-----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, BdJiaSKqO6ytAuuJir5hp9VS0swfMU9cqGOidlwVusylavOXOQ0jee1yFANi3hsC lFwcdYTTMzBLsNe5kfLXFg== 0000706343-96-000008.txt : 19960805 0000706343-96-000008.hdr.sgml : 19960805 ACCESSION NUMBER: 0000706343-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960802 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA NATIONAL BANCORP CENTRAL INDEX KEY: 0000706343 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 942839814 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-79261 FILM NUMBER: 96602712 BUSINESS ADDRESS: STREET 1: 611 N MAIN ST CITY: MANTECA STATE: CA ZIP: 95336-3740 BUSINESS PHONE: 2098244052 MAIL ADDRESS: STREET 1: 611 NORTH MAIN STREET CITY: MANTECA STATE: CA ZIP: 95336 10-Q 1 FORM 10-Q ENDING JUNE 30, 1996 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended JUNE 30, 1996 Commission file number 2-79261 DELTA NATIONAL BANCORP (Exact name of registrant as specified in its charter) California 94-2839814 (State or other jurisdiction of incorporation (IRS Employer Identification No.) or organization) 611 North Main Street, Manteca, California 95336-3740 (Address of principal executive offices) (Zip code) (209) 824-4050 (Registrant's telephone number, including area code) 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock as of June 30, 1996: Common Stock, no par value - 376,782 shares. DELTA NATIONAL BANCORP FORM 10-Q CROSS REFERENCE INDEX - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION Page - -------------------------------------------------------------------------------- Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 3 Consolidated Statements of Income - Three months ended June 30, 1996 and six months ended June 30, 1996 4 Three months ended June 30, 1995 and six months ended June 30, 1995 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION Page - -------------------------------------------------------------------------------- Item 1. Legal Proceedings 25 Item 2. Changes in Securities 25 Item 3. Defaults Upon Senior Securities 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 5. Other Information 26 Item 6. Exhibits and Reports on Form 8-K 26 PART 1 - FINANCIAL INFORMATION Item 1 - Financial Statements DELTA NATIONAL BANCORP CONSOLIDATED BALANCE SHEETS (In Thousands) Unaudited June 30, Dec. 31, 1996 1995 ASSETS Cash and due from banks ............................... $ 3,646 $ 4,330 Federal funds sold .................................... 4,700 7,600 -------- -------- Total cash and cash equivalents(notes A10 and B).... 8,346 11,930 Interest bearing deposits in banks .................... 661 51 Securities available for sale (notes A3 and C) ........ 12,101 12,926 Securities held to maturity (notes A2 and C) .......... 18,603 20,351 -------- -------- 30,704 33,277 Loans, net (notes A4, A5 and D) ....................... 48,067 46,520 Property and equipment (note A6) ...................... 1,658 1,343 Interest receivable, other assets and other real estate owned (notes A7 and F) .................... 2,448 1,803 -------- -------- TOTAL ASSETS .......................................... $ 91,884 $ 94,924 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing .............................. 13,557 15,980 Interest bearing .................................. 68,107 68,859 -------- -------- Total deposits ................................ 81,664 84,839 Accrued interest/other liabilities .................... 268 314 Stockholders' equity: Common stock, no par value Authorized - 5,000,000 shares Issued and outstanding - 376,782 shares ......... 3,532 3,532 Retained earnings ................................. 6,445 6,194 Net unrealized appreciation (depreciation) on securities available-for-sale, net of tax of ($17,564) and $31,827 at June 30, 1996 and December 31, 1995, respectively ............. (25) 45 -------- -------- Total stockholders' equity .................... 9,952 9,771 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 91,884 $ 94,924 ======== ======== The accompanying notes are an integral part of this statement. PART 1 - FINANCIAL INFORMATION Item 1 - Financial Statements DELTA NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (In Thousands) EXCEPT PER SHARE DATA Unaudited 3 Months 6 Months Ending Ending June 30, June 30, 1996 1996 --------- -------- Interest income: Interest and fees on loans ....................... $1,450 $2,834 Securities available-for-sale .................... 188 382 Securities held-to-maturity ...................... 260 614 Interest-bearing deposits in banks ............... 3 4 Federal funds sold ............................... 65 134 ------ ------ Total interest income ........................ 1,966 3,968 Interest expense on deposits ......................... 677 1,401 ------ ------ Net interest income .......................... 1,289 2,567 Provision for loan losses ............................ 211 211 ------ ------ Net interest income after provision for possible loan losses .................... 1,078 2,356 Other income Service charges on deposits ...................... 127 255 Other income ..................................... 160 250 ------ ------ 287 505 ------ ------ Other expenses Salaries, wages and employee benefits ............ 486 1,007 Occupancy and equipment .......................... 160 328 Other operating expenses ......................... 390 654 ------ ------ 1,036 1,989 ------ ------ Earning before income taxes .................. 329 872 Income taxes (note A8) ............................... 135 357 ------ ------ NET EARNINGS ................................. $ 194 $ 515 ====== ====== Net earnings per share (note A9) ..................... $ .52 $ 1.37 ====== ====== The accompanying notes are an integral part of this statement. PART 1 - FINANCIAL INFORMATION Item 1 - Financial Statements DELTA NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (In Thousands) EXCEPT PER SHARE DATA Unaudited 3 MONTHS 6 MONTHS END END June 30, June 30, 1995 1995 Interest income: Interest and fees on loans ....................... $1,369 $2,750 Securities available-for-sale .................... 260 551 Securities held-to-maturity ...................... 219 351 Interest-bearing deposits in banks ............... 0 0 Federal funds sold ............................... 84 133 ------- ------- Total interest income ........................ 1,932 3,785 Interest expense on deposits ......................... 760 1,437 ------- ------- Net interest income .......................... 1,172 2,348 Provision for loan loss .............................. 99 199 ------- ------- Net interest income after provision for possible loan losses .................... 1,073 2,149 Other income Service charges on deposits ...................... 117 233 Other income ..................................... 46 116 ------- ------- 163 349 ------- ------- Other expenses Salaries, wages and employee benefits ............ 418 885 Occupancy and equipment .......................... 160 315 Other operating expenses ......................... 256 562 ------- ------- 834 1,762 ------- ------- Earning before income taxes .................. 402 736 Income taxes (note A8) ............................... 155 280 ------- ------- NET EARNINGS ................................. $ 247 $ 456 ======= ======= Net earnings per share (note A9) ..................... $ .66 $ 1.21 ======= ======= The accompanying notes are an integral part ofthis statement. PART 1 - FINANCIAL INFORMATION Item 1 - Financial Statements DELTA NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Unaudited 6 MONTHS ENDING JUNE 30, 1996 1995 Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net earnings ....................................... $ 515 $ 456 Adjustments to reconcile net earnings to net cash provided by operating activities (Gain)/Loss on sale of assets ................ 0 16 (Gain)/Loss on sale of OREO .................. 0 (26) Provision for possible loan losses ........... 211 199 Provision for OREO ........................... 