-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C/K3XEI7AiS+7DrA5EAGy0fQlN5SMatCOu8BXMuxFoP+E2TpN1/UerHWID2KAcI8 2N2If3bum/ubwXkG8TKqjg== 0000351238-97-000005.txt : 19970507 0000351238-97-000005.hdr.sgml : 19970507 ACCESSION NUMBER: 0000351238-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970506 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN FRANCISCO CO CENTRAL INDEX KEY: 0000351238 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 943071255 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10198 FILM NUMBER: 97595880 BUSINESS ADDRESS: STREET 1: 550 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4157817810 MAIL ADDRESS: STREET 1: PO BOX 2887 CITY: SAN FRANCISCO STATE: CA ZIP: 94126 FORMER COMPANY: FORMER CONFORMED NAME: BANK OF SAN FRANCISCO CO HOLDING CO DATE OF NAME CHANGE: 19920703 10-Q 1 UNITED STATES 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, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-10198 The San Francisco Company (Exact name of Registrant as specified in its charter) Delaware 94-3071255 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 550 Montgomery Street, San Francisco, California 94111 (Address of principal executive office) (Zip Code) (415) 781-7810 (Registrant's telephone number, including area code) None (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 Securities Exchange Act of 1934 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 The Registrant had 28,775,995 shares of Class A Common Stock outstanding on May 1, 1997. page The San Francisco Company and Subsidiaries Quarterly Report on Form 10-Q Table of Contents Page Part I - Financial Information Item 1. Consolidated Statements of Financial Condition At March 31, 1997 and December 31, 1996 . . . . . . 1 Consolidated Statements of Operations For the Three Months Ended March 31, 1997 and 1996. 2 Consolidated Statements of Changes in Shareholders' Equity For the Three Months Ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1997 and 1996. 4 Notes to Consolidated Financial Statements . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 6 Part II - Other Information Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . .13 Item 2. Changes in Securities. . . . . . . . . . . . . . . .13 Item 3. Defaults Upon Senior Securities. . . . . . . . . . .13 Item 4. Submission of Matters to a Vote of Security Holders.13 Item 5. Other Information. . . . . . . . . . . . . . . . . .13 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . .13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .14 page The San Francisco Company and Subsidiaries Consolidated Statements of Financial Condition March 31, 1997 and December 31, 1996 (Unaudited) March 31, December 31, (Dollars in Thousands Except Per Share Data) 1997 1996 Assets: Cash and due from banks $ 2,857 $ 3,701 Federal funds sold 20,500 11,925 Cash and cash equivalents 23,357 15,626 Investment securities held-to-maturity (Market: 1997 $6,567; 1996 $6,848) 6,722 6,943 Investment securities available-for-sale 26,506 28,348 Federal Home Loan Bank stock, at par 681 670 Loans 41,399 43,762 Deferred loan fees (258) (190) Allowance for loan losses (5,924) (5,663) Loans, net 35,217 37,909 Other real estate owned 3,770 5,133 Premises and equipment, net 7,997 8,059 Interest receivable 553 758 Other assets 396 555 Total Assets $105,199 $104,001 Liabilities and Shareholders' Equity: Non-interest bearing deposits $ 19,857 $ 16,505 Interest bearing deposits 72,480 74,661 Total deposits 92,337 91,166 Other liabilities and interest payable 1,887 1,771 Total liabilities 94,224 92,937 Shareholders' Equity: Preferred stock (par value $0.01 per share) Series B - Authorized - 437,500 shares Issued and outstanding - 1997 and 1996 - 15,869 111 111 Common stock (par value $0.01 per share) Class A - Authorized - 100,000,000 shares Issued and outstanding -1997 and 1996 - 28,775,995 288 288 Additional paid-in capital 77,841 77,841 Retained deficit (66,961) (67,099) Unrealized loss on securities available-for-sale (304) (77) Total shareholders' equity 10,975 11,064 Total Liabilities and Shareholders' Equity $105,199 $104,001 See accompanying notes to unaudited consolidated financial statements. page The San Francisco Company and Subsidiaries Consolidated Statements of Operations Three Months Ended March 31, 1997 and 1996 (Unaudited) March 31, (Dollars in Thousands Except Per Share Data) 1997 1996 Interest income: Loans $ 1,123 $1,144 Investments 746 701 Dividends 12 8 Total interest income 1,881 1,853 Interest expense: Deposits 697 865 Other borrowings -- -- Total interest expense 697 865 Net interest income 1,184 988 Provision for loan losses -- -- Net interest income after provision for loan losses 1,184 988 Non-interest income: Stock option commissions