SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 0-11771
SJNB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 77-0058227
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NORTH MARKET STREET, SAN JOSE, CALIFORNIA 95113
(Address of principal executive offices) (Zip Code)
(408) 947-7562
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed,
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,342,931 shares of common
stock outstanding as of May 3, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION Page
Item 1. - FINANCIAL STATEMENTS
- ------
SJNB FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Shareholders' Equity
and Comprehensive Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ CONDITION AND RESULTS OF OPERATIONS 7
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
- ------ MARKET RISK 23
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 25
- ------
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 25
- ------
Item 3. DEFAULTS UPON SENIOR SECURITIES 25
- ------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25
- ------
Item 5. OTHER INFORMATION 25
- ------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 25
- ------
SIGNATURES 27
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
March 31, December 31,
Assets 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $14,098 $11,239
Money market investments and Federal Funds sold 5,974 22,285
Investment securities:
Available for sale 35,439 35,216
Held to maturity (Fair value: $11,414 at March 31, 1999 and $11,369 at
December 31, 1998) 11,239 11,173
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities 46,678 46,389
- -----------------------------------------------------------------------------------------------------------------------------
Loans and leases 280,787 261,380
Allowance for possible loan and lease losses (4,903) (4,778)
- -----------------------------------------------------------------------------------------------------------------------------
Loans and leases, net 275,884 256,602
- -----------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 3,700 3,770
Accrued interest receivable and other assets 6,286 5,622
Intangibles, net of accumulated amortization of $2,278 at March 31, 1999 and
$2,164 at December 31, 1998 3,959 4,027
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $356,579 $349,934
=============================================================================================================================
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $69,529 $70,962
Interest-bearing 242,237 231,480
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 311,766 302,442
- -----------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings 5,000 5,000
Accrued interest payable and other liabilities 6,511 7,010
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 323,277 314,452
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value; authorized, 20,000 shares; issued and outstanding,
2,343 shares at March 31, 1999 and 2,450 shares at December
31, 1998 13,781 16,777
Retained earnings 19,391 18,405
Accumulated other comprehensive income 130 300
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 33,302 35,482
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies ---- ----
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $356,579 $349,934
=============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Quarter ended
March 31,
--------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C>
Interest and fees on loans and leases $6,430 $6,115
Interest on money market investments 140 120
Interest and dividends on investment securities available for sale 518 757
Interest on investment securities held to maturity 154 190
Other interest and investment income (14) (2)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 7,228 7,180
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest expense on interest-bearing deposits:
Certificates of deposit over $100 1,052 679
Other 1,193 1,536
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,245 2,215
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 4,983 4,965
- -----------------------------------------------------------------------------------------------------------------------------
Provision for possible loan and lease losses 100 ----
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan and lease losses 4,883 4,965
- -----------------------------------------------------------------------------------------------------------------------------
Other income:
Service charges on deposits 156 161
Other operating income 342 123
Net loss on securities available for sale ---- (8)
- -----------------------------------------------------------------------------------------------------------------------------
Total other income 498 276
- -----------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and benefits 1,804 1,620
Occupancy 216 167
Other 1,040 992
- -----------------------------------------------------------------------------------------------------------------------------
Total other expenses 3,060 2,779
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,321 2,462
Income taxes 992 1,027
- -----------------------------------------------------------------------------------------------------------------------------
Net income $1,329 $1,435
=============================================================================================================================
Net income per share - basic $0.55 $0.57
=============================================================================================================================
Net income per share - diluted $0.53 $0.54
=============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Shareholders' Equity
and Comprehensive Income
(in thousands)
(Unaudited)
Net
Unrealized
Gain (Loss) Total
Common Retained on Securities Shareholder's
Quarter ended March 31, 1998 Shares Stock Earnings Available Equity
for Sale
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 2,493 $18,800 $14,254 $105 $33,159
-----------------
Net income 1,435 1,435
Other comprehensive income - Unrealized gains
on securities held for sale, net 17 17
-----------------
Comprehensive income 1,452
-----------------
Stock options exercised 26 408 408
Cash dividends (347) (347)
- -----------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1998 2,519 $19,208 $15,342 $122 $34,672
=============================================================================================================================
Quarter ended March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 2,450 $16,777 $18,405 $300 $35,482
-----------------
Net income 1,329 1,329
Other comprehensive income - Unrealized losses
on securities held for sale, net (170) (170)
-----------------
Comprehensive income 1,159
-----------------
Common stock repurchased (114) (3,105) (3,105)
Stock options exercised 7 109 109
Cash dividends (343) (343)
- -----------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1999 2,343 $13,781 $19,391 $130 $33,302
=============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three months ended
March 31,
--------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $1,329 $1,435
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan and lease losses 100 ----
Depreciation and amortization 140 133
Amortization on intangibles 113 107
Net loss on securities available for sale ---- 8
Amortization of discount (premium) on investment securities, net 1 (12)
Increase in intangibles assets (45) ----
Increase in accrued interest receivable and other assets (665) (781)
(Decrease) increase in accrued interest payable and other liabilities (386) 1,038
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 587 1,928
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale/maturity of securities available for sale 1,490 1,322
Maturities of securities held to maturity 1,328 1,000
Purchase of securities available for sale (1,990) (2,009)
Purchase of securities held to maturity (1,400) (683)
Loans and leases, net (19,382) 3,830
Capital expenditures (70) (36)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (20,024) 3,424
- -----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Deposits, net 9,324 15,080
Other short-term borrowings ---- (11,000)
Cash dividends (343) (347)
Stock buyback (3,105) ----
Proceeds from stock options exercised 109 408
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,985 4,141
- -----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (13,452) 9,492
Cash and equivalents at beginning of year 33,524 25,525
- -----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $20,072 $35,017
=============================================================================================================================
Other cash flow information:
Interest paid $2,165 $2,465
======================================
Income taxes paid 770 25
=============================================================================================================================
Noncash transactions:
Unrealized (loss) gain on securities available for sale, net of tax $(170) $17
=============================================================================================================================
<FN>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
SJNB FINANCIAL CORP. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Note A Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements of SJNB
Financial Corp. (the "Company") and its subsidiary, San Jose National
Bank and its subsidiary Epic Funding Corp, are prepared in accordance
with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q. In the opinion of
management, all adjustments necessary for a fair presentation of the
financial position, results of operations and cash flows for the
periods have been included and are normal and recurring. The results
of operations and cash flows are not necessarily indicative of those
expected for the full fiscal year.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report to Shareholders
for the year ended December 31, 1998.
Note B Net Income Per Share of Common Stock
<TABLE>
<CAPTION>
The reconciliation of the numerators and denominators of the basic
and diluted earnings per share (EPS) computations are as follows (in
thousands, except per share amounts):
Quarter ended Quarter ended
March 31, 1999 March 31, 1998
Net Per Share Net Per Share
Income Shares Amounts Income Shares Amounts
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income and basic EPS $1,329 2,419 $0.55 $1,435 2,506 $0.57
============ ============
Effect of stock option dilutive shares 107 145
-------------------- -------------------
Diluted earnings per share $1,329 2,526 $0.53 $1,435 2,651 $0.54
===============================================================
</TABLE>
Note C Other Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This Statement requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
Statement is effective for fiscal quarters of fiscal years beginning
after June 15, 1999. The Company expects to adopt this Statement on
January 1, 2000. The Company will begin evaluating the impact of its
adoption on the Company's consolidated financial statements.
Currently, management believes the Statement would not have a
significant effect on the Company's consolidated financial position
or its consolidated statement of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SJNB Financial Corp. (the "Company") is the holding company for San Jose
National Bank ("SJNB" and the "Bank"), and the Bank's subsidiary, Epic Funding
Corp. ("Epic"), San Jose, California. This discussion focuses primarily on the
results of operations of the Company on a consolidated basis for the three
months ended March
<PAGE>
31, 1999 and 1998 and the liquidity and financial condition of the Company, SJNB
and Epic as of March 31, 1999 and December 31, 1998.
