-----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, C0xw4P3T3t3BA24lIYboq09VYL+iUcJPLw0+hrQeUSRTZbRtttqOo15HeWpFUUjP d0vLQuJ+4gGYYDaxelWcTQ== 0000940401-98-000006.txt : 19980817 0000940401-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000940401-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAY AREA BANCSHARES CENTRAL INDEX KEY: 0000701153 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942779021 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-76003 FILM NUMBER: 98690617 BUSINESS ADDRESS: STREET 1: 900 VETERANS BLVD CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153671600 MAIL ADDRESS: STREET 1: 900 VETERANS BLVD CITY: REDWOOD CITY STATE: CA ZIP: 94063 FORMER COMPANY: FORMER CONFORMED NAME: AREA FINANCIAL CORP DATE OF NAME CHANGE: 19890612 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED June 30, 1998 Commission File Number 2-76003 BAY AREA BANCSHARES California #94-2779021 900 Veterans Blvd., Redwood City, CA 94063 Telephone (650) 562-3238 The registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months, and x Yes No (2) has been subject to such filing requirements for the past 90 days. x Yes No 982,528 Shares of Common Stock Outstanding as of June 30, 1998 Part 1 Item 1
BAY AREA BANCSHARES & SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED, IN THOUSANDS) ASSETS 06/30/98 12/31/97 Cash and due from banks $13,578 $11,464 Federal Funds Sold 8,500 7,500 Cash and cash equivalents 22,078 18,964 Investment securities available for sale (market value approximates book value) 1,609 1,106 Investment securities held to maturity (market value of $12,410 in 1998 and $14,683 in 1997) 12,282 14,482 Loans, net of reserve for possible loan losses of $1,773 in 1998 and $1,638 in 1997 100,258 84,374 Premises and equipment,net 542 653 Real estate owned 0 0 Interest receivable and other assets 2,061 2,506 Total assets $138,830 $122,085 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Demand $36,069 $28,248 Interest-bearing transaction 45,833 41,758 Savings 6,904 6,399 Time 34,532 31,021 Total Deposits 123,338 107,426 Interest payable and other liabilities 1,071 1,671 Federal funds purchased 0 0 Federal Home Loan Bank advances 1,500 1,000 Total liabilities 125,909 110,097 Shareholders' equity: Common stock, no par value: Authorized - 20,000,000 shares; issued & outstanding 4,854 4,736 982,528 in 1998 and 977,035 in 1997 Unrealized (loss) gain on securities held for sale 0 (2) Additonal paid in capital 640 0 Retained earnings 7,427 7,254 Total shareholders' equity 12,921 11,988 Total liabilities and shareholders' equity $138,830 $122,085
(1) Part 1 Item 1 BAY AREA BANCSHARES & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, DOLLARS IN THOUSANDS)
Three Months Three Months Ended Ended 06/30/98 06/30/97 Interest Income: Interest and fees on loans $2,589 $1,990 Interest on investment securities 216 253 Interest on federal funds sold 158 92 Interest on time deposits with other financial institutions 0 1 Total Interest Income 2,963 2,336 Interest Expense: Interest on interest-bearing transaction amounts 356 349 Interest on savings deposits 72 59 Interest on time deposits 462 287 Interest on short-term borrowing 21 0 Interest on notes payable and redeemable debentures 0 0 Total Interest Expense 911 695 Net interest income 2,052 1,641 Provision for possible loan losses 30 80 Net interest income after provision for possible loan losses 2,022 1,561 Noninterest income: Service charges on deposit accounts 62 50 Net loss on sales of securities 0 0 Net gain on disposal of assets 0 0 Net gain on sale of loans held for sale 0 0 Other Mortgage Banking Revenue 52 51 ATM network revenue 479 514 Other 21 28 Total noninterest income 614 643 Noninterest expense: Salaries and related benefits 634 519 Occupancy 121 122 Equipment 122 104 Professional fees 96 67 Stationery and supplies 22 30 Other 559 599 Total noninterest expense 1,554 1,441 Income before provision for income taxes 1,082 763 Provision for income taxes 458 312 Net Income 624 451 Comprehensive income: Unrealized gain (loss) on investment securities held-for- sale, net 0 0 Comprehensive Income $624 $451 Earnings per share: Average common and equivalent shares outstanding- Primary 981,903 982,000 Average common and equivalent shares outstanding- Fully Diluted 1,010,000 982,000 Earnings Per Common Share $0.64 $0.46 Earnings Per Common Share - Assuming Dilution $0.62 $0.46
(2) Part 1 Item 1 BAY AREA BANCSHARES & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, DOLLARS IN THOUSANDS)
