-----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, T+2pI+VxsFZNRt9kRIV6Xti3aoVTi7CIrjpAZI1M+Le4TFQh8nAqZQzLoQ/N6mWo syeD0RD4F7qHXyZzNiLsVg== /in/edgar/work/0000351238-00-000006/0000351238-00-000006.txt : 20001102 0000351238-00-000006.hdr.sgml : 20001102 ACCESSION NUMBER: 0000351238-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN FRANCISCO CO CENTRAL INDEX KEY: 0000351238 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 943071255 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10198 FILM NUMBER: 749418 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 0001.txt 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 September 30, 2000 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 29,320,725 shares of Class A Common Stock outstanding on October 27, 2000. page The San Francisco Company and Subsidiaries Quarterly Report on Form 10-Q Table of Contents Page Part I - Financial Information (unaudited) Item 1. Consolidated Statements of Financial Condition At September 30, 2000 and December 31, 1999 . . . . . . . . . 1 Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income For the Nine Months Ended September 30, 2000 and 1999 . . . . 3 Consolidated Statements of Cash Flows For the Three and Nine Months Ended September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . 14 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 page The San Francisco Company and Subsidiaries Consolidated Statements of Financial Condition September 30, 2000 and December 31, 1999 (Unaudited) September 30, December 31, (Dollars in thousands except per share data) 2000 1999 Assets: Cash and due from banks $6,270 $5,265 Federal funds sold 27,151 34,224 Cash and cash equivalents 33,421 39,489 Investment securities held-to-maturity, at cost (Fair value: 2000 $629; 1999 $1,904) 638 1,953 Investment securities available-for-sale, at fair value 37,161 32,236 Federal Home Loan Bank stock, at par 1,117 2,077 Loans and leases 105,367 94,612 Deferred loan fees (234) (140) Allowance for loan and lease losses (1,600) (1,525) Loans and leases, net 103,533 92,947 Premises and equipment, net 7,035 7,151 Operating lease equipment, net 3,493 4,306 Interest receivable 1,140 867 Other assets 4,221 3,900 Total Assets $191,759 $184,926 Liabilities and Shareholders' Equity: Non-interest bearing deposits $28,936 $32,676 Interest bearing deposits 113,412 106,235 Total deposits 142,348 138,911 Other borrowings 18,000 20,000 Other liabilities and interest payable 2,803 2,061 Total liabilities 163,151 160,972 Shareholders' Equity: Preferred Stock (par value $0.01 per share) Series B Convertible - Authorized - 437,500 shares; Issued and outstanding - 2000 and 1999 - 15,869 111 111 Common stock (par value $0.01 per share) Class A - Authorized - 100,000,000 shares; Issued and outstanding - 2000 - 29,320,725 and 1999 - 29,317,558 293 293 Additional paid-in capital 76,965 76,963 Retained deficit (48,316) (52,766) Accumulated other comprehensive loss (445) (647) Total shareholders' equity 28,608 23,954 Total Liabilities and Shareholders' Equity $191,759 $184,926 See accompanying notes to unaudited consolidated financial statements. page 1 The San Francisco Company and Subsidiaries Consolidated Statements of Operations Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, (Dollars in thousands except per share data) 2000 1999 2000 1999 Interest income: Loans $2,469 $1,972 $7,172 $5,555 Investments 1,193 732 3,668 2,072 Dividends 21 26 83 77 Total interest income 3,683 2,730 10,923 7,704 Interest expense: Deposits 1,112 722 3,240 2,067 Other borrowings 276 282 812 829 Total interest expense 1,388 1,004 4,052 2,896 Net interest income before (adjustment) provision for loan and lease losses 2,295 1,726 6,871 4,808 (Adjustment) provision for loan and lease losses (44) -- (201) 100 Net interest income after (adjustment) provision for loan and lease losses 2,339 1,726 7,072 4,708 Non-interest income: Stock brokerage commissions and fees 505 500 2,110 1,350 Real estate rental income 341 306 981 922 Service charges and fees 264 230 844 643 Income from operating leases 300 300 900 730 Gain on sale of assets, net -- -- -- 70 Other income 174 61 536 172 Total non-interest income 1,584 1,397 5,371 3,887 Non-interest expense: Salaries and related benefits 1,433 1,251 4,685 3,675 Occupancy expense 278 292 908 873 Operating lease depreciation 271 176 813 423 Professional fees 256 86 624 230 Data processing 129 136 387 362 Corporate insurance premiums 83 64 238 192 Other operating