All dollar amounts in the text in Item 2 are in thousands, except per share
amounts or as otherwise indicated.
Forward-looking Information
This Quarterly Report on Form 10-Q includes forward-looking information which is
subject to the "safe harbor" created by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements (which involve the Company's plans,
beliefs and goals, refer to estimates or use similar terms) involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Such risks and uncertainties
include, but are not limited to, the following factors: competitive pressure in
the banking industry; changes in the interest rate environment; a potential
declining health of the economy, either nationally or regionally; the
deterioration of credit quality, which could cause an increase in the provision
for possible loan and lease losses; changes in the regulatory environment;
changes in business conditions, particularly in Santa Clara County real estate
and technology industries; certain operational risks involving data processing
systems or fraud; volatility of rate sensitive deposits; asset/liability
matching risks and liquidity risks; risks associated with the Year 2000 which
could cause disruptions in the Company's operations; and changes in the
securities markets. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. For
additional information concerning risks and uncertainties related to the Company
and its operations please refer to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. See also the section below entitled "Year 2000
Issue" and other risk factors discussed elsewhere in this Report.
Current Developments
During the first quarter of 1999, the Company announced that the Board of
Directors had approved the repurchase of up to $3.5 million of the Company's
common stock. Through March 31, 1999, the Company had repurchased 114,500 shares
for a total of $3.1 million.
Year 2000 Issue
The "Year 2000 issue" relates to the fact that many computer programs and other
technology utilizing microprocessors use only two digits to represent a year,
such as "98" to represent "1998." In the year 2000 ("Y2K"), such
programs/processors could incorrectly treat the year 2000 as the year 1900. This
issue has grown in importance as the use of computers and microprocessors has
become more pervasive throughout the economy, and interdependencies between
systems has multiplied. The issue must be recognized as a business problem,
rather than simply a computer problem, because of the way its effects could
ripple through the economy. The Company could be affected either directly or
indirectly by the Year 2000 issue. This could happen if any of its critical
computer systems or equipment containing embedded logic fail, if the local
infrastructure (electric power, communications, or water system) fails, if its
significant vendors are adversely impacted, or if its borrowers or depositors
are significantly impacted by their internal systems or those of their customers
or suppliers. The Company's business is heavily dependent on technology and data
processing. To address these issues, the Company has created a Year 2000 team
whose members are familiar with the Company's business and operations.
The Company does not rely on its own data processing software for its
mission-critical needs. Rather, it uses outside vendors to license software
and/or data processing services for its critical applications such as data and
item processing and customer statements. The Company is also dependent on an IBM
AS/400 computer and OS/400 operating system, as well as personal computers
connected on a local area network. The foregoing systems are classified by the
Company as mission-critical information technology ("IT") systems.
<PAGE>
The Company's business also involves non-IT products and services, some of which
have embedded technology which might not be Year 2000 compliant. Some non-IT
products and services involve various infrastructure issues such as power,
communications and water, as well as elevators, ventilation and air conditioning
equipment. The Company classifies power and communications as non-IT
mission-critical systems.
The Company's application software, data processing vendors, computer operating
systems, local area network and the power and communication infrastructure
provide critical support to substantially all of its business and operations.
Failure to successfully complete renovation, validation and implementation of
its mission-critical IT systems could have a material adverse effect on the
operations and financial performance of the Company. Moreover, Year 2000 issues
experienced by significant vendors or customers of the Company or power or
communications systems could negatively impact the business and operations of
the Company even if its own critical IT systems are capable of functioning
satisfactorily. Due to the numerous issues and problems which might arise and
the lack of guarantees concerning Year 2000 readiness from non-IT service
providers such as power and communication systems vendors, the Company cannot
quantify the potential cost of problems if the Company's renovation and
implementation efforts or the efforts of significant vendors or customers are
not successful.
State of Readiness
The Company believes it is well underway in preparing for Year 2000 issues.
During the latter half of 1997 and the first half of 1998, the Company conducted
a comprehensive review of its IT systems to identify systems that present Year
2000 issues. The Company has developed a plan which it believes should
satisfactorily resolve Year 2000 issues related to its mission-critical IT
systems. The Company's Y2K team has also utilized external resources provided by
its outside vendors and a consultant hired to assist the Company. Management
initially anticipated that the renovation and validation (testing) phases of its
Year 2000 project for critical IT systems would be completed by December 31,
1998. While this process has taken somewhat longer than anticipated, initial
testing and validation of mission-critical systems was completed as of March 31,
1999. At the date of this Report, management of the Company had not identified
any serious problems with any of its mission-critical systems. The Company is in
the process of replacing its voice mail and e-mail systems which were near the
end of their expected life cycle, and were determined not to be Year 2000
compliant. These systems are not considered to be mission-critical, and
replacement is expected to be completed by June 30, 1999.
The Company converted to a new core processing system (which handles accounting
for loans, deposit accounts and general ledger) in November 1997. The conversion
to this system was not based on Year 2000 issues; however, the vendor of this
system represented to the Company that the system was Y2K compliant. Vendors of
the Company's other critical IT systems have also informed the Company that
their products/systems are Y2K compliant. Based on information provided by
outside service providers and its testing process the Company believes that its
mission-critical IT systems are substantially Y2K compliant. The Company intends
to work with its vendors to attempt to resolve any other issues discovered
during the testing process and to complete secondary testing, where it is deemed
appropriate, by June 30, 1999.
The Company ran tests on its core processing system at a remote disaster
recovery site during October 1998 with technical assistance from the vendor and
an outside consultant. Actual data from a prior period was used to conduct
future date tests. The Company is also monitoring the Y2K readiness of its
outside item processing and operating system vendors.
By March 31, 1999, testing of both critical and non-critical local area network
applications was substantially complete. The Company cannot test for Y2K
readiness of its power and telecommunication vendors, although the Company is
monitoring their readiness.
<PAGE>
Costs
The Company is expensing all period costs associated with the Year 2000 issue.
Through March 31, 1999 the amount of such expenses totaled approximately $141.
It is anticipated that additional Year 2000 Project expenses for the remainder
of 1999 will be approximately $59. This estimate includes costs for consultants,
running tests and technical assistance from vendors, as well as development of
contingency plans and costs of communicating with customers concerning Year 2000
issues. Also included are capital expenditures of approximately $50 which have
been or will be incurred during 1999 to replace equipment or systems which were
nearing the end of their life cycle and found to be non-Year 2000 compliant.
These cost estimates exclude the expense of the Company's internal staff time
and systems or products which were replaced for other business reasons. The
diversion of resources to Year 2000 issues has resulted in some delays in
implementation of other information systems projects. The Company does not
believe that these delays have had a material effect on its growth in revenues
or expense. There can be no assurance that these expenses will not increase as
further testing and assessment of vendor and customer readiness and contingency
planning for the Year 2000 continues.
Risks
It is inherently difficult to predict the future outcome of most events. The Y2K
issue is no exception due to the complexity of technology, the numerous
variables and the inability to assess the impact of the Year 2000 issue on the
local, national and international economy. Management has identified a
long-range, most reasonably likely, worst-case scenario. This scenario suggests
that the Y2K issue might negatively impact some significant customers and non-IT
vendors/products through the failure of the customer and/or vendor to be
prepared or the impact on them of the failure of their own vendors and
customers. Management believes that this scenario could occur in conjunction
with an economic recession arising from the Y2K issue. The Bank's asset quality
and earnings could be adversely impacted in that event. It is not possible to
predict the effect of this Y2K scenario on the economic viability of the Bank's
customers and the related adverse impact it may have on the Company's financial
position and results of operations, including the level of the Bank's provision
for possible loan losses in future periods. Further, there can be no assurance
that other possible adverse scenarios will not occur.
