-----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, R3oScQOE7EFYY+X9k8aFE/OHZpF/vPZ8gNbEF3ApPYW8M1T4+zMps9Bf8hxCgRfK SNgqmeinJ7KEzwR4NkagxA== 0000702147-95-000016.txt : 19951119 0000702147-95-000016.hdr.sgml : 19951119 ACCESSION NUMBER: 0000702147-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SDNB FINANCIAL CORP CENTRAL INDEX KEY: 0000702147 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953725079 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11117 FILM NUMBER: 95590026 BUSINESS ADDRESS: STREET 1: 1420 KETTNER BLVD CITY: SAN DIEGO STATE: CA ZIP: 92101 BUSINESS PHONE: 6192331234 MAIL ADDRESS: STREET 1: P O BOX 12605 CITY: SAN DIEGO STATE: CA ZIP: 92112-3605 10-Q 1 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 Quarter Ended Commission File Number 0-11117 September 30, 1995 SDNB FINANCIAL CORP. (Exact name of Registrant as specified in its charter) CALIFORNIA (State or jurisdiction of incorporation or organization) 95-3725079 (I.R.S. Employer Identification No.) 1420 Kettner Blvd. San Diego, CA 92101 (Address of principal executive offices) (Zip Code) (619) 231-4989 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required 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 Number of shares of Common Stock, no par value, outstanding at October 31, 1995: 3,073,260. SDNB FINANCIAL CORP. INDEX PART I FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheet (unaudited) 1 September 30, 1995 and December 31, 1994 Consolidated Statements of Operations (unaudited) 2 Three and nine months ended September 30, 1995 Three and nine months ended September 30, 1994 Consolidated Statements of Cash Flows (unaudited) 3 Nine months ended September 30, 1995 Nine months ended September 30, 1994 Notes to Consolidated Financial Statements (unaudited) 4 September 30, 1995 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-14 PART II OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 PART I FINANCIAL INFORMATION Item 1. Financial Statements SDNB Financial Corp. and Subsidiaries Consolidated Balance Sheets (unaudited) (In thousands) September 30, December 31, Assets 1995 1994 Cash and due from banks $ 14,305 $ 11,936 Interest bearing deposits in other banks 2,976 1,381 Investment securities 12,609 17,321 Investment securities available-for-sale 12,674 9,910 Federal funds sold 24,000 24,000 Loans 92,104 97,058 Less allowance for loan losses 2,133 2,148 Net loans 89,971 94,910 Premises and equipment, net 10,894 11,089 Other real estate owned 181 268 Accrued interest receivable and other assets 1,791 2,370 Total assets $169,401 $173,185 Liabilities and Shareholders' Equity Liabilities: Deposits: Non-interest bearing $ 45,144 $ 45,693 Interest bearing 89,504 92,583 Total deposits 134,648 138,276 Securities sold under agreement to repurchase 8,674 12,285 Accrued interest payable and other liabilities 1,365 953 Notes payable 10,682 12,702 Total liabilities 155,369 164,216 Shareholders' equity: Common stock 20,324 14,585 Stock subscription receivable (1,108) 0 Deficit (5,098) (5,256) Net unrealized holding losses on available-for-sale securities (86) (360) Total shareholders' equity 14,032 8,969 Total liabilities and shareholders' equity $169,401 $173,185 The accompanying notes are an integral part of the consolidated financial statements. SDNB Financial Corp. and Subsidiaries Consolidated Statements of Operations (unaudited) (In thousands, except amounts per share) 3 months 3 months 9 months 9 months ended ended ended ended 9/30/95 9/30/94 9/30/95 9/30/94 Interest income: Interest and fees on loans $ 2,609 $ 2,302 $ 7,752 $ 6,956 Interest on federal funds sold 200 183 573 475 Interest on investments 400 426 1,205 1,185 Total interest income 3,209 2,911 9,530 8,616 Interest expense: Interest on deposits 756 621 2,117 1,845 Interest on repurchase agreements 52 98 193 276 Interest on notes payable 9 12 33 28 Total interest expense 817 731 2,343 2,149 Net interest income 2,392 2,180 7,187 6,467 Provision for loan losses (200) 250 250 1,150 Net interest income after provision for loan loss 2,592 1,930 6,937 5,317 Other operating income: Security gains, net 0 0 11 0 Building income 247 238 713 821 Other non-interest income 207 223 593 1,394 Total other operating income 454 461 1,317 2,215 Other operating expenses: Salaries and employee benefits 1,033 946 2,978 2,695 Occupancy 122 117 361 388 Professional fees 232 142 564 372 Building operating expenses 622 601 1,841 1,729 Other non-interest expenses 1,001 569 2,344 1,954 Total other operating expenses 3,010 2,375 8,088 7,138 Earnings before income tax 36 16 166 394 Income tax 2 0 8 3 Net earnings $ 34 $ 16 $ 158 $ 391 Net earnings per share $ 0.02 $ 0.01 $ 0.08 $ 0.25 The accompanying notes are an integral part of the consolidated financial statements. SDNB Financial Corp. