SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 0-22066
FCB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1760287
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
108 E. Wisconsin Avenue, Neenah, WI 54956
(Address of principal executive office) (Zip Code)
(414) 727-3400
(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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class: Common Stock, $.01 Par Value
Number of shares outstanding as of September 30, 1996: 2,459,614
FCB FINANCIAL CORP.
INDEX -- FORM 10-Q
Part I--Financial Information Page No.
Item 1--Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as
of September 30, 1996 and March 31, 1996 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1996 and 1995 3
Consolidated Statements of Income for the
Six Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Shareholders' Equity for
the Six Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995 6
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1996 and 1995 8
Notes to Consolidated Financial Statements 10
Item 2 --Management's Discussion and Analysis
Results of Operations 12
Changes in Financial Condition 13
Asset Quality 15
Liquidity & Capital Resources 17
Other Matters 18
Part II--Other Information
Item 4 --Submission of Matters to a Vote of
Security Holders 19
Item 6 --Exhibits and Reports on Form 8-K 19
Part I - Financial Information
Item 1--Financial Statements
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and March 31, 1996
(Unaudited)
ASSETS
September 30 March 31
1996 1996
(In thousands)
Cash and cash equivalents $ 4,148 $ 4,792
Investment securities held to maturity (estimated
fair value of $8,987 and $6,965 at September 30,
1996 and March 31, 1996, respectively) 8,990 6,986
Mortgage-related securities available for
sale, at fair value 6,603 6,906
Mortgage-related securities held to maturity
(estimated fair value of $17,195 and $17,986
at September 30, 1996 and March 31, 1996,
respectively) 17,121 17,850
Investment in Federal Home Loan Bank stock,
at cost 3,120 2,595
Loans held for sale - Net of unrealized loss of
$113 and $101 at September 30, 1996 and
March 31, 1996, respectively 3,853 5,161
Loans receivable - Net 218,578 204,897
Real estate held for investment 187 196
Interest receivable on loans 1,258 1,167
Interest receivable - Other 239 228
Office properties and equipment 4,151 4,211
Prepaid expenses and other assets 401 267
Accrued and deferred income taxes 636 404
------- --------
TOTAL ASSETS $ 269,285 $ 255,660
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and March 31, 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 March 31
1996 1996
(In thousands)
Liabilities:
Deposit accounts $ 151,127 $ 151,115
Borrowed funds 62,400 51,900
Advance payments by borrowers
for taxes and insurance 5,228 2,410
Accrued interest 755 949
Other liabilities 2,798 1,545
Dividends payable 423 360
Accrued income taxes 0 189
-------- --------
Total liabilities 222,731 208,468
-------- --------
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value 29 29
Additional paid-in capital 28,788 28,693
Retained earnings - Substantially restricted 26,043 25,930
Unrealized loss on securities available for
sale - Net of tax (50) (26)
Unearned compensation - ESOP (991) (1,118)
Treasury common stock, at cost (7,265) (6,316)
-------- --------
Total shareholders' equity 46,554 47,192
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 269,285 $ 255,660
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended
September 30
1996 1995
(In thousands except per
share numbers)
Interest and dividend income:
Mortgage loans $ 3,756 $ 3,419
Other loans 668 523
Investment securities 106 107
Mortgage-related securities 390 431
Dividends on stock in Federal Home Loan Bank 49 38
Interest-bearing deposits 17 11
-------- -------
Total interest and dividend income 4,986 4,529
-------- -------
Interest expense:
Deposit accounts 1,946 1,981
Borrowed funds 769 543
-------- -------
Total interest expense 2,715 2,524
-------- -------
Net interest income 2,271 2,005
Provision for loan losses 50 50
-------- -------
Net interest income after
provision for loan losses 2,221 1,955
-------- -------
Noninterest income:
Loan fees and charges 93 91
Savings fees and charges - Net 34 33
Gain on sale of loans - Net 119 25
Other income 45 51
-------- -------
Total noninterest income 291 200
-------- -------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 602 556