The Company presently believes that, based upon its Year 2000 testing program
and assuming representations of Year 2000 readiness from significant vendors and
customers are accurate, the Year 2000 issue should not pose significant
operational risks for the Company's IT systems. However, other significant risks
relating to the Year 2000 issue are that of the unknown impact of this problem
on the operations of the Bank's customers and vendors, the impact of
infrastructure failures such as power, communications and water on the Company's
IT systems, the economy and future actions which banking or securities
regulators may take.
The Company is making efforts to ensure that its customer base is aware of the
Year 2000 issue. In addition to seminars for and mailings to its customer base,
the Bank has amended its credit policy and credit authorization documentation to
include consideration regarding the Year 2000 issue. Significant customer
relationships have been identified, and such customers are being contacted by
the Bank's account officers to determine whether they are aware of Year 2000
risks and whether they are taking preparatory actions. An initial assessment of
these customers was substantially completed in late 1998. The Company is taking
follow-up action in 1999 based on the results of this assessment.
The Company has also attempted to contact major vendors and suppliers of
non-software products and services (including those where products utilize
embedded technology) to determine the Year 2000 readiness of such organizations
and/or the products and services which the Company purchases from such
organizations. The Company is monitoring reports provided by such vendors
regarding their preparations for Year 2000. This is an ongoing process, and the
Company intends to continue to monitor information provided by such vendors
through the century date change.
Federal banking regulators have responsibility for supervision and examination
of banks to determine whether they have an effective plan for identifying,
renovating, testing and implementing solutions for Year 2000
<PAGE>
processing and coordinating Year 2000 processing capabilities with their
customers, vendors and payment system partners. Examiners are also required to
assess the soundness of an institution's internal controls and to identify
whether further corrective action may be necessary to ensure an appropriate
level of attention to Year 2000 processing capabilities. Management believes it
is currently in compliance with the federal bank regulatory guidelines and
timetables.
Contingency Plans
The Company maintains a Disaster Contingency and Business Resumption Plan which
contains policies and procedures to follow in the event of a significant
business disruption due to events such as fire, earthquake, flood, etc. The
Company is working to develop further contingency plans to address potential
business disruptions which might result from Year 2000 issues. This will
involve, among other things, procedures to be followed in the event of a power
failure, communications failure, or system failure which occurs despite the
testing which has been performed. Management intends to have an independent
party review the feasibility of its Disaster Contingency and Business Resumption
Plan. This process is expected to be completed on or about June 30, 1999.
Selected Financial Data
<TABLE>
<CAPTION>
The following presents selected financial data and ratios as of and for the
three months ended March 31, 1999 and 1998:
SELECTED FINANCIAL DATA AND RATIOS
For the quarters
ended March 31,
---------------------------------------------------------
SELECTED ANNUALIZED OPERATING RATIOS: 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Return on average equity 15.46% 17.28%
Return on average tangible equity 18.94 20.85
Return on average assets 1.55 1.80
Net recoveries to average loans and leases (0.04) (0.09)
PER SHARE DATA:
Net income per share - basic $0.55 $0.57
Net income per share - diluted 0.53 0.54
Net income per share - (core) - diluted (1) 0.57 0.58
Dividends per share 0.14 0.14
=============================================================================================================================
At March 31, At March 31,
SHAREHOLDERS' EQUITY 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity per share $14.22 $13.76
Tangible equity per share 12.53 12.32
SELECTED FINANCIAL POSITION RATIOS:
- -----------------------------------------------------------------------------------------------------------------------------
Leverage capital ratio 8.34% 9.61%
Average equity to average assets 10.00 10.39
Average tangible equity to average tangible assets 8.55 9.36
Nonperforming loans and leases to total loans and leases 0.14 0.26
Nonperforming assets to total assets 0.11 0.17
Allowance for possible loan and lease losses to total loans 1.75 2.02
Allowance for possible loan and lease losses
to nonperforming loans and leases 1,232 786
Allowance for possible loan and lease losses
to nonperforming assets 1,232 786
=============================================================================================================================
<FN>
(1) Excludes after-tax effect of goodwill and core deposit intangible
amortization.
</FN>
</TABLE>
<PAGE>
Summary of Financial Results
The Company reported net income of $1,329 or $0.53 per share - diluted for the
quarter ended March 31, 1999, compared with net income of $1,435 or $0.54 per
share - diluted for the first quarter of 1998. The decrease in net income and
diluted earnings per share compared to the quarter ended March 31, 1998 was
primarily the result of the net interest margin declining 50 basis points due to
the prime rate decreases in late 1998, an increase in the loan loss provision of
$100, an increase in costs associated with the Bank's leasing subsidiary, Epic,
and the establishment of a de novo branch in Danville, CA. These amounts were
partly offset by a reversal of a specific reserve established for an acquired
SBA loan which was paid in full.
Net Interest Income
Net interest income for the quarter ended March 31, 1999, increased $18 as
compared to the same quarter a year ago. The Bank's average earning assets for
the same period increased by $25 million, primarily as the result of growth in
the Bank's loan and lease portfolio.
Net interest margin for the first quarter of 1999 was 6.26% as compared to 6.76%
for the same quarter in 1998. This decrease was primarily related to the
decrease in the yield on earning assets; in particular the yield on loans and
leases, which account for 82% of earning assets, declined from 10.86% to 9.74%.
The decrease in the net interest margin was due mainly to prime rate decreases
in late 1998 of 75 basis points.
Economic conditions in Northern California have remained relatively strong in
the first three months of 1999, although, there are indications that this
economic strength could be threatened by a slow-down in demand for
semi-conductors, computers and other technology products, the tightening of a
skilled labor force in Santa Clara County and the potential for the real estate
market to slowdown. In addition, the competitive environment within the Bank's
marketplace continues to be aggressive and the competition between banks for
additional loans, leases and deposits has caused more competitive pricing.
Due to the nature of the Company's target market in which loans are generally
tied to the prime rate, management believes modest increases in interest rates
should positively affect the Bank's net interest margin. Conversely, management
believes stable or declining rates will tend to have an adverse impact on net
interest margin. The Bank utilizes various methods to hedge some of its interest
rate risk. See "Loans and Lease Portfolio" and "Asset/Liability Management."
<PAGE>
<TABLE>
<CAPTION>
The following tables shows the composition of average earning assets and average
funding sources, average yields and rates and the net interest margin, on an
annualized basis, for the three months ended March 31, 1999 and 1998.
AVERAGE BALANCES, RATES AND YIELDS
Fully Taxable Equivalent
(dollars in thousands)
Quarter ended March 31,
-----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Assets Average Average Average Average
Balance Interest Yield (1) Balance Interest Yield (1)
- -----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans and leases, net (2) $267,735 $6,430 9.74% $228,411 $6,115 10.86%
Securities available for sale (3) 35,138 518 5.98 49,213 757 6.24
Securities held to maturity:
Taxable (4) 6,586 103 6.34 9,672 148 6.21
Nontaxable (5) 4,618 85 7.46 3,459 70 8.21
Money market investments 10,933 140 5.19 9,002 120 5.41
Interest rate hedging instruments ---- (14) ---- ---- (2) ----
- -------------------------------------------------------------------------- --------------------------
Total interest-earning assets 325,010 7,262 9.06 299,757 7,208 9.75
- -------------------------------------------------------------------------- --------------------------
Allowance for possible loan and lease losses (4,849) (4,528)
Cash and due from banks 15,201 15,892
Other assets 7,699 9,346
Core deposit intangibles and
goodwill, net 5,513 3,688
- ------------------------------------------------------------- -------------
Total Assets $348,574 $324,155
============================================================= =============
Liabilities and Shareholders' equity Interest-bearing liabilities:
Deposits:
Interest-bearing demand $51,829 311 2.43 $47,296 295 2.53
Money market and savings 87,977 684 3.15 96,201 899 3.79
Certificates of deposit:
Less than $100 12,406 144 4.71 14,348 184 5.20
$100 or more 84,369 1,052 5.06 49,792 679 5.53
- -------------------------------------------------------------------------- --------------------------
Total certificates of deposits 96,775 1,196 5.01 64,140 863 5.46
- -------------------------------------------------------------------------- --------------------------
Other borrowings 3,928 54 5.58 10,640 158 6.02
- -------------------------------------------------------------------------- --------------------------
Total interest-bearing liabilities 240,509 2,245 3.79 218,277 2,215 4.12
- -------------------------------------------------------------------------- --------------------------
Noninterest-bearing demand 67,221 67,012
Accrued interest payable and
other liabilities 5,995 5,192
- ------------------------------------------------------------- -------------
Total liabilities 313,725 290,481
- ------------------------------------------------------------- -------------
Shareholders' equity 34,849 33,674
- ------------------------------------------------------------- -------------
Total Liabilities and Shareholders' Equity $348,574 $324,155
=============================================================------------- =============-------------
Net interest income and margin (6) $5,017 6.26% $4,993 6.76%
================================================ ========================= ==========================
<FN>
(1) Rates are presented on an annualized basis.
