the first nine months of 1997. The increase
reflected an $18,100,000 or 19% growth in average interest-earning assets. The
net yield on average interest-earning assets declined to 5.86% for the 1998
period from 6.05% for the 1997 period.
The increase in average interest-earning assets between the 1998 and 1997
periods was due to growth of $9,555,000 or 14% in average interest-earning
loans, $5,977,000 or 31% in average total securities and $2,568,000 or 51% in
federal funds sold and reverse repurchase agreements. Despite the strong loan
growth, the ratio of average interest-earning loans to average interest-earning
assets dropped to 71% for the 1998 period compared to 74% for the 1997 period.
The larger proportion of interest-earning assets invested in short-term
securities reduced the yield on interest-earning assets to 8.91% for the 1998
period compared to 9.07% for the 1997 period.
Average interest-bearing liabilities increased $13,694,000 or 21% between the
1998 and 1997 periods. The average rate paid for interest-bearing liabilities
remained fairly stable at 4.30% for the 1998 period compared to 4.31% for the
1997 period. Savings and interest-bearing demand deposits experienced the
greatest growth during the 1998 period, up an average $9,283,000 or 38% compared
to the 1997 period. The average cost of savings and interest-bearing demand
deposits also increased, to 3.05% for the 1998 period compared to 2.68% for the
1997 period, due to the introduction of a new money market product. The
increased cost of this deposit type offset the benefits of a small drop in the
average cost of time deposits and a decline in the ratio of time deposits to
average total interest-bearing liabilities to 56% for the 1998 period compared
to 60% for the 1997 period. Average noninterest-bearing demand deposits
increased $4,243,000 or 16% between the periods.
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 September 30, 1998. 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
<PAGE>
contractual maturity or,for those assets which are held for sale, within the
time period during whichsale may reasonably be expected to be accomplished.
loating 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
AS OF SEPTEMBER 30, 1998: MONTHS 3 MONTHS YEAR TO OVER 5
(Dollars in thousands) OR LESS TO 1 YEAR 5 YEARS YEARS TOTAL
- -------------------------------------------------------------------------------------------------
Interest rate sensitive assets:
<S> <C> <C> <C> <C> <C>
Loans (excluding nonaccrual) .......... $60,924 $ 1,600 $ 9,592 $11,979 $ 84,095
Securities (before unrealizedgain(loss)
on securities available for sale) .... 6,979 503 9,431 9,444 26,357
Federal funds sold and reverse
repurchase agreements ............... 13,300 -- -- -- 13,300
- -------------------------------------------------------------------------------------------------
Total ............................... 81,203 2,103 19,023 21,423 123,752
- -------------------------------------------------------------------------------------------------
Interest rate sensitive liabilities:
Interest-bearing transaction accounts . 32,411 -- -- -- 32,411
Savings deposits ...................... 6,730 -- -- -- 6,730
Time deposits, $100 and over .......... 23,453 5,691 509 100 29,753
Other time deposits ................... 10,900 5,514 1,574 1 17,989
Other borrowed funds .................. 1,119 100 -- -- 1,219
- -------------------------------------------------------------------------------------------------
Total ............................... 74,613 11,305 2,083 101 88,102
- -------------------------------------------------------------------------------------------------
Interest rate sensitivity gap ........... 6,590 (9,202) 16,940 21,322 $ 35,650
- -------------------------------------------------------------------------------------------------
Cumulative interest rate
sensitivity gap........................ $ 6,590 $(2,612) $14,328 $35,650
=================================================================================================
Cumulative interest rate
sensitivity gap to total assets........ 4.9% (1.9%) 10.6% 26.3%
</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 September 30, 1998, indicates that the Company, on a cumulative gap
basis, is liability sensitive for the period "Over 3 months to 1 year" 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 September 30, 1998, the allowance for loan losses was $936,000 compared to
$1,000,000 at December 31, 1997. The reduction principally reflected net
charge-offs totaling $163,000, partially offset by a $99,000 provision for loan
losses. The ratio of the allowance for loan losses to total loans was 1.1% at
September 30, 1998 and 1.3% at December 31, 1997. Although 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 September 30, 1998 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 for the periods ended September 30, 1998 and
1997 and the year ended December 31, 1997 is summarized in the following table.