and fees 354 355 Real estate rental income 244 207 Service charges and fees 99 106 Gain on sale of other assets 222 85 Other income 22 10 Total non-interest income 741 963 Non-interest expense: Salaries and related benefits 908 908 Occupancy expense 304 308 Data processing 115 43 Professional fees 100 173 Corporate insurance premiums 61 95 Property taxes 40 42 FDIC insurance premiums 39 63 Other operating expenses 215 207 Total non-interest expense 1,782 1,839 Income before income taxes 143 112 Provision for income taxes 5 4 Net Income $ 138 $ 108 Income per common share: Primary: Net income $ 0.00 $ 0.02 Weighted average shares outstanding 28,775,995 5,765,978 Fully Diluted: Net income $ 0.00 $ 0.00 Weighted average shares outstanding 28,775,995 18,458,905 See accompanying notes to unaudited consolidated financial statements. page The San Francisco Company and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 1997 and 1996 (Unaudited) Unrealized Gain/ Add- (Loss) on Total itional Retained Securities Share- Preferred Common Paid-in Earnings Available- holders' (Dollars in Thousands) Stock Stock Capital (Deficit) for-Sale Equity Balances at January 1, 1996 $ 4,414 $ 58 $70,168 $(68,801) $ 41 $ 6,880 Net proceeds from sale of stock and warrants 1,000 -- -- -- -- 1,000 Other -- -- 100 -- -- 100 Depreciation in market value of securities available -for-sale -- -- -- -- (157) (157) Net income (three months) -- -- -- 108 -- 108 Balances at March 31, 1996 5,414 58 70,268 (67,693) (116) 7,931 Net proceeds from sale of stock 2,500 -- -- -- -- 2,500 Conversion of preferred stock to common stock (7,803) 230 7,573 -- -- -- Appreciation in market value of securities available-for-sale -- -- -- -- 39 39 Net income (nine months) -- -- -- 594 -- 594 Balances at December 31, 1996 111 288 77,841 (67,099) (77) 11,064 Depreciation in market value of securities available-for-sale -- -- -- -- (227) (227) Net income (three months) -- -- -- 138 -- 138 Balances at March 31, 1997 $ 111 $ 288 $77,841 $(66,961) $ (304) $10,975 See accompanying notes to unaudited consolidated financial statements. page The San Francisco Company and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 and 1996 (Unaudited) (Dollars in Thousands) 1997 1996 Cash Flows from Operating Activities: Net income $ 138 $ 108 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization expense 138 193 Net gain on other real estate owned and real estate investment (22) (285) Decrease in interest receivable and other assets 364 316 Increase (decrease) in interest payable and other liabilities 116 (684) Increase in deferred loan fees 68 16 Net cash flows provided by (used in) operating activities 802 (336) Cash Flows from Investing Activities: Proceeds from maturities of investment securities held-to-maturity 210 -- Proceeds from maturities of investment securities available-for-sale 1,615 3,997 Purchase of investment securities available-for-sale -- (22,268) Purchase of investment securities held to maturity -- (7,807) Net decrease in loans 2,363 9,605 Recoveries of loans previously charged off 261 399 Purchases of premises and equipment (76) (32) Sale of other real estate owned 1,385 2,215 Acquisition and capitalized costs of other real estate owned -- (39) Net cash provided by (used in) financing activities 5,758 (13,930) Cash Flows from Financing Activities: Net increase (decrease) in deposits 1,171 (3,111) Proceeds from the sale of preferred stock and warrants -- 1,000 Net cash used in financing activities 1,171 (2,111) Increase (decrease) in cash and cash equivalents 7,731 (16,377) Cash and cash equivalents at beginning of period 15,626 42,814 Cash and cash equivalents at end of period $ 23,357 $ 26,437 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $669 $ 889 Income taxes 3 1 Supplemental Schedule of Noncash Investing and Financing Activities: Net transfer of loans to other real estate owned -- 1,259 See accompanying notes to unaudited consolidated financial statements. page The San Francisco Company and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) Note 1 - Organization The San Francisco Company (the "Company") is a Delaware corporation and a bank holding company registered under the Bank Holding Company Act of 1956. Bank of San Francisco (the "Bank"), a state chartered bank, was organized as a California banking corporation in 1978 and became a wholly owned subsidiary of the Company through a reorganization in 1982. Note 2 - Principles of Consolidation and Presentation The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with the instructions pursuant to Form 10-Q Quarterly Report and Articles 9 and 10 of Regulation S-X, and therefore, do not include all the information and footnotes necessary to present the consolidated