UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
x | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2007
o | Transition report under Section 13 or 15(d) of the Exchange Act |
For the transition period from to
Commission File Number 000-33351
FPB BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida | 65-1147861 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1301 SE Port St. Lucie Boulevard
Port St. Lucie, Florida 34952
(Address of Principal Executive Offices)
(772) 225-5930
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 þ NO o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
Common stock, par value $.01 per share | 2,032,340 shares | |
(class) | Outstanding at October 26, 2007 |
Transitional Small Business Format (check one): YES o NO þ
FPB BANCORP, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
1
FPB BANCORP, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(Dollars in thousands, except per share amounts)
September 30, | December 31, | ||||||||
Assets | 2007 | 2006 | |||||||
(unaudited) | |||||||||
Cash and due from banks | $ | 2,858 | 1,734 | ||||||
Federal funds sold | 2,241 | 3,499 | |||||||
Interest-bearing deposits with banks. | 231 | 189 | |||||||
Total cash and cash equivalents | 5,330 | 5,422 | |||||||
Securities available for sale | 8,305 | 6,444 | |||||||
Securities held to maturity (market value of $5 and $2,499) | 5 | 2,509 | |||||||
Loans, net of allowance for loan losses of $2,221 and $1,801 | 163,106 | 130,133 | |||||||
Premises and equipment, net | 4,796 | 4,278 | |||||||
Federal Home Loan Bank stock, at cost | 280 | 259 | |||||||
Accrued interest receivable | 1,087 | 828 | |||||||
Bank-owned life insurance | 2,654 | 2,573 | |||||||
Other assets | 1,521 | 993 | |||||||
Total assets | $ | 187,084 | 153,439 | ||||||
Liabilities and Stockholders' Equity | |||||||||
Liabilities: | |||||||||
Noninterest-bearing demand deposits | 20,738 | 20,125 | |||||||
Savings, NOW and money-market deposits | 34,028 | 35,486 | |||||||
Time deposits | 107,283 | 74,608 | |||||||
Total deposits | 162,049 | 130,219 | |||||||
Official checks | 2,526 | 1,241 | |||||||
Federal Home Loan Bank advance | 100 | 100 | |||||||
Other liabilities | 781 | 816 | |||||||
Total liabilities | 165,456 | 132,376 | |||||||
Stockholders' equity: | |||||||||
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued or outstanding | - | - | |||||||
Common stock, $.01 par value; 5,000,000 shares authorized, 2,032,340 and 1,906,203 shares issued and outstanding | 20 | 19 | |||||||
Additional paid-in capital | 23,564 | 21,729 | |||||||
Accumulated deficit | (1,958 | ) | (634 | ) | |||||
Accumulated other comprehensive income (loss) | 2 | (51 | ) | ||||||
Total stockholders' equity | 21,628 | 21,063 | |||||||
Total liabilities and stockholders' equity | $ | 187,084 | 153,439 |
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
FPB BANCORP, INC. AND SUBSIDIARY
(Dollars in thousands, except per share amounts)
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||
Interest income: | |||||||||||||||||
Loans | $ | 3,455 | 2,532 | 9,346 | 6,887 | ||||||||||||
Securities | 111 | 101 | 279 | 320 | |||||||||||||
Other | 74 | 130 | 269 | 410 | |||||||||||||
Total interest income | 3,640 | 2,763 | 9,894 | 7,617 | |||||||||||||
Interest expense: | |||||||||||||||||
Deposits | 1,636 | 1,023 | 4,322 | 2,657 | |||||||||||||
Federal Home Loan Bank advances | - | - | 1 | 64 | |||||||||||||
Total interest expense | 1,636 | 1,023 | 4,323 | 2,721 | |||||||||||||
Net interest income | 2,004 | 1,740 | 5,571 | 4,896 | |||||||||||||
Provision for loan losses | 252 | 145 | 568 | 322 | |||||||||||||
Net interest income after provision for loan losses | 1,752 | 1,595 | 5,003 | 4,574 | |||||||||||||
Noninterest income: | |||||||||||||||||
Service charges and fees on deposit accounts | 111 | 112 | 347 | 326 | |||||||||||||
Loan brokerage fees | 30 | 89 | 170 | 195 | |||||||||||||
Gain on sale of loans held for sale | 31 | - | 144 | - | |||||||||||||
Income from bank-owned life insurance | 26 | 23 | 81 | 72 | |||||||||||||
Other fees | 11 | 5 | 25 | 20 | |||||||||||||
Total noninterest income | 209 | 229 | 767 | 613 | |||||||||||||
Noninterest expenses: | |||||||||||||||||
Salaries and employee benefits | 875 | 779 | 2,759 | 2,275 | |||||||||||||