(2) Includes loan fees of $350 for 1999, and $271 for 1998. Nonperforming loans
and leases have been included in average loan and lease balances.
(3) Includes dividend income of $32 and $44 received in 1999 and 1998.
(4) Includes dividend income of $8 received in 1999 and 1998.
(5) Adjusted to a fully taxable equivalent basis using the federal statutory
rate ($34 in 1999 and $28 in 1998).
(6) The net interest margin represents the fully taxable equivalent net
interest income as a percentage of earning assets.
</FN>
</TABLE>
<PAGE>
Provision for Possible Loan and Lease Losses
The level of the allowance for possible loan and lease losses and the related
provision, if any, reflect management's judgment as to the inherent risk of loss
associated with the loan and lease portfolios as of March 31, 1999 and 1998
based on information available to management as of said dates. Based on
management's evaluation of such risks, an addition of $100 was made to the
allowance for possible loan and lease losses for the three months ended March
31, 1999, and no addition was made in the three months ended March 31, 1998,
respectively. See "Loan and Lease Portfolio."
Other Income
<TABLE>
<CAPTION>
The following table sets forth the components of other income and the percentage
distribution of such income for the three-month period ended March 31, 1999 and
1998:
OTHER INCOME
(dollars in thousands)
Quarter ended March 31,
-------------------------------------------------------------------------------
1999 1998
Amount Percent Amount Percent
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depositor service charges $156 31.33% $161 58.33%
Other operating income 342 68.67 123 44.57
Net loss on securities available for sale ---- ---- (8) (2.90)
- -----------------------------------------------------------------------------------------------------------------------------
Total $498 100.00% $276 100.00%
=============================================================================================================================
</TABLE>
The increase in other operating income of $219 for the first quarter of 1999
compared to the first quarter of 1998 is mainly due to the reversal of a
specific reserve established on the date it was purchased for an acquired SBA
loan which was paid in full.
Other Expenses
<TABLE>
<CAPTION>
The following schedule summarizes the major categories of expense as a
percentage of average assets on an annualized basis:
OTHER EXPENSES AS A PERCENTAGE OF AVERAGE ASSETS
(dollars in thousands)
Quarter ended March 31,
-------------------------------------------------------------------------------
1999 1998
Amount Percent(1) Amount Percent(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits $1,804 2.07% $1,620 2.00%
Data processing 165 0.19 189 0.23
Client services paid by bank 118 0.14 93 0.11
Amortization of core deposit intangibles and
goodwill 113 0.13 107 0.13
Legal and professional fees 111 0.13 79 0.10
Furniture and equipment 109 0.13 89 0.11
Occupancy 107 0.12 78 0.10
Business promotion 89 0.10 84 0.10
Directors' & shareholders' 83 0.09 64 0.08
Other 361 0.41 376 0.47
- -----------------------------------------------------------------------------------------------------------------------------
Total $3,060 3.51% $2,779 3.43%
=============================================================================================================================
<FN>
(1) The percentages are calculated by annualizing the expenses and comparing
that amount to the average assets for the respective three-month periods
ended March 31, 1999 and 1998.
</FN>
</TABLE>
<PAGE>
Total other expenses for the first quarter of 1999 increased $281 from the same
period a year ago, primarily as a result of increases in salaries and benefits
(relating to the acquisition of Epic and the opening of the East Bay Regional
Office, both occurring in July 1998), an increase in occupancy, furniture and
equipment and stationery and supplies also due to the addition of Epic and the
new East Bay Regional Office, an increase in client services paid by the Bank
representing an increase in costs associated with several significant customers
and an increase in legal and professional fees.
Income Tax Provision
The effective tax rate for the three months ended March 31, 1999 was 42.7%,
compared to 42.% for the same period a year ago. This decrease was caused by
several items, the most significant of which were the amortization of
intangibles, tax exempt income, the California Franchise tax, the California
Franchise Tax Enterprise Tax Zone Credit and the impact of the Bank's investment
in a Low Income Housing Tax Credit fund.
Financial Condition and Earning Assets
Consolidated assets increased to $357 million at March 31, 1999 compared to $350
million at December 31, 1998. The increase related primarily to an increase in
loans and leases and was funded principally by an increase in certificates of
deposits of greater than $100 of approximately $14 million, $10 million of which
resulted from the placement of a five year, fixed rate certificate of deposit.
See "Funding."
Money Market Investments
Money market investments, which include federal funds sold, were $6.0 million at
March 31, 1999 as compared to $22.3 million at December 31, 1998. This decrease
is related to the increase in the Bank's loans and leases of $19 million and an
increase in certificates of deposits of greater than $100 as discussed above,
offset by an increase in cash of $3 million.
<PAGE>
Securities
<TABLE>
<CAPTION>
The following table shows the composition of the securities portfolio at March
31, 1999 and December 31, 1998. There were no issuers of securities (except U.S.
Government Securities) for which the book value of securities of any issuer held
by the Bank exceeded 10% of the Company's shareholders' equity.
SECURITIES PORTFOLIO
(dollars in thousands)
March 31, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gain (Loss) Value Cost Gain (Loss) Value
- ----------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury $3,005 $46 $3,051 $3,005 $72 $3,077
U. S. Government Agencies 24,222 253 24,475 25,220 466 25,686
Mortgage backed 5,369 55 5,424 3,865 101 3,966
Mutual funds 2,638 (149) 2,489 2,638 (151) 2,487
- ----------------------------------------------------------------------------------------------------------------------------
Total available for sale 35,234 205 35,439 34,728 488 35,216
- ----------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U. S. Treasury 1,000 3 1,003 1,000 7 1,007
U. S. Government Agencies 2,499 22 2,521 3,496 38 3,534
State and municipal (nontaxable) 5,603 118 5,721 4,213 116 4,329
Mortgage backed 1,600 32 1,632 1,927 35 1,962
- ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity 10,702 175 10,877 10,636 196 10,832
Federal Reserve Bank Stock 537 ---- 537 537 ---- 537
- ----------------------------------------------------------------------------------------------------------------------------
Total 11,239 175 11,414 11,173 196 11,369
- ----------------------------------------------------------------------------------------------------------------------------
Total investment securities portfolio 46,473 380 46,853 45,901 684 46,585
============================================================================================================================
</TABLE>
Unrealized gains generally result from the impact of current market rates being
less than those rates in effect at the time the Bank purchased the securities.
The unrealized gain on securities available for sale as of March 31, 1999 was
$205 as compared to an unrealized gain of $488 as of December 31, 1998. The
Bank's weighted average maturity of the available for sale portfolio was
approximately 1.73 years as of March 31, 1999. It is estimated by management
that for each 1% change in interest rates, the value of the Company's available
for sale securities will change by 1.61%.