expenses 136 188 666 613 Total non-interest expense 2,586 2,193 8,321 6,368 Income before income taxes 1,337 930 4,122 2,227 Provision for income taxes 49 17 (332) 40 Net Income $1,288 $913 $4,454 $2,187 Income per common share: Basic: Net income $0.04 $0.03 $0.15 $0.07 Weighted average shares outstanding 29,320,725 31,856,703 29,319,361 31,774,199 Diluted: Net income $0.04 $0.03 $0.14 $0.07 Weighted average shares outstanding 31,322,639 33,756,127 31,216,229 33,363,071 See accompanying notes to unaudited consolidated financial statements. page 2 The San Francisco Company and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income Nine Months Ended September 30, 2000 and 1999 (Unaudited) Accumulated Other Total Additional Compre- Retained Compre- Share- (Dollars in Preferred Common Paid-in hensive Earnings hensive holders' thousands) Stock Stock Capital Income (Deficit) Income Equity Balances at January 1, 1999 $111 $317 $78,816 $(56,619) $79 $22,704 Net proceeds from the exercise of stock options -- 2 45 -- -- -- 47 Dividend on Preferred Stock (8) -- (8) Comprehensive income, net of tax Net unrealized losses $(477) -- (477) (477) Other comprehensive loss (477) Net income (nine months) 2,187 2,187 -- 2,187 Comprehensive income $1,710 Balances at September 30, 1999 $111 $319 $78,861 $(54,440) $(398) $24,453 Net proceeds from the exercise of stock options -- 2 83 -- -- -- 85 Redemption of Common Stock -- (28) (1,981) -- -- -- (2,009) Dividend on Preferred Stock (4) -- (4) Comprehensive income, net of tax Net unrealized losses $(249) -- (249) (249) Other comprehensive loss (249) Net income (nine months) 1,678 1,678 -- 1,678 Comprehensive income $1,429 Balances at December 31, 1999 $111 $29 $76,963 $(52,766) $(647) $23,954 Net proceeds from the exercise of stock options -- -- 2 -- -- -- 2 Dividend on Preferred Stock (4) -- (4) Comprehensive income, net of tax Net unrealized gain $202 -- 202 202 Other comprehensive income 202 Net income (nine months) 4,454 4,454 -- 4,454 Comprehensive income $4,656 Balances at September 30, 2000 $111 $293 $76,965 $(48,316) $(445) $28,608 See accompanying notes to unaudited consolidated financial statements. page 3 The San Francisco Company and Subsidiaries Consolidated Statements of Cash Flows Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, (Dollars in thousands) 2000 1999 2000 1999 Cash Flows from Operating Activities: Net income $1,288 $913 $4,454 $2,187 Adjustments to reconcile net income to net cash provided by operating activities: Provisions (adjustment) for loan losses (44) -- (201) 100 Depreciation and amortization expense 428 315 1,271 777 Net gain on sale of real estate owned -- -- -- (71) Increase in interest receivable and other assets (225) (159) (736) (39) Increase in interest payable and other liabilities 652 485 744 105 Increase (decrease) in deferred loan fees 13 (75) 94 (101) Net cash flows provided by operating activities 2,112 1,479 5,626 2,958 Cash Flows from Investing Activities: Proceeds from maturities of investment securities held-to-maturity 58 413 1,315 1,470 Proceeds from maturities of investment securities available-for-sale 1,485 1,091 2,963 12,736 Proceeds from the sale of FHLB stock, net of stock dividends (20) (26) 960 (77) Purchase of investment securities available-for-sale (100) -- (7,544) (6,058) Net increase in loans (3,700) (2,350) (10,755) (12,914) Loans (charged off) net of recoveries 44 -- 276 (200) Proceeds from the sale of other real estate owned -- -- -- 122 Purchases of premises and equipment (184) (12) (342) (55) Increase in investment in operating leases -- -- -- (2,943) Net cash used in investing activities (2,417) (884) (13,127) (7,919) Cash Flows from Financing Activities: Net increase (decrease) in deposits (13,435) 6,411 3,437 15,498 Net decrease in other borrowings -- -- (2,000) -- Cash dividends paid on Series B Preferred Stock -- -- (4) (8) Net proceeds from sale of stock -- 17 2 47 Net cash (used in) provided by financing activities (13,435) 6,428 1,435 15,537 (Decrease) increase in cash and cash equivalents (13,740) 7,023 6,068 10,576 Cash and cash equivalents at beginning of period 47,161 18,461 39,489 14,908 Cash and cash equivalents at end of period $33,421 $25,484 $33,421 $25,484 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $1,174 $763 $3,822 $2,668 Payment of income taxes 46 15 164 42 See accompanying notes to unaudited consolidated financial statements. page 4 The San Francisco Company and Subsidiaries Notes to Consolidated Financial Statements September 30, 2000 (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") is a California state chartered banking corporation and a wholly owned subsidiary of the Company. 