Occupancy and equipment | 329 | 231 | 892 | 626 | |||||||||||||
Advertising | 161 | 129 | 472 | 371 | |||||||||||||
Data processing | 133 | 101 | 368 | 295 | |||||||||||||
Supplies | 41 | 31 | 122 | 129 | |||||||||||||
Professional fees | 41 | 48 | 111 | 159 | |||||||||||||
Other | 338 | 202 | 818 | 574 | |||||||||||||
Total noninterest expenses | 1,918 | 1,521 | 5,542 | 4,429 | |||||||||||||
Earnings before income taxes | 43 | 303 | 228 | 758 | |||||||||||||
Income taxes | 11 | 105 | 73 | 262 | |||||||||||||
Net earnings | $ | 32 | 198 | 155 | 496 | ||||||||||||
Net earnings per share: | |||||||||||||||||
Basic | $ | .02 | .10 | .08 | .25 | ||||||||||||
Diluted | $ | .02 | .10 | .08 | .24 | ||||||||||||
Dividends per share | $ | - | - | - | - |
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
FPB BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30, 2007 and 2006
(Dollars in thousands)
Accumulated | ||||||||||||||||||||||||
(Accumulated | Other | |||||||||||||||||||||||
Additional | Deficit) | Compre- | Total | |||||||||||||||||||||
Common Stock | Paid-In | Retained | hensive | Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Equity | |||||||||||||||||||
Balance at December 31, 2005 | 1,810,588 | $ | 18 | 20,136 | 262 | (75 | ) | 20,341 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings for the nine months ended September 30, 2006 (unaudited) | - | - | - | 496 | - | 496 | ||||||||||||||||||
Net change in unrealized loss on securities available for sale, net of tax of $14 (unaudited) | - | - | - | - | 22 | 22 | ||||||||||||||||||
Comprehensive income (unaudited) | 518 | |||||||||||||||||||||||
5% stock dividend, fractional shares paid in cash of $2 (unaudited) | 90,602 | 1 | 1,524 | (1,527 | ) | - | (2 | ) | ||||||||||||||||
Shared-based compensation (unaudited) | - | - | 6 | - | - | 6 | ||||||||||||||||||
Proceeds from exercise of common stock options (unaudited) | 5,013 | - | 50 | - | - | 50 | ||||||||||||||||||
Tax benefit associated with exercise of common stock options (unaudited) | - | - | 11 | - | - | 11 | ||||||||||||||||||
Balance at September 30, 2006 (unaudited) | 1,906,203 | $ | 19 | 21,727 | (769 | ) | (53 | ) | 20,924 | |||||||||||||||
Balance at December 31, 2006 | 1,906,203 | 19 | 21,729 | (634 | ) | (51 | ) | 21,063 | ||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings for the nine months ended September 30, 2007 (unaudited) | - | - | - | 155 | - | 155 | ||||||||||||||||||
Net change in unrealized loss on securities available for sale, net of tax of $32 (unaudited) | - | - | - | - | 53 | 53 | ||||||||||||||||||
Comprehensive income (unaudited) | 208 | |||||||||||||||||||||||
5% stock dividend, fractional shares paid in cash of $6 (unaudited) | 94,915 | 1 | 1,472 | (1,479 | ) | - | (6 | ) | ||||||||||||||||
Shared-based compensation (unaudited) | - | - | 25 | - | - | 25 | ||||||||||||||||||
Proceeds from exercise of common stock options (unaudited) | 31,222 | - | 285 | - | - | 285 | ||||||||||||||||||
Tax benefit associated with exercise of common stock options (unaudited) | - | - | 53 | - | - | 53 | ||||||||||||||||||
Balance at September 30, 2007 (unaudited) | 2,032,340 | $ | 20 | 23,564 | (1,958 | ) | 2 | 21,628 |
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
FPB BANCORP, INC. AND SUBSIDIARY
(In thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 155 | 496 | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 279 | 209 | ||||||
Provision for loan losses | 568 | 322 | ||||||
Amortization of loan (fees) costs, net | (170 | ) | 21 | |||||
Net amortization of premiums and discounts on securities | 6 | 7 | ||||||
Gain on sale of loans held for sale | (144 | ) | - | |||||
Proceeds from sale of loans held for sale | 3,562 | - | ||||||
Originations of loans held for sale | (3,418 | ) | - | |||||
Increase in accrued interest receivable | (259 | ) | (192 | ) | ||||
Increase in other assets | (560 | ) | (475 | ) | ||||
Increase in official checks and other liabilities | 1,250 | 826 | ||||||
Income from bank-owned life insurance | (81 | ) | (72 | ) | ||||
Share-based compensation | 25 | 6 | ||||||
Net cash provided by operating activities | 1,213 | 1,148 | ||||||
Cash flows from investing activities: | ||||||||
