-----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, HbIuUPrnLSwb3B1vWrOl+FC3WpT+dQonh/DVfWTbSeXS+VcqOcGsLiDrw07fhMK3 xfy4q3XTiCFdXuenlOamDA== 0000702700-98-000013.txt : 19980814 0000702700-98-000013.hdr.sgml : 19980814 ACCESSION NUMBER: 0000702700-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SARATOGA BANCORP CENTRAL INDEX KEY: 0000702700 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942817587 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-77519-LA FILM NUMBER: 98686683 BUSINESS ADDRESS: STREET 1: 12000 SARATOGA SUNNYVALE RD CITY: SARATOGA STATE: CA ZIP: 95070 BUSINESS PHONE: 4089731111 10-Q 1 10-Q FOR PERIOD ENDED 06/30/98 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1998 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________ Commission file number 2-77519-LA SARATOGA BANCORP (Exact name of registrant as specified in its charter) California 94-2817587 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 Saratoga-Sunnyvale Road Saratoga, California 95070 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (408) 973-1111 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS SHARES OUTSTANDING AT JULY 27, 1998 Common Stock 1,644,567 Exhibit Index at Page 21 Page 1 of 22 pages 2 PART I - FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements
SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS June 30, December 31, 1998 1997* (Unaudited) ASSETS Cash and due from banks $ 6,540,000 $ 4,760,000 Federal funds sold 14,200,000 10,500,000 Total cash and equivalents 20,740,000 15,260,000 ------------ ------------ Interest bearing deposits in other banks 1,589,000 1,489,000 Securities available for sale 11,944,000 16,184,000 Securities held to maturity 28,780,000 31,152,000 Loans, net 63,738,000 63,187,000 Premises and equipment 2,375,000 1,992,000 Other assets 1,904,000 1,780,000 ------------ ------------ TOTAL ASSETS $131,070,000 $131,044,000 =========== =========== LIABILITIES Deposits: Non interest-bearing $ 26,066,000 $ 25,456,000 Interest-bearing 66,353,000 65,590,000 Total deposits 92,419,000 91,046,000 Federal funds purchased - 2,000,000 Other borrowings 22,873,000 22,984,000 Accrued expenses and other liabilities 1,376,000 1,409,000 ------------ ------------ TOTAL LIABILITIES 116,668,000 117,439,000 ------------ ------------ SHAREHOLDERS' EQUITY Common stock, no par value; Authorized: 20,000,000 shares; Issued and outstanding: 1,644,567 shares at June 30, 1998 and 1,637,950 shares at December 31, 1997 4,725,000 4,705,000 Retained earnings 9,837,000 9,099,000 Net unrealized loss on securities available for sale (160,000) (199,000) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 14,402,000 13,605,000 TOTAL LIABILITIES AND ------------ ------------ SHAREHOLDERS' EQUITY $131,070,000 $131,044,000 =========== ===========
*Derived from the December 31, 1997 audited balance sheet included in the Company's 1997 Annual Report on Form 10-K. See notes to consolidated condensed financial statements. 3
SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED INCOME STATEMENTS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 INTEREST INCOME: Loans $1,536,000 $1,331,000 $3,094,000 $2,634,000 Investment securities 698,000 853,000 1,446,000 1,445,000 Federal funds sold 189,000 107,000 293,000 331,000 ---------- ---------- ---------- ---------- Total interest income 2,423,000 2,291,000 4,833,000 4,410,000 ---------- ---------- ---------- ---------- INTEREST EXPENSE: Deposits 726,000 697,000 1,443,000 1,428,000 Other 353,000 358,000 705,000 638,000 ---------- ---------- ---------- ---------- Total interest expense 1,079,000 1,055,000 2,148,000 2,066,000 ---------- ---------- ---------- ---------- NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES 1,344,000 1,236,000 2,685,000 2,344,000 Provision for credit losses 51,000 - 102,000 - ---------- ---------- ---------- ---------- Net interest income after provision for credit losses 1,293,000 1,236,000 2,583,000 2,344,000 Other income 133,000 111,000 292,000 233,000 Other expenses 729,000 824,000 1,505,000 1,604,000 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 697,000 523,000 1,370,000 973,000 Provision for income taxes 264,000 199,000 520,000 370,000 ---------- ---------- ---------- ---------- NET INCOME $ 433,000 $ 324,000 $ 850,000 $ 603,000 ========== ========== ========== ========== EARNINGS PER SHARE: Basic $ 0.26 $ 0.21 $ 0.52 $ 0.39 ========== ========== ========== ========== Diluted $ 0.24 $ 0.18 $ 0.47 $ 0.34 ========== ========== ========== ==========
See notes to consolidated condensed financial statements. 4
SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1998 1997 OPERATIONS: Net income $ 850,000 $ 603,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 102,000 - Depreciation and amortization 90,000 89,000 Other, net 158,000 253,000 ----------- ----------- Net cash provided by operating activities 1,200,000 945,000 ----------- ----------- INVESTING ACTIVITIES: Net increase in interest bearing deposits in other banks (100,000) Proceeds from maturities or sale of investments available for sale 13,309,000 9,517,000 Proceeds from maturities of investments held to maturity 3,012,000 1,571,000 Purchase of securities available for sale (7,000,000) (10,814,000) Purchase of securities held to maturity (2,985,000) (13,450,000) Net increase in loans (653,000) (620,000) Purchases of premises and equipment (473,000) (24,000) Proceeds from sale of OREO - 1,311,000 ----------- ------------ Net cash provided by (used in) investing activities 5,110,000 (12,509,000) ----------- ------------ FINANCING ACTIVITIES: Net increase (decrease) in deposits 1,373,000 (3,063,000) Issuance of common stock 20,000 48,000 Payment of cash dividends (112,000) (105,000) Net (decrease) increase in other borrowings (111,000) 4,893,000 Decrease in federal funds purchased (2,000,000) (1,500,000) ----------- ------------ Net cash (used in) provided by financing activities (830,000) 273,000 ----------- ------------ NET INCREASE (DECREASE)IN CASH AND EQUIVALENTS 5,480,000 (11,291,000) Cash and equivalents, beginning of period 15,260,000 22,843,000 ----------- ------------ Cash and equivalents, end of period $20,740,000 $11,552,000 =========== ===========
See notes to consolidated condensed financial statements. 5 SARATOGA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS QUARTERS ENDED JUNE 30, 1998 AND 1997 1. The unaudited consolidated condensed financial statements reflect all adjustments (which include only normal recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for the periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. On March 27, 1998 the Board of Directors declared a 3-for-2 stock split, which was distributed on May 1, 1998, to shareholders of record as of April 15, 1998. All share and per share data have been retroactively adjusted to reflect the stock split. 3. The Company adopted SFAS No. 128 "Earnings per Share" during the fourth quarter of 1997. SFAS 128 requires presentation of basic and diluted earnings per share (EPS) and restatement of all prior period EPS presented. Basic EPS is computed by dividing net income by the weighted average common shares outstanding during the period. Diluted EPS reflects the potential dilution if securities or other contracts to issue common stock are exercised or converted into common stock. The weighted average shares used in computing earnings per share are as follows: Quarters ended June 30, 1998 1997 Weighted average shares used in computing: Basic earnings per share 1,644,000 1,573,000 Diluted potential common shares from exercise of stock options, using the treasury stock method 185,000 188,000 --------- --------- Diluted earnings per share 1,829,000 1,761,000 --------- --------- 6 Six Months ended June 30, 1998 1997 Weighted average shares used in computing: Basic earnings per share 1,642,000 1,564,000 Diluted potential common shares from exercise of stock options, using the treasury stock method 178,000 198,000 --------- --------- Diluted earnings per share 1,820,000 1,762,000 --------- --------- 4. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. For example, other comprehensive earnings may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on marketable securities classified as available-for-sale. Annual financial statements for prior periods will be reclassified, as required. The Company's total comprehensive earnings are as follows: Six months ended June 30, 1998 1997 Net income $850,000 $603,000 Other comprehensive earnings- Net unrealized gains on securities available for sale 39,000 73,000 -------- -------- Total comprehensive earnings $889,000 $676,000 -------- -------- 7 Quarters ended June 30, 1998 1997 Net income $433,000 $324,000 Other comprehensive earnings- Net unrealized gains on securities available for sale 15,000 97,000 -------- -------- Total comprehensive earnings $448,000 $421,000 5. In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. This statement becomes effective in the third quarter of 1999, with earlier application permitted. Adoption of this statement will not impact the Company's consolidated financial position, results of operations of cash flows. 