financial condition, results of operations and cash flows of the Company in conformity with generally accepted accounting principles. The data as of March 31, 1997, and for the three months ended March 31, 1997 and 1996 are unaudited, but in the opinion of management, reflect all accruals and adjustments of a normally recurring nature necessary for fair presentation of the Company's financial condition and results of operations. Certain amounts in the 1996 consolidated financial statements have been reclassified for comparative purposes. The results of operations for the three months ending March 31, 1997 are not necessarily indicative of the results to be expected for the entire year of 1997. This report should be read in conjunction with the Company's 1996 Annual Report on Form 10-K. The accompanying financial statements include the accounts of the Company, the Bank, the Bank's wholly owned subsidiary, Bank of San Francisco Realty Investors (the "BSFRI"). All material intercompany transactions have been eliminated in consolidation. Note 3 - Income Per Common Share Primary income per common share is calculated using the weighted average number of Class A Common Shares (the "Common Stock"), par value of $0.01 per share, outstanding divided into net income. In 1996 and 1997, fully diluted income per share was calculated using the weighted average number of shares outstanding assuming the common stock equivalent of the Series D Preferred Stock divided into income per share. On December 31, 1996, all 390,000 outstanding shares of Series D Preferred Stock were converted into 23,010,000 shares of Common Stock. Note 4 - Dividend Restrictions The Company is subject to dividend restrictions under the Delaware General Corporation Law and regulations and policies of, and a Written Agreement dated December 14, 1994 (the "Agreement") with, the Federal Reserve Bank of San Francisco (the "FRB" ). The Company's Series B Preferred Shares participate equally, share for share, in cash dividends paid on the Common Shares in addition to receiving the cash dividends to which they are entitled. The Board of Directors does not intend to declare dividends on any class of the Company's stock. page Note 5 - Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards (the "SFAS") No. 128 "Earnings per Share" (the "SFAS No. 128"). Generally, SFAS No. 128 establishes standards for computing and presenting earnings per share (the "EPS") for publicly held companies, replaces Primary EPS with Basic EPS, and specifies additional disclosure requirements regarding EPS. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. Earlier application is not permitted. The adoption of SFAS No. 128 is not expected to have a material impact on the Company's present computation of primary and fully diluted EPS. In February 1997, the FASB also issued SFAS No. 129 "Disclosure of Information about Capital Structure" (the "SFAS No. 129"). Generally, SFAS No. 129 establishes standards for disclosing information about an entity's capital structure, and supersedes and consolidates specific disclosure requirements specified in other accounting pronouncements. SFAS No. 129 is effective for financial statements issued for periods ending after December 15, 1997. The adoption of SFAS No. 129 is not expected to have any impact on the Company's present disclosure of its capital structure. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company is a one-bank holding company registered in Delaware under the Bank Holding Company Act of 1956. The principal activity of the Company is to serve as the holding company for Bank of San Francisco, a California chartered bank organized in 1978, with deposits insured by the Federal Deposit Insurance Corporation's Bank Insurance Fund. The information set forth in this report, including unaudited interim financial statements and related data, relates primarily to the Bank. The Company's Common Stock is sold "over-the-counter". The closing price of the Company's Common Stock on May 2 1997 was $0.40. The Company recorded net income of $138,000 for the three months ended March 31, 1997, compared to a net income of $108,000 for the same period in 1996. The increase in the Company's net income of $30,000 was primarily from an increase in net interest income and reductions in non- interest expenses partially offset by lower gain on sale of other real estate owned in first quarter 1997 compared to the same period in 1996. At March 31, 1997, total assets were $105.2 million, an increase of $1.2 million, or 1.2% from $104.0 million at December 31, 1996. As of March 31, 1997, total loans were $41.4 million, a decrease of $2.4 million, or 5.5% from $43.8 million at December 31, 1996. Total deposits were $92.3 million at March 31, 