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 accompanying financial statements include the accounts of the Company, the Bank, and the Bank's wholly owned subsidiary, Bank of San Francisco Realty Investors (the "BSFRI"). All material intercompany transactions have been eliminated in consolidation. The data as of September 30, 2000, and for the three months ended September 30, 2000 and 1999 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. The results of operations for the three months ended September 30, 2000 are not necessarily indicative of the results to be expected for the entire year of 2000. This report should be read in conjunction with the Company's 1999 Annual Report on Form 10-K. Note 3 - Earnings Per Share (the "EPS") Basic EPS is calculated by dividing net income by the weighted average number of Class A Common Shares (the "Common Stock"). The dilutive EPS is calculated giving effect to all potentially dilutive Common Shares including the conversion of the Series B Convertible Preferred Stock (the "Preferred Stock") and certain stock options, that were outstanding during the period. The following page 5 tables present a reconciliation of the amounts used in calculating basic and diluted EPS for each of the periods shown. (Dollars in thousands except per share amounts) Per share 2000 Income Shares amount Third quarter Basic EPS $1,286 29,320,725 $0.04 Effect of dilutive securities: Preferred Stock 2 793 Stock Options -- 2,001,121 Diluted EPS $1,288 31,322,639 $0.04 Year to date Basic EPS $4,447 29,319,361 $0.15 Effect of dilutive securities: Preferred Stock 7 793 Stock Options -- 1,896,075 Diluted EPS $4,454 31,216,229 $0.14 Per share 1999 Income Shares amount Third quarter Basic EPS $911 31,856,703 $0.03 Effect of dilutive securities: Preferred Stock 2 793 Stock Options -- 1,898,631 Diluted EPS $913 33,756,127 $0.03 Year to date Basic EPS $2,181 31,774,199 $0.07 Effect of dilutive securities: Preferred Stock 6 793 Stock Options -- 1,588,079 Diluted EPS $2,187 33,363,071 $0.07 Note 4 - Income Tax During the second quarter of 2000, an adjustment of $500,000 to the amount of realizable deferred tax asset was recorded based on a determination that the Company is more likely than not able to utilize additional deferred tax assets for which a valuation allowance has been previously provided. The adjustment was based on revised projections taking into consideration actual results for the first and second quarter 2000 that demonstrate a continuing trend of earnings substantially above those projected as of December 31, 1999. The actual results for the third quarter of 2000 are consistent with those projections. Therefore, no adjustment was required in the third quarter of 2000. page 6 The total tax provision (benefit) rate differs from the statutory federal rate for the reasons shown in the following table for the three and nine months ended September 30, 2000: Three Nine Tax expense at the statutory federal rate 34.0% 34.0% Utilization of prior years taxable losses (41.1) (41.1) State income taxes, net of federal benefits 7.1 7.1 Alternative minimum tax 3.7 4.1 Change in valuation allowance -- (12.2) Total effective tax benefit rate 3.7% (8.1)% The provision for income taxes for the nine months ended 2000 consists of state minimum taxes, state and federal alternative minimum taxes, and recognition of the tax benefit of certain deferred tax assets including net operating loss carryforwards and the adjustment to the valuation allowance. Note 5 - Recent Accounting Pronouncements During the first nine months of 2000, no new pronouncements were applicable to the Company or the Bank. page 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This document contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, the Company's and Bank's ability to implement their business plan, manage interest rate risks, and utilize the tax benefit of the net operating loss carryforwards, and the economy in general and the condition of stock markets upon which the Company's stock brokerage business and fee income is dependent, the retention of key employees, the real estate market in California and other factors beyond the Company's and Bank's control. Such risks, uncertainties and factors, including those discussed herein, could cause actual results to differ materially from those indicated. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The Company and the Bank undertake no obligation to revise these forward- looking statements to reflect subsequent events or circumstances. Readers are also encouraged to review the Company's publicly available filings with the Securities and Exchange Commission. 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, 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 not listed on any exchange. First Security Van Kasper of San Francisco California is the sole market maker in the Company's Common Stock. On September 22, 2000, the Company and First Banks America, Inc. (the "FBA") jointly announced the signing of a Definitive Agreement providing for the acquisition of the Company and the Bank by FBA. The merger is expected to close in the first quarter of 2001. Under the terms of the Definitive Agreement, the shareholders of the Company will receive $1.95 per share of Common Stock and $7.00 per share of Preferred Stock. The merger is subject to regulatory approvals and other conditions. The Company recorded net income of $1,288,000 for the three months ended September 30, 2000, compared to a net income of $913,000 for the same period in 1999. The increase in third quarter 2000 earnings over earnings for the same period in 1999 by $375,000 is comprised of higher net interest income and higher non- interest revenue partially offset by higher expenses. The Company recorded net income of $4.5 million for the nine months ended September 30, 2000, compared to a net income of $2.2 million for the same period in 1999. Earnings for the nine months ended September 30, 2000 were better than for the same period in 1999 by $2.3 million. This increase is comprised of higher net interest income, higher non-interest income, a loan loss provision adjustment related to recoveries, partially offset by higher operating expenses. At September 30, 2000, total assets were $191.8 million, an increase of $6.8 million, or 3.6% from $184.9 million at December 31, 1999. As of September 30, 2000, total loans were $105.4 million, an increase of $10.8 million, or 11.4%, compared to $94.6 million at December 31, 1999. Total deposits were $142.3 million at September 30, 2000, an increase of $3.4 million, or 2.4%, compared to $138.9 million at December 31, 1999. page 8 Results of Operations Net Interest Income The Company's net interest income was $2.3 million in the quarter ended September 30, 2000 compared to $1.7 million for the same period in 1999, or an increase of 35.3%. The Company's net interest margin was 5.2% for the quarter ended September 30, 2000 compared to 4.95% for the same period in 1999. The increase in net interest income, for the third quarter 2000, was the result of an increase in the quarterly average earning assets by $39.1 million in 2000 compared to 1999. The yield on interest earning assets increased 47 basis points for the third quarter 2000 compared to the same period in 1999. For the third quarter 2000, average non- interest bearing deposits increased by $20.0 million, offsetting the increase in the interest rates on interest bearing deposits and other borrowings. The Company's net interest income was $6.9 million in the nine months ended September 30, 2000 compared to $4.8 million for the same period in 1999, or an increase of 43.8%. The Company's net interest margin was 5.0% for the nine months ended September 30, 2000 compared to 4.85% for the same period in 1999. The increase in net interest income, for the nine months ended September 30, 2000, was the result of an increase in year to date average earning assets by $49.8 million in 2000 compared to 1999. The yield on interest earning assets increased 24 basis points for the nine months ended September 30, 2000 compared to the same period in 1999. For the nine months ended September 30, 2000, average non- interest bearing deposits increased by $16.2 million, substantially offsetting the increase in the interest rates on interest bearing deposits and other borrowings. Provision/Adjustment for Loan and Lease Losses In 2000 and 1999, the Bank recorded reductions to the allowance for loan and lease losses as an adjustment for loan and lease losses, and increases to the allowance for loan and lease losses as provisions. The provisions and adjustments are based on the factors discussed under "Allowance for Loan and Lease Losses". The Company's third quarter 2000 adjustment for loan and lease losses