Maturities of securities available for sale | - | 2,000 | ||||||
Purchase of securities available for sale | (2,000 | ) | - | |||||
Principal payments on securities available for sale | 218 | 240 | ||||||
Maturities of securities held to maturity | 2,500 | 500 | ||||||
Principal payments on securities held to maturity | 4 | 7 | ||||||
Net increase in loans | (33,371 | ) | (23,732 | ) | ||||
Purchase of premises and equipment | (797 | ) | (304 | ) | ||||
Purchase of bank-owned life insurance | - | (250 | ) | |||||
(Purchase) sale of Federal Home Loan Bank stock | (21 | ) | 47 | |||||
Net cash used in investing activities | (33,467 | ) | (21,492 | ) | ||||
Cash flows from financing activities: | ||||||||
Net increase in deposits | 31,830 | 28,044 | ||||||
Decrease of Federal Home Loan Bank advances | - | (2,500 | ) | |||||
Proceeds from the exercise of common stock options | 285 | 50 | ||||||
Tax benefit associated with exercise of common stock options | 53 | 11 | ||||||
Fractional shares of stock dividend paid in cash | (6 | ) | (2 | ) | ||||
Net cash provided by financing activities | 32,162 | 25,603 | ||||||
Net (decrease) increase in cash and cash equivalents | (92 | ) | 5,259 | |||||
Cash and cash equivalents at beginning of period | 5,422 | 12,366 | ||||||
Cash and cash equivalents at end of period | $ | 5,330 | $ | 17,625 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 4,315 | $ | 2,696 | ||||
Income taxes | $ | 435 | $ | 229 | ||||
Noncash transactions: | ||||||||
Accumulated other comprehensive income (loss), net change in unrealized loss on securities available for sale, net of tax | $ | 53 | $ | 22 | ||||
Common stock dividend | $ | 1,473 | $ | 1,525 |
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
FPB BANCORP, INC. AND SUBSIDIARY
(1) | General. FPB Bancorp, Inc. (the "Holding Company") is a one-bank holding company and owns 100% of the outstanding common stock of First Peoples Bank (the "Bank"), a Florida-chartered commercial bank (collectively, the "Company"). The Holding Company's only business activity is the operation of the Bank. The Bank's deposits are insured, up to the limit of the law, by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and business customers through its four banking offices located in Port St. Lucie, Fort Pierce, Stuart and Vero Beach, Florida. A fifth office is anticipated to open in December, 2007 on Martin Downs Boulevard in Palm City, Florida, and a sixth office is anticipated to open in early 2008 on Gatlin Boulevard in Port St. Lucie, Florida. In addition, an 11,000 square foot Operations Center in Jensen Beach, Florida, opened in March, 2007. |
In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2007, and the results of operations for the three and nine-month periods ended September 30, 2007 and 2006, and cash flows for the nine month periods ended September 30, 2007 and 2006. The results of operations for the three and nine months ended September 30, 2007 are not necessarily indicative of the results to be expected for the full year. |
(2) | Loan Impairment and Credit Losses. There were no impaired loans identified for the three or nine months ended September 30, 2006. Information about impaired loans, all of which are collateral dependent, at September 30, 2007 and for the three and nine months ended September 30, 2007 is as follows (in thousands): |
At | ||||||||||
September 30, | ||||||||||
2007 | ||||||||||
Loans identified as impaired: | ||||||||||
Gross loans with no related allowance for losses | $ | 672 | ||||||||
Gross loans with related allowance for loan losses recorded | 1,643 | |||||||||
Less: Allowance on these loans | (316 | ) | ||||||||
Net investment in impaired loans | $ | 1,999 | ||||||||
Three | Nine | |||||||||
Months Ended | Months Ended | |||||||||
September 30, | September 30, | |||||||||
2007 | 2007 | |||||||||
Average investment in impaired loans | $ | 1,292 | 761 | |||||||
Interest income recognized on impaired loans | $ | 56 | 73 | |||||||
Interest income received on impaired loans | $ | 34 | 45 |
During the quarter ending September 30, 2007, eight additional loans totaling $1.7 million were identified as impaired. Management believes that due to the collateral value associated with these loans, no material losses will be incurred.
