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, 1999
[ ] 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, 1999
Common stock, no par value 1,322,110 shares
Transitional Small Business Disclosure Format
YES NO __X_
This report contains a total of 29 pages.
<TABLE>
<CAPTION>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
(DOLLARS IN THOUSANDS): (UNAUDITED)
----------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 8,262 $ 9,077
Federal funds sold and reverse repurchase agreements 5,000 ---
----------------------------------------------------------------------------------------
Cash and cash equivalents 13,262 9,077
----------------------------------------------------------------------------------------
Securities available for sale, stated at fair value
(amortized cost of $27,669 for 1999; $31,969 for 1998) 27,589 32,033
Securities held to maturity (fair values of $7,669 for 1999;
$7,748 for 1998) 7,483 7,509
Federal Home Loan Bank stock 364 359
Loans held for sale 661 939
Loans held for investment 94,288 92,190
Allowance for loan losses (1,020) (980)
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Net loans 93,929 92,149
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Premises and equipment, net 1,905 1,949
Interest and fees receivable 630 635
Other assets 760 491
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TOTAL ASSETS $145,922 $144,202
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 38,163 $ 33,904
Savings and interest-bearing demand 42,328 37,571
Time 30,404 30,309
Certificates of deposit, $100 and over 22,256 21,611
----------------------------------------------------------------------------------------
Total deposits 133,151 123,395
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Securities sold under agreements to repurchase 100 1,344
Other short-term borrowing --- 7,000
Interest payable and other liabilities 714 1,068
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Total liabilities 133,965 132,807
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Commitments and contingent liabilities --- ---
Shareholders' equity:
Common stock - no par value: authorized 20,000,000 shares;
issued and outstanding 1,194,435 in 1999; 1,080,670 in 1998 4,121 3,622
Retained earnings 7,885 7,734
Accumulated other comprehensive income (loss), net of tax (49) 39
----------------------------------------------------------------------------------------
Total shareholders' equity 11,957 11,395
----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $145,922 $144,202
========================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): 1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans, including fees $2,118 $1,935
Federal funds sold and reverse repurchase agreements 26 55
Securities:
Taxable 380 279
Tax exempt 77 60
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Total interest income 2,601 2,329
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Interest expense:
Deposits:
Savings and interest-bearing demand 275 204
Time 342 386
Certificates of deposit, $100 and over 249 184
Other borrowed funds 17 18
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Total interest expense 883 792
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Net interest income 1,718 1,537
Provision for loan losses 41 10
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Net interest income after
provision for loan losses 1,677 1,527
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Noninterest income:
Bankcard income 108 96
Service charges and fees 78 68
Gain on sale of loans 24 33
Loan servicing 22 24
Other 10 27
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Total noninterest income 242 248
----------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 828 793
Occupancy 174 170
Data processing 100 85
Bankcard processing expense 89 79
Professional services 50 28
Other 242 232
----------------------------------------------------------------------------
Total noninterest expenses 1,483 1,387
----------------------------------------------------------------------------
Income before income tax expense 436 388
Income tax expense 152 134
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NET INCOME $ 284 $ 254
============================================================================
NET INCOME PER COMMON SHARE - BASIC $0.24 $0.24
Weighted average common shares - basic 1,182,427 1,079,653
NET INCOME PER COMMON SHARE - DILUTED $0.22 $0.20
Weighted average common shares - diluted 1,292,516 1,279,707
============================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS): 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 284 $ 254
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization (124) (4)
Provision for loan losses 41 10
Unamortized deferred loan fees, net (7) (62)
Originations of SBA loans held for sale (458) (158)
Proceeds from the sale of SBA loans held for sale 622 734
Change in interest and fees receivable and other assets (52) (48)
Change in interest payable and other liabilities (159) (37)
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 147 689
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 40,920 17,244
Proceeds from maturities of securities held to maturity 30 71
Purchase of securities available for sale (36,433) (3,975)
Purchase of securities held to maturity --- (144)
Purchase of Federal Home Loan Bank stock (5) ---
Net change in loans (1,984) (6,113)
Purchases of premises and equipment (23) (24)
- ----------------------------------------------------------------------------------------
Net cash provided by investing activities 2,505 7,059
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits 9,756 10,167
Net change in securities sold under agreements to repurchase (1,244) (98)
Net change in other short-term borrowing (7,000) (2,500)
Exercise of stock options 499 9
Cash dividends paid (478) (324)
- ----------------------------------------------------------------------------------------
Net cash provided by financing activities 1,533 7,254
- ---------------------------------------------------------------------------------------
Net change in cash and cash equivalents 4,185 15,002
Cash and cash equivalents at beginning of period 9,077 7,548
- ---------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,262 $ 22,550
=======================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $864 $676
Income taxes 76 ---
Noncash investing and financing activities during the period:
Tax benefit from exercise of nonqualified stock options $345 ---
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
BAY COMMERCIAL SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998 AND
FOR THE MONTHS ENDED MARCH 31, 1999 AND 1998
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, 1999 and December 31,
1998 and the results of its operations and its cash flows for the
three month periods ended March 31, 1999 and 1998 have been included.