113 38 Provision for depreciation and ............... 289 249 amortization Decrease (increase) in interest receivable and other assets................... (421) (671) Increase (decrease) in interest payable and other liabilities ....................... (159) 88 ------- ------- Net cash provided by operating activities.. 548 349 ------- ------- Cash flows from investing activities: Proceeds from maturities of securities available-for-sale ............................... 697 4,970 Proceeds from maturities of securities held-to-maturity ................................. 3,549 1,583 Purchase of securities available-for-sale .......... 0 0 Purchase of securities held-to-maturity ............ (1,983) (6,169) Net (increase) decrease in loans ................... (1,758) 957 Purchase of property and equipment ................. (419) (55) Purchase/additions to OREO ......................... (175) (34) Proceeds from sale of property and equipment ....... 7 10 Proceeds from sale of OREO ......................... 0 497 Net (Inc.) dec. Int. Bearing Deposits Other Inst.... (610) 0 ------- ------- Net cash (used in) provided by investing activities ...................... (692) 1,759 ------- ------- The accompanying notes are an integral part of this statement. PART 1 - FINANCIAL INFORMATION Item 1 - Financial Statements DELTA NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (In Thousands) Unaudited 6 MONTHS ENDING JUNE 30, 1996 1995 Cash flows from financing activities: Net increase (decrease) in demand deposits, money market accounts and savings accounts ....... (3,669) 3,513 Net (decrease) increase in time deposits ........... 493 (3,031) Cash dividends ..................................... (264) (264) -------- -------- Net cash provided by financing activities ................................ (3,440) 218 -------- -------- Net increase (decrease) in cash and cash equivalents ..................................... (3,584) 2,326 Cash and cash equivalents at beginning of period ..... 11,930 6,149 -------- -------- Cash and cash equivalents at end of period ........... $ 8,346 $ 8,475 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest 1,190 1,253 Income Taxes 557 645 Noncash investing and financing activities: The Bank recognized a decrease of $119,016 in the fair value of its available-for-sale securities in the first six months of 1996 and an increase of $730,537 in the fair value of its available-for-sale securities for the year ended December 31, 1995. The accompanying notes are an integral part of this statement. PART 1 - FINANCIAL INFORMATION Item 1 - Financial Statements DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 NOTE A - Summary of Accounting Policies Delta National Bancorp (the Company) was incorporated under the laws of the State of California on December 21, 1981, for the purpose of serving as a bank holding company under the Bank Holding Company Act of 1956. The Company's wholly owned subsidiary, Delta National Bank (the Bank), operates as a commercial bank in the cities of Manteca, Riverbank, Denair and Modesto, California. The Company's headquarters are located at the Manteca Branch at 611 North Main Street, Manteca, California. Through its branches the Bank provides traditional commercial banking services to individuals and small and medium-sized businesses located in the California Central Valley. The accounting and reporting policies of the Company and the Bank conform with generally accepted accounting principles and general practice within the banking industry. The consolidated financial statements of the Company include the accounts of the Company and the Bank. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows. There have been no material changes in Delta National Bancorp's significant accounting policies during the six months ended June 30, 1996. Management has presented, for comparison purposes its unaudited consolidated balance sheet as of June 30, 1996, its unaudited consolidated statements of earning for three months and six months ending June 30, 1996, and 1995 and cash flows for the six months ended June 30, 1996, and 1995. The financial statements contain, in the opinion of management, all necessary normal recurring adjustments and are not intended to be indicative of results that can be expected for a full year. 1. Consolidation The consolidated financial statements of the Company include the accounts of the Company and the Bank. Significant intercompany transactions and amounts have been eliminated. 2. Securities held-to-maturity Bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized as adjustments to interest income over the period to maturity. 3. Securities available-for-sale Available-for-sale securities consist of bonds, notes and debentures not classified as trading securities or held-to-maturity securities. Unrealized holding gains and losses, net of tax, are reported as a net amount in a separate component of stockholders' equity until realized. Gains and losses on the sale of available-for-sale securities are determined using the specific identification method. The amortization of premiums and accretion of discounts are recognized as adjustments to interest income over the period to maturity. DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 4. Loans Loans are reported at the principal amount outstanding, net of unearned income, deferred loan fees, and the allowance for loan losses (interim financial statements will also be reported net of deferred profit on OREO sales). Unearned discounts on installment loans are recognized as income over the terms of the loans. Interest on other loans is calculated by using the simple interest method on the daily balance of the principal amount outstanding. Loan fees net of certain direct costs of origination, which represent an adjustment to interest yield, are deferred and amortized over the contractual term of the loan. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or when a loan becomes contractually past due by ninety days or more with respect to interest or principal. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. 5. Allowance for loan losses The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans and commitments to extend credit, based on evaluations of collectibility and prior loss experience of loans and commitments to extend credit. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, commitments and current economic conditions that may affect the borrowers' ability to pay. 6. Property and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leasehold improvements are amortized over the lives of the improvements or the terms of the related leases, whichever is shorter. The straight-line method of depreciation is followed for financial reporting purposes, but accelerated methods are used for tax purposes. Deferred income taxes have been provided for the resulting depreciation differences. DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 7. Foreclosed assets Real estate properties acquired through foreclosure are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of (1) cost, or (2) fair market value minus estimated costs to sell. The net carrying value (included in other assets on the balance sheet) of foreclosed real estate was $622,640 for the period ending June 30, 1996, and $560,600 for the period ending December 31, 1995. Other assets repossessed by the Bank are initially recorded at fair value at the date of repossession, establishing a new cost basis. Valuations are periodically performed by management and the asset is carried at the lower of (1) cost, or (2) fair market value minus estimated costs to sell. The net carrying value (included in other assets on the balance sheet) of other repossessed assets was $292,360 for the period ending June 30, 1996. There were no other repossessed assets as of December 31, 1995. 8. Income taxes Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. 