Six Months Six Months Ended Ended 6/30/98 6/30/97 Interest Income: Interest and fees on loans $4,837 $3,846 Interest on investment securities 448 480 Interest on federal funds sold 293 203 Interest on time deposits with other financial institutions 0 2 Total Interest Income 5,578 4,531 Interest Expense: Interest on interest-bearing transaction amounts 655 688 Interest on savings deposits 142 117 Interest on time deposits 900 551 Interest on short-term borrowing 37 0 Interest on notes payable and redeemable debentures 0 0 Total Interest Expense 1,734 1,356 Net interest income 3,844 3,175 Provision for possible loan losses 70 120 Net interest income after provision for possible loan losses 3,774 3,055 Noninterest income: Service charges on deposit accounts 122 98 Net loss on sales of securities 0 0 Net gain on disposal of assets 0 0 Net gain on sale of loans held for sale 0 12 Other Mortgage Banking Revenue 101 75 ATM network revenue 930 995 Other 56 49 Total noninterest income 1,209 1,229 Noninterest expense: Salaries and related benefits 1,306 1,156 Occupancy 245 232 Equipment 247 235 Professional fees 173 113 Stationery and supplies 47 58 Other 1,078 1,046 Total noninterest expense 3,096 2,840 Income before provision for income taxes 1,887 1,444 Provision for income taxes 788 601 Net Income 1,099 843 Comprehensive income: Unrealized gain (loss) on investment securities held-for- sale, net 2 (3) Comprehensive Income $1,101 $840 Earnings per share: Average common and equivalent shares outstanding- Primary 982,111 980,000 Average common and equivalent shares outstanding- Fully Diluted 1,010,000 980,000 Earnings Per Common Share $1.12 $0.86 Earnings Per Common Share - Assuming Dilution $1.09 $0.86
(3) Part 1 Item 1 BAY AREA BANCSHARES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, DOLLARS IN THOUSANDS)
Six Months Six Months Ended Ended 06/30/98 06/30/97 Cash flows from operating activities: Net Income $1,099 $843 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of premises and equipment 176 216 Provision for possible loan losses 70 140 Net gain loss on sale of assets 0 0 Funding of loans held for sale 0 (947) Proceeds from the sale of loans held for sale 0 1,682 Net gain on sale of loans held for sale 0 (12) Net loss on sale of investment securities 0 0 Net ammortization and accretion of investment premiums and discounts 63 8 Net decrease in interest receivable and other assets 445 49 Net increase in interest payable and other liabilities (600) (524) Net decrease in deferred loan fees (42) (97) Total adjustments 112 515 Net cash provided by operating activities 1,211 1,358 Cash flows from investing activities: Proceeds from sale of investment securities 0 100 Proceeds from the maturity of investment securities held for sale 0 0 Proceeds from the maturity of investment securities held to maturity 1,085 1,715 Mortgage backed securities principal payments 1,715 256 Purchase of investment securities held to maturity (1,166) (2,741) Purchase of investment securities held for sale 0 Net increase in gross loans (15,911) (12,197) Proceeds from the sale of Real Estate Owned 0 0 Capital expenditures (65) (126) Net cash used in investing activities (14,342) (12,993) Cash flows from financing activities: Net increase in demand deposits,transaction and savings 12,401 3,002 Net increase in time deposits 3,511 2,356 Repayment of Federal Funds Purchased 0 0 Net proceeds of Federal Home Loan Bank advances 500 0 Proceeds from stock warrants and options exercised 29 211 Cash Dividends paid (196) (156) Net cash provided by financing activities 16,245 5,413 Net increase (decrease) in cash and cash equivalents 3,114 (6,222) Cash and cash equivalents,beginning of period 18,964 17,861 Cash and cash equivalents,end of period $22,078 $11,639
There were $0 and $499 in loans transferred to Real Estate Owned in 1998 and 1997 respectively. (4) BAY AREA BANCSHARES & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All adjustments, which in the opinion of management are necessary for a fair statement of the Company's financial condition at June 30, 1998, results of operations for the three and six month periods ended June 30, 1998 and the statement of cash flows for the six month period ended June 30, 1998 have been included. These adjustments are of a normal and recurring nature. The results of operations and statement of cash flows are not necessarily indicative of the results for a full year's activity. The accompanying unaudited financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company's Annual Report for the year