The results of operations and cash flows for the periods presented are
not necessarily indicative of the results that may be expected for a
full year. These unaudited consolidated condensed financial statements
should be read in conjunction with the consolidated financial
statements, and notes thereto, included in the Company's Annual Report
on SEC Form 10KSB for the year ended December 31, 1998.
2) Net income per common share - basic for the three month periods ended
March 31, 1999 and 1998 was computed by dividing net income by the
weighted average number of outstanding common shares. Net income per
common share - diluted for the three month periods ended March 31,
1999 and 1998 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 month periods ended March 31, 1999 and
1998 was 1,182,427 and 1,079,653, respectively. The weighted average
number of outstanding common shares including the dilutive effect of
stock options for the three months periods ended March 31, 1999 and
1998 was 1,292,516 and 1,279,707, respectively.
3) 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% for the three month periods ended March 31, 1999 and
1998.
4) Comprehensive income includes net income and other comprehensive
income. The Company's only source of other comprehensive income is
derived from unrealized gains and losses on investment securities
available for sale. Reclassification adjustments resulting from gains
or losses on investment securities that were realized and included in
net income of the current period that also had been included in other
comprehensive income as unrealized holding gains or losses in the
period in which they arose are excluded from comprehensive income of
the current period. The Company's total comprehensive income was
$196,000 and $268,000 for the three months ended March 31, 1999 and
1998, respectively.
5) Subsequent Event. On April 30, 1999, the Company entered into an
Agreement and Plan of Reorganization ("Agreement") with Greater Bay
Bancorp ("GBB"). Under the terms of the Agreement, GBB will acquire
all the outstanding common stock of the Company in exchange for 0.7134
shares of GBB common stock for each share of common stock of the
Company, subject to adjustment as provided in the Agreement. The
merger, which is expected to close in the third quarter of 1999, is
subject to the approval of the Company's shareholders, various
regulatory agencies and certain other conditions.
<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
MARCH 31, (DECREASE)
(DOLLARS IN THOUSANDS): 1999 1998 $ %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Balances:
Assets (1) $139,119 $114,300 $24,819 21.7 %
Securities - taxable (1) 27,852 18,359 9,493 51.7
Securities - tax exempt 6,125 4,671 1,454 31.1
Federal funds sold and reverse repurchase agreements 2,203 4,013 (1,810) (45.1)
Total loans 92,967 77,355 15,612 20.2
Nonaccrual loans 29 433 (404) (93.3)
Deposits 124,876 101,547 23,329 23.0
Shareholders' equity (1) 11,683 10,340 1,343 13.0
Interest-earning assets (1) 129,118 103,965 25,153 24.2
Interest-bearing liabilities 91,349 74,057 17,292 23.3
Income Statements:
Interest income (2) $2,637 $2,357 $280 11.9 %
Interest expense 883 792 91 11.5
- ---------------------------------------------------------------------------------------------
Net interest income (2) 1,754 1,565 189 12.1
Taxable equivalent adjustment 36 28 8 28.6
- ---------------------------------------------------------------------------------------------
Net interest income 1,718 1,537 181 11.8
Provision for loan losses 41 10 31 310.0
- ---------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,677 1,527 150 9.8
- ---------------------------------------------------------------------------------------------
Noninterest income 242 248 (6) (2.4)
Noninterest expenses 1,483 1,387 96 6.9
Income tax expense 152 134 18 13.4
- ---------------------------------------------------------------------------------------------
NET INCOME $284 $254 $ 30 11.8 %
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Performance Ratios: (3) Change
------
<S> <C> <C> <C>
Yield on average interest-earning assets 8.17% 9.09% (0.92)%
Yield on average interest-earning assets (2) 8.28% 9.19% (0.91)%
Interest rate on average interest-bearing
liabilities 3.92% 4.34% (0.42)%
Interest expense as a percent of average
interest-earning assets 2.77% 3.09% (0.32)%
Net yield on average interest-earning assets 5.40% 6.00% (0.60)%
Net yield on average interest-earning assets (2) 5.51% 6.10% (0.59)%
(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
that may be expected for a full year.
</TABLE>
<PAGE>
-19-
BAY COMMERCIAL SERVICES AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
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 which could 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 $284,000 for the first quarter of 1999 compared to
$254,000 for the first quarter of 1998. Net income per common share - basic was
$0.24 for the first quarter of 1999 and 1998. Net income per common share -
diluted was $0.22 and $0.20 for the first quarter of 1999 and 1998,
respectively.
The $30,000 or 12% growth in net income for the first quarter of 1999 compared
to the first quarter of 1998 reflected higher net interest income for the 1999
quarter, which was partially offset by increases in noninterest expenses, income
tax expense and the provision for loan losses as well as reduced noninterest
income compared to the 1998 quarter. Net interest income for the 1999 quarter
increased $181,000 or 12% compared to the 1998 quarter due to strong growth in
average interest-earning assets which more than offset a drop in the net yield
on average interest-earning assets. A $96,000 or 7% increase in noninterest
expenses in the 1999 quarter largely reflected higher salaries and employee
expenses and increased consulting expenses related to Year 2000 compliance.