9. Earnings per share Earnings per share amounts are computed on the basis of the weighted average number of share outstanding during each year. The weighted average number of shares outstanding for June 30, 1996, and December 31, 1995, was 376,782. 10. Cash and cash equivalents For the purposes of the statement of cash flow, the Bank considers due from banks and federal funds sold for one-day periods to be cash equivalents. NOTE B - CASH AND DEPOSITS The Bank is required to maintain reserves by the Federal Reserve Bank. The average reserve requirements are based on a percentage of deposit liabilities. The Bank has met or exceeded the average reserve requirements for the periods presented in the financial statements. In addition, the Federal Reserve requires the Bank to maintain a certain minimum balance at all times, and such requirement was met by the Bank during the periods presented in the financial statements. DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 NOTE C - SECURITIES Effective December 31, 1993, the Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These securities are classified into one of three categories: held-to-maturity, available-for-sale, or trading. Held-to-maturity securities are measured at amortized cost and available-for-sale and trading securities are measured at fair value. Unrealized holding gains and losses for available-for-sale securities are excluded from earnings and reported as a net amount in a separate component of stockholders' equity until realized. Amortized cost (book values) and estimated fair value of investment securities for June 30, 1996, and December 31, 1995, are as follows:
- ------------------------------------------------------------------------------------------------------------ June 30, 1996 December 31, 1995 Gross Gross Unrealized Estimated Unrealized Estimated Amortized Gains Fair Amortized Gains Fair Cost (Losses) Value Cost (Losses) Value - ------------------------------------------------------------------------------------------------------------ Available-for-sale securities: U.S. treasury securities ....... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Obligations of other U.S. government agencies .......... 11,483 (159) 11,324 12,189 (66) 12,123 Obligations of state and political subdivisions ....... 605 117 722 606 142 748 Corporate bonds and other ...... 55 0 55 55 0 55 ------- ------- ------- ------- ------- ------- Total ........................... $12,143 $ (42) $12,101 $12,850 $ 76 $12,926 ======= ======= ======= ======= ======= ======= Held-to-maturity securities: U.S. treasury securities ....... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Obligations of other U.S. government agencies .......... 18,128 91 18,219 18,252 142 18,394 Obligations of state and political subdivisions ....... 475 (1) 474 696 (2) 694 Corporate bonds and other ...... 0 0 0 1,404 (8) 1,396 ------- ------- ------- ------- ------- ------- Total ............................ $ 18,603 $ 90 $18,693 $ 20,352 $ 132 $20,484 ======= ======= ======= ======== ======== ======= - ------------------------------------------------------------------------------------------------------------
DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 NOTE D - LOANS The composition of the Bank's loan portfolio at June 30, 1996, and December 31, 1995, is as follows: - -------------------------------------------------------------------------------- June 30, December 31, 1996 1995 - -------------------------------------------------------------------------------- Commercial, financial and agricultural ....... $22,321,928 $22,755,013 Real estate - construction ................... 11,384,484 9,175,475 Real estate - mortgage ....................... 13,998,400 14,090,502 Installment loans to individuals ............. 1,865,391 2,073,749 ----------- ----------- 49,570,203 48,094,739 Unearned discount ........................ (68,264) (80,189) Allowance for loan losses ................ (1,064,144) (1,219,304) Deferred loan fees ....................... (275,994) (275,427) Deferred profit on OREO sales (1) ........ (95,115) ----------- ----------- Loans, net ............................ $48,066,686 $46,519,819 =========== =========== - -------------------------------------------------------------------------------- (1) Audited financial statements for December 31, 1995, do not include Deferred profit on OREO sales due to not being material in amount. The following table summarizes the changes in the allowance for loan losses for the periods ending June 30, 1996, and December 31, 1995: ----------------------------------------------------------------------------- June 30, December 31, 1996 1995 ----------------------------------------------------------------------------- Balance at January 1 ........................... $1,219,304 $ 599,422 Charge Offs: Commercial, financial and agricultural ..... (348,605) Real Estate - construction ................. (61,638) Real Estate - mortgage...................... Installment loans to individuals ........... (21,915) (112,366) ---------- ----------- Total Charge Offs ...................... (432,158) (112,366) ---------- ----------- Recoveries: Commercial, financial and agricultural ..... 1,390 Real Estate - construction ................. 40,545 80,425 Real Estate - mortgage ..................... 1,200 2,200 Installment loans to individuals ........... 24,687 24,219 ---------- ----------- Total Recoveries ....................... 66,432 108,234 ---------- ----------- Net charge offs ................................ (365,726) (4,132) Additions charged to operations ................ 210,566 624,014 ---------- ----------- $1,064,144 $ 1,219,304 ========== =========== DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 Impaired Loans: In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 114 entitled "Accounting by Creditors for Impairment of a Loan." This statement, which became effective January 1, 1995, requires that impaired loans, as defined, be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The Bank adopted and implemented SFAS No. 114 as of January 1, 1995. The carrying value of impaired loans totaled $1,395,724 at June 30, 1996, of which $1,137,749 is the result of a troubled debt restructuring. There was no allowance relating to these loans as of June 30, 1996, due to the fair value of the collateral exceeding the carrying value of the impaired loans. Total cash collected on impaired loans for the first six months of 1996 approximated $661,360 of which $596,481 was credited to the principal balance outstanding, and the remainder was recognized as interest income. As of June 30, 1996, an impaired loan in the amount of $236,238 was transferred to OREO of which $61,638 was charged off and $174,600 booked as OREO. Another large commercial-agricultural loan in the amount of $612,909 was transferred to other repossessed assets of which $299,909 was charged off and $313,000 transferred. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Amounts due according to the contractual terms include both principal and interest. The Company has determined that the definition of impaired loans will include any loans placed on nonaccrual status and any loans that have had a modification of terms under troubled debt restructuring. Loans in the amount of $300,000 or more will be evaluated individually. Large groups of smaller-balance homogenous loans, under $300,000, will be evaluated on a composite basis using historical data, such as average recovery period and average amount recovered, along with a composite rate of interest as a means of measuring for impairment. Loans that are not evaluated individually will be grouped together by similar risk characteristics. The following categories will be grouped together: Agricultural, Commercial, RE Construction, Residential RE, Consumer, and Commercial RE loans. Loan impairment is measured by estimating the present value of expected future cash flows discounted at the loan's effective interest rate, its observable market price, or the fair value of collateral if the loan is collateral dependent. When it has been substantiated that a loss is evident and should be recognized, the impaired loan will be charged off. The recorded investment in these loans and the valuation allowance for loan losses related to loan impairment are as follows: - -------------------------------------------------------------------------------- June 30,1996 December 31, 1995 - -------------------------------------------------------------------------------- Principal amount of Principal amount of impaired loans .......... $1,395,009 impaired loans .......... $2,840,637 Accrued Interest ........ 