1997, an increase of $1.1 million, or 1.2%, compared to $91.2 million at December 31, 1996. Regulatory Directives and Orders Federal Reserve Board Written Agreement The Company and the FRB entered into the Agreement that supersedes the previous directive dated April 20, 1992. The Agreement prohibits the Company, without prior approval of the FRB, from: (a) paying any cash dividends to its shareholders; (b) directly or indirectly, acquiring or selling any interest in any entity, line of business, problem or other assets; (c) executing any new employment, service, or severance contracts, or renewing or modifying any existing contracts with any executive officer; (d) engaging in any transactions with page the Bank that exceeds an aggregate of $20,000 per month; (e) engaging in any cash expenditures with any individual or entity that exceeds $25,000 per month; (f) increasing fees paid to any directors for attendance at board or committee meetings, or paying any bonuses to any executive officers; (g) incurring any new debt or increasing existing debt; and (h) repurchasing any outstanding stock of the Company. The Company is required to submit a progress report to the FRB on a quarterly basis. The Company was also required to submit to the FRB an acceptable written plan to improve and maintain an adequate capital position, a comprehensive business plan concerning current and proposed business activities, and a comprehensive operating budget for the Bank and the consolidated Company. In addition, the Board of Directors was required to submit an acceptable written plan designed to enhance their supervision of the operations and management of the consolidated organization. Management was notified by the FRB at its 1996 examination that the Company was in full compliance with the Agreement, and management believes the Company continues to be in full compliance. Cease and Desist Orders On August 18, 1993, the Bank, without admitting or denying any alleged charges, stipulated to Cease and Desist Orders (the "Orders") issued by the Federal Deposit Insurance Corporation (the "FDIC") and the State Banking Department (the "SBD") that became effective August 29, 1993 (the "Orders Effective Date"). The Orders directed, among other things, that the Bank: (a) achieve and maintain a 7% Leverage Capital ratio on and after September 30, 1993; (b) pay no dividends without the prior written consent of the FDIC and the California Superintendent of Banks (the "Superintendent"); (c) reduce the assets classified "Substandard" or "Doubtful" as of November 30, 1992 to no more than certain levels as of various dates; (d) have and retain management whose qualifications and experience are commensurate with their duties and responsibilities to operate the Bank in a safe and sound manner, notify the FDIC and the Superintendent at least 30 days prior to adding or replacing any new director or senior executive officer and comply with certain restrictions in compensation of senior executive officers; (e) maintain an adequate reserve for loan losses; (f) not extend additional credit to, or for the benefit of, any borrower who had a previous loan from the Bank that was charged off or classified "Loss" in whole or in part; (g) develop and implement a plan to reduce its concentrations of construction and development loans; (h) not increase the amount of its brokered deposits above the amount outstanding on the Order's Effective Date and submit a written plan for eliminating reliance on brokered deposits; (i) revise or adopt, and implement, certain plans and policies to reduce the Bank's concentration of construction and land development loans, reduce the Bank's dependency on brokered deposits and out of area deposits, and to improve internal routines and controls; (j) reduce the Bank's volatile liability dependency ratio to not more than 15%; (k) eliminate or correct all violations of law set out in the most recent Report of Examination, and take all necessary steps to ensure future compliance with all applicable laws and regulations; and (l) establish a committee of three independent directors to monitor compliance with the Orders and report to the FDIC and the Superintendent on a quarterly basis. Management was notified by the FDIC and SBD at its 1997 examination that the Bank is in substantial compliance with the requirement of Orders. As of March 31, 1997, management believes that the Bank is full compliance with the requirements of the Orders. Capital Impairment Orders Under California law, if a bank's deficit retained earnings exceeds 40% of its contributed capital, its capital is deemed to be impaired, and the bank is required to levy an assessment on its shares to correct the impairment. page The SBD has issued twelve impairment orders