<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 0-25418.
CENTRAL COAST BANCORP
(Exact name of registrant as specified in its charter)
California 77-0367061
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
301 Main Street, Salinas, California 93901
(Address of principal executive offices) (Zip code)
(408) 422-6642
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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:
No par value Common Stock - 2,573,567 shares outstanding at August 13, 1996.
Page 1 of 25
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CENTRAL COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,672,000 $ 27,914,000
Federal Funds Sold 23,918,000 46,764,000
------------ ------------
Total cash and cash equivalents 51,590,000 74,678,000
------------ ------------
Interest-bearing deposits in
other financial institutions 2,257,000 4,492,000
Investment securities
(market value $89,327,000 at June 30, 1996
and $80,113,000 at December 31, 1995) 89,678,000 79,643,000
Loan held for sale 171,000 540,000
Loans, net 202,609,000 191,000,000
Premises and equipment, net 1,271,000 1,333,000
Other assets 6,588,000 5,549,000
------------ ------------
TOTAL ASSETS $354,164,000 $357,235,000
============ ============
LIABILITIES
Deposits:
Noninterest bearing $ 76,856,000 $ 68,541,000
Interest bearing 242,413,000 257,548,000
------------ ------------
Total deposits 319,269,000 326,089,000
Other liabilities 1,557,000 1,230,000
------------ ------------
TOTAL LIABILITIES 320,826,000 327,319,000
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Preferred stock - no par value
authorized 1,000,000 shares, no shares issued
Common stock - no par value
authorized 20,000,000 shares
issued & outstanding: 2,557,337 shares
at June 30, 1996 and 2,538,454 shares
at December 31, 1995 25,920,000 25,860,000
Retained earnings 7,418,000 4,056,000
------------ ------------
SHAREHOLDERS' EQUITY 33,338,000 29,916,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $354,164,000 $357,235,000
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE> 3
CENTRAL COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $5,496,000 $5,246,000 $11,085,000 $10,120,000
Investment securities 1,350,000 1,016,000 2,559,000 1,943,000
Other 381,000 571,000 1,100,000 979,000
---------- ---------- ----------- -----------
Total interest income 7,227,000 6,833,000 14,744,000 13,042,000
INTEREST EXPENSE
Deposits 2,411,000 2,457,000 4,973,000 4,618,000
Other -- 9,000 -- 10,000
---------- ---------- ----------- -----------
Total interest expense 2,411,000 2,466,000 4,973,000 4,628,000
NET INTEREST INCOME 4,816,000 4,367,000 9,771,000 8,414,000
Provision for credit losses 139,000 210,000 159,000 635,000
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 4,677,000 4,157,000 9,612,000 7,779,000
OTHER INCOME 302,000 251,000 712,000 565,000
---------- ---------- ----------- -----------
OTHER OPERATING EXPENSE
Salaries and employee benefits 1,672,000 1,399,000 3,158,000 2,767,000
Occupancy 156,000 206,000 351,000 393,000
Furniture and equipment 169,000 174,000 322,000 336,000
Other expenses 796,000 1,016,000 1,338,000 1,714,000
---------- ---------- ----------- -----------
Total other operating expenses 2,793,000 2,795,000 5,169,000 5,210,000
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,186,000 1,613,000 5,155,000 3,134,000
Provision for income taxes 608,000 669,000 1,793,000 1,279,000
---------- ---------- ----------- -----------
NET INCOME $1,578,000 $ 944,000 $ 3,362,000 $ 1,855,000
========== ========== =========== ===========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARES $ 0.51 $ 0.31 $ 1.08 $ 0.60
========== ========== =========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE> 4
CENTRAL COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Increase (decrease) in cash and equivalents:
OPERATIONS
Net income $ 3,362,000 $ 1,855,000
Reconciliation to net cash provided by operations
Provision for credit losses 159,000 635,000
Depreciation 210,000 213,000
Amortization and accretion (40,000) (55,000)
Increase in other assets (1,039,000) (708,000)
Increase (decrease) in other liabilities 327,000 (309,000)
Net change in deferred loan fees 53,000 91,000
------------ ------------
Net cash provided by operations 3,032,000 1,722,000
------------ ------------
INVESTMENT ACTIVITIES
Net (increase) decrease in interest-bearing deposits
in other financial institutions 2,235,000 (1,985,000)
Proceeds from maturities of securities 28,142,000 20,094,000
Purchase of securities (38,137,000) (22,708,000)
Net decrease in loans held for sale 369,000 702,000
Net (increase)decrease in loans (11,821,000) 10,603,000
Capital expenditures (148,000) (144,000)
------------ ------------
Net cash provided (used) for investment activities (19,360,000) 6,562,000
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (6,820,000) 25,681,000
Proceeds from sale of common stock (60,000) 32,000
------------ ------------
Net cash provided (used) by financing activities (6,760,000) 25,713,000
------------ ------------
Net increase (decrease) used in cash and equivalents (23,088,000) 33,997,000
Cash and cash equivalents, beginning of period 74,678,000 51,572,000
------------ ------------
Cash and cash equivalents, end of period $ 51,590,000 $ 85,569,000
============ ============
OTHER CASH FLOW INFORMATION
Interest paid $ 4,845,000 $ 2,233,000
Income taxes paid 2,005,000 3,988,000
</TABLE>
See Notes to Consolidated Condensed Financial Statements
<PAGE> 5
CENTRAL COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Management, the unaudited consolidated condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position at June 30, 1996 and December 31, 1995, the results of operations for
the three and six month periods ended June 30, 1996 and 1995 and cash flows for
the six month periods ended June 30, 1996 and 1995.