Marketing 73 68
Occupancy 168 180
Data processing 68 63
Federal insurance premiums 1,059 85
Other 187 171
-------- -------
Total operating expenses 2,157 1,123
-------- -------
Income before provision for income taxes 355 1,032
Provision for income taxes 136 410
-------- -------
NET INCOME $ 219 $ 622
======== ========
EARNINGS PER SHARE - See note 4 $ 0.09 $ 0.25
======== ========
DIVIDENDS DECLARED PER SHARE $ 0.18 $ 0.15
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended September 30, 1996 and 1995
(Unaudited)
Six Months Ended
September 30
1996 1995
(In thousands except per
share numbers)
Interest and dividend income:
Mortgage loans $ 7,433 $ 6,721
Other loans 1,289 989
Investment securities 202 234
Mortgage-related securities 790 861
Dividends on stock in Federal Home Loan Bank 94 75
Interest-bearing deposits 30 19
-------- --------
Total interest and dividend income 9,838 8,899
-------- --------
Interest expense:
Deposit accounts 3,862 3,862
Borrowed funds 1,470 1,139
-------- --------
Total interest expense 5,332 5,001
-------- --------
Net interest income 4,506 3,898
Provision for loan losses 100 100
-------- --------
Net interest income after provision for
loan losses 4,406 3,798
-------- --------
Noninterest income:
Loan fees and charges 184 183
Savings fees and charges - Net 64 62
Gain on sale of loans - Net 124 44
Other income 94 102
-------- --------
Total noninterest income 466 391
-------- --------
Operating expenses:
Compensation, payroll taxes and other
employee benefits 1,169 1,102
Marketing 124 135
Occupancy 339 354
Data processing 129 122
Federal insurance premiums 1,148 169
Other 370 335
-------- --------
Total operating expenses 3,279 2,217
-------- --------
Income before provision for income taxes 1,593 1,972
Provision for income taxes 617 781
-------- --------
NET INCOME $ 976 $ 1,191
======== ========
EARNINGS PER SHARE - See note 4 $ 0.40 $ 0.47
======== ========
DIVIDENDS DECLARED PER SHARE $ 0.36 $ 0.30
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended September 30, 1996 and 1995
(Unaudited-in thousands)
Unrealized
Loss on
Securities
Additional Available Unearned Treasury
Common Paid-in Retained For Sale Compensation- Common
Stock Capital Earnings Net of Tax ESOP Stock Total
Balance at March 31, 1995 $ 29 $ 28,526 $ 24,916 $ -- $ (1,361) $ (4,093) $ 48,017
Net income for six months
ended September 30, 1995 1,191 1,191
Cash dividends declared ($.30 per
share) (749) (749)
Amortization of unearned compensation -
ESOP 74 124 198
------ -------- ------- ------- --------- -------- --------
Balance at September 30, 1995 29 28,600 25,358 -- (1,237) (4,093) 48,657
Net income for six months
ended March 31, 1996 1,366 1,366
Cash dividends declared ($.30 per
share) (735) (735)
Amortization of unearned compensation -
ESOP 93 119 212
Increase in unrealized loss on
securities available for sale -
Net of tax (26) (26)
Exercise of stock options -
12,500 treasury common shares (59) 184 125
Purchase of treasury common stock -
131,530 shares (2,407) (2,407)
------ -------- ------- ------- --------- -------- --------
Balance at March 31, 1996 29 28,693 25,930 (26) (1,118) (6,316) 47,192
Net income for six months
ended September 30, 1996 976 976
Cash dividends declared ($.36 per
share) (845) (845)
Amortization of unearned compensation -
ESOP 95 127 222
Increase in unrealized loss on
securities available for sale -
Net of tax (24) (24)
Exercise of stock options -
3,000 treasury common shares (18) 48 30
Purchase of treasury common stock -
56,000 shares (997) (997)
------ -------- ------- ------- --------- ------- -------
Balance at September 30, 1996 $ 29 $ 28,788 $ 26,043 $ (50) $ (991) $ (7,265) $ 46,554
====== ======== ======= ======= ========= ======= =======
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended
September 30
1996 1995
(In thousands)
Operating activities:
Net income $ 219 $ 622
-------- --------
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 60 68
Net amortization (accretion) of premiums
(discounts) on investment and mortgage-
related securities (5) 1
Provision for loan losses 50 50
Gain on sale of loans - Net (119) (25)
Loss pass-through on real estate held
for investment 4 4
Loans originated for sale (3,673) (6,777)
Proceeds from loan sales 5,937 5,340
Changes in operating assets and liabilities:
Interest receivable (118) (88)
Prepaid expenses and other assets (130) 20