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (In thousands) Nine months ended September 30, 1995 1994 OPERATING ACTIVITIES: Net earnings $ 158 $ 391 Adjustments to reconcile net earnings to net cash used by operating activities: Provision for loan losses 250 1,150 Provision for depreciation and amortization 930 957 Amortization of investment security discounts (85) (54) Other expense not utilizing (providing) cash 76 (129) Unearned loan fees 148 (80) Taxes refundable (8) 0 Interest receivable and other assets (515) (276) Interest payable and other liabilities (412) (532) Total adjustments 1,208 1,036 Net cash provided by operating activities 1,366 1,427 INVESTING ACTIVITIES: Proceeds from maturities of held-to-maturity securities 6,504 11,296 Proceeds from called held-to-maturity securities 395 0 Proceeds from maturities of available-for-sale securities 5,990 2,990 Proceeds from sales of available-for-sale securities 3,024 0 Purchases of held-to-maturity securities (2,000) (8,598) Purchases of available-for-sale securities (11,466) (4,949) Net change in gross loans 4,503 9,612 Proceeds from OREO properties 556 422 Purchases of premises and equipment (281) (184) Net cash provided by investing activities 7,225 10,589 FINANCING ACTIVITIES: Net change in deposits (3,628) (55) Net change in short-term borrowings (5,630) 3,710 Proceeds from issuance of common stock (net) 4,631 0 Net cash provided (used) by financing activities (4,627) 3,655 Change in cash and cash equivalents 3,964 15,671 Cash and cash equivalents at beginning of period 37,317 17,026 Cash and cash equivalents at end of period $41,281 $32,697 For the purpose of the statement of cash flows, the Company considers cash and cash equivalents to be as follows at September 30, 1995 1994 Cash and due from banks $14,305 $11,915 Interest-bearing deposits in other banks 2,976 1,282 Federal funds sold 24,000 19,500 Totals $41,281 $32,697 Supplemental cash flow information at September 30, 1995 1994 CASH PAID FOR: Interest $3,050 $2,149 Income Taxes $0 $0 Non-cash items: transfer of loans to OREO $553 $570 The accompanying notes are an integral part of the consolidated financial statements. SDNB Financial Corp. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 30, 1995 1. In the opinion of Management, the accompanying unaudited interim consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position as of September 30, 1995, and the results of operations for the three and nine months ended September 30, 1995 and 1994 and cash flows for the nine months ended September 30, 1995 and 1994. Certain prior year amounts have been reclassified to conform with the current year presentation. 2. Earnings per share for the three and nine months ended September 30, 1995 and 1994 are based on the following weighted average shares outstanding: Three months ended: September 30, 1995 2,092,219 September 30, 1994 1,538,364 Nine months ended: September 30, 1995 1,902,526 September 30, 1994 1,538,364 3. At September 30, 1995, approximately $4.2 million in securities were pledged to secure deposits. SDNB FINANCIAL CORP. Form 10-Q PART I - FINANCIAL INFORMATION (continued) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The first nine months of 1995 reflect the beneficial effect of higher interest rates while also reflecting an abatement of some of the problems of a still depressed economy in which SDNB Financial Corp. (the "Company") operates. Net earnings for the three and nine months ended September 30, 1995 are $34,000 and $158,000, respectively, compared to $16,000 and $391,000, for the comparable periods of 1994. The three and nine months ended September 30, 1995 include a charge to income of $350,000 for increased provision for litigation settlement (see OTHER OPERATING EXPENSES). The nine months ended September 30, 1994 includes $712,500 of non-recurring income (see OTHER OPERATING INCOME). For the past several years, the Company and San Diego National Bank (the "Bank") have been adversely affected by a number of factors emanating primarily from the condition of the economy in San Diego. These factors include: a) The need for high loan loss provisions. b) OREO losses and expenses from higher than normal levels of OREO property. c) Reduction of the level of the loan portfolio resulting