Certain information and footnote disclosures normally presented in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These interim consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1995 Annual Report to Shareholders. The
results of operations for the three and six month periods ended June 30, 1996
may not necessarily be indicative of the operating results for the full year.
2. INVESTMENT SECURITIES
The Company is required under Financial Accounting Standards Board (FASB)
Statement No. 115, "Accounting for Investments in Certain Debt and Equity
Securities", to classify debt and equity securities into one of three
categories: held-to-maturity, trading or available-for-sale. Investment
securities classified as held-to-maturity are measured at amortized cost based
on the Company's positive intent and ability to hold such securities to
maturity. Trading securities are bought and held principally for the purpose of
selling them in the near term and are carried at market value with a
corresponding recognition of unrecognized holding gain or loss in the results of
operations. The remaining investment securities are classified as
available-for-sale and are measured at market value with a corresponding
recognition of the unrealized holding gain or loss (net of tax effect) as a
separate component of shareholders' equity until realized. Any gains and losses
on sales of investments are computed on a specific identification basis.
<PAGE> 6
The carrying value and approximate market value of securities at June 30, 1996
and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Book Unrealized Unrealized Market
In thousands Value Gain Losses Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
June 30, 1996
U.S. Treasury and
agency securities $86,627 $102 $421 $86,308
Other 3,051 - 32 3,019
----------------------------------------------------------------------------------
Total 89,678 $102 $453 89,327
=====================================================================================
SECURITIES HELD TO MATURITY:
December 31, 1995
U.S. Treasury and
agency securities $79,643 $494 $ 24 80,113
=====================================================================================
Total $79,643 $494 $ 24 80,113
=====================================================================================
</TABLE>
3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The activity in the allowance for credit losses is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
In thousands 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $4,394 $4,429 $4,446 $4,067
Provision charged to expense 139 210 159 635
Loans charged off (153) (115) (241) (196)
Recoveries 30 29 46 47
- --------------------------------------------------------------------------------------------
Ending balance $4,410 $4,553 $4,410 $4,553
============================================================================================
</TABLE>
The allowance for credit losses reflects management's judgement as to the level
which is considered adequate to absorb potential losses inherent in the loan
portfolio. This allowance is increased by provisions charged to expense and
reduced by loan charge-offs net of recoveries. Management determines an
appropriate provision based upon information currently available to analyze
credit loss potential, including (1) the loan portfolio balance in the period;
(2) a comprehensive grading and review of new and existing loans outstanding;
(3) actual previous charge-offs; and, (4) changes in economic conditions.
Beginning in 1995, the Company adopted FASB Statements No. 114, "Accounting by
Creditors for Impairment of a Loan" and No. 118, "Accounting by Creditors for
Impairment
<PAGE> 7
of a Loan --Income Recognition and Disclosure." Under the new standard, the 1995
allowance for credit losses related to loans that are identified for evaluation
in accordance with Statements 114 and 118 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans.
Management believes that the allowance for credit losses at June 30, 1996 is
adequate, based on information currently available. However, no prediction of
the ultimate level of loan charge-offs in future years can be made with any
certainty.
Nonperforming assets are comprised of loans delinquent 90 days or more with
respect to interest or principal, loans for which the accrual of interest has
been discontinued, and other real estate which has been acquired through
foreclosure and is awaiting disposition.
Unless well secured and in the process of collection, loans are placed on
nonaccrual status when a loan becomes 90 days past due as to interest or
principal, when the payment of interest or principal in accordance with the
contractual terms of the loan becomes uncertain or when a portion of the
principal balance has been charged off. When a loan is placed on nonaccrual
status, the accrued and unpaid interest receivable is reversed and the loan is
accounted for on the cash or cost recovery method thereafter, until qualifying
for return to accrual status. Generally, a loan may be returned to accrual
status when all delinquent interest and principal become current in accordance
with the terms of the loan agreement and remaining principal is considered
collectible or when the loan is both well secured and in process of collection.
Real estate and other assets acquired in satisfaction of indebtedness are
recorded at the lower of estimated fair market value net of anticipated selling
costs or the recorded loan amount, and any difference between this and the
amount is treated as a loan loss. Costs of maintaining other real estate owned
and gains or losses on the subsequent sale are reflected in current earnings.
Nonperforming loans and other real estate owned (foreclosed properties) are
summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
June 30, December 31,
In thousands 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Past due 90 days or more and still accruing:
Real estate $ -- $ 71
Commercial 89 35
Installment and other -- --
- ------------------------------------------------------------------------
$ 89 $106
- ------------------------------------------------------------------------
Nonaccrual:
Real estate $199 $633
Commercial 6 194
Installment and other 14 24
- ------------------------------------------------------------------------
$219 $851
- ------------------------------------------------------------------------
Total nonperforming loans $308 $957
========================================================================
Other real estate owned $506 $506
========================================================================
</TABLE>
<PAGE> 8
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business there are outstanding various commitments to
extend credit which are not reflected in the financial statements, including
loan commitments of approximately $81,560,110 and standby letters of credit of
$2,478,000 at June 30, 1996. However, all such commitments will not necessarily
culminate in actual extensions of credit by the Company during 1996.
Approximately $19,369,000 of loan commitments outstanding at June 30, 1996
relate to real estate construction loans and are expected to fund within the
next twelve months. The remainder relate primarily to revolving lines of credit
or other commercial loans, and many of these commitments are expected to expire
without being drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. The Bank evaluates each potential borrower
and the necessary collateral on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities or business
assets.
Stand-by letters of credit are commitments written by the Bank to guarantee the
performance of a customer to a third party. These guarantees are issued
primarily relating to purchases of inventory by the Bank's commercial customers
and are typically short-term in nature. Credit risk is similar to that involved
in extending loan commitments to customers and the Bank accordingly uses
evaluation and collateral requirements similar to those for loan commitments.