6. During the six months ended June 30, 1998 and 1997, cash paid for taxes was $627,000 and $155,000, respectively. During the six months ended June 30, 1998 and 1997, cash paid for interest was $2,083,000 and $2,056,000, respectively. 8 SARATOGA BANCORP AND SUBSIDIARY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, matters described in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." Therefore, the information set forth therein should be carefully considered when evaluating the business prospects of the Company and the Bank. Summary of financial results - ---------------------------- At June 30, 1998, total assets were $131,070,000, a slight increase from $131,044,000 at December 31, 1997. Net loans increased $551,000 (0.9%) from $63,187,000 at December 31, 1997 to $63,738,000 at June 30, 1998. Total deposits increased $1,373,000 (1.5%) from $91,046,000 at December 31, 1997 to $92,419,000 at June 30, 1998. Net income for the second quarter of 1998 was $433,000 ($0.26 basic earnings per share, $0.24 diluted earnings per share) compared to $324,000 ($0.21 basic earnings per share, $0.18 diluted earnings per share) for the comparable period in 1997. Net income for the first six months of 1998 was $850,000 ($0.52 basic earnings per share, $0.47 diluted earnings per share) compared to $603,000 ($0.39 basic earnings per share, $0.34 diluted earnings per share) for the comparable period in 1997. The increase in income resulted primarily from an increase in the volume of earning assets, offset in part by an increase in interest expense due to the increased volume of interest-bearing liabilities. RESULTS OF OPERATIONS - --------------------- SECOND QUARTER OF 1998 AND 1997 - ------------------------------- An analysis of the results of operations of the Company for the second quarter of 1998 compared to the second quarter of 1997 is presented below: 9 Net interest income Net interest income, the difference between interest earned on loans and investments and interest paid on deposits, is the principal component of the Bank's earnings. The components of net interest income are as follows:
Three months ended June 30, 1998 1997 ------------------------- ------------------------- Average Average Average Average Balance Interest Yield(1) Balance Interest Yield(1) ------- -------- -------- ------- -------- -------- (In thousands, except percentages) Assets: Earning assets: Loans (2) $ 62,494 $1,536 9.8% $ 53,224 $1,331 10.0% Investment securities 45,837 698 6.1 54,419 853 6.3 Federal funds sold 13,805 189 5.5 7,340 107 5.8 Total interest -------- ------ -------- ------ earning assets 122,136 2,423 7.9 114,983 2,291 8.0 Cash and due from ------ ------ banks 5,053 4,697 Other assets (3) 2,754 3,993 -------- -------- $129,943 $123,673 ======== ======== Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $ 39,130 351 3.6 $ 37,173 315 3.4 Time deposits 28,025 375 5.4 28,981 382 5.3 Other borrowings 22,910 353 6.2 22,694 358 6.3 Total interest- -------- ------ -------- ------ bearing liabilities 90,065 1,079 4.8 88,848 1,055 4.7 Demand deposits 24,632 ------ 21,448 ------ Other liabilities 1,240 1,054 -------- -------- Total liabilities 115,937 111,350 Shareholders' equity 14,006 12,323 -------- -------- $129,943 $123,673 ======= ======= Net interest income and margin(4)$1,344 4.4% $1,236 4.3% ====== ======
(1) Annualized. (2) Loan interest income includes loan fee income of $98,000 and $83,000 for the quarters ended June 30, 1998 and 1997,respectively. (3) Net of the average allowance for loan losses of $668,000 and $625,000 and deferred loan fees of $317,000 and $330,000 for the quarters ended June 30, 1998 and 1997, respectively. (4) Net interest margin is computed by dividing net interest income by total average interest earning assets. 10 Provision for credit losses - --------------------------- The Bank maintains an allowance for possible credit losses which is based, in part, on the Bank's historical loss experience, the impact of forecasted economic conditions within the Bank's market area, and, as applicable, the State of California, the value of the underlying collateral, loan performance and inherent risks in the loan portfolio. The allowance is reduced by charge-offs and increased by provisions for credit losses charged to operating expense and recoveries of previously charged-off loans. During the second quarter of 1998 the Bank provided $51,000 for the allowance for credit losses. During the second quarter of 1997 the Bank did not record a provision for credit losses. There