(continued)
6
FPB BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(2) | Loan Impairment and Credit Losses, Continued. The activity in the allowance for loan losses was as follows (in thousands): |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Balance at beginning of period | $ | 2,045 | 1,565 | 1,801 | 1,383 | |||||||||||
Provision for loan losses | 252 | 145 | 568 | 322 | ||||||||||||
(Charge-offs), net of recoveries | (76 | ) | (5 | ) | (148 | ) | - | |||||||||
Balance at end of period | $ | 2,221 | 1,705 | 2,221 | 1,705 |
Nonaccrual and past due loans were as follows (in thousands): |
At September 30, | At December 31, | |||||||||||
2007 | 2006 | |||||||||||
Nonaccrual loans | $ | 717 | 344 | |||||||||
Past due ninety days or more, but still accruing | 42 | - | ||||||||||
$ | 759 | 344 |
(3) | Regulatory Capital. The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2007 of the regulatory capital requirements and the Bank's capital on a percentage basis: |
Percentage | ||||||||||
of | Regulatory | |||||||||
the Bank | Requirement | |||||||||
Tier I capital to total average assets | 8.12 | % | 4.00 | % | ||||||
Tier I capital to risk-weighted assets | 8.51 | % | 4.00 | % | ||||||
Total capital to risk-weighted assets | 9.76 | % | 8.00 | % |
(continued)
7
FPB BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(4) | Earnings Per Share. Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share were computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method. All per share amounts reflect the 5% stock dividends paid on May 17, 2006 and June 15, 2007. Earnings per common share have been computed based on the following: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Weighted-average number of common shares outstanding used to calculate basic earnings per common share | 2,020,812 | 2,001,513 | 2,010,546 | 1,998,871 | ||||||||||||
Effect of dilutive stock options | 18,925 | 33,728 | 25,019 | 64,024 | ||||||||||||
Weighted-average number of common shares outstanding used to calculate diluted earnings per common share | 2,039,737 | 2,035,241 | 2,035,565 | 2,062,895 |
The following options were excluded from the calculation of earnings per share, due to the exercise price being above the average market price:
Number Outstanding | Exercise Price | Expire | |||||||||||
For the three months ended September 30, 2007 | 115,933 | $ | 15.42-16.67 | 2015-2017 | |||||||||
For the nine months ended September 30, 2007 | 16,966 | $ | 16.67 | 2017 |
(5) | Share-Based Compensation. Prior to January 1, 2006, the Company's stock option plans were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (Opinion 25), Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation (as amended by Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company’s consolidated statements of earnings through December 31, 2005, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123(R)), using the modified-prospective-transition method. Under that transition method, compensation cost recognized beginning in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123; and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). 16,966 stock options were granted during the nine months ended September 30, 2007. No stock options were granted in 2006. |
(continued)
8
FPB BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(5) | Share-Based Compensation, Continued. The Company established a Stock Option Plan in 1998 ("1998 Plan") for directors, officers and employees of the Company. The 1998 Plan as amended provides for 131,553 shares (adjusted) of common stock to be available for grant. The exercise price of the stock options is the greater of $10 per share or the fair market value of the common stock on the date of grant. The options expire ten years from the date of grant. At September 30, 2007, 1,160 shares (adjusted) remain available for grant. As of December 31, 2005, all issued options were exercisable and no stock options were granted in 2006 or 2007, therefore, no share-based compensation was recognized in 2006 or 2007 from the 1998 Plan. All per share amounts reflect the 5% stock dividends paid on June 15, 2007 and May 17, 2006. A summary of stock option information follows ($ in thousands, except share amounts): |
Weighted- | ||||||||||||
Weighted- | Average | |||||||||||
Number | Average | Remaining | Aggregate | |||||||||
of | Exercise | Contractual | Intrinsic | |||||||||
Options | Price | Term | Value | |||||||||
Options outstanding at December 31, 2006 | 94,932 | $ | 10.19 | |||||||||
Options exercised | (31,222 | ) | 9.11 | |||||||||
Options forfeited | (1,050 | ) | 15.42 | |||||||||
Options outstanding and exercisable at September 30, 2007 | 62,660 | $ | 10.63 | 3.55 years | $ | 173 |
The total intrinsic value of options exercised for the nine months ended September 30, 2007 and 2006 was $166,734 and $38,078, respectively, and the related tax benefit recognized was $53,000 and $11,000, respectively. |
(continued)
9
FPB BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(5) | Share-Based Compensation, Continued. In 2005, the Company established a new option plan ("2005 Plan") for directors, officers and employees of the Company. The 2005 Plan provides for 158,743 shares (adjusted) of common stock to be available for grant. The exercise price of the stock options is the fair market value of the common stock on the date of grant. The 2005 Plan allows for various vesting periods. All options granted in 2005 were vested immediately except for 7,776 (adjusted) options which vest 33.3% in the second and third year, respectively, after grant and are fully exercisable during the fourth year after grant under the 2005 Plan. The options expire ten years from the date of grant. At September 30, 2007, 56,960 shares (adjusted) remain available for grant. All per share amounts reflect the 5% stock dividends paid on June 15, 2007 and May 17, 2006. A summary of stock option information follows ($ in thousands, except share amounts): |
Weighted- | |||||||||||||
Weighted- | Average | ||||||||||||
Number | Average | Remaining | Aggregate | ||||||||||
of | Exercise | Contractual | Intrinsic | ||||||||||
Options | Price | Term | Value | ||||||||||
Options outstanding at December 31, 2006 | 87,573 | $ | 15.42 | ||||||||||
Options forfeited | (2,756 | ) | 15.42 | ||||||||||
Options granted | 16,966 | 16.67 | |||||||||||
Options outstanding at September 30, 2007 | 101,783 | $ | 15.63 | 7.92 years | $ | - | |||||||
Options exercisable at September 30, 2007 | 79,633 | $ | 15.63 | 7.92 years | $ | - |
No stock options were granted during the three months ended June 30, 2007 or September 30, 2007. The fair value of each option granted for the three months ended March 31, 2007 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: |
Weighted-average risk-free interest rate | 3.88 | % | ||
Weighted-average dividend yield | - | % | ||
Weighted-average expected stock volatility | 18.62 | % | ||
Expected life in years | 6 years | |||
Per share weighted-average grant-date fair value of options issued during the period | $ | 4.96 |
(continued)
10
FPB BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(5) | Share-Based Compensation, Continued. The Company has examined its historical pattern of option exercises by its directors and employees in an effort to determine if there was any pattern based on these populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance in Staff Accounting Bulletin No. 107 issued by the Securities and Exchange Commission to determine the estimated life of options. Expected volatility is based on historical volatility of the Company's common stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve in effect at the time of grant. The dividend yield assumptions are based on the Company's history and expectation of dividend payments. |
No stock options were exercised under the 2005 Plan during the nine months ended September 30, 2007 or 2006.