Virtually all such commitments are collateralized.
5. NET INCOME PER SHARE COMPUTATION
Net income per common and common equivalent share is calculated using weighted
average shares and dilutive effect of stock options outstanding during the
period totaling approximately 3,104,000 and 3,108,000 for the three and six
month periods ended June 30, 1996, respectively, and 3,070,000 and 3,072,000 for
the three and six month periods ended June 30, 1995, respectively.
6. STOCK DIVIDEND
On June 17, 1996, the Company declared a ten percent stock dividend for
shareholders of record July 8, 1996 to be distributed August 15, 1996. Net
income per common and common equivalent share for all periods presented have
been adjusted to reflect the stock dividend.
7. ACQUISITION OF CYPRESS COAST BANK
On May 31, 1996, the Company completed its acquisition of Cypress Coast Bank
("Cypress") whereby Cypress became a subsidiary of the Company and continues to
operate from its offices in Seaside and Marina. Cypress shareholders have the
right to receive approximately 323,824 shares of common stock of the Company in
a tax-free exchange, based upon a conversion ratio of .5184 which was equal to
1.5 times Cypress' fully diluted tangible book value per share (as defined)
divided by
<PAGE> 9
the average of the bid and asked quotations for a share of Company common stock
for the twenty consecutive trading days immediately prior to the merger. At May
31, 1996, Cypress had unaudited total assets of $46.9 million, including $29.8
million in net loans and total unaudited liabilities of $42.7 million, including
$42.5 million in deposits. The transaction has been accounted for as a
pooling-of-interests.
The following table presents net interest income, net income and earnings per
share for Central Coast Bancorp, Cypress Coast Bank and on a combined basis:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INTEREST INCOME:
Central Coast Bancorp 4,319 3,848 8,771 7,454
Cypress Coast Bank 497 519 1,000 960
------------------ ------------------
Combined 4,816 4,367 9,771 8,414
================== ==================
NET INCOME:
Central Coast Bancorp 1,224 808 2,808 1,664
Cypress Coast Bank 354 136 554 191
------------------ ------------------
Combined 1,578 944 3,362 1,855
================== ==================
FULLY-DILUTED EARNINGS
PER SHARE:
Central Coast Bancorp $0.46 $0.30 $1.05 $0.62
Cypress Coast Bank $0.57 $0.22 $0.89 $0.31
Combined $0.51 $0.31 $1.08 $0.60
</TABLE>
<PAGE> 10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Organization
Central Coast Bancorp (the "Company") is a California corporation organized in
1994, and is the parent holding company for Bank of Salinas and Cypress Coast
Bank (the "Banks"), state-chartered banks, headquartered in Salinas and Seaside,
California, respectively. Other than its investment in the Banks, the Company
currently conducts no other significant business activities, although it is
authorized to engage in a variety of activities which are deemed closely related
to the business of banking upon prior approval of the Board of Governors of the
Federal Reserve System (the "FRB"), the Company's principal regulator.
The Banks offer a full range of commercial banking services, offering a diverse
range of traditional banking products and services to individuals, merchants,
small and medium-sized businesses, professionals and agribusiness enterprises
located in the Salinas Valley and Monterey Peninsula.
Summary of Financial Results
At June 30, 1996, total assets of Central Coast Bancorp were $354,164,000, a
slight decrease of $3,071,000 or .8% from December 31, 1995 total assets of
$357,235,000. Average total assets for the quarter and six months ended June 30,
1996 were $349,844,000 and $350,820,000, respectively and represented increases
over $314,609,000 and $307,783,000, respectively, for comparable periods one
year earlier.
Net loans at June 30, 1996 were $202,609,000 compared to $191,000,000 at
December 31, 1995, an increase of $11,609,000 or 6.1%. The increase in loan
balances is primarily the result of an increase in commercial loans. Commercial
loans increased $11,407,000 or 14.3% to $91,086,000 at June 30, 1996 from
$79,679,000 at December 31, 1995. Real estate construction and land development
loans also increased to $26,121,000 at June 30, 1996 which represented an
increase of $1,269,000 or 5.1% over $24,852,000 at December 31, 1995. Partially
offsetting these increases, was a decrease in real estate mortgage loan balances
to $82,412,000 at June 30, 1996 compared to $85,788,000 at December 31, 1995
representing a decrease of $3,376,000 or 3.9%.
Securities designated as held-to-maturity at June 30, 1996 were carried at an
amortized cost of $89,678,000. The estimated market value of the
held-to-maturity portfolio at quarter end was $89,327,000. The held-to-maturity
portfolio at June 30, 1996 consists primarily of U.S. Treasury bills and notes
and securities issued by U.S. government-sponsored agencies (FNMA, FHLMC and
FHLB) with maturities within five years. Investment securities classified as
held-to-maturity are measured at amortized cost based on the Company's intent
and ability to hold such securities to maturity. During the six
<PAGE> 11
months ended June 30, 1996, the Company made securities purchases of $38,137,000
to replace $28,142,000 of maturities and to more fully employ excess liquidity.
Other earning assets are comprised of Federal funds sold and time deposits at
other financial institutions. Federal funds sold balances of $23,918,000 at June
30, 1996 represent a decrease of $22,846,000 from $46,764,000 at December 31,
1995. The decrease in federal funds sold is primarily the result of seasonal
runoff in deposit balances and a increase in loan balances. The Company has
invested a portion of its excess liquidity in time deposits at other financial
institutions. Time deposits in other financial institutions were $2,257,000 at
June 30, 1996 compared to $4,492,000 at December 31, 1995, representing a
decrease of $2,235,000 or 49.8%. The decrease in time deposits at other
institutions is a result of management's decision to redeploy these funds into
other short-term investment securities.