were $14,000 in loans charged-off and $20,000 in recoveries in the second quarter of 1998, as compared to $5,000 in loans charged-off and $10,000 in recoveries in the second quarter of 1997. At June 30, 1998, the allowance for credit losses was $698,000 or 1.1% of total loans, compared to $598,000 or 0.9% at December 31, 1997. There were no nonaccrual loans at June 30, 1998 compared to $360,000 at December 31, 1997. At June 30, 1998 and December 31, 1997, there were no loans past due 90 days or more as to principal or interest and still accruing interest. There were no loans at June 30, 1998 which were troubled debt restructurings as defined in Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." At June 30, 1998, there were five potential problem loans having a combined principal balance of $310,000 ($305,000 at December 31, 1997). Potential problem loans are loans which are generally current as to principal and interest but have been identified by the Company as potential problem loans due either to a decrease in the underlying value of the property securing the credit or some other deterioration in the creditworthiness of the borrower. All of the five loans identified as potential problem loans are secured by real estate and personal property. There was no Other Real Estate owned ("OREO")at June 30, 1998 or December 31, 1997. 11 Nonperforming loans and other real estate owned are summarized below: June 30, 1998 December 31, 1997 ------------- ----------------- Nonperforming loans: Past due 90 days or more $ - $ - Nonaccrual - 360,000 ------------- --------------- Total - 360,000 Other real estate owned - - ------------- --------------- Total nonperforming loans and other real estate owned $ - $ 360,000 ============= =============== Management is of the opinion that the allowance for credit losses is maintained at an adequate level for known and currently anticipated future risks inherent in the loan portfolio. However, the Bank's loan portfolio, which includes approximately $38,000,000 in real estate loans representing approximately 59% of the portfolio, could be adversely affected if California economic conditions and the real estate market in the Bank's market area weaken. The effect of such events could result in an increase in the level of nonperforming loans and OREO and the level of the allowance for loan losses which could adversely affect the Company's and the Bank's future growth and profitability. Noninterest income - ------------------ Other income consists of service charges on deposit accounts, income from assets acquired for lease and fees for other miscellaneous services. Total other income increased from $111,000 in the second quarter of 1997 to $133,000 in the second quarter of 1998. This increase is primarily attributable to a gain on sale of leases of $12,000 and an increase of $6,000 in service charges assessed on deposit accounts. Noninterest expenses - -------------------- Other expenses decreased from $824,000 in the second quarter of 1997 to $729,000 in the second quarter of 1998. The decrease is primarily attributable to a loss on sale of securities of $35,000 which was realized in the second quarter of 1997 and a decrease in OREO expense of $33,000. As a percentage of average earning assets, other expenses for the second quarter, on an annualized basis, decreased from 2.9% in 1997 to 2.4% in 1998. 12 SIX MONTHS ENDED JUNE 30, 1998 AND 1997 - --------------------------------------- An analysis of the results of operations of the Company for the six month period ended June 30, 1998 compared to the comparable period in 1997 is as follows: Net interest income - ------------------- Net interest income, the difference between interest earned on loans and investments and interest paid on deposits, is the principal component of the Bank's earnings. The components of net interest income are as follows:
Six months ended June 30, 1998 1997 Average Average Average Average Balance Interest Yield(1) Balance Interest Yield(1) (In thousands, except percentages) Assets: (Unaudited) Earning assets: Loans (2) $ 62,976 $3,094 9.8% $53,138 $2,634 9.9% Investment securities 46,945 1,446 6.2 48,024 1,445 6.0 Federal funds sold 10,745 293 5.5 12,529 331 5.3 Total interest -------- ------ -------- ------ earning assets 120,666 4,833 8.0 113,691 4,410 7.8 Cash and due from ------ -------- ------ banks 4,963 4,573 Other assets (3) 2,786 3,999 -------- -------- $128,415 $122,263 ======== ======== Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $ 38,577 633 3.3 $37,095 626 3.4 Time deposits 28,429 810 5.7 30,340 802 5.3 Other borrowings 22,948 705 6.1 20,459 638 6.2 Total interest- -------- ------ -------- ------ bearing liabilities 89,954 2,148 4.8 87,894 2,066 4.7 Demand deposits 23,192 ------ 21,249 ------ Other liabilities 1,338 927 -------- -------- Total liabilities 114,484 110,070 Shareholders' equity 13,931 12,193 -------- -------- $128,415 $122,263 ======== ======= Net interest income and margin(4)$2,685 4.5% $2,344 4.1% ====== ======