from continuing low loan demand. Additionally, the Company has incurred substantial expense in connection with legal fees and provision for additional costs from the Pioneer Mortgage and Pioneer Liquidating Corporation litigation (see Report on Form 10-K for year ended December 31, 1994 and OTHER OPERATING EXPENSES). While the Company reports a profit for the first nine months of 1995, there can be no assurances that the factors noted above, or other factors, will not continue to adversely impact the Company and the Bank. Discussion of the individual segments of the Company's operations is contained in subsequent sections of this report. LIQUIDITY AND ASSET/LIABILITY MANAGEMENT By the nature of its commercial/wholesale focus, the Bank has moderate interest-rate risk exposure in a declining-rate environment. This phenomenon can be seen in the "Static Gap Summary" (Table 1). At September 30, 1995, approximately 75% of the Bank's earning assets adjust immediately to changes in interest rates. Within three months, this increases to 83% of earning assets. Consequently, the Bank utilizes deposit liabilities that also adjust relatively quickly. Within the same three-month period, approximately 94% of the Bank's interest-bearing liabilities (mostly deposits) adjust to current rates. The Bank's cumulative gap position at the three month repricing interval has decreased approximately $1.0 million, or four percent, from $26.0 million at December 31, 1994 to $25.0 million at September 30, 1995. Volume of assets and liabilities are both down from year-end; reduced volumes of $5.4 million in loans and $1.3 million in securities are offset by decreases of $2.6 million in deposits and $3.6 million in repurchase agreements within the three month horizon. During February 1995 the Bank entered into an interest rate swap to hedge against the effects of falling interest rates on income. If the prime interest rate falls below eight percent during the life of the contract, the Bank will receive payments amounting to the difference between the then existing prime rate and eight percent on the contract amount of $20 million. These payments continue while the prime interest rate stays below eight percent or until expiration of the contract, February 3, 1998. This contract helps to stabilize the Bank's net interest spread which, absent any hedge, decreases during periods of rapidly falling interest rates. To date, there have been no payments received under this contract. The Bank's liquidity needs are projected by comparing anticipated funding needs against current resources and anticipated deposit growth. Any current surplus of funds is invested to maximize income while maintaining safety and providing for future liquidity. During the nine months ended September 30, 1995, cash and cash equivalents increased $4.0 million. Operating activities provided $1.4 million during the period. Approximately $7.2 million was provided by investing activities. The two major components were net proceeds of $2.4 million from securities ($15.9 million of sales, maturities and calls offset by purchases of $13.5 million) and decrease in gross loans totaling $4.5 million. Financing activities used $4.6 million during the period. Deposits decreased $3.6 million while short-term borrowings decreased $5.6 million. The issuance of new stock during the period provided a net amount of $4.6 million. Liquidity is provided on a daily basis by federal funds sold and on a longer-term basis by the structuring of the Bank's investment portfolio to provide a steady stream of maturing issues. Additionally, the Bank may raise additional funds from time to time through money desk operations or via the sale of loans to another institution. The Bank has never purchased high-yield securities or participated in highly-leveraged transactions. See "CAPITAL RESOURCES" for a discussion of other factors that have affected liquidity in the period ended September 30, 1995 and will affect future liquidity. CAPITAL RESOURCES Since its initial capitalization in 1981, the Company had relied primarily on internally generated income to fund its growth and provide for depositor protection. During 1994 the Company concluded that additional capital would be beneficial and proposed a plan for additional capitalization which was approved by regulatory authorities on March 9, 1995, and by the shareholders of the Company on March 17, 1995. The plan encompassed the following steps: a. Sale of 510,121 newly issued shares of the Company's Common Stock to two limited