The unrealized gain on securities held to maturity was $175 as of March 31,
1999, as compared to an unrealized gain of $196 as of December 31, 1998. The
Bank's weighted average maturity of the held to maturity investment portfolio
was approximately 5.32 years as of March 31, 1999. It is estimated by management
that for each 1% change in interest rates, the value of the Company's securities
held to maturity will change by approximately 3.47%. The increase in the
maturity and duration are due to a 1997 change in Company policy relating to the
purchase and treatment of several securities. Since that time, management has
classified all new purchases of securities as "available for sale" except for
the state and municipal securities, which are classified as "held to maturity."
<PAGE>
<TABLE>
<CAPTION>
The maturities and yields of the investment portfolio at March 31, 1999 are
shown below:
MATURITY AND YIELDS OF INVESTMENT SECURITIES
At March 31, 1999
(dollars in thousands)
Available for Sale Held to Maturity
----------------------------------------------------------------------------------------------
FTE FTE
Estimated Average Estimated Average
Amortized Cost Fair Value Yield (1) Amortized Cost Fair Value Yield (1)
----------------------------------------------------------------------------------------------
U. S. Treasury:
<S> <C> <C> <C> <C> <C> <C>
Within 1 year $1,999 $2,011 6.21% $1,000 $1,003 6.38%
After 1 year within 5 years 1,006 1,040 6.23 ----- ----- -----
----------------------------------------------------------------------------------------------
Totals 3,005 3,051 6.21 1,000 1,003 6.38
----------------------------------------------------------------------------------------------
U.S. Government Agencies:
Within 1 year 7,998 8,029 6.04 2,000 2,008 6.33
After 1 year within 5 years 16,224 16,447 6.02 499 513 6.78
----------------------------------------------------------------------------------------------
Totals 24,222 24,475 6.03 2,499 2,521 6.42
----------------------------------------------------------------------------------------------
State and municipal:
Within 1 year ----- ----- ----- 846 927 6.68
After 1 year within 5 years ----- ----- ----- 980 999 6.16
After 10 years ----- ----- ----- 3,777 3,795 6.62
----------------------------------------------------------------------------------------------
Totals ----- ----- ----- 5,603 5,721 6.55
----------------------------------------------------------------------------------------------
Mortgage backed
After 1 year within 5 years 3,386 3,451 6.73 1,600 1,632 7.90
After 5 years within 10 years 1,983 1,973 5.48 ----- ----- -----
----------------------------------------------------------------------------------------------
Totals 5,369 5,424 6.27 1,600 1,632 7.90
----------------------------------------------------------------------------------------------
Mutual funds:
----------------------------------------------------------------------------------------------
Within 1 year 2,638 2,489 4.69 ----- ----- -----
----------------------------------------------------------------------------------------------
Other
----------------------------------------------------------------------------------------------
After 10 years ----- ----- ----- 537 537 6.00
----------------------------------------------------------------------------------------------
Total investment securities 35,234 $35,439 5.98% $11,239 $11,414 5.55%
==============================================================================================
Net unrealized gain on
securities available for sale 205
---------------
Total investment securities,
net carrying value $35,439
===============
<FN>
(1) Fully taxable equivalent.
</FN>
</TABLE>
<PAGE>
Loan and Lease Portfolio
<TABLE>
<CAPTION>
The following table provides a breakdown of the Company's consolidated loans and
leases by type of borrower:
LOAN AND LEASE PORTFOLIO
(dollars in thousands)
March 31, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of
Total Amount Total Loans Total Amount Total Loans
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $90,688 32.3% $90,304 34.5%
Leasing 7,632 2.7 3,768 1.4
Factoring/Asset-based lending 13,441 4.8 7,393 2.8
Real estate construction 33,869 12.1 32,340 12.4
Real estate-other 109,093 38.8 101,559 38.9
Consumer 9,716 3.4 9,647 3.7
Other 17,029 6.1 17,031 6.5
Unearned fee income (681) (0.2) (662) (0.2)
- -----------------------------------------------------------------------------------------------------------------------------
Total loans and leases $280,787 100.0% $261,380 100.0%
=============================================================================================================================
</TABLE>
Consolidated loans and leases increased to $281 million at March 31, 1999, from
$261 million at December 31, 1998. The growth in leasing and
factoring/asset-based lending is due to the acquisition of Epic. Real
estate-other is comprised of real estate term loans and, due to the low interest
rate environment and the increased appetite for refinancing, the demand for such
loans has increased substantially. Additionally, the Bank has elected not to
aggressively seek or renew loans where, in management's opinion, the Bank's
underwriting criteria is not satisfied; this has caused a slow down in loan
production and an increase in payoffs when the Bank has not met competitive
pressures.
Approximately 56% of the loan and lease portfolio is directly related to real
estate or real estate interests, including real estate construction loans, real
estate-other, mortgage warehouse lines (2%, included in the Other category),
real estate equity lines (2%, included in the Consumer category), and loans to
real estate developers for short-term investment purposes (0.4%) and loans for
real estate investment purposes made to non-developers (1%). The latter two
types are included in the Other category. Approximately 32% of the loan and
lease portfolio is made up of commercial loans; however, in management's view,
no particular industry represents a significant portion of such loans.
The following table shows the maturity and interest rate sensitivity of
commercial, real estate-other and real estate construction loans at March 31,
1999. Approximately 80% of the commercial and real estate loan portfolio have
floating interest rates which, in management's opinion, generally limits the
exposure to interest rate risk on long-term loans and leases but can have a
negative impact when rates decline.
<TABLE>
<CAPTION>
COMMERCIAL AND REAL ESTATE LOAN MATURITY AND INTEREST RATE
SENSITIVITY
(dollars in thousands) Balances Maturing Interest Rate Sensitivity
-----------------------------------------------------------------------------------
Balances at One year Predetermined Floating
March 31, 1999 One year to five Over five years interest interest
or less years rates rates
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $90,688 $51,858 $29,217 $9,613 $3,922 $86,766
=============================================================================================================================
Real estate construction $33,869 $33,869 ---- ---- ---- $33,869
=============================================================================================================================
Real estate-other $109,093 $13,825 $24,517 $70,751 $43,066 $66,027
=============================================================================================================================
</TABLE>
The Company utilizes a method of assigning a minimum and maximum loss ratio to
each grade of loan or lease within each category of borrower (commercial, real
estate-other, real estate construction, factoring/asset-based lending, etc.) and
leases. Loans and leases are graded on a ranking system based on management's
assessment of
<PAGE>
the loan's credit quality. The assigned loss ratio is based upon, among other
things, the Company's prior experience, industry experience, delinquency trends
and the level of nonaccrual loans and leases. Loans secured by real estate are
evaluated on the basis of their underlying collateral in addition to using the
assigned loss ratios. The methodology also considers (and assigns a risk factor
for) current economic conditions, off-balance sheet risk (including SBA
guarantees and servicing and letters of credit) and concentrations of credit. In
addition, each loan and lease is evaluated on the basis of whether or not it is
impaired. For impaired loans and leases, the expected cash flow is discounted on
the basis of the loan's interest rate. The methodology provides a systematic
approach believed by management to measure the risk of possible future loan and
lease losses. Management and the Board of Directors evaluate the allowance and
determine the desired level of the allowance considering objective and
subjective measures, such as knowledge of the borrowers' business, valuation of
collateral and exposure to potential losses. The allowance for possible loan and
lease losses was approximately $4.9 million at March 31, 1999, or 1.75% of total
loans and leases outstanding. Based on information available as of the date of
this report, management believes the allowance for possible loan and lease
losses, determined as described above, is adequate for potential losses
foreseeable at March 31, 1999.
The allowance for possible loan and lease losses is a general reserve available
against the total loan and lease portfolio and off-balance sheet credit
exposure. While management uses available information to recognize losses on
loans and leases, future additions to the allowance may be necessary based on
changes in economic conditions or other factors. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for possible loan and lease losses. Such agencies may
require the Bank to provide additions to the allowance based on their judgment
of information available to them at the time of their examination.