Total deposits of $319,269,000 at June 30, 1996 represent a decrease of
$6,820,000 or 2.1% from balances of $326,089,000 at December 31, 1995. The
decrease is primarily the result of a decrease in savings and interest bearing
demand deposits and is attributed to seasonal fluctuation in this deposit
category. Savings and interest bearing demand balances of $173,899,000 at June
30, 1996 represent a decrease of $21,230,000 or 10.9% from $195,129,000 at
December 31, 1995. Partially offsetting this decrease were increases in
noninterest-bearing demand deposits and time deposits. Noninterest-bearing
demand deposits were $76,856,000 at June 30, 1996 compared to $68,541,000 at
December 31, 1995, a decrease of $8,315,000 or 12.1%. Time deposits also
increased to $68,514,000 at June 30, 1996 from $62,419,000 at December 31, 1995
representing an increase of $6,095,000 or 9.8%.
<PAGE> 12
THREE MONTHS ENDED JUNE 1996 AND 1995
Net income for the three months ended June 30, 1996 was $1,578,000 or $.51 per
share compared to $944,000 or $.31 per share for the comparable period in 1995.
The following discussion highlights changes in certain items in the consolidated
condensed statements of income.
Net interest income
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits, is the principal component of the
Bank's earnings. The components of net interest income are as follows:
<TABLE>
<CAPTION>
For the quarter ended June 30,
In thousands (except percentages) 1996 1995
- ------------------------------------------------------------------------------------------------------------
Avg Avg Avg Avg
Balance Interest Yield(1) Balance Interest Yield(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning Assets:
Loans(2) $203,972 $ 5,496 10.8% $173,909 $5,246 12.1%
Investment Securities 91,498 1,350 5.9% 71,660 1,016 5.7%
Other 28,743 381 5.3% 38,289 571 6.0%
-------- ------- -------- ------
Total interest earning assets 324,213 7,227 8.9% 283,858 6,833 9.7%
Cash and due from banks 22,993 24,188
Other assets net of deferred
loan fees and allowance
to loan losses(3) 2,638 6,563
-------- --------
$349,844 $314,609
======== ========
Liabilities & Shareholders'
Equity:
Interest bearing liabilities:
Demand deposits $ 78,169 447 2.3% $ 81,695 494 2.4%
Savings deposits 102,655 1,055 4.1% 105,272 1,291 4.9%
Time deposits 66,505 909 5.5% 50,020 672 5.4%
Other borrowings -- -- 359 9 10.1%
-------- ------- -------- ------
Total interest bearing
liabilities 247,329 2,411 3.9% 237,346 2,466 4.2%
------- ------
Demand deposits 67,993 48,957
Other Liabilities 2,154 1,307
-------- --------
Total liabilities 317,476 287,610
Shareholders' Equity 32,368 26,999
-------- --------
$349,844 $314,609
======== ========
Net interest income & margin(4) $ 4,816 6.0% $4,367 6.2%
======= === ====== ===
</TABLE>
- -----------------------
(1) Annualized
(2) Loan interest income includes fee income of $215,000 and $274,000 for the
three month periods ended June 30, 1996 and 1995, respectively.
(3) Includes the average allowance for loan losses of $4,403,000 and $4,443,000,
and average deferred loan fees of $535,000 and $515,000 for the three months
ended June 30, 1996 and 1995.
(4) Net interest margin is computed by dividing net interest income by total
average earning assets.
<PAGE> 13
Net tax equivalent interest income for the three months ended June 30, 1996 was
$4,816,000 representing an improvement of $449,000 or 10.3% over $4,367,000 for
the comparable period in 1995. As a percentage of average earning assets, net
taxable equivalent interest margin for the first three months of 1996 was 6.0%
and compares to 6.2% in the same period one year earlier. The increase in net
taxable equivalent interest margin is primarily due to an increase in taxable
equivalent interest income.
Taxable equivalent interest income recognized in the three months ended June 30,
1996 was $7,227,000 representing an increase of $394,000 or 5.8% over $6,833,000
for the same period of 1995. The increase in taxable equivalent interest income
was primarily due to increases in the volume of average earning assets. Earning
assets averaged $324,213,000 in the three months ended June 30, 1996 compared to
$283,858,000 in the same period in 1995, representing an increase of $40,355,000
or 14.2%. The increase in average earning assets included increases in average
net loans and investment securities of $30,063,000 and $19,838,000 or 17.3% and
27.7%, respectively. Partially offsetting the increase in average earning assets
was a decrease in the average yield on earned on assets. The average yield on
interest earning assets decreased to 8.9% in the second quarter of 1996 from
9.7% for the same period in 1995. In addition, loan fees recognized during the
three months ended June 30, 1996 were $215,000 compared to $274,000 one year
earlier.
Net interest income in the second quarter of 1996 also benefited from a decrease
in the cost of liabilities funding the growth in average earning assets.
Interest expense for the three months ended June 30, 1996 was $2,411,000 and
represented a decrease of $55,000 or 2.2% from $2,466,000 for the same period in
1995. During the three months ended June 30, 1996, the average rate paid by the
Bank on interest-bearing liabilities of 3.9% compared to 4.2% for the same
period in 1995. The decrease in interest expense for the first quarter of 1996
reflects the impact of an increase in the volume of average noninterest bearing
liabilities as a percentage of total deposits. Average noninterest bearing
liabilities were $67,993,000 representing 21.6% of total deposits in the three
months ended June 30, 1996 compared to $48,957,000 and 17.1% for the same period
in 1995, an increase of $19,036,000 or 38.9%.