(1) Annualized. (2) Loan interest income includes loan fee income of $180,000 and $166,000 for the six months ended June 30, 1998 and 1997, respectively. (3) Net of the average allowance for loan losses of $637,000 and $624,000, and deferred loan fees of $318,000 and $325,000 for the six months ended June 30, 1998 and 1997, respectively. (4) Net interest margin is computed by dividing net interest income by total average interest earning assets. 13 Provision for credit losses - --------------------------- During the first six months of 1998, the Bank provided $102,000 to the provision for credit losses. During the first six months of 1997, the Bank did not provide any additional funds to the provision for credit losses. There were $14,000 in loans charged off and $32,000 in recoveries for the six months ended June 30, 1998, compared to $23,000 in loans charged off and $20,000 in recoveries for the first six months of 1997. Noninterest income - ------------------ Other income consists of service charges on deposit accounts, income on assets acquired for lease and fees for other miscellaneous services. Total other income increased from $233,000 in 1997 to $292,000 in 1998. The increase is primarily attributable to a gain on sale of securities of $59,000 and a gain on sale of leases of $12,000. Noninterest expenses - -------------------- Other expenses have decreased from $1,604,000 in 1997 to $1,505,000 in 1998 due primarily to a loss on sale of securities of $35,000 which was realized in the first six months of 1997 and a decrease in salary expense of $73,000. As a percentage of average earning assets, other expenses, on an annualized basis, decreased from 2.8% in 1997 to 2.5% in 1998. 14 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Bank manages its liquidity to provide adequate funds at an acceptable cost to support borrowing requirements and deposit flows of its customers. At June 30, 1998 liquid assets as a percentage of deposits were 35% (36% at December 31, 1997). In addition to cash and due from banks, liquid assets include short-term time deposits with other banks, Federal funds sold and investment securities available for sale. The Bank has $11.0 million in Federal funds lines of credit available with correspondent banks to meet liquidity needs. Management regularly reviews general economic and financial conditions, both external and internal, and determines whether the positions taken with respect to liquidity and interest rate sensitivity continue to be appropriate. The Bank also utilizes a monthly "Gap" report which identifies rate sensitivity over the short- and long-term. The following table sets forth the distribution of repricing opportunities, based on contractual terms, of the Company's earning assets and interest-bearing liabilities at June 30, 1998, the interest rate sensitivity gap (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative interest rate sensitivity gap ratio. 15
DISTRIBUTION OF REPRICING OPPORTUNITIES At June 30, 1998 (Dollars in thousands) After Three After Six After One Within Months But Months But Year But After Three Within Six Within One Within Five Months Months Year Five Years Years Total Federal funds sold $14,200 - - - - $14,200 Interest bearing deposits in other banks - - 1,589 - - 1,589 Municipal securities 660 - $ 200 $ 1,837 $ 5,227 7,924 U.S. Treasury and agency securities 3,451 - 420 12,289 14,451 30,611 FRB stock - - - - 2,189 2,189 Loans 31,947 2,667 3,637 13,788 12,719 64,758 ------- ------- ------- ------- ------- ------- Total earning assets $50,258 $ 2,667 $ 5,846 $27,914 $34,586 $121,271 ------- ------- -------- ------- ------- -------- Interest bearing demand accounts $32,302 - - - - 32,302 Savings accounts 5,821 - - - - 5,821 Time cert- ificates of deposit of $100,000 or more 4,507 $ 3,224 $ 1,946 $ 3,046 100 12,823 Other time deposits 4,042 4,071 3,816 3,478 - 15,407 Other borrowings - - - 11,995 $10,878 22,873 ------- ------- ------- ------- ------- ------- Total interest- bearing liabilities $46,672 $ 7,295 $ 5,762 $18,519 $10,978 89,226 Interest rate sens- itivity gap $ 3,586 $(4,628) $ 84 $ 9,395 $23,608 $32,045 ======= ======= ======== ======= ======= ======= Cumulative interest rate sens- itivity gap $ 3,586 $ (1,042) $ (958) $ 8,437 $32,045 ======= ======== ======= ======= ======= Interest rate sensitivity gap ratio 1.08% 0.37% 1.01% 1.51% 3.15% Cumulative interest rate sens- itivity gap ratio 1.08% 0.98% 0.98% 1.11% 1.36%