<TABLE>
<CAPTION>
The following schedule provides an analysis of the allowance for possible loan
and lease losses:
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
(dollars in thousands)
Quarter ended Year ended
March 31, December 31,
--------------------------------------------------------
1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the period $4,778 $4,493 $4,493
Charge-offs by loan or lease category:
Commercial ---- ---- 234
Consumer 20 ---- ----
- ------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 20 ---- 234
- ------------------------------------------------------------------------------------------------------------------------------
Recoveries by loan or lease category:
Commercial 33 17 118
Real estate-other 1 33 33
Consumer 11 ---- 68
- ------------------------------------------------------------------------------------------------------------------------------
Total recoveries 45 50 219
- ------------------------------------------------------------------------------------------------------------------------------
Net (recoveries) charge-offs (25) (50) 15
- ------------------------------------------------------------------------------------------------------------------------------
Provision charged to expense 100 ---- 300
- ------------------------------------------------------------------------------------------------------------------------------
Balance, end of the period $4,903 $4,543 $4,778
==============================================================================================================================
Ratios:
Net (recoveries) charge-offs to average loans and leases, annualized (0.04%) (0.09%) 0.01%
Allowance to total loans and leases at the end of the period 1.75 2.02 1.83
Allowance to nonperforming loans and leases at end of the period 1,232 786 1,983
==============================================================================================================================
</TABLE>
During the three months ended March 31, 1999 and 1998, charge-offs amounted to
$20 and $0, respectively. Management does not believe there were any trends
indicated by the detail of the aggregate charge-offs for any of the periods
discussed. The allowance for possible loan and lease losses was 1,232% of
nonperforming loans and leases at March 31, 1999 compared to 1,983% at December
31, 1998.
<PAGE>
Nonperforming Loans and Leases
<TABLE>
<CAPTION>
Nonperforming loans and leases consist of loans and leases for which the accrual
of interest has been suspended, restructured loans and leases and other loans
and leases with principal or interest contractually past due 90 days or more and
still accruing. The following table provides information about such loans and
leases:
NONPERFORMING LOANS AND LEASES
(dollars in thousands)
March 31, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans and leases accounted for on a non-accrual basis $398 $197
Loans and leases restructured and in compliance with modified terms ---- 44
- -----------------------------------------------------------------------------------------------------------------------------
Total $398 $241
=============================================================================================================================
</TABLE>
As of March 31, 1999, nonperforming loans and leases consisted of four loans,
one of which was approximately $201 and the remaining were individually not
significant.
Management conducts an ongoing evaluation and review of the loan and lease
portfolio in order to identify potential nonperforming loans and leases.
Management considers loans and leases which are classified for regulatory
purposes, loans and leases which are graded as classified by the Bank's outside
loan review consultant and internal personnel, as to whether they (i) represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital resources, or
(ii) represent material credits information about which management is aware
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms. Based on such reviews as of
March 31, 1999, management has not identified any loans or leases not included
within the Nonperforming Loan and Lease table above with respect to which known
information causes management to have serious doubts about the borrowers'
abilities to comply with present repayment terms, such that the loans and leases
might subsequently be classified as nonperforming. Changes in world, national or
local economic conditions or specific industry segments (including declining
exports), rising interest rates, declines in real estate values, year 2000
issues, declines in securities markets and acts of nature could have an adverse
effect on the ability of borrowers to repay outstanding loans and leases and the
value of real estate and other collateral securing such loans and leases.
Funding
<TABLE>
<CAPTION>
The following table provides a breakdown of deposits by category as of the dates
indicated:
DEPOSIT CATEGORIES
(dollars in thousands)
March 31, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Total Percentage Total Percentage
Amount of Total Deposits Amount of Total Deposits
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand $69,529 22.3% $70,962 23.5%
Interest-bearing demand 51,890 16.7 49,468 16.4
Money market and savings 85,503 27.4 91,320 30.2
Certificates of deposit:
Less than $100 12,573 4.0 12,492 4.1
$100 or more 92,271 29.6 78,200 25.8
- -----------------------------------------------------------------------------------------------------------------------------
Total $311,766 100.0% $302,442 100.0%
=============================================================================================================================
</TABLE>
Deposits as of March 31, 1999, were $312 million compared to $302 million at
December 31, 1998. The source of deposit growth for the first quarter was due to
the growth of certificate of deposits of greater than $100. The increase in
these balances was mainly due to the placement of a five year fixed rate
certificate of deposit of $10
<PAGE>
million. Although money market and savings decreased $5.8 million in the first
quarter of 1999, a large customer with money market deposit accounts commenced
consolidation of its accounts in the Midwest and approximately $14 million of
such deposits were transferred out of the Bank. The remaining balances of
approximately $4 million will be transferred out of the Bank over the next three
to six months. After adjusting for the loss of this single customer, money
market and savings accounts increased approximately $8 million during the first
quarter, mainly due to the Bank's business development efforts. Because of this
high level of unusual activity, the Bank considers it prudent to maintain
significant short-term liquidity. While the amount of noninterest-bearing demand
deposits was essentially unchanged the percentage of such deposits declined
1.2%. Management believes this trend could continue due, in part, to competitive
pressures and changes in the deposit products being utilized by some of the
Bank's customers, which has caused a shift to interest-bearing products. See
"Liquidity."
Asset/Liability Management
The Company's balance sheet position is asset-sensitive (based upon the
significant amount of variable rate loans and the repricing characteristics of
its deposit accounts). This balance sheet position generally provides a hedge
against rising interest rates, but has a detrimental effect during times of
interest rate decreases. Net interest revenues are negatively impacted by a
decline in interest rates. Any further cuts (in addition to those in late 1998)
in interest rates by the Federal Reserve System could negatively impact the
Company's net interest revenues in future periods. Management notes, however,
that these cuts and any further interest rate cuts might stimulate demand for
loans and leases in the future which could offset some of the decline in the
Company's interest income.
To counter its asset-sensitive interest rate position, the Bank has entered into
interest rate "floors" as follows:
INTEREST RATE FLOORS
At March 31, 1999
- --------------------------------------------------------------------------------
Notional amount $10 million $10 million
Floor rate 7.00% 8.50%
Remaining life (months) 1 8
Carrying amount $1 $68
Fair market value ----- $55
Expiration date May 10, 1999 December 11, 1999
The Bank has paid a fixed premium for which it will receive the amount of
interest based on the notional amount and the difference between the floor rate
and the current prime rate when the prime rate is less than the floor rate. This
will protect the Bank against decreases in its net income when the prime rate
decreases. Settlement is done quarterly, and the Bank records the impact of this
hedge on an accrual basis.
Capital and Liquidity
Capital
The Federal Reserve Board's risk-based capital guidelines require that total
capital be in excess of 8% of total assets on a risk-weighted basis. Under the
guidelines for a bank holding company, capital requirements are based upon the
composition of the Company's asset base and the risk factors assigned to those
assets. The guidelines characterize an institution's capital as being "Tier 1"
capital (defined to be principally shareholders' equity less intangible assets)
and "Tier 2" capital (defined to be principally the allowance for loan losses,
limited to one and one-fourth percent of gross risk weighted assets). The
guidelines require the Company to maintain a risk-based capital target ratio of
8%, one-half or more of which should be in the form of Tier 1 capital.
<PAGE>
The Comptroller of the Currency also requires SJNB to maintain adequate capital.
The Comptroller's current regulations require national banks to maintain Tier 1
leverage capital ratio equal to at least 3% to 5% of total assets, depending on
the Comptroller's evaluation of the Bank. The Comptroller also has adopted
risk-based capital requirements. Similar to the Federal Reserve's guidelines,
the amount of capital the Comptroller requires a bank to maintain is based upon
the composition of its asset base and risk factors assigned to those assets. The
guidelines require the Bank to maintain a risk-based capital target ratio of 8%,
one-half or more of which should be in the form of Tier 1 capital. The capital
ratios of the Bank are similar to the capital ratios of the Company.