Income tax expense increased $18,000 or 13% and the provision for loan losses
increased $31,000 or 310% in the 1999 quarter. Noninterest income declined
$6,000 or 2% in the 1999 quarter as increases in bankcard income and services
charges and fees were more than offset by decreases in gain on sale of loans
guaranteed by the Small Business Administration ("SBA loans") and other
noninterest income.
Total assets were $145,922,000 at March 31, 1999, representing a $1,720,000 or
1% increase from December 31, 1998. Total deposits of $133,151,000 at March 31,
1999 grew $9,756,000 or 8% from year-end 1998 while securities sold under
agreements to repurchase declined $1,244,000 or 93% and other short-term
borrowing decreased $7,000,000 or 100%. Funds from the deposit growth net of the
reductions in repurchase agreements and short-term borrowing combined with the
$4,470,000 received in cash as securities matured during the quarter were
principally invested in federal funds sold and repurchase agreements and in
loans. Cash and cash equivalents increased $4,185,000 or 46% and loans increased
$1,820,000 or 2% during the first quarter of 1999.
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 $1,718,000 for the first quarter of 1999 increased
$181,000 or 12% compared to the first quarter of 1998. The increase reflected a
$25,153,000 or 24% growth in average interest-earning assets. The net yield on
average earning assets declined to 5.40% for the 1999 quarter from 6.00% for the
1998 quarter.
The increase in average interest-earning assets between the 1999 and 1998
quarters was principally due to growth of $16,016,000 or 21% in average earning
loans and $10,947,000 or 48% in average total securities. The average yield on
interest-earning assets for the first quarter of 1999 declined to 8.17% compared
to 9.09% for the 1998 quarter reflecting the lower level of money market and
lending rates in the first quarter of 1999 compared to the first quarter of 1998
as well as an increase in the percentage of the earning asset portfolio invested
in lower yielding short-term securities. The average yield on earning loans for
the 1999 quarter declined to 9.24% from 10.20% for the 1998 quarter and the
ratio of loans to interest-earning assets for the 1999 quarter dropped to 72%
from 74% for the 1998 quarter.
Average interest-bearing liabilities increased $17,292,000 or 23% between the
1999 and 1998 quarters. The average rate paid for interest-bearing liabilities
declined to 3.92% for the 1999 quarter compared to 4.34% for the 1998 quarter,
reflecting a decrease in overall money market and deposit rates between the
quarters and a shift in the deposit portfolio. The ratio of time deposits to
average total interest-bearing liabilities fell to 56% for the 1999 quarter
compared to 59% for the 1998 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 have a greater effect on earning
assets. If interest rates decline, an asset sensitive position could adversely
affect net interest income. Alternatively, when more liabilities than assets
reprice in a given period (a liability sensitive position) a decline in interest
rates could benefit net interest income. The results would reverse if interest
rates were to increase.
The following table presents the Company's interest rate sensitivity gap
position at March 31, 1999. 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
AS OF MARCH 31, 1999: 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 (excluding nonaccrual and
deferred fees) $59,060 $ 7,395 $14,155 $14,829 $95,439
Securities (before unrealized
loss on securities available for sale) 16,265 665 10,849 7,373 35,152
Federal funds sold and reverse
repurchase agreements 5,000 --- --- --- 5,000
- ------------------------------------------------------------------------- -------------------
Total 80,325 8,060 25,004 22,202 135,591
- ------------------------------------------------------------------------- -------------------
Interest rate sensitive liabilities:
Interest-bearing transaction accounts 35,016 --- --- --- 35,016
Savings deposits 7,312 --- --- --- 7,312
Time deposits, $100 and over 27,816 4,712 1,137 --- 33,665
Other time deposits 12,213 5,512 1,269 1 18,995
Other borrowed funds 100 --- --- --- 100
- ------------------------------------------------------------------------- -------------------
Total 82,457 10,224 2,406 1 95,088
- ------------------------------------------------------------------------- -------------------
Interest rate sensitivity gap (2,132) (2,164) 22,598 22,201 $40,503
- ------------------------------------------------------------------------- -------------------
Cumulative interest rate
sensitivity gap $(2,132) $(4,296) $18,302 $40,503
- ------------------------------------------------------------------------- -------------------
Cumulative interest rate
sensitivity gap to total assets (1.5)% (3.0)% 12.5% 27.8%
</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, 1999, indicates that the Company, on a cumulative gap
basis, is liability sensitive in the periods "3 months or less" and "Over 3
months to 1 year" and asset sensitive over the remaining time periods.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Bank provides for possible loan losses by a charge to operating income based
upon the composition of the loan portfolio, past loan loss experience, current
economic conditions and other factors which, in management's judgment, deserve
recognition in estimating loan losses. Management will charge off loans when it
determines there has been a permanent impairment of the related carrying values.
The allowance for loan losses is reviewed by management monthly and approved by
the Board of Directors at least quarterly. Management attributes general
reserves to different types of loans using percentages which are based upon
perceived risk associated with the portfolio and underlying collateral,
historical loss experience, and vulnerability to changing economic conditions
which may affect the collectibility of the loans. Specific allowances are
allocated for impaired loans, for loans which have experienced a decline in
internal loan grading, and when management believes additional loss exposure
exists. Although the allowance for loan losses is allocated to various portfolio
segments, it is general in nature and is available for the loan portfolio in its
entirety. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for losses on loans. Such agencies may require the Company to recognize
additions to the allowance based on their analysis of information available to
them at the time of their examination.