16 The Company and the Bank are subject to capital adequacy guidelines issued by the Board of Governors of the Federal Reserve System (the "BGFRS") and the Office of the Comptroller of the Currency ("OCC"). The Company and the Bank are required to maintain total capital equal to at least 8% of assets and commitments to extend credit, weighted by risk, of which at least 4% must consist primarily of common equity including retained earnings (Tier 1 capital) and the remainder may consist of subordinated debt, cumulative preferred stock or a limited amount of loan loss reserves. Certain assets and commitments to extend credit present less risk than others and will be assigned to lower risk-weighted categories requiring less capital allocation than the 8% total ratio. For example, cash and government securities are assigned to a 0% risk-weighted category, most home mortgage loans are assigned to a 50% risk-weighted category requiring a 4% capital allocation and commercial loans are assigned to a 100% risk-weighted category requiring an 8% capital allocation. As of June 30, 1998, the Company's total risk-based capital ratio was approximately 18.7% (approximately 18.7% for the Bank) compared to approximately 18.1% (approximately 17.0% for the Bank) at December 31, 1997. The BGFRS and the OCC adopted a 3% minimum leverage ratio for banking organizations as a supplement to the risk-weighted capital guidelines. The minimum leverage ratio is intended to limit the ability of banking organizations to leverage their equity capital base by increasing assets and liabilities without increasing capital proportionately. The 3% minimum leverage ratio constitutes a minimum ratio for well-run banking organizations. Organizations experiencing or anticipating significant growth or failing to meet certain BGFRS standards will be required to maintain a minimum leverage ratio ranging from 100 to 200 basis points in excess of the 3% ratio. The following table reflects the Company's leverage, Tier 1 and total risk-based capital ratios as of June 30, 1998 and December 31, 1997. June 30, 1998 December 31, 1997 ------------- ----------------- Leverage ratio 11.2% 10.9% Tier 1 capital ratio 17.9% 17.4% Total risk-based capital ratio 18.7% 18.1% On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA, among other matters, substantially revised banking regulations and established a framework for determination of capital adequacy of financial institutions. Under the FDICIA, financial institutions are placed into one of five capital adequacy catagories as follows: (1) "Well capitalized" - consisting of institutions with a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or 17 greater and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive; (2) "Adequately capitalized" - consisting of institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 risk- based capital ratio of 4% or greater and a leverage ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution; (3) "Undercapitalized" - consisting of institutions with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly undercapitalized" - consisting of institutions with a total risk- based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting of an institution with a ratio of tangible equity to total assets that is equal to or less than 2%. Financial institutions classified as undercapitalized or below are subject to various limitations including, among other matters, certain supervisory actions by bank regulatory authorities and restrictions related to (I) growth of assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of dividends or other capital distributions, and (iv) payment of management fees to a parent holding company. The FDICIA requires bank regulatory authorities to initiate corrective action regarding financial institutions which fail to meet minimum capital requirements. Such action may result in orders to, among other matters, augment capital and reduce total assets. Critically undercapitalized financial institutions may also be subject to appointment of a receiver or implementation of a capitalization plan. OTHER MATTERS From time to time, the Company's Board of Directors reviews and consults with advisors, including investment