<TABLE>
<CAPTION>
The table below summarizes the various capital ratios of the Company and Bank at
March 31, 1999 and December 31, 1998.
Risk-based and Leverage Capital Ratios
(dollars in thousands)
March 31, 1999 December 31, 1998
----------------------------------------------------------------------
Company-Risk-based Amount Ratio Amount Ratio
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $29,064 9.46% $30,810 10.57%
Tier 1 capital minimum requirement 12,290 4.00 11,664 4.00
----------------------------------------------------------------------
Excess $16,774 5.46% $19,146 6.57%
======================================================================
Total capital $32,917 10.71% $34,469 11.82%
Total capital minimum requirement 24,580 8.00 23,328 8.00
----------------------------------------------------------------------
Excess $8,337 2.71% $11,141 3.82%
======================================================================
Risk-adjusted assets $307,251 $291,602
================= ================
Company-Leverage
Tier 1 capital $29,064 8.34% $30,810 9.10%
Minimum leverage ratio requirement 13,943 4.00 13,542 4.00
----------------------------------------------------------------------
Excess $15,121 4.34% $17,268 5.10%
======================================================================
Average total assets $348,575 $338,544
================= ================
Bank-Risk-based
Tier 1 capital $27,802 9.05% $30,125 10.33%
Tier 1 capital minimum requirement 12,285 4.00 11,661 4.00
----------------------------------------------------------------------
Excess $15,517 5.05% $18,464 6.33%
======================================================================
Total capital $31,655 10.31% $33,783 11.59%
Total capital minimum requirement 24,570 8.00 23,322 8.00
----------------------------------------------------------------------
Excess $7,084 2.31% $10,461 3.59%
======================================================================
Risk-adjusted assets $307,128 $291,524
================= ================
Bank-Leverage
Tier 1 capital $27,802 8.07% $30,125 8.88%
Minimum leverage ratio requirement 13,784 4.00 13,567 4.00
----------------------------------------------------------------------
Excess $14,019 4.07% $16,558 4.88%
======================================================================
Average total assets $344,596 $339,166
================= ================
</TABLE>
To allow for the effective management of capital, the Board of Directors has
approved the repurchase from time-to-time of up to $3.5 million of its common
stock through open market or privately negotiated transactions. Through March
31, 1999, the Company had repurchased 114,500 shares for a total price of $3.1
million.
<PAGE>
Liquidity
Management strives to maintain a level of liquidity sufficient to meet customer
requirements for loan and lease funding and deposit withdrawals in an
economically feasible manner. Liquidity requirements are evaluated by taking
into consideration factors such as deposit concentrations, seasonality and
maturities, loan and lease demand, capital expenditures, and prevailing and
anticipated economic conditions. SJNB's business is generated primarily through
customer referrals and employee business development efforts; however the Bank
could utilize purchased deposits to satisfy temporary liquidity needs.
The Bank's source of liquidity consists of its deposits with other banks,
overnight funds sold to correspondent banks and other short-term investments,
short-term securities held to maturity, and securities available for sale less
short-term borrowings. At March 31, 1999, consolidated net liquid assets totaled
$62 million or 19% of consolidated total assets as compared to $87 million or
25% of consolidated total assets at December 31, 1998. The decrease in the
liquid assets is due to the growth of the loan and lease portfolio. See "Loans
and Lease Portfolio." In addition to the liquid asset portfolio, SJNB also has
available $17 million in lines of credit with three major commercial banks, a
collateralized repurchase agreement with a maximum limit of $30 million (of
which $5 million has been utilized at March 31, 1999), the guaranteed portion of
the SBA loan portfolio of approximately $21 million, and a credit facility with
the Federal Reserve Bank based on loans secured by real estate for approximately
$3 million.
SJNB is primarily a business and professional bank and, as such, its deposit
base may be more susceptible to economic fluctuations than other potential
competitors. Accordingly, management strives to maintain a balanced position of
liquid assets to volatile and cyclical deposits. Commercial clients in their
normal course of business maintain balances in large certificates of deposit,
the stability of which hinge upon, among other factors, market conditions,
interest rates and business' seasonality. Large certificates of deposit amounted
to 30% of total deposits on March 31, 1999 and 26% of total deposits at December
31, 1998. The increase relates to the placement of the $10 million fixed rate
certificate of deposit.
Liquidity is also affected by portfolio maturities and the effect of interest
rate fluctuations on the marketability of both assets and liabilities. The loan
and lease portfolio consists primarily of floating rate, short-term loans. On
March 31, 1999, approximately 39% of total consolidated assets had maturities
under one year and 82% of total consolidated loans and leases had floating rates
tied to the prime rate or similar indexes. The short-term nature of the loan and
lease portfolio, and loan and lease agreements which generally require monthly
interest payments, provide the Company with a secondary source of liquidity.
There are no material commitments for capital expenditures in 1999.
Effects of Inflation
The most direct effect of inflation on the Company is higher interest rates.
Because a significant portion of the Bank's deposits are represented by
non-interest-bearing demand accounts, changes in interest rates have a direct
impact on the financial results of the Bank. See "Asset/Liability Management."
Another effect of inflation is the upward pressure on the Company's operating
expenses. Inflation did not have a material effect on the Bank's operations in
1998 or the first three months of 1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company defines interest rate sensitivity as the measurement of the mismatch
in repricing characteristics of assets, liabilities and off balance sheet
instruments at a specified point in time. This mismatch (known as interest rate
sensitivity gap) represents the potential mismatch in the change in the rate of
interest income and interest expense that would result from a change in interest
rates. Mismatches in interest rate repricing among assets and liabilities arise
primarily from the interaction of various customer businesses (i.e., types of
loans and leases versus the types of deposits maintained) and from management's
discretionary investment and funds gathering
<PAGE>
activities. The Company attempts to manage its exposure to interest rate
sensitivity. However, due to its size and direct competition from the major
banks, the Company must offer products which are competitive in the market
place, even if less than optimum with respect to its interest rate exposure.
The Company's balance sheet position at March 31, 1999 was asset-sensitive,
based upon the significant amount of variable rate loans and the repricing
characteristics of its deposit accounts. This position provides a hedge against
rising interest rates, but has a detrimental effect during times of interest
rate decreases. Net interest revenues are negatively impacted by a decline in
interest rates. The interest rate gap is a measure of interest rate exposure and
is based upon the known repricing dates of certain assets and liabilities and
assumed repricing dates of others. Management believes there has been no
significant change in the Bank's market risk exposures disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. See
"Summary of Financial Results - Net Interest Income."
During the fourth quarter of 1998, the Federal Open Market Committee ("FOMC")
decreased its target rate for interbank borrowings to 4 1/2% from the previous 5
1/4%. As a result, most domestic banks decreased their prime lending rate to 7
3/4% which was matched by SJNB. In management's view, the effect of these rate
decreases has been reflected in the financial results, but any such decreases in
the future are not precisely determinable due to the many factors influencing
the Bank's net interest margin, including the repricing of deposits, a change in
mix of the loan, lease and deposit portfolios, changes in relative volume, the
speed in which fixed rate loans and leases are repriced, discretionary
investment activities and other factors, although the Bank's margin will likely
be negatively impacted.
In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis must be considered. For example, although
certain assets and liabilities may have similar maturities or periods to
reprice, they may react in different degrees to changes in market interest
rates. Additionally, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market interest rates.
Further, certain earning assets have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. The Company
considers the anticipated effects of these various factors when implementing its
interest rate risk management activities, including the utilization of certain
interest rate hedges. Considering the above, it is estimated that the annual
impact of a 25 basis point decrease in the Bank's prime rate on a pre-tax basis
would be a decrease in income of approximately $300 or $180 after tax.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank is a party to any material pending legal
proceedings other than as previously disclosed. Material legal proceedings were
reported in the Company's Form 10-K for the year ended December 31, 1998; and,
subsequent thereto, there have been no material changes in said proceedings.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
(3)(i). The Registrant's restated Articles of Incorporation
are hereby incorporated by reference to Exhibit (3)
a. of the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30,
1998.