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31, SEPTEMBER
(Dollars in thousands) 30, 1997 30, 1997
1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loan charge-offs .............................. $163 $ 23 $ 23
Ratio of net loan charge-offs to average .......... 0.2% -- --
loans
Nonperforming loans:
Nonaccrual ...................................... $138 $440 $464
Accruing loans past due 90 days or more ......... 18 -- 168
Restructured .................................... 469 471 --
Total nonperforming loans ...................... $625 $911 $632
Ratio of nonperforming loans to total loans ....... 0.7% 1.2% 0.9%
Ratio of allowance for loan losses to nonperforming
loans ........................................... 150% 110% 158%
</TABLE>
Total Bank nonperforming loans dropped $286,000 during the 1998 period
principally due to a charge-off of $163,000 in nonaccruing loan balances. As of
September 30, 1998, $134,000 represents loans guaranteed by the Small Business
Administration ("SBA loans") while the restructured loan balance consists of one
loan secured by real estate and paying as agreed.
NONINTEREST INCOME
Noninterest income between the first nine month periods of 1998 and 1997
declined $56,000 or 7%. The largest contribution to higher noninterest income
for the first nine months of 1997 was a $149,000 recovery of loan collection
expenses from previous years. Loan servicing income also declined, $37,000 or
37% for the 1998 period compared to the 1997 period, due to SBA loan payoffs
between the periods. Partially offsetting the decreases in noninterest income
were
<PAGE>
increases of $84,000 or 37% in bankcard income, $31,000 or 54% from gain on
sale of loans and $28,000 or 14% in service charges and fees. The increase in
bankcard income reflected an increase in merchant bankcard activity between the
1998 and 1997 periods. The larger gain on sale of loans for the 1998 period was
due to a larger volume of loans sold compared to the 1997 period. The increase
in service charges and fees principally reflected the strong deposit growth
between the periods.
NONINTEREST EXPENSES
Total noninterest expenses of $4,193,000 for the first nine months of 1998
increased $426,000 or 11% compared to the first nine months of 1997. The largest
change was a $264,000 or 13% increase in salaries and employee benefits
principally related to increased staffing. Bankcard processing expense increased
$85,000 or 48% due to increased volume and higher interchange fees during the
1998 period. A $42,000 or 7% increase in other noninterest expenses included
higher marketing and loan processing costs. Data processing expense grew $27,000
or 12% due to account growth between the periods.
PROVISION FOR INCOME TAXES
The provision for income tax expense was $478,000 for the first nine months of
1998 compared to $457,000 for the first nine months of 1997. The $21,000 or 5%
increase in income tax expense reflected higher taxable income for the 1998
period. The effective income tax rates were 35% and 37% for the 1998 and 1997
periods, respectively. The lower rate for the 1998 period reflects higher levels
of tax exempt income from municipal securities and loan interest exempt from
state tax.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1997
OVERVIEW
Net income for the Company for the third quarter of 1998 was $327,000 compared
to $255,000 for the third quarter of 1997. Net income per common share - basic
was $0.30 and $0.24 for the third quarter of 1998 and 1997, respectively. Net
income per common share - diluted was $0.26 and $0.20 for the third quarter of
1998 and 1997, respectively.
The $72,000 or 28% increase in net income between the 1998 and 1997 quarters
principally resulted from a $275,000 or 19% increase in net interest income
which was partially offset by a $160,000 or 13% increase in noninterest
expenses, a $31,000 or 21% increase in income tax expense and a $25,000 increase
in the provision for loan losses. The largest contributions to higher
noninterest expenses included increases of $124,000 or 18% in salaries and
employee benefits expenses and $27,000 or 44% in bankcard processing expense.
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income of $1,746,000 for the third quarter of 1998 increased
$275,000 or 19% compared to the third quarter of 1997. The increase principally
reflected $20,383,000 or 20% growth in average earning assets between the
quarters. The net interest margin declined to 5.76% for the 1998 quarter from
5.85% for the 1997 quarter.
The growth in average interest-earning assets between the 1998 and 1997 quarters
was due to increases of $11,289,000 or 16% in average interest-earning loans,
$4,614,000 or 18% in average total securities and $4,480,000 or 105% in average
federal funds sold and reverse repurchase agreements between the quarters. A
larger proportion of earning assets was invested in lower yielding short-term
securities during the 1998 quarter, which was the principal factor in the drop
in the yield on average earning assets to 8.78% from 8.90% for the 1997 quarter.