The Senior Loan Officer assesses the loan portfolio monthly to determine which
loans are specifically identifiable problem credits in order to update the
Bank's internal watch list, which tracks all such credits. The Bank's internal
Loan Review Examiner grades all new commercial loans and all credits where the
total liability equals or exceeds certain thresholds established by management.
If either the Senior Loan Officer or the Loan Review Examiner identifies a
serious deficiency, the loan is placed on the next quarterly watch list.
Management provides a specific reserve allowance for the effects of the problem
applicable to each watchlisted credit. When management identifies a generalized
risk not evidenced by a specially identifiable loan or portfolio segment as of
the evaluation date, management's evaluation of the probable loss exposure
concerning this condition will be provided for by adjusting the level of general
reserve for this exposure.
The provision for loan losses reflects an amount necessary to adjust the
allowance for loan losses to 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, 1999, the allowance
for loan losses was $1,020,000 compared to $980,000 at December 31, 1998. The
increased allowance is a result of the $41,000 provision for loan losses. The
provision for loan losses was $10,000 in the first quarter of 1998. Although
nonperforming loans dropped slightly from March 31, 1998, additional credit risk
inherent in the strong loan growth was reflected in the provision. The ratio of
the allowance for loan losses to total loans was 1.1% at March 31, 1999 and at
December 31, 1998. Based upon information currently available, management
believes that the allowance for loan losses at March 31, 1999, 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.
At March 31, 1999 and December 31, 1998, the Bank also held California Capital
Access Program ("CalCAP") deposits of $208,000 and $203,000, respectively, which
CalCAP has pledged to offset any losses on any loans in the Bank's CalCAP
portfolio. The Bank had a total of $1,486,000 and $1,584,000 in CalCAP loans as
of March 31, 1999 and December 31, 1998, respectively. CalCAP is a program
authorized by the California Legislature to encourage California financial
institutions to make loans to small businesses whose operations affect the
state's environment and which may not meet the normal underwriting standards of
the financial institution.
Information on nonperforming loans for the quarters ended March 31, 1999 and
1998 and the year ended December 31, 1998 is summarized in the following table.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS) 1999 1998 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loan charge-offs $(1) $(154) $(5)
Ratio of net loan charge-offs to average loans --- (0.2)% ---
Nonperforming loans:
Nonaccrual $ 27 $ 30 $ 395
Accruing loans past due 90 days or more --- 299
Restructured 469 469 469
- --------------------------------------------------------------------------------------------
Total nonperforming loans $496 $499 $1,163
- --------------------------------------------------------------------------------------------
Ratio of nonperforming loans to total loans 0.5% 0.5% 1.5%
Ratio of allowance for loan losses to nonperforming loans 205.6% 196.4% 86%
</TABLE>
The nonaccrual balance represents one loan which is guaranteed by the Small
Business Administration. The restructured balance represents one loan which is
paying as agreed according to the terms of the renegotiated loan agreement.
NONINTEREST INCOME
Comparing the first quarters of 1999 and 1998, noninterest income was nearly
unchanged. Reductions of $17,000 or 63% in other noninterest income, $9,000 or
27% in gain on sale of SBA loans and $2,000 or 8% in loan servicing income were
slightly in excess of increases of $12,000 or 13% in bankcard income and $10,000
or 15% in servicing charges and fees. The increases in bankcard income and
servicing charges and fees reflected increased merchant activity and deposit
growth. The decline in other noninterest income was attributable to the recovery
during the 1998 quarter of income and expenses related to previously charged-off
or paid-off loans, which was not repeated in the first quarter of 1999.
NONINTEREST EXPENSES
Total noninterest expenses of $1,483,000 for the first quarter of 1999 increased
$96,000 or 7% compared to the first quarter of 1998. Salaries and employee
benefits rose $35,000 or 4%, principally due to salary increases and higher
bonuses associated with loan growth. Professional services expense for the first
quarter of 1999 were $22,000 or 79% above the 1998 quarter, reflecting increased
accounting firm fees and legal services expense. Data processing expense
increased $15,000 or 18% principally due to asset growth and costs associated
with Year 2000 remediation.
PROVISION FOR INCOME TAXES
The provision for income tax expense was $152,000 for the first quarter of 1999
compared to $134,000 for the first quarter of 1998. The $18,000 or 13% increase
in income tax expense reflected higher taxable income for the 1999 quarter. The
effective income tax rate was 35% for both the 1999 and 1998 quarters.
FINANCIAL CONDITION
CASH AND CASH EQUIVALENTS, INVESTMENTS AND LOANS
Cash and cash equivalents of $13,262,000 at March 31, 1999 increased $4,185,000
or 46% from year-end 1998, reflecting both the deposit growth and a $4,470,000
or 11% decline in securities outstanding as of March 31, 1999. Total loans of
$94,949,000 at March 31, 1999 increased $1,820,000 or 2% from December 31, 1998.