The total fair value of shares vested and recognized as compensation expense was $25,000 and $6,000 and the tax benefit was $2,000 and $0 for the nine months ended September 30, 2007 and 2006, respectively. As of September 30, 2007, the Company had 22,150 (adjusted) stock options not fully vested and there was $70,000 of total unrecognized compensation cost related to these nonvested options. This cost is expected to be recognized monthly over a weighted-average period of 1.75 years on a straight-line basis. |
(6) | Commitments. A fifty-year ground lease has been signed on property located at the northwest corner of Savage Boulevard and Gatlin Boulevard in Port St. Lucie, Florida for a future branch location. In addition, a ten-year lease has been signed on a future branch located on Martin Downs Boulevard in Palm City, Florida. |
11
FPB BANCORP, INC. AND SUBSIDIARY
Hacker, Johnson & Smith PA, the Company's independent registered public accounting firm, has made a limited review of the financial data as of September 30, 2007, and for the three- and nine-month periods ended September 30, 2007 and 2006 presented in this document, in accordance with the standards established by the Public Company Accounting Oversight Board.
Their report furnished pursuant to Article 10 of Regulation S-X is included herein.
12
FPB Bancorp, Inc.
Port St. Lucie, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of FPB Bancorp, Inc. and Subsidiary (the "Company") as of September 30, 2007, and the related condensed consolidated statements of earnings for the three- and nine-month periods ended September 30, 2007 and 2006 and the related condensed consolidated statements of stockholders’ equity and cash flows for the nine-month periods ended September 30, 2007 and 2006. These interim financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2006, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated March 7, 2007, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
October 30, 2007
13
FPB BANCORP, INC. AND SUBSIDIARY
of Financial Condition and Results of Operations
General
FPB Bancorp, Inc. (the "Holding Company") is a one-bank holding company and owns 100% of the outstanding common stock of First Peoples Bank (the "Bank"), a Florida-chartered commercial bank (collectively, the "Company"). The Holding Company's only business activity is the operation of the Bank. The Bank's deposits are insured, up to the limit of the law, by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and corporate customers through its four banking offices located in Port St. Lucie, Fort Pierce, Stuart and Vero Beach, Florida. A fifth office is anticipated to open in late 2007 on Martin Downs Boulevard in Palm City, Florida. A sixth branch is expected to open in early 2008 on Gatlin Boulevard in Port St. Lucie, Florida. An 11,000 square foot Operations Center in Jensen Beach, Florida opened in March, 2007.
Liquidity and Capital Resources
The Company's primary source of cash during the nine months ended September 30, 2007 was from net deposit inflows of approximately $31.8 million. Cash was used primarily for net loan originations of approximately $33.4 million. At September 30, 2007, the Company had time deposits of $81.2 million that mature in one year or less. Management believes that, if so desired, it can adjust the rates on time deposits to retain or attract deposits in a changing interest-rate environment.
The following table shows selected information for the periods ended or at the dates indicated:
Nine Months | Nine Months | ||||||||||||||
Ended | Year Ended | Ended | |||||||||||||
September 30, | December 31, | September 30, | |||||||||||||
2007 | 2006 | 2006 | |||||||||||||
Average equity as a percentage of average assets | 12.52 | % | 14.08 | % | 14.63 | % | |||||||||
Equity to total assets at end of period | 11.56 | % | 13.73 | % | 13.56 | % | |||||||||
Return on average assets (1) | .12 | % | .43 | % | .47 | % | |||||||||
Return on average equity (1) | .97 | % | 3.04 | % | 3.21 | % | |||||||||
Noninterest expenses to average assets (1) | 4.35 | % | 4.12 | % | 4.20 | % | |||||||||
Nonperforming loans to total assets at end of period | .38 | % | .22 | % | .18 | % |
(1) | Annualized for the nine months ended September 30, 2007 and 2006. |
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FPB BANCORP, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Off-Balance Sheet Arrangements
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit, available lines of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of those instruments reflect the extent of the Company's involvement in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, available lines of credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counter party.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company generally holds collateral supporting these commitments and management does not anticipate any potential losses if these letters of credit are funded.