Accrued interest and other liabilities 595 (387)
Accrued income taxes (790) (242)
Unearned compensation - ESOP 110 101
-------- --------
Total adjustments 1,921 (1,935)
-------- --------
Net cash provided by (used in) operating activities 2,140 (1,313)
-------- --------
Cash flows from investing activities:
Purchases of investment securities held to
maturity (2,000) (2,000)
Maturities of investment securities held to
maturity 0 2,000
Principal repayments on mortgage-related
securities available for sale 111 0
Principal repayments on mortgage-related
securities held to maturity 252 422
Purchase of Federal Home Loan Bank stock (257) 0
Net increase in loans (4,527) (4,515)
Capital expenditures (12) (17)
-------- --------
Net cash used in investing activities (6,433) (4,110)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposit accounts (2,304) 583
Net increase in borrowed funds 5,145 3,850
Net increase in advance payments by borrowers
for taxes and insurance 1,353 1,384
Dividends paid (422) (375)
-------- --------
Net cash provided by financing activities 3,772 5,442
-------- --------
Net increase (decrease) in cash and
cash equivalents (521) 19
Cash and cash equivalents at beginning 4,669 4,599
-------- --------
Cash and cash equivalents at end $ 4,148 $ 4,618
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $ 1,919 $ 1,960
Interest on borrowed funds 752 550
Income taxes 926 641
Loans transferred to foreclosed property $ 0 $ 53
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1996 and 1995
(Unaudited)
Six Months Ended
September 30
1996 1995
(In thousands)
Operating activities:
Net income $ 976 $ 1,191
------- -------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 126 137
Net amortization (accretion) of premiums
(discounts) on investment and mortgage-
related securities (12) 2
Provision for loan losses 100 100
Gain on sale of loans - Net (124) (44)
Loss pass-through on real estate held
for investment 9 9
Loans originated for sale (9,041) (11,150)
Proceeds from loan sales 10,473 7,675
Changes in operating assets and liabilities:
Interest receivable (102) (67)
Prepaid expenses and other assets (134) 55
Accrued interest and other liabilities 1,059 481
Accrued income taxes (403) 51
Unearned compensation - ESOP 222 198
-------- --------
Total adjustments 2,173 (2,553)
-------- --------
Net cash provided by (used in) operating activities 3,149 (1,362)
-------- --------
Cash flows from investing activities:
Purchases of investment securities held to
maturity (4,000) (2,000)
Maturities of investment securities held to
maturity 2,000 4,000
Principal repayments on mortgage-related
securities available for sale 260 0
Principal repayments on mortgage-related
securities held to maturity 738 707
Purchase of Federal Home Loan Bank stock (525) 0
Net increase in loans (13,781) (10,295)
Capital expenditures (66) (19)
-------- --------
Net cash used in investing activities (15,374) (7,607)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts 12 6,894
Net increase (decrease) in borrowed funds 10,500 (300)
Net increase in advance payments by borrowers
for taxes and insurance 2,818 2,894
Proceeds from exercise of stock options 30 0
Purchase of treasury common stock (997) 0
Dividends paid (782) (674)
-------- --------
Net cash provided by financing activities 11,581 8,814
-------- --------
Net decrease in cash and cash equivalents (644) (155)
Cash and cash equivalents at beginning 4,792 4,773
-------- --------
Cash and cash equivalents at end $ 4,148 $ 4,618
======== ========
Supplemental cash flow information:
Cash paid during the quarter for:
Interest on deposit accounts $ 3,772 $ 3,652
Interest on borrowed funds 1,437 1,176
Income taxes 1,019 718
Loans transferred from held for sale
to held for investment $ 0 $ 431
Loans transferred to foreclosed property $ 0 $ 53
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1-PRINCIPLES OF CONSOLIDATION
FCB Financial Corp. (the "Corporation") is the holding company for Fox
Cities Bank, F.S.B. (the "Bank"). The accompanying unaudited consolidated
financial statements include the accounts of the Corporation, the Bank and
the Bank's wholly-owned subsidiaries, Fox Cities Financial Services, Inc.
("FCFS") and Fox Cities Investments, Inc. ("FCI"), after elimination of
significant intercompany accounts and transactions. FCFS sells
tax-deferred annuities and consumer credit life and disability insurance.