to the Bank, with the most recent dated February 14, 1997 (the "Impairment Orders"). At March 31, 1997, the Bank had contributed capital of $74.5 million and deficit retained earnings of $63.4 million. The Impairment Orders require the Bank to correct the impairment within 60 days by levying an assessment on the Company as the Bank's sole shareholder. The Bank has not levied an assessment against its shares nor has it otherwise corrected the impairment, and, therefore, is in violation of this law. In addition, the SBD has specifically reserved the right to take such other action as the Superintendent may deem appropriate or necessary, which may include taking possession of the Bank's property and business, including ultimately liquidating the business and affairs of the Bank. Management believes, however, that the Superintendent has never exercised his bank takeover powers under Section 134 solely on the basis that a bank's capital is impaired under the standards set forth in Section 134. The Company plans to correct the Bank's capital impairment by requesting the SBD to approve a quasi-reorganization of the Bank. In a quasi-reorganization, the Bank's retained deficit would be reduced or eliminated by netting the retained deficit against contributed capital. Management believes that approval for such quasi-reorganization would only be granted by the SBD upon the Bank demonstrating the ability to sustain profitable operations and meet all of its regulatory capital requirements in the future. No assurance can be given that the Bank's capital condition will not deteriorate prior to any such quasi-reorganization as a result of operating losses. In addition, because a quasi-reorganization requires that the Bank adjust its assets and liabilities to market value at the time of the reorganization, the Bank's capital could be further reduced from its present levels. Finally, there can be no assurances given that, following a correction of the Bank's capital impairment, whether through a quasi-reorganization or otherwise, the Bank's capital position will not erode through future operating losses. Results of Operations Net Interest Income The Company's net interest income was $1.2 million in the quarter ended March 31, 1997 compared to $1.0 million for the same period in 1996, or an increase of 20%. The increase was primarily the result of a reduction in interest expense. The reduction was the result of lower cost of funds by 30 basis points and lower average interest bearing deposits of $10.9 million in the first quarter of 1997 compared to the same period in 1996. Non-Interest Income Non-interest income was $741,000 at March 31, 1997 compared to $963,000 at March 31, 1996. The decline in non-interest income of $222,000 was primarily the result of the reduction in net gain on sale of other real estate owned assets in 1997 compared to 1996. Non-Interest Expense The Company's non-interest expenses were $1.8 million during the first quarter of 1997 and 1996. page Financial Condition Liquidity and Capital Resources Liquidity The Bank's liquid assets, which include cash and short term investments totaled $23.4 million, or 22.2% of total assets, at March 31, 1997, an increase of $7.8 million, from $15.6 million, or 15.0% of total assets, at December 31, 1996. The increase was the result of the sale of other real estate owned, loan repayments, investment securities repayments and maturities, and an increase in core deposits. As of March 31, 1997, the Bank had pledged loans and securities totaling $7.0 million enabling the Bank to borrow up to 5% of the Bank's assets or $5.0 million from the Federal Home Loan Bank of San Francisco (the "FHLB"). The Bank did not draw on this lending facility during the first quarter of 1997. In the future, long and short term borrowings from the FHLB may be used as an on-going source of liquidity and funding. The Bank has loans pledged to the FRB totaling $2.2 million as collateral for $1.8 million in borrowing capacity through the FRB discount window. Capital At March 31, 1997, shareholders' equity was $11.0 million compared to $11.1 million at December 31, 1996. The Company and the Bank are subject to general regulations issued by the FRB, FDIC, and SBD which require maintenance of a certain level of capital, and the Bank is under specific capital requirements as a result of the Orders and Capital Order. As of March 31, 1997, the Company and the Bank are in compliance with the all minimum capital ratio requirements including the minimum Leverage ratio of 7% mandated by the Orders. The Bank is not in compliance with the capital requirements as defined by the Capital Impairment Orders (see Capital Impairment Orders). The following table reflects both the Company's and the Bank's