partnerships managed by WHR Management Corp. ("WHR") at $4.34 per share for a gross amount of $2,213,925. This transaction was completed on March 28, 1995. b. A rights offering to existing shareholders and, pursuant to a best- efforts underwriting agreement, to third parties encompassing 769,582 shares of newly issued Common Stock at a subscription price of $4.34 per share for a gross amount of $3,339,986. This transaction was completed on September 28, 1995. c. Sale to WHR of an additional 255,193 newly issued shares of Common Stock at $4.34 per share for a gross amount of $1,107,538. This transaction was completed on October 6, 1995. The Company has used a portion of the proceeds to reduce notes payable, to pay expenses in connection with the additional capitalization, to purchase certain customer notes from the Bank (which notes were then assigned to the San Diego National Bank Building Joint Venture ("JV")) and for advances to the JV. The JV in turn assigned the notes and used a portion of the advances as payment on the JV's second trust deed note payable. The remaining proceeds will be used for general corporate purposes, which may include investments in or extensions of credit to the Company's subsidiaries, reduction of existing debt or financing possible future acquisitions of other banking institutions or related businesses. At the present time the Company does not have any specific plans, agreements or understandings, written or oral, pertaining to the proposed acquisition of any banking institution or related business. As disclosed in the Company's 1994 Annual Report to Shareholders and Report on Form 10-K, the Bank is precluded from paying dividends to the Company. As further disclosed, the Company merged SDNB Development Corp. into itself effective July 1, 1993, thereby allowing cash flow from the JV to come directly to the Company. During 1994 and the first three months of 1995, the JV cash flow provided the Company with sufficient funds to meet its normal ongoing obligations but was not sufficient to allow the payment of cash dividends, which would also require approval of the Federal Reserve Bank of San Francisco under terms of an agreement dated November 20, 1992. Subsequent to March 28, 1995, earnings from the net proceeds of the stock issuances referred to above will augment cash flow. The Comptroller of the Currency ("Comptroller") has established a framework for supervisory requirements of national banks based upon capital ratios. Based upon this framework, a bank's capitalization is defined as well as capitalized, adequately capitalized, significantly undercapitalized or critically capitalized. Under the Comptroller's framework, a bank is well capitalized if its ratios are greater than or equal to 6% and 10% for tier 1 capital and risk weighted capital, respectively. As of September 30, 1995 and December 31, 1994, the Bank was considered "well capitalized". The Federal Reserve Board ("Reserve Board"), as the regulatory body of the Company, has capital ratio requirements. Under the Reserve Board's Capital Adequacy Guidelines, all bank holding companies should meet a minimum ratio of qualifying total capital to weighted-risk assets of 8 percent, of which at least 4.0 percentage points should be in the form of tier 1 capital. The Reserve Board and the Comptroller have also imposed a leverage standard to supplement their risk based ratios. This leverage standard focuses on a banking institution's ratio of Tier 1 capital to average total assets adjusted for goodwill and other certain items. Under these guidelines, banking institutions that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure and good earnings, and have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total assets of at least 3%. Institutions not meeting this criteria, as well as institutions with supervisory, financial or operational weaknesses, along with those experiencing or anticipating significant growth are expected to maintain a Tier 1 capital to total assets ratio equal to at least 4% to 5%. As reflected in the following table, the risk-based capital ratios and leverage ratios of the Company and the Bank as of September 30, 1995 and December 31, 1994 exceeded the fully phased-in regulatory risk-based capital adequacy guidelines and the leverage standard. Capital Components and Ratios (dollars in thousands) September 30, 1995 December 31, 1994 Company Bank Company Bank Capital Components Tier 1 Capital $14,118 $12,451 $9,329 $11,667 Total Capital 15,611 13,816 10,868 13,081 Risk-weighted