In addition, FCFS has a 50% ownership in a low/moderate income apartment
building partnership. The partnership qualifies for federal low income
housing tax credits. FCI, a Nevada corporation, owns and manages a
portfolio of investment securities, all of which are permissible
investments of the Bank itself.
NOTE 2-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that
the disclosures are adequate to prevent the information presented from
being misleading. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the consolidated financial statements have been included.
The results of operations and other data for the three and six months
ended September 30, 1996 are not necessarily indicative of results that
may be expected for the fiscal year ending March 31, 1997. The unaudited
consolidated financial statements presented herein should be read in
conjunction with the audited consolidated financial statements and related
notes thereto for the fiscal year ended March 31, 1996 included in the
Corporation's Annual Report on Form 10-K (Commission File Number 0-22066)
as filed with the Securities and Exchange Commission.
NOTE 3-ACCOUNTING CHANGES
Effective April 1, 1996, the Corporation adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," which requires long-lived assets and
certain intangibles to be held and used by an entity to be reviewed for
impairment whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. The Statement also
requires long-lived assets and certain intangibles to be disposed of to be
reported at the lower of carrying amount or fair value less cost to sell.
Adoption of this Statement did not have a material impact on the
Corporation's financial condition at, or results of operations for the
three months or six months ended, September 30, 1996.
Effective April 1, 1996, the Corporation adopted FASB Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights," which amends the previously issued Statement No. 65, "Accounting
for Certain Mortgage Banking Activities." Statement No. 122 requires
recognition of mortgage servicing rights as assets however the rights are
acquired. For loans which are subsequently sold or securitized, a portion
of the cost of the loans shall be allocated to the servicing rights based
on the relative fair values of the loans and the servicing rights. The
Statement further requires assessment of the value of the capitalized
mortgage servicing rights for impairment. As a result of adopting this
Statement, the Corporation recorded a mortgage servicing rights ("OMSR")
asset and an additional gain on sale of loans of approximately $45,000 in
the quarter ended June 30, 1996 and $59,000 in the quarter ended September
30, 1996. The Corporation is amortizing OMSR assets over the period of
estimated net servicing income. There was no impairment of OMSRs in the
quarter or six months ended September 30, 1996.
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
Statement No. 125 supersedes and amends several previously issued FASB
statements and technical bulletins, including Statement No. 122, as well
as the consensus of several Emerging Issues Task Forces. Statement No.
125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
a financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings. This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively. Management
believes that adoption of Statement No. 125 will not have a material
effect on the financial condition or results of operation of the
Corporation.
NOTE 4-EARNINGS PER SHARE
Earnings per share of common stock for the three- and six-month periods
ended September 30, 1996 and 1995 were computed based on consolidated net
income and weighted average outstanding shares. The weighted average
number of shares outstanding for the three months ended September 30, 1996
and 1995 were 2,395,993 and 2,544,516, respectively, and 2,409,006 and
2,542,382 for the six months ended September 30, 1996 and 1995,
respectively.
NOTE 5-STOCK REPURCHASE PROGRAMS
On January 23, 1996, the Corporation announced that it had adopted another
stock repurchase program. Under this program, the Corporation purchased
5% of its outstanding common stock, or 131,530 shares, over the period
beginning January 31, 1996 and ending March 4, 1996. On March 8, 1996,
the Corporation announced that it had adopted an additional stock
repurchase program. Under this additional program, the Corporation is
authorized to purchase an additional 5% of its outstanding common stock,
or 125,630 shares, over the twelve-month period beginning with the date of
the announcement. At September 30, 1996, 56,000 shares had been
repurchased pursuant to this program. These two programs were the third
and fourth 5% stock repurchase programs adopted by the Corporation since
it became a public company in September 1993. The Corporation received
prior approval from the Office of Thrift Supervision for each of the
programs.
Item 2--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FCB FINANCIAL CORP.
Results of Operations
The Corporation's results of operations are dependent primarily on the
Bank's net interest income, which is the difference between the interest
income earned on loans, mortgage-related securities and investments and
the cost of funds, consisting of interest paid on deposits and borrowings.
Operating results are also affected to a lesser extent by loan servicing
fees, commissions on insurance sales, service charges for customer
services and gains or losses on the sale of investment securities and
loans. Operating expenses principally consist of employee compensation
and benefits, occupancy expenses, federal deposit insurance premiums and
other general and administrative expenses. Results of operations are
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities.