capital ratios with respect to minimum capital requirements in effect as of March 31, 1997: Minimum Capital Company Bank Requirement Orders Leverage ratio 10.6% 10.3% 4.0% 7.0% Tier 1 risk-based capital 16.4 16.0 4.0 N/A Total risk-based capital 19.1 18.7 8.0 N/A Investment Activities At March 31, 1997, the Company's investment securities, including Fed funds sold, totaled $54.4 million, or 51.8% of total assets, compared to $47.9 million, or 46.0% of total assets, at December 31, 1996. The decrease in investment securities resulted primarily from principal amortization on mortgage related securities and one of the agency securities being called by the issuer. The Company's investment portfolio may from time to time include treasury and agency securities, fixed and adjustable rate mortgage backed securities, and to a limited extent collateralized mortgage backed securities. Generally, the Bank's investment securities held-to-maturity and page available-for-sale have maturities or principal amortization of five years or less. At March 31, 1997, investment securities held-to-maturity totaled $6.7 million, compared to $6.9 million at December 31, 1996, and are carried at amortized cost. At March 31, 1997, the Company held $26.5 million in securities available-for-sale, compared to $28.3 million at December 31, 1996. Investment securities available-for-sale are accounted for at fair value. Unrealized gains and losses are recorded as an adjustment to equity and are not reflected in the current earnings of the Company. As of March 31, 1997, the investment securities available-for-sale have an unrealized loss of $304,000 that was included as a separate component of shareholder's equity to reflect the current market value of these securities. Loans During the first quarter of 1997, total loans decreased by $2.4 million, from $43.8 million at December 31, 1996 to $41.4 million at March 31, 1997. The reduction resulted primarily from loan repayments. The composition of the Bank's loan portfolio at March 31, 1997 and December 31, 1996 is summarized as follows: March 31, December 31, (Dollars in Thousands) 1997 1996 Real estate mortgage $ 26,413 $ 28,022 Secured commercial and financial 6,535 6,229 Unsecured 6,758 7,800 Other 1,693 1,711 41,399 43,762 Deferred fees and discounts, net (258) (190) Allowance for possible loan losses (5,924) (5,663) Total loans, net $ 35,217 $ 37,909 Classified Assets and Impaired Loans Classified assets include non-accrual loans, other real estate owned (the "OREO"), and performing loans that exhibit credit quality weaknesses. The table below outlines the Bank's classified assets at March 31, 1997 and December 31, 1996: March 31, December 31, (Dollars in Thousands) 1997 1996 Loans - performing $ 9,784 $ 10,391 Non-accrual loans 1,265 3,400 OREO 3,770 5,133 Total classified assets $ 14,819 $ 18,924 Classified assets decreased by 22% to $14.8 million as of March 31, 1997 compared to $18.9 million at December 31, 1996. The decrease was primarily the result of loan payoffs and OREO sales. As of March 31, 1997 and December 31, 1996, all OREO properties were classified. The Bank had approximately $616,000 in loans on March 31, 1997 that were between 31 and 89 days delinquent and still accruing. All of the loans delinquent between 31 and 89 days are secured by first or subordinate deeds of trust on real estate. The Company identifies loans with weak credit quality characteristics for review in accordance with SFAS page No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" (the "SFAS No. 114"). As of March 31, 1997 and December 31, 1996, the Company had impaired loans totaling $1.3 million and $3.4 million, respectively. The impairment was measured using the collateral value method. Total interest income recognized on impaired loans during the first quarter of 1997 and 1996 was $31,000. There can be no assurance that the Bank will continue to experience declines in the amount of its classified assets or not experience losses in attempting to collect the non-performing loans or otherwise liquidate the non-performing assets which are presently reflected on the Company's statement of financial condition. The Bank expects that continued reductions in non-performing assets will continue to reduce the costs incurred for managing and carrying the assets. Allowance for Loan Losses The Bank charges current earnings with provisions for estimated losses on loans receivable. The provisions take into consideration specifically identified problem loans, the financial condition of the borrowers, the fair value of the collateral, recourse to guarantors and other factors. Specific loss allowances are established based on the asset classification and credit quality. Specific loss allowances are utilized