A summary of the amounts of the Company's financial instruments, with off-balance sheet risk at September 30, 2007, follows (in thousands):
Contract | ||||
Amount | ||||
Commitments to extend credit | $ | 14,650 | ||
Available lines of credit | $ | 19,461 | ||
Standby letters of credit | $ | 309 |
Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded within the next twelve months.
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FPB BANCORP, INC. AND SUBSIDIARY
Results of Operations
The following table sets forth, for the periods indicated, information regarding: (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities.
Three Months Ended September 30, | ||||||||||||||||||||||||
2007 | 2006 | |||||||||||||||||||||||
Interest | Average | Interest | Average | |||||||||||||||||||||
Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
Balance | Dividends | Rate | Balance | Dividends | Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 158,700 | 3,455 | 8.71 | % | $ | 116,439 | 2,532 | 8.70 | % | ||||||||||||||
Securities | 8,352 | 111 | 5.32 | 10,210 | 101 | 3.96 | ||||||||||||||||||
Other (1) | 6,065 | 74 | 4.88 | 10,390 | 130 | 5.00 | ||||||||||||||||||
Total interest-earning assets | 173,117 | 3,640 | 8.41 | 137,039 | 2,763 | 8.06 | ||||||||||||||||||
Noninterest-earning assets | 10,063 | 8,515 | ||||||||||||||||||||||
Total assets | $ | 183,180 | $ | 145,554 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings, NOW and money-market deposit accounts | 35,035 | 309 | 3.53 | 37,937 | 306 | 3.23 | ||||||||||||||||||
Time deposits | 96,621 | 1,327 | 5.49 | 63,192 | 717 | 4.54 | ||||||||||||||||||
Borrowings | 100 | - | - | 399 | - | - | ||||||||||||||||||
Total interest-bearing liabilities | 131,756 | 1,636 | 4.97 | 101,528 | 1,023 | 4.03 | ||||||||||||||||||
Demand deposits | 22,712 | 21,303 | ||||||||||||||||||||||
Noninterest-bearing liabilities | 7,269 | 1,899 | ||||||||||||||||||||||
Stockholders' equity | 21,443 | 20,824 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 183,180 | $ | 145,554 | ||||||||||||||||||||
Net interest income | $ | 2,004 | $ | 1,740 | ||||||||||||||||||||
Interest-rate spread (2) | 3.44 | % | 4.03 | % | ||||||||||||||||||||
Net interest margin (3) | 4.63 | % | 5.08 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 1.31 | 1.35 |
(1) | Includes federal funds sold, dividends from Federal Home Loan Bank stock and interest-earning deposits with banks. |
(2) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities. |
(3) | Net interest margin is net interest income divided by average interest-earning assets. |
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FPB BANCORP, INC. AND SUBSIDIARY
The following table sets forth, for the periods indicated, information regarding: (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities.
Nine Months Ended September 30, | ||||||||||||||||||||||||
2007 | 2006 | |||||||||||||||||||||||
Interest | Average | Interest | Average | |||||||||||||||||||||
Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
Balance | Dividends | Rate | Balance | Dividends | Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans | $ | 145,148 | 9,346 | 8.59 | % | $ | 109,399 | 6,887 | 8.39 | % | ||||||||||||||
Securities | 7,797 | 279 | 4.77 | 11,021 | 320 | 3.87 | ||||||||||||||||||
Other (1) | 7,041 | 269 | 5.09 | 11,813 | 410 | 4.63 | ||||||||||||||||||
Total interest-earning assets | 159,986 | 9,894 | 8.25 | 132,233 | 7,617 | 7.68 | ||||||||||||||||||
Noninterest-earning assets | 9,943 | 8,712 | ||||||||||||||||||||||
Total assets | $ | 169,929 | $ | 140,945 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings, NOW and money-market deposit accounts | 34,211 | 862 | 3.36 | 37,306 | 781 | 2.79 | ||||||||||||||||||
Time deposits | 86,588 | 3,460 | 5.33 | 58,212 | 1,876 | 4.30 | ||||||||||||||||||
Borrowings | 100 | 1 | 1.33 | 1,866 | 64 | 4.57 | ||||||||||||||||||
Total interest-bearing liabilities | 120,899 | 4,323 | 4.77 | 97,384 | 2,721 | 3.73 | ||||||||||||||||||
Demand deposits | 22,874 | 21,064 | ||||||||||||||||||||||
Noninterest-bearing liabilities | 4,880 | 1,883 | ||||||||||||||||||||||
Stockholders' equity | 21,276 | 20,614 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 169,929 | $ | 140,945 | ||||||||||||||||||||
Net interest income | $ | 5,571 | $ | 4,896 | ||||||||||||||||||||
Interest-rate spread (2) | 3.48 | % | 3.95 | % | ||||||||||||||||||||
Net interest margin (3) | 4.64 | % | 4.94 | % | ||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 1.32 | 1.36 |
(1) | Includes federal funds sold, dividends from Federal Home Loan Bank stock and interest-earning deposits with banks. |
(2) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities. |
(3) | Net interest margin is net interest income divided by average interest-earning assets. |
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FPB BANCORP, INC. AND SUBSIDIARY
Comparison of the Three-Month Periods Ended September 30, 2007 and 2006
General. Net earnings for the three months ended September 30, 2007, were $32,000 or $.02 per basic and diluted share compared to net earnings of $198,000 or $.10 per basic and diluted share for the period ended September 30, 2006. This decrease in the Company's net earnings was primarily due to an increase in interest expense, noninterest expense and the provision for loan losses, which were partially offset by an increase in interest income. |