DEPOSITS AND OTHER BORROWED FUNDS
Reflecting a continuation of the Bank's strong growth trend, total deposits of
$133,151,000 at March 31, 1999 increased $9,756,000 or 8% compared to December
31, 1998. Noninterest-bearing demand deposits grew $4,259,000 or 13% and savings
and interest-bearing demand increased $4,757,000 or 13% from December 31, 1998.
Part of the deposit growth was used to reduce by $7,000,000 other short-term
borrowing as of March 31, 1999. Securities sold under agreements to repurchase
declined $1,244,000 or 93% during the first three months of 1999.
OTHER ASSETS AND OTHER LIABILITIES
While interest and fees receivable at March 31, 1999 were relatively unchanged
from year-end 1998, other assets increased $269,000 or 55%. The increase in
other assets was principally due to the exercise during the first quarter of
1999 of nonqualified stock options, resulting in a $186,000 increase in deferred
tax assets, and an increase of approximately $100,000 in prepaid expenses.
Interest payable and other liabilities at March 31, 1999, declined $354,000 or
33% from year-end 1998 principally due to the payment of income taxes and
$159,000 in tax benefits related to the exercise of nonqualified stock options
during the first quarter of 1999.
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 cash equivalents, 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 30% at March 31, 1999 and December 31, 1998. 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 $8,500,000 and a repurchase facility, as well as access
to a collaterized credit line with an available borrowing capacity of
approximately $12,000,000 with the Federal Home Loan Bank of San Francisco. As
of March 31, 1999, no borrowed funds were outstanding from these credit
facilities.
CAPITAL
The following tables present the Company's and the Bank's regulatory capital
positions and risk-weighted assets at March 31, 1999, and average assets over
the three month period ended March 31, 1999:
<TABLE>
<CAPTION>
RISK BASED CAPITAL RATIO
COMPANY BANK
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital $12,006 9.6% $11,774 9.5%
Tier 1 Capital regulatory minimum requirement 4,988 4.0 4,983 4.0
- ---------------------------------------------------------------------------------------------
Capital held in excess of regulatory minimum $7,018 5.6% $6,791 5.5%
Total Capital $13,026 10.4% $12,794 10.3%
Total Capital regulatory minimum requirement 9,976 8.0 9,966 8.0
- ---------------------------------------------------------------------------------------------
Capital held in excess of regulatory minimum $ 3,050 2.4% $ 2,828 2.3%
Risk weighted assets $124,702 $124,580
</TABLE>
<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 $12,006 8.6% $11,774 8.5%
Range of regulatory minimum leverage 4,174- 3.0- 4,170- 3.0-
requirement 6,956 5.0% 6,950 5.0%
- ----------------------------------------------------------------- ---------- ----------------
Range of regulatory excess 5,050- 3.6- 4,824- 3.5-
$ 7,832 5.6% $ 7,604 5.5%
Average total assets for first quarter* $139,119 $139,005
(* Average total assets do not include unrealized gains/losses on securities
available for sale.)
</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, 1999 and 1998 have not been
material.
YEAR 2000 READINESS DISCLOSURE
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 continues to assess the
readiness of these third parties and is preparing contingency plans, there can
be no guarantees that the failure of any one of these third parties to modify
their systems in advance of December 31, 1999 would not have a material adverse
affect on the Company.
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.
The Company initiated its Year 2000 planning in 1997 and has prepared a
comprehensive written 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 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 associated
with customer account processing, computer networks and workstations, and
telecommunications systems.
Although 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.), it did identify mission critical
IT systems, both internal and external that were not Year 2000 compliant.
These noncompliant systems 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 centralized, server based, system that
interconnects employees' desktop PC workstations at each location.
One additional element of Year 2000 concern has been the Bank's customers. The
Bank is reliant on its customers to make the necessary preparations for the Year
2000 so that their business operations will not be interrupted, thus threatening
their ability to honor financial commitments.
In an ongoing effort to ensure that its customer base is aware of the Year 2000
issue, during the second quarter of 1998 the Bank mailed to each commercial
account, and included in each commercial account loan and deposit account
statement, a letter addressing Year 2000 issues and encouraging the assessment
of Year 2000 risk. Year 2000 reference resources for businesses were also
provided.
As part of its customer Year 2000 assessment, the Bank identified all commercial
account borrowing relationships in excess of $100,000. These represented over
200 relationships and 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 approximately 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 were analyzed for
risk and each borrower was assigned a Year 2000 risk rating. As a result of this
analysis, the Bank modified its credit review process and its underwriting
criteria to include consideration of Year 2000 issues.
RENOVATION, TESTING & IMPLEMENTATION
The correction and testing phase of the Company's Year 2000 Plan includes the
renovation and/or replacement of all mission critical IT hardware, software and
equipment identified as not compliant with the Year 2000. The majority of the
internal mission critical renovation centered around the upgrade to the Bank's
WAN and teller systems. The installation of the Year 2000 compliant teller
system was completed by December 31, 1998.
To ensure Year 2000 compliance of its WAN and reduce the administrative overhead
of its IT systems, management determined that a complete renovation of the WAN
would provide the most cost effective solution. Most of the elements of the
Bank's WAN upgrade were completed by December 31, 1998. Due to the overall
complexity of this project, however, only a few of the desktop workstations were
operational on the new system at that time. Current projections are for all
users to be converted over to the new Year 2000 compliant system during the
second quarter of 1999.