Average interest-bearing liabilities of $85,238,000 for the third quarter of
1998 increased $15,397,000 or 22% over the third quarter of 1997. The average
rate paid for interest-bearing deposits declined to 4.26% for the 1998 quarter
from 4.36% for the 1997 quarter. A drop in market rates between the quarters
resulted in a drop in the average cost of the Bank's time deposits to 5.14% for
the 1998 quarter from 5.32% for the 1997 quarter. In addition, the proportion of
average interest-bearing liabilities due to higher cost time deposits decreased
to 55% for the 1998 quarter from 61% for the 1997 quarter. These changes in time
deposits more than offset the higher average cost of savings and
interest-bearing demand deposits, which was 3.15% for the 1998 quarter compared
to 2.73% for the 1997 quarter.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
As a result of growth in loans held for investment and net loan charge-offs
during the 1998 quarter, a $30,000 provision for loan losses was added to the
reserve for loan losses during the 1998 quarter compared to a $5,000 provision
for loan losses made during the third quarter of 1997.
NONINTEREST INCOME
Total noninterest income of $203,000 for the third quarter of 1998 increased
$13,000 or 7% compared to the third quarter of 1997 A $24,000 or 30% increase in
bankcard income was offset by a $24,000 or 65% decrease in loan servicing income
between the quarters. Service charges and fees were $13,000 or 19% higher for
the 1998 quarter, reflecting the strong deposit growth compared to the 1997
quarter.
NONINTEREST EXPENSES
Total noninterest expenses of $1,415,000 for the third quarter of 1998 increased
$160,000 or 13% compared to the same quarter in 1997. Salaries and employee
benefits increased $124,000 or 18% principally due to staff additions. A $27,000
or 44% rise in bankcard expenses reflected increased volume and higher
interchange fees. Other noninterest expenses declined $12,000 or 5%. Data
processing costs increased $8,000 or 10% above the 1997 quarter, reflecting the
Bank's strong asset growth between the quarters.
<PAGE>
PROVISION FOR INCOME TAXES
The provision for income tax expense was $177,000 for the third quarter of 1998
compared to $146,000 for the third quarter of 1997. The higher income tax
expense reflected the increase in taxable income for the 1998 quarter. The
effective income tax rate was 35% and 36% for the 1998 and 1997 quarters,
respectively.
FINANCIAL CONDITION
LOANS AND INVESTMENTS
Cash and cash equivalents of $23,069,000 at September 30, 1998 increased
$15,521,000 or 206% from year-end 1997. Total loans of $83,745,000 grew
$9,616,000 or 13% during the same period. The funding for these increases came
from a $21,247,000 or 21% increase in deposits and a $5,710,000 or 18% decline
in securities balances during the first nine months of 1998. The drop in
securities balances reflected maturities and calls during the period.
DEPOSITS AND OTHER BORROWED FUNDS
The $21,247,000 or 21% deposit growth since December 31, 1997 included growth of
$9,938,000 or 34% in savings and interest-bearing demand deposits, $6,423,000 or
22% in noninterest-bearing demand deposits and $4,242,000 or 33% in certificates
of deposit of $100,000 or more. Federal funds purchased dropped $2,500,000 from
December 31, 1997.
OTHER ASSETS AND OTHER LIABILITIES
Other assets of $456,000 at September 30, 1998 were nearly unchanged from
$435,000 at December 31, 1997. Interest payable and other liabilities at
September 30, 1998, dropped $207,000 or 16% from year-end 1997 principally due
to the payment in 1998 of a cash dividend declared in 1997.
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 and
reverse repurchase agreements, all marketable securities with maturities of one
year or less, securities available for sale with maturities beyond one year, 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 32% at September 30, 1998 and 32% at December 31, 1997. 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, to meet unforeseen outflows, the Bank has informal, non-binding
borrowing arrangements with two correspondent banks, which include federal funds
borrowing lines totaling
<PAGE>
$8,500,000 and a repurchase facility, as well as access to collateralized
borrowings from the Federal Home Loan Bank of San Francisco. As of
September 30, 1998, no borrowed funds were outstanding from these credit
facilities.