ended December 31, 1997. All references to the "Bank" are in reference to the Company's sole, and wholly owned, subsidiary Bay Area Bank. New Statements of Financial Accounting Standards: In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130"). Under the provisions of SFAS 130, the Company is required to report comprehensive income in its financial statements; the term comprehensive income describes the total of all components of comprehensive income including net income as well as other revenues, expenses, gains and losses that are included in comprehensive but excluded from earnings (net income). The Company started to report comprehensive income as part of the consolidated statements of operations, including other comprehensive income items added separately to net income resulting in total comprehensive income. SFAS 130 is effective with the year-end 1998 financial statements; however, the total comprehensive income is required in the financial statements for interim periods beginning in 1998. The Company adopted SFAS 130 as of January 1, 1998; the adoption of the statement did not have a material impact on the Company's financial statements. In June of 1997, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). Under the provisions of SFAS 131, an entity is required to report selected information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Statement uses a "management approach" to identify operating segments and defines an operating segment as a component of an enterprise (I) for which discrete financial information is available; (ii) that engages in business activities that may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise) and (iii) whose operating results are regularly reviewed by the enterprise's chief operating decision maker. Reportable segments (5) (aggregated if appropriate) are operating segments that meet specified quantitative thresholds based on revenues, profit or loss and assets, using a ten percent rule. SFAS 131 is effective for fiscal years beginning after December 15, 1997. Segment information that is presented for comparative purposes is to be restated to conform to the requirements of SFAS 131 unless it is impracticable to do so. The required interim disclosures are not required to be made in the initial year of application but the information for the interim periods for the initial year is required as comparative information in the second year of application. BAY AREA BANCSHARES & SUBSIDIARIES ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 2A Financial Condition Liquidity Liquid assets (Cash, Federal Funds Sold and Investments) increased $1.4 million or 4.1% to $35.7 million over the six month period from December 31, 1997 to June 30, 1998. At year-end, total liquid assets as a percentage of total assets was 28.3%, whereas on June 30, 1998 it had decreased to 25.9%. Cash & due from banks increased $2.1 million over the first six months of 1998 to $13.6 million at June 30, 1998. During the first six months of 1998 cash and due from banks averaged $10.8 million. The portion of the total cash & due from banks representing ATM ("Automatic Teller Machine") network cash inventory has averaged approximately $2.6 million during 1998 and averaged $3.7 in the first two quarters of 1997. The reduction in ATM cash is primarily a result of more aggressive management of the cash inventory in the machines. Both average and period end loans and deposits outstanding are at record levels for the Company. During the first six months of 1998 gross loans outstanding has averaged $91.2 million as compared to $71.7 million in the first six months of 1997, an increase of 27%. Gross loans were $102.0 million at June 30, 1998 a record level for the Company and a $16.0 million or 18.6% increase over the balance at December 31, 1998. The $16.0 million increase in loans outstanding was comprised primarily of an increase in commercial loans of approximately $6.0 million and increase in construction loans outstanding of $9.0 million. The Company expects construction lending to remain strong in the near term, as construction commitments have grown $16.4 million or 40% since December 31, 1997 to $57.5 million at June 30, 1998. Deposits have averaged $114.1 million in the first six months of 1998 while they averaged $96.3 million during the first six months of 1997, an increase of 18.4%. Deposits were $123.3 million at 6/30/98, an increase of $15.9 million or 15% since year end 1997. Management believes current liquid assets and current available credit lines are