increased earnings by $44,000 compared to the third quarter of 1999. An adjustment of $44,000 was recorded in third quarter 2000 compared to none for the same period in 1999. The Company's year to date 2000 adjustment, net of provisions, for loan and leases losses increased earnings by $301,000 compared the same period in 1999. An adjustment of $276,000, net of provisions of $75,000, totaling $201,000 was recorded in 2000 compared to a provision of $100,000 for the same period in 1999. The adjustment was related to loan loss recoveries received during the second and third quarters of 2000. Non-Interest Income Non-interest income was $1.6 million for the quarter ended September 30, 2000 compared to $1.4 million for the same period in 1999, an increase of $187,000, or 13.4%. Non-interest income was $5.4 million for the first nine months of 2000 compared to $3.9 million for the same period in 1999, an increase of $1.5 million, or 38.2%. The increase in non-interest income was primarily the result of an increase in stock option and brokerage commission income from higher transaction volumes, an increase in real estate rental income from higher rents, an increase in operating lease income, and an increase in all other fees and charges in 2000 compared to 1999. page 9 Non-Interest Expense The Company's non-interest expenses increased to $2.6 million from $2.2 million for the third quarter 2000 and 1999, respectively. The increase of $393,000, or 17.9%, was primarily related to compensation related expenses including incentive programs related to profitability improvements, an increase in depreciation of operating lease equipment, and an increase in professional fees related to the recently announced merger of the Company with First Banks America, Inc. The Company's non-interest expenses increased to $8.3 million from $6.4 million for the nine month period ended September 30, 2000 and 1999, respectively. The increase of $1.9 million, or 30.7%, was primarily related to compensation related expenses including incentive programs related to profitability improvements, an increase in depreciation of operating lease equipment, an increase in professional fees related to the recently announced merger as described above. Financial Condition Liquidity and Capital Resources Liquidity The Bank's liquid assets, which include cash and short term investments totaled $33.4 million, or 17.4% of total assets, at September 30, 2000, a decrease of $6.1 million, from $39.5 million, or 21.4% of total assets, at December 31, 1999. The change in liquidity was the result of an increase in loans of $10.8 million and investments available for sale of $4.9 million, and increases in deposits of $3.4 million and earnings of $4.5 million. As of September 30, 2000, the Bank had pledged securities totaling $21.9 million and loans totaling $37.0 million to the Federal Home Loan Bank of San Francisco (the "FHLB") as collateral for other borrowings totaling $15.0 million and a short-term liquidity commitment totaling $3.0 million. The loans were pledged as additional collateral to facilitate the unpledging of investment securities. As of September 30, 2000, the Bank has the ability to borrow up to a maximum of $38.4 million from the FHLB with terms of under five years. In the future, long and short-term borrowings from the FHLB may be used as an on-going source of liquidity and funding. As of September 30, 2000, the Bank had other securities totaling $600,000 pledged as collateral for public funds and trusts. The Bank has access to the discount window at the Federal Reserve Bank (the "FRB") for a total borrowing facility of $3.1 million upon the pledge of securities. At September 30, 2000 and December 31, 1999, no securities were pledged as collateral for the FRB facility. Capital At September 30, 2000, shareholders' equity was $28.6 million compared to $24.0 million at December 31, 1999. The Company and the Bank are subject to general regulations issued by the FRB, Federal Deposit Insurance Corporation, and California Department of Financial Institutions which require maintenance of a certain levels of capital. As of September 30, 2000, the Company and the Bank are in compliance with all minimum capital ratio requirements. page 10 The following table reflects both the Company's and the Bank's capital ratios with respect to minimum capital requirements in effect as of September 30, 2000: Minimum Capital Company Bank Requirement Leverage ratio 14.0% 13.9% 4.0% Tier 1 risk-based capital 18.3 18.2 4.0 Total risk-based capital 19.3 19.2 8.0 Investment Activities At September 30, 2000, the Company's investment securities and FHLB stock totaled $38.9 million, or 20.3% of total assets, compared to $36.3 million, or 19.6% of total assets, at December 31, 1999. 