CAPITAL
The following tables present the Company's and the Bank's regulatory capital
positions at September 30, 1998, and average assets over the three month period
ended September 30, 1998:
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO
COMPANY BANK
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 Capital ................... $ 10,927 10.6% $ 10,476 10.1%
Tier 1 Capital minimum requirement 4,141 4.0 4,136 4.0
Excess ........................... $ 6,786 6.6% $ 6,340 6.1%
Total Capital .................... $ 11,863 11.5% $ 11,412 11.0%
Total Capital minimum requirement 8,282 8.0 8,272 8.0
Excess ........................... $ 3,581 3.5% $ 3,140 3.0%
Risk weighted assets........... $103,521 $103,404
</TABLE>
<TABLE>
<CAPTION>
LEVERAGE RATIO
COMPANY BANK
(Dollars in thousands) AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 Capital to average total assets .. $ 10,927 8.4% $ 10,476 8.1%
Range of minimum leverage ............... 3,908- 3.0- 3,904- 3.0-
requirement ........................... 6,513 5.0 6,507 5.0
Range of excess ......................... 4,414- 3.4- 3,969- 3.1-
$ 7,019 5.4% $ 6,572 5.1%
Average total assets for third quarter*.. $130,257 $130,137
<FN>
(* Average total assets do not include unrealized gains/losses on securities
available for sale or excess servicing.) 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.
</FN>
</TABLE>
YEAR 2000
Many computer hardware systems and software programs in use today were developed
using a two digit date code to specify the year. As a result many systems and
programs that are date sensitive will treat "00" as the year 1900, and not
properly recognize the date transition at the year 2000. An additional issue is
that 1900 was not a leap year, whereas the year 2000 is. Therefore, some
programs may not properly provide for February 29, 2000.
<PAGE>
The following discussion of the implications of the Year 2000 problem for the
Company contains numerous forward-looking statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete the internal Year 2000 modifications are based on management's
best estimates, which were derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
third party modifications and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ. Moreover,
although management believes it will be able to make the necessary modifications
in advance, there can be no guarantee that failure to modify the systems would
not have a material adverse affect on the Company.
In addition, the Company places a high degree of reliance on computer systems of
third parties, such as customers, suppliers, and other financial and
governmental institutions. Although the Company is assessing the readiness of
these third parties and will be preparing contingency plans, there can be no
guarantees that the failure of these third parties to modify their systems in
advance of December 31, 1999 would not have a material adverse affect on the
Company.
The Company initiated its Year 2000 planning in 1997 and has prepared a
comprehensive Plan which addresses both internal and external Year 2000 exposure
and includes the following phases: Inventory and Assessment, Renovation, Testing
and Implementation, and Contingency Planning.
INVENTORY & ASSESSMENT
The Company completed its inventory and assessment phase during the first
quarter of 1997. During this process the Company made a physical inventory of
Information Technology ("IT") systems and non-IT systems at each office
location. Additionally, all vendor supplied services were reviewed to identify
IT and non-IT Year 2000 issues. The systems examined included hardware and
software platforms involved in customer account processing, computer networks
and workstations, and telecommunications systems.
The assessment determined that there was no significant reliance on non-IT
technology, that is, equipment with embedded microprocessor controls such as
elevators, climate control systems, etc.
The survey did identify mission critical IT systems, both internal and external
that were not Year 2000 compliant. These included data processing applications
provided by third party suppliers, the teller platform at two branch offices of
the Bank and some of the hardware and software elements of the Bank's Wide Area
Network ("WAN") computer network. The WAN is a personal computer ("PC") based
system connecting all of the Bank's offices to a central location at its Head
office.
One additional element of Year 2000 concern has been the Company's customers.
The Company is reliant on its customers to make the necessary preparations for
Year 2000 so that their business operations will not be interrupted, thus
threatening their ability to honor their financial commitments.
<PAGE>
The Company has made efforts to ensure that its customer base is aware of the
Year 2000 issue. During the second quarter of 1998 the Company mailed to each
commercial account, and included in each commercial account loan and deposit
account statement, a letter addressing the Year 2000 issue and encouraging the
assessment of Year 2000 risk. Year 2000 reference resources for businesses were
also provided. In addition to mailings to its commercial accounts, the Bank has
modified its credit review process to include consideration of Year 2000 issues.