(3)(ii). The Registrant's restated Bylaws as of July 23,
1998 are hereby incorporated by reference to
Exhibit (3) b. of the Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
September 30, 1998.
*(10)a. The Registrant's 1992 Employee Stock Option Plan
is hereby incorporated by reference from Exhibit
4.1 of the Registrant's Registration Statement on
Form S-8, as filed on September 4, 1992, under
Registration No. 33-51740.
*(10)b. Amendment No. 1 to the 1992 Employee Stock Option
Plan is hereby incorporated by reference to
Exhibit (10) b. of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31,
1998.
<PAGE>
*(10)c. The form of Incentive Stock Option Agreement being
utilized under the 1992 Employee Stock Option Plan
is hereby incorporated by reference from Exhibit
4.2 of the Registrant's Registration Statement on
on Form S-8, as filed on September 4, 1992, under
Registration No. 33-51740.
*(10)d. The form of Stock Option Agreement being utilized
under the 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibitb4.3 of the
Registrant's Registration Statement on Form S-8, as
filed on September 4, 1992, under Registration No.
33-51740.
*(10)e. The Registrant's Amended 1996 Stock Option Plan is
incorporated by reference to exhibit 99.1 of the
Registrant's Form S-8 filed July 1, 1998 is hereby
incorporated by reference to Exhibit (10) e. of the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*(10)f. The form of Nonstatutory Stock Option Agreement for
outside Directors being utilized under the Amended
1996 Stock Option Plan is hereby incorporated by
reference to Exhibit (10) f. of the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for
Employees being utilized under the Amended 1996
Stock Option Plan is hereby incorporated by
reference to Exhibit (10) g. of the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
*(10)h. The form of Incentive Stock Option Agreement being
utilized under the Amended 1996 Stock Option Plan
is hereby incorporated by reference to Exhibit (10)
h. of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
*(10)i. Agreement between James R. Kenny and SJNB Financial
Corp. and San Jose National Bank dated March 27,
1996 is hereby incorporated by reference to Exhibit
(10)m. of the Registrant's Quarterly Report on Form
10-QSB for the quarterly period ended March 31,
1996.
*(10)j. Agreement between Eugene E. Blakeslee and SJNB
Financial Corp. and San Jose National Bank dated
March 27, 1996 is hereby incorporated by reference
to Exhibit (10) n. of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period
ended March 31, 1996.
(10)k. Sublease dated April 5, 1982, for premises at 95
South Market Street, San Jose, CA is hereby
incorporated by reference to Exhibit (10) n. of the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994.
(10)l. Sublease by and between McWhorter's Stationary and
San Jose National Bank, dated July 6, 1995, and as
amended August 11, 1995, and September 21, 1995,
for premises at 95 South Market Street, San Jose CA
is hereby incorporated by reference to Exhibit (10)
o. of the Registrant's Quarterly Report on Form
10-QSB for the quarterly period ended September 30,
1995.
(27) Financial Data Schedule.
* Indicates management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter.
<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.
SJNB FINANCIAL CORP.
(Registrant)
Date: May 5, 1999 /S/ J. Kenny
-------------------------------
James R. Kenny
President and
Chief Executive Officer
Date: May 5, 1998 /S/ E. Blakeslee
-------------------------------
Eugene E. Blakeslee
Executive Vice President and
Chief Financial Officer (Chief
Accounting Officer)
<PAGE>
SJNB Financial Corp.
Form 10-Q
Exhibits
March 31, 1998
The following exhibits are filed as part of this report:
(3)(i). The Registrant's restated Articles of Incorporation are hereby
incorporated by reference to Exhibit (3)a. of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1998.
(3)(ii). The Registrant's restated Bylaws as of July 23, 1998 are hereby
incorporated by reference to Exhibit (3) b. of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1998.
*(10)a. The Registrant's 1992 Employee Stock Option Plan is hereby
incorporated by reference from Exhibit 4.1 of the Registrant's
Registration Statement on Form S-8, as filed on September 4, 1992,
under Registration No. 33-51740.
*(10)b. Amendment No. 1 to the 1992 Employee Stock Option Plan is hereby
incorporated by reference to Exhibit (10)b. of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
*(10)c. The form of Incentive Stock Option Agreement being utilized under the
1992 Employee Stock Option Plan is hereby incorporated by reference
from Exhibit 4.2 of the Registrant's Registration Statement on Form
S-8, as filed on September 4, 1992, under Registration No. 33-51740.
*(10)d. The form of Stock Option Agreement being utilized under the 1992
Employee Stock Option Plan is hereby incorporated by reference from
Exhibit 4.3 of the Registrant's Registration Statement on Form S-8, as
filed on September 4, 1992, under Registration No. 33-51740.
*(10)e. The Registrant's Amended 1996 Stock Option Plan is incorporated by
reference to exhibit 99.1 of the Registrant's Form S-8 filed July 1,
1998 is hereby incorporated by reference to Exhibit (10) e. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
*(10)f. The form of Nonstatutory Stock Option Agreement for outside Directors
being utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10)f. of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
*(10)g. The form of Nonstatutory Stock Option Agreement for Employees being
utilized under the Amended 1996 Stock Option Plan is hereby
incorporated by reference to Exhibit (10)g. of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
*(10)h. The form of Incentive Stock Option Agreement being utilized under the
Amended 1996 Stock Option Plan is hereby incorporated by reference to
Exhibit (10)h. of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
*(10)i. Agreement between James R. Kenny and SJNB Financial Corp. and San Jose
National Bank dated March 27, 1996 is hereby incorporated by reference
to Exhibit(10)m. of the Registrant's Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 1996.
*(10)j. Agreement between Eugene E. Blakeslee and SJNB Financial Corp. and San
Jose National Bank dated March 27, 1996 is hereby incorporated by
reference to Exhibit (10) n. of the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1996.
(10)k. Sublease dated April 5, 1982, for premises at 95 South Market Street,
San Jose, CA is hereby incorporated by reference to Exhibit (10) n. of
the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994.
<PAGE>
(10)l. Sublease by and between McWhorter's Stationary and San Jose National
Bank, dated July 6, 1995, and as amended August 11, 1995, and
September 21, 1995, for premises at 95 South Market Street, San Jose
CA is hereby incorporated by reference to Exhibit (10) o. of the
Registrant's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1995.
(27) Financial Data Schedule.
* Indicates management contract or compensation plan or arrangement.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
</LEGEND>
<CIK> 0000721161
<NAME> SJNB FINANCIAL CORP.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1,000
<CASH> 14,098
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,974
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,439
<INVESTMENTS-CARRYING> 11,239
<INVESTMENTS-MARKET> 11,414
<LOANS> 280,787
<ALLOWANCE> 4,903
<TOTAL-ASSETS> 356,579
<DEPOSITS> 311,766
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 6,511
<LONG-TERM> 0
0
0
<COMMON> 13,781
<OTHER-SE> 19,521
<TOTAL-LIABILITIES-AND-EQUITY> 356,579
<INTEREST-LOAN> 6,430
<INTEREST-INVEST> 812
<INTEREST-OTHER> (14)
<INTEREST-TOTAL> 7,228
<INTEREST-DEPOSIT> 2,191
<INTEREST-EXPENSE> 2,245
<INTEREST-INCOME-NET> 4,983
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,060
<INCOME-PRETAX> 2,321
<INCOME-PRE-EXTRAORDINARY> 2,321
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,329
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 0.622
<LOANS-NON> 398
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,493
<CHARGE-OFFS> 125
<RECOVERIES> 184
<ALLOWANCE-CLOSE> 4,702
<ALLOWANCE-DOMESTIC> 4,702
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 740
</TABLE>