assets and off-balance sheet instruments 115,294 108,410 123,142 113,106 Regulatory Capital Tier 1 risk-based: Actual 11.89% 11.49% 7.59% 10.35% Required 4.00 6.00 4.00 6.00 Excess 7.89% 5.49% 3.59% 4.35% Total risk-based: Actual 13.14% 12.74% 8.85% 11.61% Required 8.00 10.00 8.00 10.00 Excess 5.14% 2.74% 0.85% 1.61% Leverage: Actual 8.60% 8.10% 5.33% 7.09% Required 5.00 5.00 5.00 5.00 Excess 3.60% 3.10% .33% 2.09% INVESTMENT SECURITIES During the first nine months of 1995, the gross unrealized losses in the available-for-sale category declined from $360,000 to $86,000 and in the held-to-maturity category, declined from $680,000 to $176,000. Management continues to believe that there is sufficient liquidity and available sources of liquidity to allow all such securities (which are fully guaranteed by United States Government instrumentalities as to principal) to mature and thus avoid realization of any material amount of the presently unrealized losses. NET INTEREST INCOME/NET INTEREST MARGIN The following is a comparison of the net interest spread between the first nine months of 1995 and the same period of 1994. 1995 1994 Yield on average earning assets (taxable equivalent) 9.37% 7.51% Cost of funds 2.29% 1.86% Net interest spread 7.08% 5.65% In addition to interest rates, changes in the volumes of assets and liabilities also affect net interest income. The volume/rate variance analysis (Table 2) shows the change in net interest income that is attributable to changes in volume versus changes in rates. As reflected in Table 2, the comparison of net interest income between the first nine months of 1995 and the similar period of 1994 was affected primarily by the significant increase in the prime interest rate (8.86% average in 1995 vs. 6.81% average in 1994) which was matched by only a proportionate increase in the cost of funds, thus increasing the net interest spread. The benefit of the increased net interest spread was offset by the reduced loan balances between September 30, 1995 and 1994. LOANS AND ALLOWANCE AND PROVISION FOR LOAN LOSSES A summary of the activity in the allowance for loan loss is as follows: (In thousands) Nine months ended September 30, 1995 1994 Balance at beginning of period $2,148 $2,522 Provision charged to operating expenses 250 1,150 Loans charged off (600) (1,024) Recoveries 335 111 Balance at end of period $2,133 $2,759 Management employs a 'migration analysis method' to establish the required amount of loan loss allowance. This process tracks realized loan losses back through the prior two years to estimate loss exposure on the classified and unclassified loan portfolios. Additionally, loss experience is tracked in pools of loans with similar characteristics to estimate the loss exposure unique to various loan types. The measured loss exposure is then applied to the current loan portfolio and further adjusted for 'qualitative factors'. This method of establishing loan loss reserves complies with the policies of the Comptroller as reflected in Banking Circular 201, revised, dated February 20, 1992, and in Banking Bulletin 93-60, dated December 21, 1993. The Company began testing this new method during 1992 and comparing its results to results reached by the previously existing procedures employed by the Company. The test proved that the two methods were comparable, and the Company adopted the new migration analysis method during 1993. Accordingly, the Company believes its method for establishing the loan loss allowance is sound. But no method, however valid, can consistently predict future events with complete accuracy. In recent years, several factors used by the Bank to establish loan loss allowances have been subject to considerable volatility, and this in turn has affected the volatility of nonperforming loans, charge-offs, and the coverage ratio. In addition, the Bank's method of reporting, particularly its conservative listing of loans as nonperforming, is not always an accurate indicator of actual future losses. These issues are explained in greater detail below. The economy in San Diego suffered a sharp downturn in recent years, particularly in the real estate market. The Bank is a community bank with a relatively small loan portfolio comprised of mostly commercial/real estate loans that tend to be individually larger in amount than loans made by retail banks. As a result of these and other factors, the Bank can experience large swings in nonperforming loans, charge-offs, and the coverage ratio when one or a few loans are transferred from one