514 Accrued Interest......... 267 Deferred loan costs ..... 201 Deferred loan costs...... 1,408 ---------- ---------- 1,395,724 2,842,312 Less valuation allowance. 0 Less valuation allowance. 334,981 ---------- ---------- Total carrying value .... $1,395,724 Total carrying value .... $2,507,331 ========== ========== Valuation allowance at Valuation allowance at beginning of period ..... $ 334,981 beginning of period ..... $ 0 Net charges to operations Net charges to operations for impairment .......... 26,565 for impairment .......... 334,981 Direct write-downs ...... 361,546 Direct write-down ....... 0 Recoveries .............. 0 Recoveries .............. 0 ---------- ---------- Valuation allowance at Valuation allowance at end of period ........... $ 0 end of period .......... $ 334,981 ========== ========== - -------------------------------------------------------------------------------- DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 NOTE E - RELATED PARTY TRANSACTIONS The Bank, in the ordinary course of business, makes loans and receives deposits from its directors and stockholders. The following sets forth information for all directors and officers (and their families) who had loans with the bank, or who were otherwise indebted to the Bank in an amount in excess of $60,000. In 1991 the Bank extended credit to Valerie Salas, daughter of Andrew Rossi, President, Chief Executive Officer and Director of the Company and sister of Toinette Rossi, Vice President/Manager and Director of the Company, in the amount of $16,595. As of June 30, 1996, the principal balance owing was $6,180. This loan is unsecured and bears interest at a fixed rate of 13%. This loan matures on April 23, 1997. In 1995, the Bank funded an unsecured line of credit to John Rossi, son of Andrew Rossi, President, Chief Executive Officer and Director of the Company and sister of Toinette Rossi, Vice President/Manager and Director of the Company, in the amount of $303,250. On June 30, 1996, there was no principal balance owing. This line of credit bears interest at the Bank's reference rate plus 2.5% and is scheduled to mature November 1, 1996. NOTE F - FORECLOSED ASSETS Foreclosed real estate owned includes real estate acquired through foreclosure, or by obtaining a deed in lieu of foreclosure. Real estate properties acquired through foreclosure are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed and the real estate is carried at the lower of (1) cost or (2) fair market value minus estimated costs to sell. Total foreclosed real estate (before the valuation allowance) was $1,030,767 at June 30, 1996, this consisted of four properties, three of which represented bare land. The fourth property is a condominium complex consisting of eight units that were completed and placed in service as rental units by the Bank. The valuation allowance at June 30, 1996, totaled $408,127. - -------------------------------------------------------------------------------- June 30, 1996 December 31, 1995 - -------------------------------------------------------------------------------- Real estate owned: Foreclosed assets ............... $ 1,030,767 $ 856,167 Less valuation allowance ........ 408,127 295,567 - -------------------------------------------------------------------------------- OREO, net ................... $ 622,640 $ 560,600 - -------------------------------------------------------------------------------- DELTA NATIONAL BANCORP NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 Changes in the valuation allowance for foreclosed real estate for the periods ending June 30, 1996, and December 31, 1995, are as follows: - -------------------------------------------------------------------------------- June 30, 1996 December 31, 1995 - -------------------------------------------------------------------------------- Balance at January 1, ............... $ 295,567 $ 257,644 Provision charged to operations ..... 112,560 37,923 Charge-offs, net of recoveries ...... 0 0 - -------------------------------------------------------------------------------- Balance at end of period ............ $ 408,127 $ 295,567 - -------------------------------------------------------------------------------- Other repossessed assets acquired by the Bank include all assets except real estate. As with other real estate owned, assets acquired by repossession are initially recorded at fair value at the date of repossession establishing a new cost basis. After repossession, valuations are periodically performed and the asset is carried at the lower of (1) cost or (2) fair market value minus the estimated costs to sell. Total other repossessed assets (before the valuation allowance) was $292,360. This consisted of cattle used in dairy production. The Bank has been managing the dairy production since foreclosure. As cattle are sold at auction, the asset is reduced and a corresponding gain or loss is recorded. The original amount taken into other repossessed assets was $313,000 and no valuation allowance has been made to date. The corresponding loss on cattle sold at auction amounted to $6,601 as of June 30, 1996. PART 1 - FINANCIAL INFORMATION Item II - Financial Condition and Results of Operations DELTA NATIONAL BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL REVIEW PERFORMANCE SUMMARY The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes in trends related to the financial condition of Delta National Bancorp ("the Company") and its results of operations. It should be read in conjunction with the unaudited financial statements and footnotes appearing elsewhere in this report. At June 30, 1996, the Company's total assets were $91,883,600, net loans amounted to $48,066,686, stockholders' equity was $9,952,497 and the allowance for loan losses was $1,064,144. This compares to total assets of $94,924,333, net loans of $46,519,819, stockholders' equity of $9,771,029 and allowance for loan losses of $1,219,304 at December 31, 1995. Net income for the first six months of 1996 amounted to $514,839 or $1.37 per share, as compared with $456,332 or $1.21 per share earned for the same period in 1995. A significant portion of the increase in net income from a year ago was due to increased interest income earned on securities as well as commercial and real estate loans. Net non-interest income also increased in the first half of 1996, compared to 1995. The carrying value of nonaccrual loans at quarter end amounted to $257,976, down from $1,694,556 at December 31, 1995. Nonaccrual loans consists of one small real estate loan. At June 30, 1996, other real estate owned ("OREO") (net of the valuation allowance) totaled $622,640 compared with OREO of $560,600 at December 31, 1995. Restructured loans, loans outstanding whose original terms have been modified, totaled $1,137,749 at June 30, 1996, which consisted of one real estate loan compared to $l,147,775 at December 31, 1995. There was an increase in the provision for loan losses of $210,566 compared to a $199,000 accrual for the same period in 1995. Net charge-offs increased for the first six months in 1996 over the previous year. Net loans charged off amounted to $365,726 for the first six months of 1996 versus a net recovery of $3,097 for the same period in 1995. Net interest income was $2,567,210 at June 30, 1996, compared to $2,347,530 for June 30, 1995. Net interest income increased due to increased interest income on securities as well as commercial and