The Bank relies on two primary off-site data processing vendors for the mission
critical processing of the Bank's customer accounting system and general ledger
applications. These vendors identified certain Year 2000 compliance issues and
the renovations to these systems were completed by December 31, 1998. Testing of
these systems was completed during the first quarter of 1999.
Although no vendors were identified 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. The Year 2000 efforts of these companies continue to be
monitored and are part of the Company's contingency plan. As with all financial
institutions, the Company places a high degree of reliance on systems of other
institutions, including governmental agencies, to settle transactions.
In compliance with FFIEC guidelines, the Company has met all testing
requirements at or prior to the time such requirements were required to have
been met and the present schedule reflects completion of all remaining testing
by June 30, 1999. The remaining scheduled testing includes only non-critical
applications or is a result of software upgrades.
The Company will perform additional testing through the remainder of 1999 when
appropriate or when changes are made in hardware or software, however, few
changes are anticipated.
COSTS
The majority of the costs associated with the Company's Year 2000 project are
for the installation and testing of the components to upgrade the Bank's teller
systems and WAN. Included in this project were 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
have been included.
The Company invested approximately $78,000 in the first quarter of 1999 for
capital improvements to the WAN. As of March 31, 1999, total investment in this
project was $ 153,000 with an estimated additional $82,000 remaining to be
incurred.. The capital cost to upgrade the Bank's teller system for Year 2000
compliance, which was completed in the first quarter of 1999, was $60,000 of
which $42,000 was paid in the first quarter of 1999. Other costs incurred by the
Company as of March 31, 1999 include staff time devoted to the issue at a cost
of approximately $6,000 and outside consulting of $28,000 for the first quarter
of 1999. Costs to-date at March 31, 1999 for staff time and outside consulting
were $21,000 and $35,000, respectively. Current estimates of additional costs
for staff and outside consultants in 1999 and the year 2000 are $29,000.
While management believes it has identified and planned for the resolution of
the mission critical issues relevant to the Year 2000, no assurance can be given
that the Company may not be required to expend significant additional amounts
related to the Year 2000 issue.
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 affects
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 upon 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, switching to another vendor on
short notice does not represent a viable option. At this time, management
believes that the necessary renovations 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
governmental agencies were disrupted. To date definitive public disclosure of
the state of readiness among basic infrastructure suppliers has not been
generally available. Although inquiries continue, the Company does not yet have
the information to estimate the likelihood of significant disruptions among
these suppliers.
CONTINGENCY PLANNING
The Company has developed contingency plans for the Year 2000 in the event that
remediation is not completed in time, or if systems fail for reasons that are
not presently foreseen. In the event of a failure, these plans 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 known information, management believes that its
primary vendors have the resources to complete their Year 2000 projects
successfully and on time.
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.
The Company's disclosure and announcement herein concerning its Year 2000
planning and programs are intended to constitute "year 2000 readiness
disclosures" as defined in the recently-enacted Year 2000 Information and
Readiness Disclosure Act (the "Act"). The Act provided certain protection from
liability for certain public and private statements concerning an entity's Year
2000 readiness and the Year 2000 readiness of its products and services.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.2.1 Amendment to Employee Stock Ownership Plan,
dated January 22, 1997;
Exhibit 10.9.1 Amendments to 401(k) Profit Sharing Plan,
dated December 12, 1994, and December 30, 1993.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company for the
quarter ended March 31, 1999.
<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 13, 1999 /s/ R. M. Kahler
--------------------
R. M. Kahler
President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1999 /s/ R. D. Greenfield
---------------------
R. D. Greenfield
Chief Financial Officer
(Principal Accounting Officer)
BAY COMMERCIAL SERVICES
EMPLOYEE STOCK OWNERSHIP PLAN
Amendment No. 1 to Amended and Restated Plan
WHEREAS, Bay Commercial Services ("Bank") maintains the Bay
Commercial Services Employee Stock Ownership Plan ("Plan") for the benefit of
its eligible Employees; and
WHEREAS, it is desirable to amend the definition of "Compensation"
in the Plan to clarify that amounts contributed on an Employee's behalf for the
Plan Year to a "cafeteria plan" under Section 125 of the Internal Revenue Code
of 1986, as amended, are to be included in Compensation, and to coordinate the
Plan's vesting rule relating to Retirement;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The definition of "Compensation" in Section 2 is restated to read as
follows, effective as of January 1, 1993:
Compensation
The total wages and other compensation paid to an Employee by the
Bank during the Plan Year and reportable on the Employees Wage
and Tax Statement (Form W-2), plus any "Elective Deferrals" made
by him to the 401(k) Plan for the Plan Year, and any amounts
contributed on his behalf for the Plan Year to a "cafeteria plan"
described in Section 125 of the Code. For Plan Years beginning
before January 1, 1993, Compensation shall not include a
Participant's commissions in excess of $36,000 per year. For Plan
Years beginning on and after January 1, 1993, the Compensation of
a Participant who is a Highly Compensated Employee shall not
include commissions in excess of the Compensation limit for the
Plan Year determined under paragraph (3) of the definition of
"Highly Compensated Employee" in this Section 2. For any Plan
Year beginning after 1988 and before 1994, any amount in excess
of $200,000 shall be excluded, and for any Plan Year beginning
after 1993, any amount in excess of $150,000 shall be excluded
(and each dollar amount shall be adjusted for increases in the
cost-of-living pursuant to Section 401 (a) (17) of the Code). For
purposes of applying these $200,000 and $150,000 limitations, the
Compensation of a 5% owner or of a Highly Compensated Employee
who is one of the ten most highly compensated Highly Compensated
Employees shall be aggregated with the Compensation of his spouse
and his lineal descendants who are under age 19.