Provision for credit losses
The provision for credit losses is based upon management's evaluation of the
adequacy of the existing allowance for loan losses in relation to total loans
and the inherent risk in the loan portfolio. Management's evaluation takes into
consideration such factors as changes in the composition of the portfolio,
overall portfolio quality, loan concentrations, specific problem loans, and
current and anticipated economic conditions that may affect borrowers' ability
to repay.
Real estate construction loans represented 12% of total loans at June 30, 1996,
the majority of which are for the construction of single family residential
properties. In addition, 40% of the Company's loans were other real
estate-secured loans. These loans were primarily loans made to customers that
also maintain deposit relationships with the Banks and are secured by first
deeds of trust on commercial and residential properties
<PAGE> 14
with original loan to value ratios not exceeding 75%. Commercial loans comprised
44% of total loans at June 30, 1996. The Company's loans are not concentrated in
any particular industry. The Company's service area is somewhat dependent on the
economy of the greater Salinas Valley which has a concentration of agri-business
companies, and accordingly, the ability of the Bank's borrower's to repay loans
may be affected by the performance of this sector of the economy. At June 30,
1996, the majority of loans were collateralized and carried adjustable rates.
Generally, real estate loans were secured by real property, and commercial and
other loans were secured by bank deposits and business or personal assets.
Repayment is generally expected from the sale of the related property for real
estate construction loans, and from the cash flow of the borrower for commercial
and other loans.
In the second quarter of 1996, the Company increased its provision for loan
losses through a $139,000 charge to earnings to replenish the provision for
charge-off activity. The provision compares to $210,000 charged against earnings
for the same period in 1995 and reflects improvement in portfolio asset quality
and strengthening in the general economy. Loan balances of $153,000, which
previously identified and were fully reserved for, were charged-off in the
second quarter of 1996 compared to $115,000 charged-off in the same period one
year earlier. Recoveries of loan balances previously charged-off were $30,000
for the quarter ended June 30, 1996 compared to $29,000 for the same period in
1995. See Note 3 of the consolidated condensed financial statements for further
discussion of nonperforming loans and the allowance for credit losses.
At June 30, 1996 the allowance for credit losses was $4,410,000 or 2.13% of
total loans, compared to $4,446,000 or 2.27% at December 31, 1995.
Management believes that the allowance for loan losses is maintained at an
adequate level for known and anticipated future risks inherent in the loan
portfolio. However, the Company's loan portfolio particularly the real estate
related segments, may be adversely affected if California's economic conditions
and Monterey County real estate market were to weaken. In such event, the level
of nonperforming loans, the provision for loan losses and the level of the
allowance for loan losses could increase.
Other income and expense
Other income consists primarily of service charges on deposit accounts and fees
for miscellaneous services. Total other income was $302,000 for the three months
ended June 30, 1996 as compared to $251,000 for the same period of 1995.
Noninterest expense decreased $2,000 to $2,793,000 in the quarter ended June 30,
1996 from $2,795,000 in the same period one year earlier. The decrease in
noninterest expenses was comprised of decreases in occupancy, furniture and
equipment and other expenses, partially offset by an increase in salary and
benefits expense. As a percentage of average earning assets, noninterest
expenses, on an annualized basis, decreased to 3.4% in the three months ended
June 30, 1996 from 3.9% in the same period of 1995.
<PAGE> 15
Salary and benefits expense was $1,672,000 in the three months ended June 30,
1996 compared to 1,399,000 in the same period one year earlier. The increase in
salary and benefits expense of $273,000 included approximately $175,000 of
nonrecurring charges for personnel restructuring related to the Company's
acquisition of Cypress Coast Bank. The remaining increase is primarily due to
increased headcount.
Other noninterest expenses of the Company for the second quarter of 1996 were
$796,000 representing a decrease of $220,000 or 21.6% from $1,016,000 for the
same period in 1995. The decrease in other noninterest expenses was primarily
due to a reduction in premiums paid to the FDIC for deposit insurance of
approximately $150,000. In addition, other noninterest expense for the second
quarter of 1995 included a nonrecurring charge of approximately $100,000 to
revalue an OREO property owned by Bank of Salinas.
<PAGE> 16
SIX MONTHS ENDED JUNE 1996
Net income for the six months ended June 30, 1996 was $3,362,000 or $1.08 per
share compared to $1,855,000 or $.60 per share for the comparable period in
1995. The following discussion highlights changes in certain items in the
consolidated condensed statements of income.
Net interest income
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits, is the principal component of the
Bank's earnings. The components of net interest income are as follows:
<TABLE>
<CAPTION>
In thousands (except percentages) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Avg Avg Avg Avg
Balance Interest Yield(1) Balance Interest Yield(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning Assets:
Loans(2) $199,117 $11,085 11.3% $173,014 $10,120 11.9%
Investment Securities 86,123 2,559 6.0% 71,111 1,943 5.5%
Other 41,662 1,100 5.4% 33,511 979 5.9%
-------- ------- -------- -------
Total interest earning assets 326,902 $14,744 9.1% 277,636 $13,042 9.5%
-------- --------
Cash and due from banks 21,658 23,246
Other assets net of deferred -- --
loan fees and allowance -- --
from loan losses(3) 2,260 6,901
-------- --------
$350,820 $307,783
======== ========
Liabilities & Shareholders'
Equity:
Interest bearing liabilities:
Demand deposits $ 75,403 $ 859 2.3% $ 80,067 $ 962 2.4%
Savings 112,302 2,313 4.2% 99,493 2,368 4.8%
Time deposits 65,801 1,801 5.6% 50,874 1,288 5.1%
Other borrowings -- -- 355 10 5.7%
-------- ------- -------- -------
Total interest bearing -- --
liabilities 253,506 $ 4,973 4.0% 230,789 $ 4,628 4.1%
-------- --------
Demand deposits 63,703 49,025
Other Liabilities 1,945 1,354
-------- --------
Total liabilities 319,154 281,168
Shareholders' Equity 31,666 26,615
-------- --------
$350,820 $307,783
======== ========
Net interest income & margin(4) $ 9,771 6.0% $ 8,414 6.1%
======= === ======= ===
</TABLE>
- ----------------------------
(1) Annualized
(2) Loan interest income includes fee income of $468,000 and $542,000 for the
six month periods ended June 30, 1996 and 1995, respectively.