real estate loans. Interest expense decreased 2.4% due to decreased rates on deposits. Non-interest income amounted to $505,669 as of June 30, 1996, compared to $349,713 for June 30,1995. Income related to service charges on deposits increased $22,067 while an increase in other income was attributed to income on other real estate owned and other repossessed assets as well as an increase in mortgage department fee income. Total non-interest income increased 44.6% over the same period in 1995. Operating expenses amounted to $1,988,489 in the first half of 1996, compared to $1,762,900 in the first half of 1995 which represents a 12.8% increase. FDIC assessments decreased significantly in 1996 while professional fees and salaries and wages increased due to normal operating expenditures. Other operating expenses increased due to additions made to the valuation allowance for other real estate owned and expenses for other repossessed assets that were not made in 1995. EARNINGS PERFORMANCE Net Income: Net income for the first six months of 1996 amounted to $514,839 or $1.37 per share, as compared with $456,332 or $1.21 per share earned for the same period in 1995. A significant portion of the increase in net income from a year ago was due to increased interest income earned on securities as well as commercial and real estate loans. Interest on government securities increased 16.0% while commercial and real estate interest income increased by 5.2% and 4.6%, respectively. Total net income increased 12.8% over the same period in 1995. There were no significant changes to information presented for the three months ending June 30, 1996, and 1995 that has not been discussed elsewhere in this report. Net Interest Income: The Company's operating results depend primarily on net interest income. A primary factor affecting the level of net interest income is the Company's interest rate margin between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities as well as the difference between the relative amounts of average interest-earning assets and interest-bearing liabilities. Net interest income increased 9.4% to $2,567,210 for the quarter ending June 30, 1996, compared to $2,347,530 at June 30, 1995. Net interest income increased primarily due to increased income on securities and commercial and real estate loans. Provision for Loan Losses: The provision for loan losses totaled $210,566 as of June 30, 1996, compared to a $199,000 accrual as of June 30, 1995. The provision for loan losses reflects management's on-going evaluation of the risk inherent in the loan portfolio, which includes consideration of numerous factors, such as economic conditions, relative risks in the loan portfolio, loan loss experience and review and monitoring of individual loans for identification and resolution of potential problems. Non-Interest Income: Non-interest income amounted to $505,669 for the first six months of 1996, up from $349,713 in 1995. Service charges on deposits increased approximately 9.5% in 1996 due to the increase in demand deposits. Total non-interest income increased 44.6% over the same period in 1995 which was due to increased income on other real estate owned and other repossessed assets as well as an increase in mortgage department fee income. - -------------------------------------------------------------------------------- June 30, June 30, (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Service charges on deposit accounts ...................... $255,146 $233,079 Mortgage department fees ................................. 58,796 1,300 Other real estate owned (OREO) ........................... 32,285 6,067 Other repossessed assets ................................. 74,693 -- Gain on sale of OREO ..................................... 319 25,965 Gain on sale of fixed assets ............................. -- -- Other income ............................................. 84,430 83,302 - -------------------------------------------------------------------------------- Total ................................................ $505,669 $349,713 - -------------------------------------------------------------------------------- Non-Interest Expense: Non-interest expense amounted to $1,988,489 in 1996, compared to $1,762,900 in 1995. FDIC assessments decreased 81% in 1996 due to reduced BIF assessments. Professional fees increased 43% due to legal expenses incurred in 1996 and not made in 1995. Salaries and wages increased due to normal operating expenditures. Total operating expenses increased 12.8% over the same period in 1995. Other operating expenses increased due to additions made to the valuation allowance for other real estate owned and expenses for other repossessed assets that were not made in 1995. - -------------------------------------------------------------------------------- June 30, June 30, (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Salaries and wages ................................... $ 891,701 783,228 Employee benefits .................................... 115,179 102,026 Occupancy and equipment .............................. 340,230 327,306 Stationary and supplies .............................. 19,928 27,579 Professional fees .................................... 83,891 58,719 Assessments .......................................... 20,167 107,496 Other operating ...................................... 337,424 288,116 Writedown of OREO .................................... 112,560 37,923 OREO expenses ........................................ 10,954 14,726 Other repossessed assets expenses .................... 49,505 -- Loss on sale of other repossessed assets ............. 6,601 -- Loss on sale of OREO ................................. -- -- Loss on sale of fixed assets ......................... 349 15,781 Loss on sale of available-for-sale security .......... -- -- - -------------------------------------------------------------------------------- Total ............................................ $1,988,489 $1,762,900 - -------------------------------------------------------------------------------- ASSET LIABILITY MANAGEMENT Liquidity: For the Company, as with most commercial banking institutions, liquidity is the ability to roll over substantial amounts of maturing liabilities and to acquire new liabilities at levels consistent with management's financial targets. During the first three months of 1996, the Company continued to maintain a high level of liquidity. Highly liquid assets consist of cash, deposits placed with banks, Federal funds sold and securities available for sale. At quarter end, the Bank had a liquidity ratio of 24.30%. Interest Rate Sensitivity Management: The primary objectives of the asset liability management process are to provide a stable net interest margin, generate net interest income to meet the Company's earnings' objectives and manage balance sheet risks. These risks include liquidity risk, capital adequacy and overall interest rate risk inherent in the Company's balance sheet. In order to manage its interest rate sensitivity, the Company has adopted policies that attempt to limit the change in pre-tax net interest income assuming various interest rate scenarios. This is accomplished by adjusting the repricing characteristics of the Company's assets and liabilities as interest rates change. The Company's Asset Liability Committee chooses strategies in conformance with its policies to achieve an appropriate trade off between interest rate sensitivity and the volatility of pre-tax net interest income and net interest margin. The following table sets out the maturity and rate sensitivity of the Company's interest-earning assets and interest -bearing liabilities as of June 30, 1996. The cumulative interest sensitivity gap ("gap") as reflected in the table represents the difference between interest-earning assets and interest-bearing liabilities maturing or repricing, whichever is earlier, at a given point in time and is not necessarily indicative of the position on other dates.