category to another. These factors are not reasons for changing a valid method of determining loan loss allowances and are not always accurate predictors of losses, but they do have short-term effect on those allowances and related reported figures. The volatility of "non-performing" loans is illustrated in the following chart: ASSETS REPORTED AS NONPERFORMING (In thousands) At At At September 30, 1995 December 31, 1994 September 30, 1994 CURRENT AND NONCURRENT Non-accrual loans $3,720 $6,046 $6,366 Restructured loans (still accruing) 1,370 2,316 2,325 Loans 90 days past due 981 20 332 6,071 8,382 9,023 Other real estate owned 181 268 628 Total $ 6,252 $8,650 $9,651 NONCURRENT Non-accrual loans $467 $1,276 $2,435 Restructured loans (still accruing) 0 0 0 Loans 90 days past due 981 20 332 1,448 1,296 2,767 Other real estate owned 181 269 628 Total $1,629 $1,564 $3,395 Loans reported as nonperforming but which are current, as a percentage of total loans reported as nonperforming 76% 85% 69% OTHER OPERATING INCOME Changes in other non-interest income include: a) Building revenues declined in the nine months ended September 30, 1995 as leases were renewed at lower rates due to competitive pressures. b) Higher interest rates resulted in a higher earnings credit on clients' deposit accounts which reduced the service charge income. c) The nine months ended September 30, 1994, include in income $712,500 received from the Bank's directors' and officers' liability insurer in settlement of claims made by the Bank (see Report on Form 10-K for year ended December 31, 1994). OTHER OPERATING EXPENSES Salaries and employee benefits increased between 1994 and 1995 due to additions to staff and wage increases averaging approximately 4%. Professional fees in connection with the Pioneer Liquidating Corporation litigation (see Report on Form 10-K for year ended December 31, 1994) were $177,000 and $437,000 for the three and nine months ended September 30, 1995 respectively, increases of $99,000 and $258,000, respectively over the comparable periods of 1994. Also see the discussion of other non-interest expenses below. Building operating expenses increased primarily because of increased interest expense, which, through January 1995, was based on a continuously rising index. Additionally, as disclosed in the 1994 Annual Report to Shareholders and Report on Form 10K, in November 1994 the existing first mortgage loan on the building was purchased by two limited partnerships managed by WHR Management Corp. (purchasers of the Company's Common Stock; see "CAPITAL RESOURCES"). In January 1995 the JV and WHR entered into a modification agreement which reduces the debt service requirement to $800,000 per year, all allocable to interest, thus reducing the debt service requirement. Other non-interest expenses changed between 1995 and 1994 as follows: Three months ended Nine months ended September 30 September 30 1995 1994 1995 1994 OREO losses 78,000 9,000 78,000 333,000 Loan expense (including loss on sale of customer note in 1995) 120,000 121,000 380,000 266,000 Provision for litigation settlement 350,000 0 350,000 0 SUBSIDIARY DATA San Diego National Bank The Bank earned $233,000 and $784,000 for the three and nine months ended September 30, 1995, respectively, compared to $190,000 and $791,000, respectively, for the same periods of 1994. The three and nine months ended September 30, 1995 include a charge to income of $350,000 for increased provision for litigation settlement (see OTHER OPERATING EXPENSES). The nine months ended September 30, 1994 includes $712,500 of non-recurring income (see OTHER OPERATING INCOME). The return on average assets (ROA) for the nine month periods was .70% and .63%, respectively. The return on equity (ROE) for the nine month periods was 8.59% and 8.88% respectively. The reasons for the change in Bank earnings have been enumerated on the preceding pages. San Diego National Bank Building Joint Venture Three months ended Nine months ended September 30 September 30 1995 1994 1995 1994 Pre-consolidation gross building revenues $497,000 $485,000 $1,447,000 $1,552,000 Pre-consolidation, pre-tax loss 194,000 164,000 572,000 323,000 Depreciation and amortization expense 151,000 151,000 437,000 484,000