to ensure that the allowance is allocated based on the credit quality including the present value of expected cash flows, the terms and structure of the loan, the financial condition of the borrower, and the fair value of underlying collateral. As of March 31, 1997, $190,000 in the allowance of loan losses was allocable to impaired loans, as identified in accordance with SFAS No. 114, which had an outstanding principal balance totaling $1.3 million. In addition, the Bank carries an "unallocated" loan loss allowance to provide for losses that may occur in the future in loans that are or are not presently classified, based on present economic conditions, trends, and related uncertainties. The following table summarizes the loan loss experience of the Bank for the quarter ended March 31, 1997: March 31, (Dollars in Thousands) 1997 Beginning balance of allowance for loan losses at December 31, 1996 $5,663 Charge-offs -- Recoveries 261 Provision -- Ending balance of allowance for loan losses $ 5,924 For the quarter ended March 31, 1997, the unallocated portion of the allowance for loan loss totaled $3.4 million at March 31, 1997 compared to $2.4 million at December 31, 1996. The increase in the unallocated allowance was primarily the result of recoveries and the reduction in classified loans. page Deposits The Bank had total deposits of $92.3 million at March 31, 1997 compared to $91.2 million at December 31, 1996, an increase of $1.1 million or 1.2%. The $1.1 million increase was attributed to escrow and stock option lending related customer's deposits of $3.8 million partially offset by a decrease in Association Bank Services customer's deposits of approximately $1.7 million and volatile deposits of $1.0 million. A summary of deposits at March 31, 1997 and December 31, 1996 is as follows: March 31, December 31, (Dollars in Thousands) 1997 1996 Demand deposits $ 19,857 $ 16,505 NOW 16,722 18,295 Money market 17,371 17,376 Savings 1,390 1,343 Total deposits with no stated maturity 55,340 53,519 Time deposits: Less than $100,000 27,841 29,154 $100,000 and greater 9,156 8,493 Total time deposits 36,997 37,647 Total deposits $ 92,337 $ 91,166 The Bank's deposits from private and business banking customers totaled $36.4 million, or 39.4% of total deposits, at March 31, 1997, compared to $36.4 million, or 40.0% of total deposits, at December 31, 1996. Deposits from Association Bank Services customers totaled $18.2 million, or 19.7% of total deposits at March 31, 1997, compared to $19.9 million, or 21.8% of total deposits at December 31, 1996. Deposits acquired through the money desk operations totaled $20.1 million, or 21.8% of total deposits at March 31, 1997, compared to $21.0 million, or 23.0% of total deposits at December 31, 1996. The Bank expects to decrease money desk deposits during the remainder of the year with the intention of replacing these deposits with core deposits. Concentrations of deposits acquired through the money desk operations have been classified by bank regulators as volatile liabilities associated with certain risks, including the risks of reduced liquidity if a bank is unable to retain such deposits and reduced margins if its interest costs are increased by a bank in order to retain such deposits. As a result of the Orders, the Bank is required to maintain a volatile liability dependency ratio of not more than 15%. The Bank's volatile dependency ratio at March 31, 1997 was below the 15.0% requirement. page PART II - OTHER INFORMATION Item 1 - Legal Proceedings Because of the nature of its business, the Company and its subsidiaries, including the Bank, are from time-to-time, a party to legal actions. Based on information available to the Company and the Bank, and its review of such outstanding claims to date, management believes the liability relating to such claims, if any, will not have a material adverse effect on the Company's liquidity, consolidated financial condition or results of operations. Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities See "Note 4 -- Dividend Restrictions". 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 None (b) Report on Form 8-K None page SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. The San Francisco Company (Registrant) Date: May 2, 1997 /s/ James E. Gilleran James E. Gilleran Chairman of the Board and Chief Executive Officer Date: May 2, 1997 /s/ Keary L. Colwell Keary L. Colwell Chief Financial Officer and Executive Vice President EX-27 2
9 3-MOS DEC-31-1997 MAR-31-1997 2,857 0 20,500 0 27,187 6,722 6,567 41,399 5,924 105,199 92,337 0 1,887 0 0 111 288 10,576 105,199 1,123 758 0 1,881 697 697 1,184 0 0 1,782 143 143 0 0 138 0 0 5.00 1,265 0 4,086 334 5,663 0 261 5,924 5,924 0 0
-----END PRIVACY-ENHANCED MESSAGE-----