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 available-for-sale have maturities or principal amortization of ten years or less. At September 30, 2000, investment securities held-to-maturity totaled $638 million, compared to $1,953,000 at December 31, 1999, and are carried at amortized cost. At September 30, 2000, the Company held $37.2 million in securities available-for-sale, compared to $32.2 million at December 31, 1999. 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 September 30, 2000, the investment securities available-for-sale have an unrealized loss of $445,000 net of tax, that was included as a component of accumulated other comprehensive income under shareholder's equity to reflect the current market value of the securities available-for-sale. The change in market value of the investment securities was the result of changes in market interest rates during the first nine months of 2000. The market value of the investment portfolio will fluctuate with changes in market interest rates. Management believes the recent decline in market value is temporary and does not represent a permanent impairment in the market value of the investment portfolio. Loans and Leases During the first nine months of 2000, total loans and leases increased from $94.6 million at December 31, 1999 to $105.4 million at September 30, 2000. The increase resulted primarily from the page 11 funding of new loans. The composition of the Bank's loan and lease portfolio at September 30, 2000 and December 31, 1999 is summarized as follows: September 30, December 31, (Dollars in thousands) 2000 1999 Real estate mortgage $77,355 $67,914 Secured commercial and financial 8,777 9,386 Unsecured 14,614 13,344 Other loans and leases 4,621 3,968 105,367 94,612 Deferred fees and costs, net (234) (140) Allowance for possible loan and lease losses (1,600) (1,525) Total loans and leases, net $103,533 $92,947 Impaired Loans and Leases On September 30, 2000, the Bank had no loans that were past due more than 31 days. The Company identifies loans with weak credit quality characteristics for review in accordance with Statement of Financial Accounting Standards ("SFAS") 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 September 30, 2000 and December 31, 1999, the Company had no impaired loans. Total interest income recognized on impaired loans during the first nine months of 2000 and 1999 was zero and $4,000, respectively. There can be no assurance that the Bank will not experience losses in attempting to collect or otherwise liquidate any assets that become non-performing in the future. As of September 30, 2000 and December 31, 1999, the Company's statement of financial condition did not include any non-performing loans. Allowance for Loan and Lease Losses Generally, the Bank charges current earnings with a provision for estimated losses on loan and lease receivables. The Bank will provide an adjustment if the total allowance for loan and lease losses exceeds the amount of estimated loan and lease losses. The provisions or adjustments 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 asset characteristics 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 September 30, 2000, none of the allowance for loan losses was allocable to impaired loans, as identified in accordance with SFAS No. 114. In addition, the Bank carries an "unallocated" loan and lease loss allowance to provide for inherent losses page 12 on loans and leases based on present economic conditions, trends, and related uncertainties. The following table summarizes the loan and lease loss experience of the Bank for the nine months ended September 30, 2000: (Dollars in thousands) 2000 Beginning balance of allowance for loan and lease losses at December 31, 1999 $1,525 Charge-offs -- Recoveries 276 Adjustment, net of provision (201) Ending balance of allowance for loan and lease losses September 30, 2000 $1,600 Other Assets Operating Leases As of September 30, 2000, other assets included investments in operating leases totaling $3.5 million compared to $4.3 million at December 31, 1999. Generally, the operating leases are comprised of computer and electronic equipment leased to various lessees for various periods with a weighted