(3) Includes the average allowance for loan losses of $4,413,000 and $4,348,000,
and average deferred loan fees of $534,000 and $529,000 for the six months ended
June 30, 1996 and 1995.
(4) Net interest margin is computed by dividing net interest income by total
average earning assets.
16
<PAGE> 17
Net tax equivalent interest income for the six months ended June 30, 1996 was
$9,771,000 representing an improvement of $1,357,000 or 16.1% over $8,414,000
for the comparable period in 1995. As a percentage of average earning assets,
net taxable equivalent interest margin of 6.0% for the first six months of 1996
was virtually unchanged compared to the same period one year earlier. The
increase in net taxable equivalent interest margin is primarily due to an
increase in taxable equivalent interest income. Taxable interest income for the
first six months of 1996 includes approximately $621,000 recognized as a result
of collection of foregone interest on two loans that had been on nonaccrual
status. Excluding this nonrecurring event, the increase in net taxable
equivalent interest income would have been $736,000 or 8.7% with a resulting net
interest margin of 5.6% reflecting the impact of lower market rates.
Taxable equivalent interest income recognized in the six months ended June 30,
1996 was $14,744,000 representing an increase of $1,702,000 or 13.1% over
$13,042,000 for the same period of 1995. The increase in taxable equivalent
interest income was primarily due to increases in the volume of average earning
assets. Earning assets averaged $326,902,000 in the six months ended June 30,
1996 compared to $277,636,000 in the same period in 1995, representing an
increase of $49,266,000 or 17.7%. The increase in average earning assets
included increases in average net loans, investment securities and fed funds
sold of $26,103,000, $15,012,000 and $8,151,000 or 15.1, 21.1 and 24.3%,
respectively. In addition, as noted above, taxable interest income for the first
six months of 1996 includes approximately $621,000, recognized as a result of
collection of foregone interest on two nonaccruing loans. Excluding this
nonrecurring event, the increase in taxable equivalent interest income would
have been $736,000 or 8.7%. The average yield on interest earning assets
decreased to 9.1% in the first six months of 1996 compared to 9.5% for the first
six months of 1995. The decrease in the average yield on earning assets in 1996
primarily reflects the impact of lower market rates, specifically the prime
rate, compared to a year ago. Loan fees recognized during the six months ended
June 30, 1996 were $468,000 compared to $542,000 one year earlier.
Partially offsetting the increase in taxable equivalent interest income was an
increase in the cost of liabilities funding the growth in average earning
assets. Interest expense for the six months ended June 30, 1996 was $4,973,000
and represented and increase of $345,000 or 7.5% over $4,628,000 for the same
period in 1995. The increase in interest expense for the first six months of
1996 primarily reflects the impact of an increase in the volume of average
interest bearing liabilities. Average interest bearing liabilities were
$253,506,000 in the six months ended June 30, 1996 compared to $230,789,000 for
the same period in 1995, an increase of $22,717,000 or 9.8%. The impact of the
increase in average interest bearing liabilities on interest expense was offset
slightly by a decrease in the average rate paid on the liabilities. During the
six months ended June 30, 1996, the average rate paid by the Company on
interest-bearing liabilities of 4.0% compared to 4.1% for the same period in
1995.
<PAGE> 18
Provision for credit losses
In the first half of 1996, the Company increased its provision for loan losses
though a charge to earnings of $159,000. The provision compares to $635,000
charged against earnings for the same period in 1995 and reflects improvement in
portfolio asset quality and strengthening in the general economy. Loan balances
of $241,000, which were previously identified and were fully reserved for, were
charged-off in the first six months of 1996 compared to $196,000 charged-off in
the same period one year earlier. Recoveries of loan balances previously
charged-off were $46,000 for the six months ended June 30, 1996 compared to
$47,000 for the same period in 1995. See Note 3 of the consolidated condensed
financial statements for further discussion of nonperforming loans and the
allowance for credit losses.
Other income and expense
Other income consists primarily of service charges on deposit accounts and fees
for miscellaneous services. Total other income was $712,000 for the six months
ended June 30, 1996 as compared to $565,000 for the same period of 1995.
Noninterest expense decreased $41,000 or .8% to $5,169,000 in the six months
ended June 30, 1996 from $5,210,000 in the same period one year earlier. The
decrease in noninterest expenses was comprised of decreases in occupancy,
furniture and equipment and other expenses, partially offset by an increase in
salary and benefits expense. As a percentage of average earning assets,
noninterest expenses, on an annualized basis, decreased to 3.2% in the six
months ended June 30, 1996 from 3.8% in the same period of 1995.
Salary and benefits expense was $3,158,000 in the six months ended June 30, 1996
compared to $2,767,000 in the same period one year earlier. The increase in
salary and benefits expense of $391,000 included approximately $175,000 of
nonrecurring charges for personnel restructuring related to the Company's
acquisition of Cypress Coast Bank. The remaining increase is primarily due to
salary increases and increased headcount to accommodate growth in operations of
the subsidiary Banks.