adequate to cover the working capital requirements of the Company and any reasonable needs arising from deposit withdrawals. (6) Capital Consolidated equity capital plus reserves increased $1.1 million in the first six months of 1998 from $13.6 million or 11.16% of total gross assets at December 31, 1997 to $14.7 million or 10.9% of total gross assets at June 30, 1998. Bank capital plus reserves totaled $13.6 million on June 30, 1998 or 9.7% of total adjusted assets as compared to capital plus reserves of $12.3 million or 10.03% of total adjusted assets at December 31, 1997. At June 30, 1998 the Bank maintained a tier one capital ratio of 11.02% and a tier two capital ratio of 12.27% as compared to 11.7% and 12.9% respectively at December 31, 1997. The Bank's capital level continues to exceed State and Federal Deposit Insurance Corporation requirements and satisfies the Federal Reserve Board's current risk-based capital Guidelines. The Bank declared no dividends to the Parent company in the first six months of 1998 and the Company declared cash dividends to common shareholders of $.10 per share in June of 1998. The second quarter dividend represents twenty seven consecutive quarterly cash dividends declared by the Parent company to shareholders. Item 2B Results of Operations Results of Operations Consolidated operating profits were $624,000 ($.62 per common share assuming dilution vs. $.46 in the prior year) for the second quarter of 1998, the highest second quarter earnings in the Company's history. This represents a $173,000 or 38.36% increase over the second quarter of 1997 when net income was $451,000. The increase in second quarter earnings in 1998 versus the second quarter of 1997 is a result of an increase in pretax earnings of $319,000 which is comprised of an increase in net interest income of $411,000 and a decrease in loan loss provisions of $50,000, offset in part by a decrease in other income of $29,000 and an increase in noninterest expense of $113,000. Consolidated operating profits were $1,099,000 ($1.09 per common share assuming dilution vs. $.86 in the prior year) for the first six months of 1998, the highest six months of earnings in the Company's history. This represents a $256,000 or 30.1% increase over the first six months of 1997 when net income was $843,000. The increase in six month earnings in 1998 versus the first six months of 1997 is a result of an increase in pretax earnings of $443,000 which is comprised of an increase in net interest income of $669,000 and a decrease in loan loss provisions of $50,000, offset in part by a decrease in other income of $20,000 and a increase in noninterest expense of $256,000. The growth in net interest income of 25.1% in the second quarter of 1998 is primarily a result of growth in total earning assets offset in part by a decrease in net interest margin. (Net interest margin is computed by dividing annualizing net interest income by average earning assets during the respective period). Average earning assets in the second quarter of 1998 were $122.5 million, a $26.3 million or 27.3% increase over the second quarter of 1997 when earning assets averaged $96.2 million. Net interest margin in the second quarter of 1998 was approximately 6.70% as compared to 6.82% in the second quarter of 1997. (7) The growth in net interest income of 23.5% in the first six months of 1998 is primarily a result of growth in total earning assets offset in part by a decrease in net interest margin. Average earning assets in the first six months of 1998 have been $116.9 million, a $22.5 million or 23.8% increase over the first six months of 1997 when earning assets averaged $94.4 million. Net interest margin in the first half of 1998 was approximately 6.58% as compared to 6.73% in the first six months of 1997. The modest decline in net interest margin that has occurred throughout the first half of 1998 is a result of an decrease in the yield on earning assets and an increase in the cost of deposits and advances. The yield on earning assets decreased in the first six month of 1998 to 9.54% as compared to 9.60% in the first six months of 1997. The cost of the Bank's deposits and advances (including demand deposits), which averaged $115.3 million in the first six months of 1998, rose to 3.01% as compared to 2.82% in the first six months of 1997, when the deposits and advances averaged $96.3 million. Management believes that further compression of net interest margin may occur in the second half of 1998 and into 1999 primarily as a result of competitive