As part of its customer Year 2000 assessment, the Company identified all
commercial account borrowing relationships in excess of $100,000. These numbered
in excess of 200 and represented approximately 95% of the total borrowings
outstanding as of June 30, 1998. Each of these business relationships was
analyzed as to its potential for Year 2000 risk and about 20%, were selected to
receive a detailed Year 2000 questionnaire. The questionnaire, requesting
additional information on Year 2000 status, was delivered to these selected
customers during the third quarter of 1998.
The completed questionnaires are currently in the process of being analyzed and
risk rated. The Company expects to complete this phase during the fourth quarter
of 1998.
RENOVATION, TESTING & IMPLEMENTATION
The correction and testing phase of the Company's Year 2000 Plan includes the
renovation and/or replacement of IT hardware, software and equipment identified
as not compliant with the Year 2000. The majority of the internal mission
critical remediation activity centers around the upgrade to the WAN and teller
systems. While the equipment operating the WAN was fundamentally Year 2000
compliant, some of the commercially available software applications running on
the WAN were not. Management determined that to improve the administration of
its IT systems and also provide a better platform for upgrading to Year 2000
compliant software, a complete renovation of the WAN would provide the most cost
effective solution.
The Company expects that most of the elements of the WAN upgrade will be
completed by December 31, 1998. As elements of the upgrade project are
completed, testing for Year 2000 compliance will be initiated. The Company
currently projects that renovation and testing of the WAN will be completed
during the first quarter of 1999.
The teller systems at two branch offices of the Bank are not Year 2000 compliant
and must be replaced. Year 2000 compliant equipment has been ordered, and
installation and integration into the WAN should be completed by December 31,
1998.
The Company also relies on two primary vendors for the mission critical off-site
processing of the Bank's customer accounting systems and general ledger
applications. These vendors have Year 2000 compliance issues and are each
working on the renovation of their systems. The projected completion of these
renovations is December 31, 1998.
The Company has been closely following the progress of these and other
individual vendors toward reaching Year 2000 compliance and expects substantial
completion by December 31,
<PAGE>
1998. System and software testing with third party vendors will be initiated
during the first quarter of 1999 and should be substantially completed by
March 31, 1999.
Although no vendors have been identified to date where the inability to be Year
2000 compliant would cause the Company to seek alternative suppliers, the
Company has no viable alternatives for some vendors, such as power distribution
and local telephone companies. These companies are being evaluated and the
results will be used as information for contingency planning. As with all
financial institutions, the Company places a high degree of reliance on systems
of other institutions, including governmental agencies, to settle transactions.
COSTS
The costs associated with the Company's Year 2000 project are integral with the
planned upgrade to the Bank's WAN and include improved communication connections
between offices, higher capacity computer file servers, and operating system
upgrades for the entire network. While these investments were not specifically
accelerated due to the Company's Year 2000 project, these costs are included.
As of September 30, 1998, the Company had invested approximately $115,000 during
1998 for capital improvements to the WAN. Additional capital costs projected to
be incurred for this project during the remainder of 1998 and 1999 are
approximately $75,000.
The capital cost to upgrade the Bank's teller system for Year 2000 compatibility
is currently projected to be $50,000, of which $11,000 had been paid as of
September 30, 1998.
Other costs incurred by the Company related to the Year 2000 issue have been
primarily staff time devoted to the issue and approximate $10,000. Estimated
future costs for staff and outside consultants, if required, are projected not
to exceed an additional $40,000.
RISKS
The principal risks associated with the Year 2000 problem primarily fall into
three categories. The first risk is that the Company is unable to successfully
renovate and/or migrate to Year 2000 compliant systems. The second risk is the
disruption of operations due to the failure of third parties. The third is the
risk of business interruption among fund providers and fund users which effects
their ability to contractually perform.
The only risk largely under the Company's control for the Year 2000 project is
the identification, renovation and implementation of its internal operations.
The Company, like other financial institutions, is heavily dependent on its
computer systems. Reliance on readily available PC based systems and technology
for WAN and desktop workstations has simplified this process to some extent, and
management believes it will be able to make the necessary renovations of its
internal systems for Year 2000 compliance.