Interest Income. Interest income increased to $3.6 million for the three months ended September 30, 2007 from $2.8 million for the three months ended September 30, 2006. Interest income on loans increased to $3.5 million due to an increase in the average loan portfolio balance for the three months ended September 30, 2007. |
Interest Expense. Interest expense increased to $1.6 million for the three months ended September 30, 2007, from $1.0 million for the three months ended September 30, 2006. Interest expense increased due to an increase in the average rate paid on deposits during 2007 and an increase in the average balance of deposits during 2007. |
Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company's market areas, and other factors related to the estimated collectibility of the Company's loan portfolio. The provision for the three months ended September 30, 2007, was $252,000 compared to $145,000 for the same period in 2006. Management believes the balance in the allowance for loan losses of $2.2 million at September 30, 2007, is adequate. |
Noninterest Income. Total noninterest income decreased to $209,000 for the three months ended September 30, 2007, from $229,000 for the three months ended September 30, 2006, primarily as a result of a decrease in loan brokerage fees recognized, partially offset by an increase on gains recognized on the sale of loans held for sale. |
Noninterest Expenses. Total noninterest expenses increased to $1.9 million for the three months ended September 30, 2007 from $1.5 million for the three months ended September 30, 2006, primarily due to an increase in employee compensation and benefits of $96,000, an increase in occupancy and equipment of $98,000, an increase in both advertising and data processing of $32,000 each, and an increase in other expenses of $136,000, all due to the continued growth and expansion of the Company. |
Income Taxes. Income taxes for the three months ended September 30, 2007, were $11,000 compared to an income tax provision of $105,000 for the three months ended September 30, 2006. |
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FPB BANCORP, INC. AND SUBSIDIARY
Comparison of the Nine-Month Periods Ended September 30, 2007 and 2006
General. Net earnings for the nine months ended September 30, 2007, were $155,000 or $.08 per basic and diluted share compared to net earnings of $496,000 or $.25 per basic and $.24 per diluted share for the nine month period ended September 30, 2006. This decrease in the Company's net earnings was primarily due to an increase in interest expense, noninterest expense and the provision for loan losses, which was partially offset by an increase in interest income and noninterest income. |
Interest Income. Interest income increased to $9.9 million for the nine months ended September 30, 2007 from $7.6 million for the nine months ended September 30, 2006. Interest income on loans increased to $9.3 million due to an increase in the average loan portfolio balance for the nine months ended September 30, 2007 and an increase in the average yield earned in 2007. Other interest income decreased to $269,000, due to a decrease in the average balance of Federal Funds Sold, partially offset by an increase in the average yield earned in 2007. |
Interest Expense. Interest expense increased to $4.3 million for the nine months ended September 30, 2007, from $2.7 million for the nine months ended September 30, 2006. Interest expense increased due to an increase in the average balance of deposits during 2007 and an increase in the average rate paid on deposits in 2007. |
Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company's market areas, and other factors related to the estimated collectibility of the Company's loan portfolio. The provision for the nine months ended September 30, 2007, was $568,000 compared to $322,000 for the same period in 2006. Management believes the balance in the allowance for loan losses of $2.2 million at September 30, 2007, is adequate. |
Noninterest Income. Total noninterest income increased to $767,000 for the nine months ended September 30, 2007, from $613,000 for the nine months ended September 30, 2006 primarily as a result of an increase in gains recognized on sale of loans held for sale. |
Noninterest Expenses. Total noninterest expenses increased to $5.5 million for the nine months ended September 30, 2007 from $4.4 million for the nine months ended September 30, 2006, primarily due to an increase in employee compensation and benefits of $484,000, an increase in occupancy and equipment of $266,000, an increase in advertising of $101,000, and an increase in other expenses of $244,000, all due to the continued growth and expansion of the Company. |
Income Taxes. The income tax provision for the nine months ended September 30, 2007, was $73,000 (an effective rate of 32.0%) compared to an income tax provision of $262,000 (an effective rate of 34.6%) for the nine months ended September 30, 2006. |
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FPB BANCORP, INC. AND SUBSIDIARY
Controls and Procedures |
a. | Evaluation of Disclosure Controls and Procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive and Chief Financial Officers of the Company concluded that the Company’s disclosure controls and procedures were effective. |
b. | Changes in Internal Controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial Officers. |
Legal Proceedings |
There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject.