2. Section 10 (a) (1) is restated to read as follows, effective as of
January 1, 1996:
(1) A Participant's interest in his Accounts shall become 100%
vested and nonforfeitable without regard to his Credited Service if he (A) is
employed by the Bank on or after his 65th birthday, (B) incurs a Disability
while employed by the Bank, or (C) dies while employed by the Bank. To record
the adoption of this Amendment No. 1 to the amended and restated Plan, the
Company has caused it to be executed this twenty-second day of January, 1997.
BAY COMMERCIAL SERVICES
By________________________
By________________________
AMENDMENT 1997-1
ARTICLE 1997-A
APPENDIX TO UNION BANK OF CALIFORNIA SELECTBENEFIT DEFINED CONTRIBUTION PLAN AND
TRUST, UNION BANK MASTER DEFINED CONTRIBUTION PLAN AND TRUST, UNION BANK PLAN
ACCESS DEFINED CONTRIBUTION PLAN AND TRUST, AND THE BANK OF CALIFORNIA DEFINED
CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT
Rev. Rul. 94-76 Model Amendment
This amendment is effective on the first day of the first Plan Year
beginning on or after December 12, 1994, or, if later, March 12, 1995.
Notwithstanding any provision of this Plan to the contrary, to the
extent that any optional form of benefit under this Plan permits a distribution
prior to the Employee's retirement, death, disability, or severance from
employment, and prior to plan termination, the optional form of benefits is not
available with respect to benefits attributable to assets (including the
post-transfer earnings thereon) and liabilities that are transferred, within the
meaning of Code ss.414(l), to this Plan from a money purchase pension plan
qualified under Code ss.401(a) (other than any portion of those assets and
liabilities attributable to voluntary Employee contributions).
ARTICLE 1997-B
APPENDIX TO UNION BANK OF CALIFORNIA SELECTBENEFIT DEFINED CONTRIBUTION PLAN AND
TRUST, UNION BANK MASTER DEFINED CONTRIBUTION PLAN AND TRUST, UNION BANK PLAN
ACCESS DEFINED CONTRIBUTION PLAN AND TRUST, AND THE BANK OF CALIFORNIA DEFINED
CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT
USERRA Model Amendment
This amendment is effective December 12, 1994.
Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code ss.414(u). Loan repayments will
be suspended under this Plan as permitted under Code ss.414(u)(4).
<PAGE>
CERTIFICATE OF ASSOCIATION WITH
PLAN DOCUMENT
I, the undersigned, on behalf of Bay Commercial Services certify that I have
associated Article 1997-A (Rev. Rul. 94-76) and Article 1997-B (USERRA) to the
Employer's basic plan document this 30th day of June, 1997. This certifies the
Employer's amendment of the Union Bank Master Defined Contribution Plan, the
Union Bank Plan Access Defined Contribution Plan and Trust, the Bank of
California Defined Contribution Master Plan and Trust Agreement, or the Union
Bank of California SELECTBENEFIT Defined Contribution Plan and Trust previously
adopted by the Employer.
SPONSOR/EMPLOYER
By: Richard M. Kahler
<PAGE>
ARTICLE A
APPENDIX TO BASIC PLAN DOCUMENT
This Article is necessary to comply with the Unemployment Compensation
Amendments Act of 1992 and is an integral part of the basic plan document.
Section 12.08 applies to any modification or amendment of this Article.
A-1. APPLICATIONS. This Article applies to distributions made on or after
January l, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributes in a direct rollover.
A-2. DEFINITIONS.
(a) "Eligible rollover distribution." An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code ss.401(a)(9); and the portion of any
distribution that is not includible in gross income (determined without regard
to the exclusion of net unrealized appreciation with respect to employer
securities).
(b) "Eligible retirement plan." An eligible retirement plan is an
individual retirement account described in Code ss.408(a), an individual
retirement annuity described in Code ss.408(b), an annuity plan described in
Code ss.403(a), or a qualified trust described in Code ss.401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(c). "Distributee." A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code ss.414(p),
are distributees with regard to the interest of the spouse or former spouse.
(d) "Direct Rollover." A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
Copyright L"3 Pension Publications of Denver, Inc.- 4/93 A
<PAGE>
NOTICE TO EMPLOYEES OF PLAN AMENDMENT
DECEMBER 30, 1993
[NAME OF PLAN] [PLAN NO.]
401(k) Savings Plan 002
[NAME AND ADDRESS OF PLAN ADMINISTRATOR] [EMPLOYER'S EIN]
Bay Commercial Services
1495 East 14th Street
San Leandro, CA 94577
[NAME AND ADDRESS OF MASTER PLAN SPONSOR]
The Bank of California, N.A.