Other noninterest expenses of the Company for the first half of 1996 were
$1,338,000 representing a decrease of $376,000 or 21.9% from $1,714,000 for the
same period in 1995. The decrease in other noninterest expenses was primarily
due to a reduction in premiums paid to the FDIC for deposit insurance of
approximately $300,000. In addition, other noninterest expense for the first
half of 1995 included a nonrecurring charge of approximately $100,000 to revalue
an OREO property owned by Bank of Salinas.
<PAGE> 19
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity
Liquidity management refers to the Company's ability to provide funds on an
ongoing basis to meet fluctuations in deposits levels as well as the credit
needs and withdrawal requirements of its customers. Both assets and liabilities
contribute to the Company's liquidity position. Assets such as cash and due from
Banks, Federal funds sold and investment securities as well as loan repayments,
contribute to liquidity. Of greater significance are the diverse sources
comprising the Bank's funding base. These include demand deposits, interest
bearing transaction accounts and time deposits.
Liquidity is measured by various ratios, the most common being the ratio of
cash, deposits with other banks, Federal funds sold and unpledged securities to
total deposits. At June 30, 1996 this ratio was 37.1% (41.0% at December 31,
1995). Another key liquidity ratio is gross loans to total deposits. This ratio
was 64.8% at June 30, 1996 and 59.9% at December 31, 1995.
Interest rate sensitivity
Interest rate sensitivity is a measure of the exposure to fluctuations in the
Company's future earnings caused by fluctuations in interest rates. If assets
and liabilities do not reprice simultaneously and in equal amounts, the
potential for such exposure exists. It is management's objective to maintain
stability in net interest margin through the maintenance of an appropriate mix
of interest rate sensitive assets and liabilities. Management regularly reviews
general economic and financial conditions, both external and internal, and
determines whether the position taken with respect to liquidity and interest
rate sensitivity continue to be appropriate. The Company also utilizes a monthly
"GAP" report which identifies rate sensitivity over the short- and long-term.
The following table sets forth the distribution of repricing opportunities,
based on contractual term, of the Bank's earning assets and interest-bearing
liabilities at June 30, 1996, the interest rate sensitivity gap (i.e. interest
rate sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e.
interest rate sensitive assets divided by interest rate sensitive liabilities)
and the cumulative interest rate sensitivity gap ratio.
<PAGE> 20
<TABLE>
<CAPTION>
In thousands
- ------------------------------------------------------------------------------------------------------------------------------
Over three
Assets and Liabilities Next day months and Over one
which Mature or and within within and within Over
Reprice Immediately three months one year five years five years Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 23,918 $ -- $ -- $ -- $ -- $ 23,918
Purchased CD's 2,158 99 -- -- -- 2,257
Investment securities 2,004 11,091 24,470 52,113 -- 89,678
Loans, excluding
nonaccrual loans
and overdrafts 145,219 36,344 10,057 10,472 4,114 206,206
- ------------------------------------------------------------------------------------------------------------------------------
Total $173,299 $47,534 $34,527 $62,585 $ 4,114 $322,059
==============================================================================================================================
Interest bearing
liabilities:
Interest bearing demand $ 77,075 $ -- $ -- $ -- $ -- $ 77,075
Savings 96,824 -- -- -- -- 96,824
Time certificates -- 23,810 34,422 10,182 100 68,514
- ------------------------------------------------------------------------------------------------------------------------------
Total $173,899 $23,810 $34,422 $10,182 $ 100 $242,413
==============================================================================================================================
Interest rate
sensitivity gap $ (600) $23,724 $ 105 $52,403 $ 4,014
Cumulative interest
rate sensitivity gap $ (600) $23,124 $23,229 $75,632 $79,646
Ratios:
Interest rate
sensitivity gap 1.00 2.00 1.00 6.15 41.14
Cumulative interest
rate sensitivity gap 1.00 1.12 1.10 1.31 1.33
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is management's objective to maintain stability in the net interest margin in
times of fluctuating interest rates by maintaining an appropriate mix of
interest sensitive assets and liabilities. Toward that end, the Company prices
the majority of its interest-bearing liabilities at variable rates to reprice at
approximately the same time as interest-earning assets tied to the Bank's "Peg"
or base rate. At June 30, 1996 the Company's balance sheet is slightly
asset-sensitive over a one year time horizon. That is, within the next twelve
months a greater volume of assets than liabilities will reprice. Given this
balance sheet structure, volatile interest rate fluctuations are detrimental to
the net interest margin in the instance of rapidly declining interest rates.
CAPITAL RESOURCES
The Company and the subsidiary Banks are subject to capital adequacy guidelines
issued by the FRB and the FDIC. For 1996, the Company and the subsidiary Banks
are required to maintain capital equal to a least 8% of assets and commitments
to extend credit, weighted by risk ("risk-adjusted" assets). Further, capital
equal to at least 4% of risk-adjusted assets must consist primarily of common
equity (including retained earnings) and the remainder may consist of
subordinated debt cumulative preferred stock or a limited amount of loan loss
reserves. Certain assets and commitments to extend credit present
<PAGE> 21
less risk than others and will be assigned to lower risk weighted categories
requiring less capital allocation than the 8% total ratio. For example, cash and
government securities are assigned to a 0% risk weighted category; most home
mortgage loans are assigned to a 50% risk weighted category requiring a 4%
capital allocation; and commercial loans are assigned to a 100% risk weighted
category requiring an 8% capital allocation.
In addition, the Company and the subsidiary Banks are required to maintain a
3.5% minimum leverage ratio as a supplement to the risk weighted capital
guidelines. The minimum leverage ratio is intended to limit the ability of
banking organizations to leverage their equity capital base by increasing assets
and liabilities without increasing capital proportionately. The 3% ratio
constitutes a minimum ratio for well-run banking organizations. Organizations
experiencing or anticipating significant growth or failing to meet such
standards will be required to maintain a minimum leverage ratio ranging from 100
to 200 basis points in excess of the 3% ratio.