Because of the reliance on outside vendors for processing mission critical
customer accounting systems, a computer failure of a third party may jeopardize
Company operations. How serious this would be depends on the nature and duration
of such failures. Because of the complexity, integration and dependence of these
outside systems to the Company's operations, making a
<PAGE>
switch to another vendor on short notice would be nearly impossible as would be
necessary if corrections were not made in advance. At this time, management
believes that the necessary advance corrections to these third party systems
will be completed on schedule.
Another serious impact to Company operations would occur if basic services such
as telecommunications, electric power supplies and services provided by other
financial institutions and governmental agencies were disrupted. To date
significant public disclosure of the state of readiness among basic
infrastructure and other suppliers has not been generally available. Although
inquiries are underway, the Company does not yet have the information to
estimate the likelihood of significant disruptions among these suppliers.
CONTINGENCY PLANNING
The Company is in the process of developing a contingency plan for the Year 2000
in the event that remediation is not completed in time or fails for reasons that
are not presently foreseen. In the event of such a failure, these plans will
outline the steps that will be taken to deal with the situation to minimize the
effect on customers and losses to the Company. As the Company's identified Year
2000 risks are largely concentrated with the ability of third parties to provide
services after the year 2000, contingency plans being developed will primarily
concentrate on the inability of these suppliers to complete their Year 2000
projects. Based upon currently know information, management believes that its
primary vendors have the resources to complete their Year 2000 projects
successfully and on time. The Company expects to have its contingency plan
completed during the first quarter of 1999.
Apart from the Company's Year 2000 project, federal banking regulators are
conducting special examinations of FDIC-insured financial institutions and third
party data processors, including suppliers to the Company, to determine whether
they are taking necessary steps to prepare for the Year 2000. They are closely
monitoring the progress made by these institutions in completing key steps
required by their individual Year 2000 plans.
INFLATION
It is Management's opinion that the effects of inflation on the consolidated
financial statements for the periods ended September 30, 1998 and 1997 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
September 30, 1998.
<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: November 13, 1998 /s/ R. M. Kahler
----------------
R. M. Kahler
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1998 /s/ R. D. Greenfield
--------------------
R. D. Greenfield
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BAY COMMERCIAL SERVICES FIRST QUARTER 1998 10QSB AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,769
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,265
<INVESTMENTS-CARRYING> 26,358
<INVESTMENTS-MARKET> 26,764
<LOANS> 83,745
<ALLOWANCE> 936
<TOTAL-ASSETS> 135,777
<DEPOSITS> 122,382
<SHORT-TERM> 1,219
<LIABILITIES-OTHER> 1,064
<LONG-TERM> 0
<COMMON> 3,622
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 135,777
<INTEREST-LOAN> 6,085
<INTEREST-INVEST> 1,102
<INTEREST-OTHER> 317
<INTEREST-TOTAL> 7,504
<INTEREST-DEPOSIT> 2,524
<INTEREST-EXPENSE> 2,573
<INTEREST-INCOME-NET> 4,931
<LOAN-LOSSES> 99
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,193
<INCOME-PRETAX> 1,362
<INCOME-PRE-EXTRAORDINARY> 1,362
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> 5.86
<LOANS-NON> 138
<LOANS-PAST> 18
<LOANS-TROUBLED> 469
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1000
<CHARGE-OFFS> 169
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 936
<ALLOWANCE-DOMESTIC> 936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,257
<INT-BEARING-DEPOSITS> 69,048
<FED-FUNDS-SOLD> 6,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,538
<INVESTMENTS-CARRYING> 25,163
<INVESTMENTS-MARKET> 25,192
<LOANS> 69,362
<ALLOWANCE> 1,000
<TOTAL-ASSETS> 111,830
<DEPOSITS> 99,106
<SHORT-TERM> 1,732
<LIABILITIES-OTHER> 810
<LONG-TERM> 0
<COMMON> 3,662
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 111,830
<INTEREST-LOAN> 5,327
<INTEREST-INVEST> 884
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,410
<INTEREST-DEPOSIT> 2,060
<INTEREST-EXPENSE> 2,133
<INTEREST-INCOME-NET> 4,277
<LOAN-LOSSES> 52
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,767
<INCOME-PRETAX> 1,237
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 780
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 6.05
<LOANS-NON> 464
<LOANS-PAST> 168
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 971
<CHARGE-OFFS> 25
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1000
<ALLOWANCE-DOMESTIC> 1000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 353
</TABLE>