The Bank of California, N.A./Business Trust 475-15
PO Box 45000, San Francisco CA 94104
[ADDRESS OF KEY DISTRICT DIRECTOR HAVING JURISDICTION OF PLAN]
EP/EO Division
2 Cupania Circle
Monterey Park, CA 91754
The referenced plan is an adoption of a master plan which has
received an opinion letter from the Key District Director having- jurisdiction
of the plan. The Master Plan Sponsor has amended the Master Plan to add a new
article relating to direct rollovers of eligible rollover distributions paid
from the Plan. The Revenue Service does not require the Employer to submit this
amendment for a determination letter because the language conforms to a model
amendment published by the Revenue Service.
RIGHTS OF INTERESTED PARTIES. You have the right to submit to the
Key District Director, at the above address, either individually or jointly with
other interested parties, your comments as to whether the plan meets the
qualification requirements of the Internal Revenue Code. You may instead,
individually or jointly with other interested parties, request the Department of
Labor to submit, on your behalf, comments to the Key District Director regarding
qualification of the plan. If the Department declines to comment on all or some
of the matters you raise, you may, individually, or jointly if your request was
made to the Department jointly, submit your comments on these matters directly
to the Key District Director.
REQUESTS FOR COMMENTS BY THE DEPARTMENT OF LABOR. The Department of
Labor may not comment on behalf of interested parties unless requested to do so
by the lesser of 10 employees or 10% of the employees who qualify as interested
parties. If you request the Department to comment, your request must be in
writing and must specify the matters upon which comments are requested, and must
also include:
(1) The name of the Employer, the name of the plan, the plan number,
the opinion letter number, and name and address of the Master Plan Sponsor, the
Employer's EIN, the name and address of the plan administrator and the address
of the Key District Director having jurisdiction of the plan; and
(2) The number of persons needed for the Department to comment.
A request to the Department to comment should be addressed as follows:
Deputy Assistant Secretary
Pension and Welfare Benefits Administration
U.S. Department of Labor
200 Constitution Avenue, N.W.
Washington, D.C. 20210
ATTN: 3001 Comment Request
<PAGE>
COMMENTS TO THE INTERNAL REVENUE SERVICE. Comments submitted by you to the
Key District Director must be in writing and received no later than 55 days
after the date of this notice. However, if there are matters that you request
the Department of Labor to comment upon on your behalf, and the Department
declines, you may submit comments on these matters to the Key District Director
to be received by him within 15 days from the time the Department notifies you
that it will not comment on a particular matter, or no later than 55 days after
the date of this notice, whichever is later. In no event may the Key District
Director receive your comment later than 70 days after the date of this notice,
even if the Department fails to give you timely notification that it declines to
comment. A request to the Department to comment on your behalf must be received
by it no later than 25 days after the date of this notice if you wish to
preserve your right to comment on a matter upon which the Department declines to
comment, or no later than 35 days after the date of this notice if you wish to
waive that right.
ADDITIONAL INFORMATION. Detailed instructions regarding the requirements
for notification of interested parties may be found in sections 17, 18 and 19 of
Revenue Procedure 93-6. Additional information concerning this application
(including, where applicable, an updated copy of the plan and related trust; the
application for determination; any additional documents dealing with the
applications submitted to the IRS; and copies of section 16 of Revenue Procedure
93-6) is available at the Employer's principal and/or local office accessible to
the interested parties during the hours of 10:00 a.m. to 3:00 p.m. for
inspection and copying. There is a nominal charge for copying and mailing.
<PAGE>
Defined Contribution Master Plan
ARTICLE B
APPENDIX TO BASIC PLAN DOCUMENT
This Article is necessary to comply with the Omnibus Budget Reconciliation
Act of 1993 (OBRA '93) and is an integral part of the basic plan document.
Section 12.08 applies to any modification or amendment of this Article.
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation unit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this
plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account in
determining an employee's benefits accruing in the current plan year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
Copyright 1994 Pension Publications of Denver, Inc. 1/94 . B
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BAY COMMERCIAL SERVICES & SUBSIDIARY FIRST QUARTER 1999
10QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,262
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,589
<INVESTMENTS-CARRYING> 35,152
<INVESTMENTS-MARKET> 35,258
<LOANS> 94,949
<ALLOWANCE> 1,020
<TOTAL-ASSETS> 145,922
<DEPOSITS> 133,151
<SHORT-TERM> 100
<LIABILITIES-OTHER> 714
<LONG-TERM> 0
<COMMON> 4,121
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 145,922
<INTEREST-LOAN> 2,118
<INTEREST-INVEST> 457
<INTEREST-OTHER> 26
<INTEREST-TOTAL> 2,601
<INTEREST-DEPOSIT> 866
<INTEREST-EXPENSE> 883
<INTEREST-INCOME-NET> 1,718
<LOAN-LOSSES> 41
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,483
<INCOME-PRETAX> 436
<INCOME-PRE-EXTRAORDINARY> 436
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 5.40
<LOANS-NON> 27
<LOANS-PAST> 0
<LOANS-TROUBLED> 469
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 980
<CHARGE-OFFS> 3
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1020
<ALLOWANCE-DOMESTIC> 1020
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