- ------------------------------------------------------------------------------------------------------------------------------------ 0 - 30 31 - 90 3 - 6 6 - 12 1 - 5 5 (In Thousands) Days Days Months Months Years Years Total - ------------------------------------------------------------------------------------------------------------------------------------ Earning Assets: Fed funds sold ......................... $ 4,700 $ -- $ -- $ -- $ -- $ -- $ 4,700 Deposit accounts with other banks....... 661 -- -- -- -- -- 661 Securities: (3) U. S. government agencies........... -- 17,047 12,540 -- -- 24 29,611 Municipals ......................... 185 225 280 -- -- 390 1,080 Corporate bonds (6) ................ -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total securities ....................... $ 185 $ 17,272 $ 12,820 $ -- $ -- $ 414 $ 30,691 - ------------------------------------------------------------------------------------------------------------------------------------ Loans: (1) Commercial - fixed ................. 811 1,173 411 3,444 1,803 174 7,816 Commercial - variable (2)........... 13,118 -- -- -- -- -- 13,118 Real estate - fixed ................ 395 1 152 2,122 2,926 768 6,364 Real estate - variable.............. 19,417 -- -- -- -- -- 19,417 Installment (4) .................... 6 18 25 123 1,113 -- 1,285 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans ............................ $ 33,747 $ 1,192 588 $ 5,689 $ 5,842 $ 942 $ 48,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets ........................... $ 39,293 $ 18,464 $ 13,408 $ 5,689 $ 5,842 $ 1,356 $ 84,052 - ------------------------------------------------------------------------------------------------------------------------------------ Source of Funds: Deposits: Interest-bearing demand deposits .................... 13,926 -- -- -- -- -- 13,926 Time deposits greater than $100,000. 3,504 6,819 6,787 4,047 1,255 -- 22,412 Time deposits less than $100,000.... 1,483 1,741 3,837 5,612 1,015 -- 13,688 Passbook time deposits - variable .. 6,878 -- -- -- -- -- 6,878 Savings (5) ........................ -- 9,533 -- -- -- -- 9,533 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits ......................... $ 25,791 $ 18,093 $ 10,624 $ 9,659 $ 2,270 $ -- $ 66,437 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities ...................... $ 25,791 $ 18,093 $ 10,624 $ 9,659 $ 2,270 $ -- $ 66,437 - ------------------------------------------------------------------------------------------------------------------------------------ Gap .................................... $ 13,502 $ 371 $ 2,784 $ (3,970) $ 3,572 $ 1,356 $ 17,615 - ------------------------------------------------------------------------------------------------------------------------------------ Cumulative interest sensitivity gap .... $ 13,502 $ 13,873 $ 16,657 $ 12,687 $ 16,259 $ 17,615 $ 17,615 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Non-accruing loans not yet charged off are included in the loan balance. (2) Overdrafts are not included in the loan balance. (3) Securities are stated at amortized cost. (4) Credit Cards are not included in the loan balance. (5) IRA's and Christmas Club accounts are not included in the balance. (6) FRB stock is not included in the balance.
The gap is considered positive when the amount of interest rate sensitive assets which reprice over a given time period exceeds the amount of interest rate sensitive liabilities which reprice over the same time period and is considered negative when the reverse is true. During a period of rising interest rates, a positive gap tends to result in increased net interest income while a negative gap would have an adverse effect on net interest income. As illustrated by the table, the Company maintained a positive gap at June 30, 1996. The Company, therefore, was asset sensitive and was positioned for increased net interest income given a rise in interest rates in 1996. The degree of positive gap is not so large that a significant detrimental impact would result from stable or declining interest rates. BALANCE SHEET ANALYSIS Cash and Due from Banks: Cash and due from banks for the quarter ended June 30, 1996, was $3,646,004, down 15.8% from $4,330,351 at December 31, 1995, due to normal operations. Securities: The fair value of available-for-sale securities totaled $12,101,010, compared to $12,926,352 at December 31, 1995. The decrease in available-for-sale securities was primarily due to investments that matured during the year. New securities purchased in the first half of 1996 were placed in the held-to-maturity category due to the Banks intent to hold these funds until they mature. As of June 30, 1996, available-for-sale securities made up 39% of the securities portfolio while held-to-maturity securities made up 61% of the portfolio. The majority of the securities are variable at 95% of the securities portfolio and 5% are fixed rate. The securities portfolio consisted primarily of U.S. government agency securities and five municipal bonds. The amortized cost of held-to-maturity securities totaled $18,603,053 at quarter end compared to $20,351,537 at December 31, 1995. The following table shows the amortized cost (book value) of the Company's portfolio of available-for-sale and held-to-maturity securities for the periods ending June 30,1996 and December 31, 1995: - -------------------------------------------------------------------------------- (In thousands) June 30, December 31, 1996 1995 - -------------------------------------------------------------------------------- Available-for-sale: U. S. Treasury ......................... $ -- $ -- U. S. government agencies .............. 11,482,879 12,188,734 States & political subdivisions ........ 605,186 605,656 Corporate bonds and other .............. 55,350 55,350 ----------- ----------- Total .............................. $12,143,415 $12,849,740 =========== =========== Held-to-maturity: U. S. Treasury ......................... $ -- $ -- U. S. government agencies .............. 18,127,859 18,252,276 States & political subdivisions ........ 475,194 695,578 Corporate bonds and other .............. -- 1,403,683 ----------- ---------- Total .............................. $18,603,053 $20,351,537 =========== =========== - -------------------------------------------------------------------------------- The following tables show the amortized cost (book value) and maturities of securities at June 30, 1996, and the weighted average yields (1).
- ----------------------------------------------------------------------------------------------------------------- Securities/Maturities - June 30, 1996 -------------------------------------------------------------------------------------- After 1 but After 5 but Within 1 year Within 5 Years Within 10 Years After 10 Years -------------------------------------------------------------------------------------- Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------- Available-for-sale: U. S. Treasury ....... $ -- -- $ -- -- $ -- -- $ -- -- U.S. government agencies ............. 2,871,844 4.82% 1,262,542 6.58% 7,348,493 6.74% -- -- States & political subdivisions (2)...... 215,000 6.44% -- -- -- -- 390,186 13.50% Corporate bonds(2)(3). -- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Total ............ $3,086,844 4.93% $1,262,542 6.58% $ 7,348,493 6.74% $ 390,186 13.50% - ----------------------------------------------------------------------------------------------------------------- Held-to-maturity: U. S. Treasury....... $ -- -- $ -- -- $ -- -- $ -- -- U.S. government agencies ............ 56,769 8.11% 3,129,930 7.86% 13,255,186 7.66% 1,685,974 5.47% States & political subdivisions (2)..... 475,194 5.06% -- -- -- -- -- -- subdivisions (2)...... Corporate bonds(2).... -- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Total ........... $ 531,963 5.39% $3,129,930 7.86% $13,255,186 7.66% $ 1,685,974 5.47% - ----------------------------------------------------------------------------------------------------------------- (1) Yields are calculated on a tax equivalent basis using the Federal statutory rate of 34%. (2) There were no securities which exceeded 10% of stockholders' equity. (3) Federal Reserve Stock not included in balance.