At June 30, 1996, the Company and its subsidiary Banks were in compliance with
the risk-based capital and leverage ratios noted above. The following table sets
forth the risk-based capital and leverage ratios of the Company.
<TABLE>
<CAPTION>
Dollars June 30, 1996 December 31,1995
in thousands Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RISK BASED CAPITAL RATIOS
Tier 1 Capital $ 33,338 14.6% $ 29,784 13.6%
Total Capital $ 36,185 15.9% $ 32,523 14.8%
Total risk adjusted capital $227,762 $219,140
- ----------------------------------------------------------------------------------
LEVERAGE RATIOS
Tier 1 Capital to
average total assets $ 33,338 9.5% $ 29,784 8.9%
Quarterly average
total assets $350,820 $335,203
- ----------------------------------------------------------------------------------
</TABLE>
On December 19, 1991, the president signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). The FDICIA, among other matters,
substantially revises banking regulations and establishes a framework for
determination of capital adequacy of financial institutions. Under FDICIA,
financial institutions are placed into one of five capital adequacy categories
as follows: (1) Well capitalized, consisting of institutions with a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater and a leverage ratio of 5% or greater and the institution is not
subject to an order, written agreement, capital directive or prompt corrective
action directive; (2) Adequately capitalized, consisting of institutions with a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater, and the institution does not meet the definition of a
well capitalized institution; (3) Undercapitalized, consisting of institutions
with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital
ratio of less than 4%, or a leverage ratio of less than 4%; (4) Significantly
undercapitalized, consisting of institutions with a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a
leverage ratio less than 3%; (5) Critically undercapitalized, consisting of an
institution with a ratio tangible equity to or less than 2%.
<PAGE> 22
Financial institutions classified as undercapitalized or below are subject to
various limitations including among other matters, certain supervisory action by
bank regulatory authorities and restrictions related to (1) growth of assets,
(2) payment of interest on subordinated indebtedness, (3) payment of dividends
or other capital distributions, and (4) payment of management fees to a parent
holding company. The FDICIA requires the bank regulatory authorities to initiate
corrective action regarding financial institutions which fail to meet minimum
capital requirements. Such action may include orders to, among other matters,
augment capital and reduce total assets. Critically undercapitalized financial
institutions may also be subject to appointment of a receiver or conservator
unless the financial institutions submits an adequate capitalization plan.
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on manufacturing, or other commercial concerns, primarily because
its assets and liabilities are largely monetary. In general, inflation primarily
affects the Company indirectly through its effect on market rate of interest,
and thus the ability of the subsidiary Banks to attract loan customers.
Inflation affects the growth of total assets by increasing the level of loan
demand, and potentially adversely affects the Company's adequacy because loan
growth in inflationary periods can increase at rates higher than the rate that
capital grows through retention of earnings which the Company may generate in
the future. In addition to its effects on interest rates, inflation directly
affects the Company by increasing the Company's operating expenses.
The effect of inflation was not material to the Company's results of operations
during the periods covered by this report.
<PAGE> 23
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in securities.
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
None.
Item 5. Other information.
None.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
(3.1) Articles of Incorporation as amended incorporated by
reference from Exhibit 4.8 to the Registration Statement on Form
S-8 No. 33-89948 filed with the Commission on March 3, 1995.
(3.2) Bylaws incorporated by reference from Exhibit 4.9 to the
Registration Statement on Form S-8 No. 33-89948, filed with the
Commission on March 3, 1995.
(27.1) Financial Data Schedules
(b) Reports on Form 8-K.
The Company filed two reports on Form 8-K during the second quarter of
1996 as follows:
(1) Report on Form 8-K filed June 7, 1996 reporting a press release
dated June 5, 1996 regarding the consummation of the merger of the
Registrant and Cypress Coast Bank ("Cypress") whereby Cypress became a
wholly-owned subsidiary of Registrant.
(2) Report on Form 8-K filed June 14, 1996 reporting the plan of
acquisition of Cypress Coast Bank by the Registrant pursuant to Item
601 of Regulation S-K.
23
<PAGE> 24
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
August 13, 1996 CENTRAL COAST BANCORP
By /s/ Thomas A. Sa
-----------------
Thomas A. Sa, Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
<S> <C> <C>
27.1 Financial Data Schedule 23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,672
<INT-BEARING-DEPOSITS> 2,257
<FED-FUNDS-SOLD> 23,918
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 89,578
<INVESTMENTS-MARKET> 89,327
<LOANS> 207,186
<ALLOWANCE> 4,406
<TOTAL-ASSETS> 354,184
<DEPOSITS> 319,269
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,557
<LONG-TERM> 0
0
0
<COMMON> 25,920
<OTHER-SE> 7,418
<TOTAL-LIABILITIES-AND-EQUITY> 0
<INTEREST-LOAN> 5,496
<INTEREST-INVEST> 1,350
<INTEREST-OTHER> 381
<INTEREST-TOTAL> 7,227
<INTEREST-DEPOSIT> 2,411
<INTEREST-EXPENSE> 2,411
<INTEREST-INCOME-NET> 4,816
<LOAN-LOSSES> 139
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,793
<INCOME-PRETAX> 2,186
<INCOME-PRE-EXTRAORDINARY> 2,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,578
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 6.00
<LOANS-NON> 219
<LOANS-PAST> 89
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,390
<CHARGE-OFFS> 153
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 4,406
<ALLOWANCE-DOMESTIC> 4,406
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