average lease term of eight months. The Bank has contracted with a leasing administrator to manage the equipment and collect lease payments. Deferred Tax Asset As of September 30, 2000 and December 31, 1999, other assets included total deferred tax assets net of deferred tax liabilities and the valuation allowance of $3.7 million and $3.4 million, respectively. As of September 30, 2000, the deferred tax asset included the tax effective of the market value adjustment of the investment securities available for sale of $311,000, a reduction of $142,000 from $453,000 as of December 31, 1999. In addition, the Company reduced the valuation allowance by $500,000 as income tax benefit. Based on evidence available through the third quarter of 2000, it is likely that $3.4 million of the deferred tax assets will be realized based on the Company's present financial condition, continuing trend of increasing earnings, and available information about future years. page 13 Deposits The Company had total deposits of $142.3 million at September 30, 2000 compared to $138.9 million at December 31, 1999, an increase of $3.4 million or 2.4%. The increase is attributed primarily to an increase in homeowners' association related customer's deposits of $5.0 million, an increase in escrow related deposits of $7.4 million, and an increase in Private and Business Banking related customer's deposits of $1.5 million. The increase was partially offset by a decline in stock option and brokerage related deposits of $4.6 million and money desk related deposits of $6.0 million. A summary of deposits at September 30, 2000 and December 31, 1999 is as follows: September 30, December 31, (Dollars in thousands) 2000 1999 Demand deposits $28,936 $32,676 NOW 28,957 27,555 Money market and savings 43,080 38,354 Total deposits with no stated maturity 100,973 98,585 Time deposits: Less than $100,000 11,613 14,819 $100,000 and greater 29,762 25,507 Total time deposits 41,375 40,326 Total deposits $142,348 $138,911 The Bank's deposits from private and business banking customers totaled $63.2 million, or 44.4% of total deposits, at September 30, 2000, compared to $61.6 million, or 44.3% of total deposits, at December 31, 1999. Deposits from Association Bank Services customers totaled $32.3 million, or 22.7% of total deposits at September 30, 2000, compared to $27.3 million, or 19.6% of total deposits at December 31, 1999. Deposits from Escrow customers totaled $33.1 million, or 23.2% of total deposits at September 30, 2000, compared to $25.7 million, or 18.5% of total deposits at December 31, 1999. Deposits acquired through the money desk operations totaled $3.7 million, or 2.6% of total deposits at September 30, 2000, compared to $9.7 million, or 7.0% of total deposits at December 31, 1999. Other Borrowings As of September 30, 2000, the Bank had long-term FHLB borrowings outstanding totaling $15.0 million and short-term FHLB borrowings outstanding of $3.0 million secured by pledged securities totaling $21.9 million. Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk Management Market risk includes risks that arise from changes in interest rates, foreign currency, exchange rates, commodity prices, equity prices, and other market changes that affect market sensitive instruments. The Company's primary market rate risk, interest rate risk, has not changed significantly since December 31, 1999. The Company does not have any significant risk related to foreign currency, exchange rates, commodity prices, equity prices, and other market changes that affect market sensitive instruments. page 14 Item 6. Exhibits and Reports on Form 8-K (a) none (b) A report on Form 8-K dated September 22, 2000 was filed with the SEC regarding the announcement of the approval of an Agreement and Plan of Merger between the Company and First Banks America, Inc. subject to regulatory approval and other conditions. page 15 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: October 31, 2000 /s/ James E. Gilleran James E. Gilleran Chairman of the Board and Chief Executive Officer Date: October 31, 2000 /s/ Keary L. Colwell Keary L. Colwell Chief Financial Officer and Executive Vice President EX-27 2 0002.txt
9 9-MOS DEC-31-2000 SEP-30-2000 6,270 0 27,151 0 37,161 638 629 105,367 1,600 191,759 142,348 3,000 2,754 15,000 0 111 293 0 163,102 7,172 3,668 83 10,923 3,240 4,052 6,871 (201) 0 8,321 4,122 0 0 0 4,454 .15 .14 5.0 0 0 0 0 1,525 0 275 1,600 1,600 0 0
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