San Diego National Bank Static Gap Summary September 30, 1995 (In thousands) Immediately Non-rate Adjustable 1 Day 3 6 Sensitive Or 1 Day Through Through Through And Over Maturity 3 Months 6 Months 12 Months 12 Months Total Loans (net) 83,332 2,422 398 559 5,393 92,104 Investment securities - 8,240 4,458 2,423 10,119 25,240 Certificates of deposit in other banks - 693 1,490 297 - 2,480 Federal funds sold 24,000 - - - - 24,000 Total interest earning assets 107,332 11,355 6,346 3,279 15,512 143,824 Non-interest earning assets - - - - 14,955 14,955 Total assets 107,332 11,355 6,346 3,279 30,467 158,779 Deposits: Savings, NOW accounts and money markets 72,011 - - - - 72,011 Time deposits - 13,013 3,955 2,371 117 19,456 Total deposits 72,011 13,013 3,955 2,371 117 91,467 Securities sold under agreement to repurchase 8,674 - - - - 8,674 Total interest bearing liabilities 80,685 13,013 3,955 2,371 117 100,141 Non-interest bearing liabilities - - - - 46,273 46,273 Shareholders' equity - - - - 12,365 12,365 Total liabilities and shareholders' equity 80,685 13,013 3,955 2,371 58,755 158,799 Interest rate sensitivity gap 26,647 (1,658) 2,391 908 (28,288) Cumulative interest rate sensitivity gap 26,647 24,989 27,380 28,288 -
SDNB Financial Corp Volume/Rate Variance Analysis Nine months ended September 30, 1995 and 1994 (In thousands) 1995 compared to 1994 Volume Rate Total Increase(decrease) in interest on earning assets: Commercial loans $ (644) $ 988 $ 344 Real estate loans (46) 507 461 Installment loans (22) 17 (5) Ready Money (4) 0 (4) Total loans (716) 1,512 796 U.S. Treasury securities (36) 33 (3) Securities of government agencies (68) 111 43 State and political obligations (134) (6) (140) Other securities 28 4 32 Total investment securities (210) 142 (68) Interest-bearing deposits in other banks 14 34 48 Federal funds sold (146) 244 98 Total interest income change (1,058) 1,932 874 Increase(decrease) in interest paid on liabilities: Savings accounts 19 0 19 NOW accounts 9 7 16 Super NOW accounts (3) 3 0 Money market accounts 13 108 121 Executive money market accounts (90) 143 53 Total savings deposits (52) 261 209 Time deposits under $100,000 (119) 119 0 Time deposits of $100,000 or above (66) 130 64 Total time deposits (185) 249 64 Federal funds purchased and securities sold under agreement to repurchase (113) 29 (84) Short-term debt (10) 30 20 Long-term debt (5) 140 135 Total interest expense change (365) 709 344 Net change in net interest income $ (693) $1,223 $ 530 1) Interest income on state and political obligations has been adjusted for tax effect at current rates. Interest expense on short- and long-term debt is included in Building Operating Expenses in the Consolidated Statement of Earnings. 2) Change in interest income or expense can be attributed to (a) changes in volume (change in volume times old rate), (b) changes in rates (change in rate times old volume), and (c) changes in rate/volume (change in rate times the change in volume). The rate/volume variances are allocated proportionally between the rate and volume variances based on their absolute values. PART II - OTHER INFORMATION ITEM 1 Legal Proceedings See Item 3 of Report on Form 10-K for the year ended December 31, 1994. ITEM 2 Changes in Securities None ITEM 3 Defaults Upon Senior Securities None ITEM 4 Submission of Matters to a Vote of Security Holders None ITEM 5 Other Information None ITEM 6 Exhibits and Reports on Form 8-K A. Exhibits (listed by number corresponding to the Exhibit Table of Item 601 of Regulation S-K) 10 Material contracts: Rights Agent Warrant Purchase Agreement (incorporated by reference from Exhibit B to Exhibit 99(j) to Post Effective Amendment Number 4 on form S-3 filed September 6, 1995. SEC File No. 33-58379). 27 Financial Data Schedule (submitted only in electronic format and omitted from paper copies pursuant to Paragraph (c) (v) of Regulation S-K (17 CFR 220.601(c) (v)) and Note 2 to Paragraph (c) (1) (vi) of Regulation S-K (17 CFR 229.601(c) (1) (vi)). B. Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 1995 SDNB FINANCIAL CORP. By: /S/ HOWARD W. BROTMAN Howard W. Brotman, duly authorized officer and Chief Financial Officer EX-27 2
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS 9-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 14,305 14,305 2,976 2,976 24,000 24,000 0 0 12,674 12,674 12,609 12,609 12,433 12,433 92,104 92,104 2,133 2,133 169,401 169,401 134,648 134,648 8,674 8,674 1,365 1,365 10,158 10,158 19,216 19,216 0 0 0 0 (5,098) (5,098) 169,401 169,401 2,609 7,752 400 1,205 200 573 3,209 9,530 756 2,117 817 2,343 2,392 7,187 (200) 250 0 11 3,010 8,088 36 166 36 166 0 0 0 0 34 158 0.02 0.08 0.02 0.08 6.30 6.36 3,720 3,720 981 981 1,370 1,370 0 0 2,494 2,148 272 599 111 334 2,133 2,133 1,210 1,210 0 0 923 923
-----END PRIVACY-ENHANCED MESSAGE-----