Loan Composition: The loan portfolio totaled $48,066,686 at June 30, 1996, compared to $46,519,819 at December 31, 1995. There was a slight shift from commercial loans to real estate construction and real estate mortgage loans. Total gross loans increase 3.3% in the first six months of 1996. Consumer loans continue to decline due to recessionary influences and competition. The composition of the Bank's loan portfolio is as follows: - -------------------------------------------------------------------------------- Percentage Percentage June 30, of Total December 31, of Total 1996 Loans 1995 Loans - -------------------------------------------------------------------------------- Commercial, financial and agricultural ............... $22,321,928 45.03% $22,755,013 47.30% Real Estate - construction . 11,384,484 22.97% 9,175,475 19.10% Real Estate - mortgage ..... 13,998,400 28.24% 14,090,502 29.30% Installment loans to individuals ................ 1,865,391 3.76% 2,073,749 4.30% - -------------------------------------------------------------------------------- $49,570,203 100.00% $48,094,739 100.00% Unearned discount .......... (68,264) (80,189) Allowance for possible loan losses ................ (1,064,144) (1,219,304) Deferred loan fees ......... (275,994) (275,427) Deferred profit on OREO sales (2)................... (95,115) -- - -------------------------------------------------------------------------------- Loans, net ............. $48,066,686 $46,519,819 - -------------------------------------------------------------------------------- (1) There were no lease financing or foreign loans (2) Audited financial statements for December 31, 1995, do not include Deferred profit on OREO sales due to not being material in amount. The Bank's customers are primarily located in Stanislaus County and San Joaquin County. Approximately 51% of the Bank's loans are for real estate and construction and approximately 45% of the Bank's loans are for general commercial uses including professional, retail, agricultural and small business. Generally real estate loans are secured by real property and commercial and other loans are secured by funds on deposit, business or personal assets. Repayment is generally expected from the proceeds of the sales of property for real estate construction loans, and from cash flows of the borrower for other loans. Neither the Bank nor the regulators have placed any limitations on the composition of the Bank's loan portfolio. There were no concentrations of loans exceeding 10% of total loans that were not otherwise disclosed as a category of loans in the above table. Unsecured loans are not a significant portion of the loan portfolio depicted in the above table. There were no other interest bearing assets at the end of the period. The Bank has collateral management policies in place so that collateral lending of all types is on a basis that it believes is consistent with regulatory lending standards. Valuation analyses are utilized to take into consideration the potentially adverse economic conditions under which liquidation of collateral could occur. It is generally the Bank's policy to fully collateralize all loans with loan-to-value ratios determined on an individual loan basis taking into account the financial stability of each borrower and the value and type of the collateral. Allowance for Loan Losses: The provision for loan losses is based upon management's evaluation of the adequacy of the existing allowance for loans outstanding. These evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific loan problems and current economic conditions that may affect the borrower's ability to repay. The allowance for loan losses is increased by provisions charged to expense and reduced by loan charge-offs net of recoveries. Early recognition of problem credits is critical to avoid shortages in the allowance. The allowance for loan losses totaled $1,064,144 or 2.15% of total gross loans at June 30,1996 compared to $1,219,304 or 2.54% of total gross loans at December 31, 1995. The increase in the allowance in 1995 was primarily a response to the current state of the dairy industry which had somewhat deteriorated and has now improved in the first half of 1996. One dairy loan in particular accounted for a significant portion of the allowance for loan losses in 1995 and has since been charged-off and transferred to other repossessed assets. As of June 30, 1996, the allowance primarily consists of one commercial retail center that is experiencing difficulty in leases and cash flow. The provision for loan losses is a product of the Bank's allowance for loan loss methodology that reflects the potential losses in the loan portfolio. The Bank's conservative lending philosophy allows this provision to be quite manageable. Loans totaling $432,158 were charged off during the period and $66,432 was collected in recoveries. Loans charged off totaled $112,366 as of December 31, 1995, and $108,234 was collected in recoveries. The increase in charged off loans was primarily due to one dairy loan that was brought down to fair value and transferred to other repossessed assets in the second quarter of 1996. Total loans classified for regulatory purposes as loss, doubtful, substandard, or special mention (including nonaccrual loans and troubled debt restructuring) at June 30, 1996, were $7,401,029. At December 31, 1995, total loans classified for regulatory purposes was $9,189,084. Of the total classified, none of the loans were classified as doubtful at the end of June 30, 1996, or December 31, 1995. Management is not aware of any other material credit that there is serious doubt regarding the ability to repay other than those reflected in classified loans and in the allowance for possible loan losses. Non-Accrual Loans, Restructured Loans and Real Estate Owned: Information regarding non-accrual loans, past due loans and restructured loans is presented below. - -------------------------------------------------------------------------------- June 30, December 31, 1996 1995 - -------------------------------------------------------------------------------- Non-accrual loans: (1) Commercial, financial and agricultural ....................... $ -- $ 1,200,342 Real estate loans .................. 257,976 494,214 Consumer loans ..................... -- -- - ---------------------------------------- ----------- ----------- Total non-accrual loans ........ $ 257,976 $ 1,694,556 - -------------------------------------------------------------------------------- Loans past due 90 days or more still accruing interest ................ -- -- - -------------------------------------------------------------------------------- Troubled debt restructuring ............ $ 1,137,033 $ 1,146,080 - -------------------------------------------------------------------------------- (1) Principal balance only Non-accrual loans at quarter end amounted to $257,976, down from $1,694,556 at December 31, 1995. One large agricultural/commercial loan made up the major portion of the non-accrual loans in 1995. Gross interest income that would have been recorded for non-accrual loans if loans had been current in accordance with original terms and had been outstanding throughout the period or since origination for year to date 1996 and December 31, 1995, was $15,818 and $115,869, respectively. There was no interest income included in net income for the period for non-accrual loans. There were no loans past due 90 days or more which were still accruing interest. Management is constantly aware of the need for maintaining high credit standards. The Company is not involved in foreign lending and is not engaged in high yield, high risk loans. A loan is placed on nonaccrual status when either principal or interest is in default for 90 days more, or when external factors indicate that payment in full of principal and interest appears unlikely unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but uncollected shall be reversed against the appropriate income account. In most cases, if the loan is rated substandard or better, payments shall be applied to interest first and then principal provided no loss is anticipated. If a loss is anticipated, all payments shall be applied to principal first and then interest. When one loan of a customer is placed on nonaccrual status related borrowings will be evaluated as to whether they should also be placed on nonaccrual status. Nonaccrual loans will be restored to an accruing status when principal and interest are no longer past due and unpaid, or the loan otherwise becomes well secured and in the process of collection. A troubled debt restructuring occurs when the Bank for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not ordinarily consider. Troubled debt restructuring can occur in a variety of forms, such as transferring assets in a full or partial settlement of the debt, issuing debt, or modifying terms including reducing the stated interest rate, extending maturity dates, reducing the face amount or maturity of the debt, or reducing accrued interest. Restructured loans totaled $1,137,749 at June 30, 1996, and $1,147,775 at December 31, 1995. All restructured loans were current as to principal and interest. FUNDING SOURCES Deposits: Total deposits amounted to $81,663,516 as of June 30, 1996, compared to $84,839,377 at December 31, 1995, a decrease of 3.7 %. The decrease between December 31, 1995, and June 30, 1996, was primarily due to falling deposit rates in the savings category. The Bank currently has a savings product that is tied to the prime rate. As the prime rate decreases, as it has in the last several months, deposits are redistributed to time deposits or move out of the bank. Historically, the Bank retains 90% or more of its deposits. Non-interest bearing demand deposits averaged approximately $13,346,487 at June 30, 1996, and $12,786,000 at December 31, 1995. Interest bearing deposits averaged approximately $68,441,448 at end of June and $68,792,917 at year end December 31, 1995. - -------------------------------------------------------------------------------- June 30, 1996 December 31, 1995 - -------------------------------------------------------------------------------- Average Average Average Average Balance Rate Balance Rate - -------------------------------------------------------------------------------- Interest bearing deposits Checking accounts...... $14,372,790 1.83% $14,368,972 2.12% Savings ............... 18,847,907 4.24% 21,271,869 3.91% Time deposits (1)...... 35,220,751 4.35% 33,152,076 5.59% Non-interest bearing deposit ... 13,346,487 12,786,029 - -------------------------------------------------------------------------------- (1) Included at June 30, 1996 are $22,412,280 in time certificates of $100,000 or more, of which $10,423,719 matures in 3 months or less, $6,787,278 matures in 3 to 6 months, $3,946,670 matures in 6 to 12 months, and $1,254,613 matures in more than 12 months. Other Borrowings: There were no other borrowings as of June 30, 1996, or December 31, 1995. Capital: Retained earnings from operations have been the primary source of new capital for the Company. As of June 30, 1996, stockholders' equity was $9,952,497, compared to $9,771,029 at year-end 1995. Risk-adjusted capital guidelines, issued by bank regulatory agencies, assign risk weighting to assets and off-balance sheet items and place increased emphasis on common equity. The guidelines require adequately capitalized institutions to maintain a Tier I (core) capital ratio of 4% and a combined Tier I and Tier II capital ratio of 8%. Institutions whose Tier I and total capital ratios meet or exceed 6% and 10%, respectively, is deemed to be well capitalized. For the Company, Tier I capital consists of common stockholders' equity. In addition to the risk-weighted ratios, all banks are expected to maintain leverage ratios, to be determined on an individual basis, but not below a minimum of 3%. This ratio is defined as Tier I capital to average total assets for the most recent quarter. At June 30, 1996, the Company exceeded its capital requirements. Based on the guidelines, the Bank's Tier I and combined Tier I and Tier II risk-weighted ratios at June 30, 1996, and December 31, 1995, and 1994 were as follows: - -------------------------------------------------------------------------------- Minimum June 30, December 31, December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Risk Based Capital Ratio 8.00% 23.43% 18.14% 15.47% Tier I Ratio 4.00% 22.16% 16.88% 14.49% Leverage Ratio 3.00% 10.55% 10.02% 9.92% - -------------------------------------------------------------------------------- PART II - OTHER INFORMATION Item 1 - Legal Proceedings - None other than in the ordinary course of business. Item 2 - Change in securities - None Item 3 - Defaults Upon Senior Securities - None Item 4 - Submission of Matters to a Vote of Security Holders a) The Annual Meeting of Shareholders of Delta National Bancorp was held on April 22, 1996. b) The following five individuals were re-elected to the Board of Directors of the Company: Jack Dozier Andrew J. Rossi Joseph A. Freitas Toinette Rossi Theodore Poulos c) The following matters were voted upon at the annual meeting: 1) Election of Directors. Electing of the following five (5) persons to the Board of Directors of the Company to serve until the 1997 Annual Meeting of Shareholders and until their successors are elected and have qualified: No. of Votes For Against Withheld Abstain Jack Dozier 271,296 0 3,198 0 Joseph A. Freitas 271,296 0 3,198 0 Theodore Poulos 271,196 0 3,198 0 Andrew J. Rossi 271,196 0 3,198 0 Toinette Rossi 271,196 0 3,198 0 2) 1996 Combined Incentive and Non-Qualified Stock Option Plan. Approving the Company's 1996 Combined Incentive and Non-Qualified Stock Option Plan covering thirty percent (30%) of the Company's outstanding Common Stock. No. of Votes For Against Withheld Abstain 254,642 13,031 0 6,821 3) Ratification of Appointment of Independent Public Accountants. Ratifying the selection of Grant Thornton LLP as the Company's independent public accountants for 1996. No. of Votes For Against Withheld Abstain 271,960 0 0 2,534 Item 5 - Other Information - No Change. Item 6 - Exhibits and Reports on Form 8-K a) Exhibits Registrant's Articles of Incorporation and Bylaws are furnished by way of incorporation by reference to Exhibit 3 to registrant's registration statement on Form S-14, as filed under the Securities Act of 1933 on September 10, 1982, and declared effective on October 8, 1982. Plan of Reorganization and Agreement of Merger is furnished by reference to registrant's Form S-14 as filed under the Securities Act of 1933 on September 10, 1982, and effective on October 8, 1982. b) Reports on Form 8-K The registrant did not file any reports on Form 8-K during the period ending June 30, 1996 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. DELTA NATIONAL BANCORP (Registrant) DATE: July 23, 1996 /s/ Andrew Rossi Andrew Rossi President/Chief Executive Officer Director (Principal Executive Officer) DATE: July 23, 1996 /s/ Warren E. Wegge Warren E. Wegge Executive Vice President (Principal Financial Officer) DATE: July 23, 1996 /s/ Toinette Rossi Toinette Rossi Vice President and Manager Director EX-27 2 FDS -- 6 MONTHS ENDING JUNE 30, 1996
9 1000 6-MOS DEC-31-1996 JUN-30-1996 3646 661 4700 0 12101 18603 18693 49570 1064 91884 81664 0 268 0 0 0 3532 6420 91884 2834 996 138 3968 1401 0 2567 211 0 1989 872 0 0 0 515 1.37 1.37 9.51 258 60 1137 7401 1219 432 66 1064 1064 0 0
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