banking and legal advisors, regarding banking industry trends and developments, as well as internal and external opportunities to maximize shareholder value. Such reviews and consultations include evaluating and comparing internal results of operations projections and external opportunities for mergers, acquisitions, reorganizations, or other transactions with third parties which may be in the interests of the Company's shareholders. The Company's Board of Directors considers such periodic review and consultation to be important as part of their analysis of the Company's value and prospects in the changing banking environment and in view of the current consolidation activity within the banking industry. 18 Year 2000 - --------- As the year 2000 approaches, a critical issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. In brief, many existing application software products were designed to only accommodate a two digit date position which represents the year (e.g. "97" is stored on the system and represents the year 1997). As a result, the year 1999 (i.e. "99", could be the maximum date value these systems will be able to accurately process. This is not just a banking problem, as corporations around the world and in all industries are similarly impacted. Management is in the process of working with its software vendors to assure that the Company is prepared for the year 2000. Also, the company has put procedures in place to inquire whether the systems of key borrowers are year 2000 compliant. However there can be no assurance that problems will not arise which could have such an adverse impact due, among other matters, to the complexitiesinvolved in computer programming related to resolution of Year 2000 problems and the fact that the systems of other companies on which the Company may rely must also be corrected on a timely basis. Delays, mistakes or failures in correcting Year 2000 system problems by such other companies could have a significant adverse impact upon the Company and its ability to mitigate the risk of adverse impact of Year 2000 problems for its customers. At present, the Company does not have an estimate of the total cost of evaluating and fixing any potential year 2000 problems. Quantitative and Qualitative Disclosures about Market Risk - ----------------------------------------------------------- Disclosures under this item are not required for the current fiscal year as the Company qualifies as a "Small Business" filer. PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable 19 Item 4. Submission of Matters to a Vote of Security Holders The shareholders of Saratoga Bancorp took the following action at the Annual Meeting of Shareholders held on May 21, 1998 at the Company's main office located at 12000 Saratoga-Sunnyvale Road, Saratoga, California: 1. Approved the election of management's slate of nominees for directors, each of whom were incumbent directors, as follows: Votes ----- For Withheld ------- -------- Victor Aboukhater 857,563 6,977 Robert G. Egan 857,563 6,977 William D. Kron 857,563 6,977 John F. Lynch, III 857,563 6,977 V. Ronald Mancuso 857,563 6,977 Richard L. Mount 858,756 5,874 2. Approved amendments of the 1994 Stock Option Plan to increase the maximum number of shares available for options. Votes in favor of this proposal 718,499 Votes against this proposal 33,609 Votes abstaining 5,675 3. Ratified appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending December 31, 1998. VOTES ------ FOR 859,290 AGAINST 2,700 ABSTAIN 2,640 20 Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) (3) Exhibits -------- (27.1) Financial Data Schedule (b) Reports on Form 8-K ------------------- On June 10, 1998, Registrant filed a Current Report on Form 8-K, dated June 10, 1998 reporting under Item 5 (Other Events) detailing actions taken at the Annual Meeting of Shareholders of Registrant held on May 21, 1998. See Item 4 herein for additional information. 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. SARATOGA BANCORP MARY PAGE ROURKE Date: August 11, 1998 ------------------------- Mary Page Rourke, Treasurer (Principal Accounting Officer) 21 INDEX TO EXHIBITS Sequentially Numbered Number Exhibits Page - ------ -------- ------------ 27.1 Financial Data Schedule 22 EX-27 2
9 1000 6-MOS DEC-31-1998 JUN-30-1998 6540 1589 14200 0 11944 28780 29047 63738 698 131070 92419 0 1376 22873 0 0 4725 9677 131070 3094 1446 293 4833 1443 2148 2685 102 59 1505 1370 850 0 0 850 0.52 0.47 4.5 0 0 0 310 578 14 32 698 238 0 460
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