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FPB BANCORP, INC. AND SUBSIDIARY
Other Information |
ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
First Peoples Bank (the “Bank”) and David W. Skiles, the Bank’s Chief Executive Officer and President, entered into an Amended and Restated Employment Agreement on September 5, 2007 (“Agreement”). The Agreement replaces Mr. Skiles’ previous employment agreement with the Bank, which was entered into in May, 2005. The Agreement is substantially similar to the previous agreement, except as described herein. The Agreement has a three year term, which retroactively commenced on August 1, 2007. The Agreement has automatic one year extensions which terminate on July 31, 2012, unless the Bank or Mr. Skiles terminates them prior to that date. Mr. Skiles’ initial base salary under the Agreement has been set at $165,000.
While Mr. Skiles previously received performance bonuses, such bonuses were not provided for in his previous agreement. Under the Agreement, Mr. Skiles is eligible to receive a discretionary annual performance bonus up to 40% of his then-current base salary. Mr. Skiles is eligible for five weeks of paid vacation per year on a non-cumulative basis and his automobile allowance was increased from $450 in his previous agreement to $550 in the Agreement. The payment due in connection with a change in control of the Bank was changed to now be 2.5 times his average base salary for the preceding five years, whereas the previous agreement provided for 2.9 times his base salary at the time of a change in control
Prior to entering into the Agreement, the Bank and Mr. Skiles entered into two additional employment-related contracts, which are now referred to in the Agreement. On December 23, 2005, the Bank and Mr. Skiles entered into a Deferred Compensation Agreement which provides that the Bank will match his contributions up to 2.5% of his base salary. Mr. Skiles also entered into a Split Dollar Agreement with the Bank, dated February 15, 2006, which provides him with a $200,000 life insurance benefit.
In addition, the mandatory arbitration provision from the previous agreement was changed to require mediation in the new agreement in the event of a dispute between the parties. Mr. Skiles was also given an additional severance benefit in the Agreement, which provides that he will remain eligible to participate in employee benefit plans until the earlier of one year from the date of his termination or the date he becomes eligible to participate in comparable benefit plans provided by another employer. The non-competition and non-solicitation provisions were also shortened from one year in the previous agreement to six months in the Agreement.
AMENDMENT TO BYLAWS
On August 15, 2007, the Board of Directors of FPB Bancorp, Inc. amended the Company’s Bylaws to permit direct registration of uncertificated shares of common stock.
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FPB BANCORP, INC. AND SUBSIDIARY
Exhibits |
Exhibits. The following exhibits are filed with or incorporated by reference into this report. The exhibits marked with an (a) were previously filed as a part of the Company’s Registration Statement on Form SB-1, filed with the Federal Deposit Insurance Corporation on April 30, 2000; those marked with a (b) were filed with the Company’s 2003 Proxy Statement filed with the Security and Exchange Commission (“SEC”) on March 28, 2003; those marked with a (c) were filed with the Company’s Definitive Schedule 14A filed with the SEC on October 26, 2005; those marked with a (d) were filed with the Company's Form 8-A on November 16, 2001; and those marked with an (e) were filed with the Company's Form 10-QSB/A on August 2, 2007.
Exhibit No. | Description of Exhibit | |
(d)3.1 | Articles of Incorporation | |
(d)3.2 | Bylaws | |
3.3 | ||
(a)4.1 | Specimen copy of certificate evidencing shares of the Company’s common capital stock, $0.01 par value | |
(a)4.2 | First Peoples Bank Stock Option Plan dated January 14, 1999 | |
(a)4.4 | Non-Qualified Stock Option Agreement | |
(b)4.5 | Amendment to First Peoples Bank Stock Option Plan | |
(c)4.6 | 2005 Stock Compensation Plan | |
(a)10.1 | First Peoples Bank Qualified 401(k) Profit Sharing Plan, dated May 1, 1999 | |
10.2 | ||
(e)10.3 | Amended and Restated Change in Control Agreement for Nancy E. Aumack | |
(e)10.4 | Amended and Restated Change in Control Agreement for Stephen J. Krumfolz | |
(e)10.5 | Amended and Restated Change in Control Agreement for Marge Riley | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 |
22
FPB BANCORP, INC. AND SUBSIDIARY
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.
FPB BANCORP, INC. | ||||
(Registrant) | ||||
Date: | November 6, 2007 | By: | /s/ David W. Skiles | |
David W. Skiles, President and Chief Executive Officer | ||||
Date: | November 6, 2007 | By: | /s/ Nancy E. Aumack | |
Nancy E. Aumack, Senior Vice President and Chief Financial Officer |
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