pressures on loan pricing. Loan loss provisions were $30,000 in the second quarter of 1998 and $80,000 in the second quarter of 1997. Loan loss provisions for the first six months of 1998 were $70,000 as compared $120,000 for the first six month of 1997. Th decrease in loan loss provisions in 1998, as compared to 1997, is a result of a decline in nonperforming assets and a continued local economic expansion. Non performing assets at June 30, 1998 were $145,000 or .10% of total assets and 8.2% of loan loss reserves. Non performing assets at December 31, 1997 were $373,000 or .31% of total assets and 22% of loan loss reserves. There have been $33,000 in loans charged off during the six months of 1998 and $98,000 in recoveries of loans previously charged off as compared to $42,000 in loans charged off and $22,000 in recoveries in the first six months of 1997. Loan loss reserves of $1.77 million at June 30, 1998 represent a ratio of 1.74% of gross loans outstanding as compared to a loan loss reserve of $1.64 million or 1.90% of gross loans at December 31, 1997. The Bank's ATM revenues were down $35,000 or 6.8% in the second quarter of 1998 and fell $65,000 or 6.5% in the first six months of 1998 in comparison to the same periods in 1997. Revenue per machine has averaged $3,394 thus far in 1998, an increase of 3% over the first six months of 1997 in which average revenue per machine was $3,295. The average number of machines in operation was approximately 51 in the first six months of 1997 and fell to 47 in the first six months of 1998. The reduction in the average number of machines in service was a result of certain contracts that expired and certain unprofitable sites that were closed, primarily during 1997. The Bank hopes to find acceptable machines sites to redeploy some of the excess machines in the future. The department contributed $157,000 to pretax profits in the first six months of 1998 as compared to $148,000 in the first six months of 1997. The ATM department expects to realize significant cost reductions in the future. These cost reductions include $10,000 a month savings as a result of a consultant contract that was fully amortized in June of 1998, an expected savings of approximately $6,000 per month as a result of new contractual terms with a major service provider that begins in July 1998 and a reduction of depreciation expense as certain existing capital costs become fully depreciated resulting in a $7,000 a month saving of depreciation on the existing infrastructure by January of 1999. Non interest expense was up $113,000 or 7.84% in the second quarter of 1998 as compared to the second quarter of 1997 and $256,000 or 9.0% for the first six months of 1998. The increase in both periods was comprised primarily of additional salaries and benefits which are up 13% in the first six months of 1998. (8) ITEM 6 (a) Exhibits. 3.1 Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 3.2 Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 3.3 Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 3.4 Amendment to Bylaws of Company (incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 27 Financial Data Schedule (filed herewith) Part 2, Item 4 (a) The 1998 Annual Meeting of the Shareholders of the Registrant was held on May 19, 1998. (b) The following table shows the votes for, against or withheld, and the broker nonvotes as to each candidate for director. Each candidate was elected.
Name Votes For Votes Against or Withheld Broker Nonvotes Gary S. Goss 769,669 17,946 0 Robert R. Haight 771,710 75,905 0 Stanley A. Kangas 770,069 17,546 0 David J. Macdonald 713,189 74,426 0 Thorwald A. Madsen 768,190 19,425 0 Dennis W. Royer 770,069 17,546 0
To approve Amendment No. 1 of the Bay Area Bancshares 1993 Stock Option Plan. For - 578,083 Against - 53,716 Abstain - 3,912 Broker Non Votes - 151,904 (9) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAY AREA BANCSHARES Registrant Dated: August 13, 1998 /s/Robert R. Haight Robert R. Haight President and Chief Executive Officer /s/Anthony J. Gould Anthony J. Gould Chief Accounting Officer EX-27 2 FDS--
9 This schedule contains summary financial information extracted from the Balance Sheet, and Statement of Income, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JUN-30-1998 13,578 0 8,500 0 1,609 12,282 12,410 102,031 1,773 138,830 123,338 1,500 1,071 0 0 0 4,854 8,067 138,830 4,837 448 293 5,578 1,697 1,734 3,844 70 0 3,096 1,887 1,887 0 0 1,099 1.12 1.09 9.54 145 0 0 0 1,773 34 99 1,773 1,773 0 0
-----END PRIVACY-ENHANCED MESSAGE-----