Comparison of Operating Results for the Three Months and Six Months Ended
September 30, 1996 and 1995
Net income was $219,000 and $622,000 for the quarters ended September 30,
1996 and 1995, respectively, and $976,000 and $1.2 million for the six
month periods ended on the same dates, respectively. The decrease in
earnings for the quarter and six months ended September 30, 1996 as
compared with the same periods in the prior fiscal year was the result of
a special one-time deposit insurance assessment which was imposed in the
quarter ended September 30, 1996. The assessment on the thrift industry
generally was made to recapitalize the Savings Association Insurance Fund
of the Federal Deposit Insurance Corporation. The assessment on the
Corporation amounted to $970,000 on a pretax basis and reduced net income
for both the quarter and six months ended September 30, 1996 by
approximately $596,000. For additional discussion of the special
assessment, see "Other Matters" below. Without the one-time charge, net
income for the quarter and six months ended September 30, 1996 would have
been $815,000 and $1,572,000, respectively. Compared to the prior year
results, net income increased 31.0% for the quarter and 32.0% for the six
months ended September 30, 1996 before considering the effect of the
assessment. The earnings growth was driven by increases in net interest
income of $266,000 and $608,000 for the quarter and six months ended
September 30, 1996, respectively. Also contributing to the current
quarter's improvement in net income before adjustment for the assessment
was an increase in gain on sale of loans of $94,000 for the quarter ended
September 30, 1996 versus the comparable quarter one year ago. The
increases in net interest income and gain on sale of loans were partially
offset by an increase in compensation, payroll taxes and other employee
benefits for the quarter ended September 30, 1996 compared to the quarter
ended September 30, 1995.
Net interest income increased to $2.3 million for the quarter ended
September 30, 1996 from $2.0 million for the quarter ended September 30,
1995, and increased to $4.4 million from $3.8 million for the six months
ended September 30, 1996 and 1995, respectively. The increases resulted
from growth in earning assets to $263.7 million at September 30, 1996 from
$248.9 million at March 31, 1996 and $241.9 million at September 30, 1995.
An increase in the loan portfolio from $204.9 million at March 31, 1996 to
$218.6 million at September 30, 1996 led the growth in earning assets.
Loans receivable increased $21.2 million during the twelve-month period
ended September 30, 1996. Enhancing the effect of the earning asset
growth on net income was an increase in the net interest spread to 2.75%
for the quarter ended September 30, 1996 from 2.48% for the comparable
quarter in the prior year. The net interest margin improved from 3.42%
for the quarter ended September 30, 1995 to 3.57% for the quarter just
ended. For the six months ended September 30, 1996 and 1995, the net
interest spread was 2.71% and 2.37%, respectively. The net interest
margin improved from 3.34% for the six-month period ended September 30,
1995 to 3.57% for the six months ended September 30, 1996. Interest
spread and net interest margin improvements continued to be driven by both
greater yield on earning assets and a lower cost of funds. Since the
direction and magnitude of future interest rate changes are not known, it
is not possible for management to estimate how such changes may impact the
Corporation's results of operations in the future.
Net gain on sale of loans increased from $25,000 for the three months
ended September 30, 1995 to $119,000 for the three months ended September
30, 1996, and from $44,000 for the six months ended September 30, 1995 to
$124,000 for the same period ended September 30, 1996. The gains were
$59,000 and $104,000 higher for the quarter and six months just ended,
respectively, as a result of adopting FASB Statement No. 122. See Note 3
of the Notes to Consolidated Financial Statements.
Total operating expenses increased to $2.2 million for the three months
ended September 30, 1996 from $1.1 million for the three months ended
September 30, 1995, and to $3.3 million for the six months ended September
30, 1996 from $2.2 million for the same period ended September 30, 1995.
Both increases were principally due to the special deposit insurance
assessment recorded in September 1996, which amounted to $970,000. For
additional information on the September 1996 special assessment, see
"Other Matters" below. Also contributing to the increase for the six-
month period ended September 30, 1996 was a $67,000 increase in
compensation, payroll taxes and other employee benefits which was
primarily a result of normal salary and benefit increases.
The provision for income taxes decreased from $410,000 for the quarter
ended September 30, 1995 to $136,000 for the quarter just ended. The
provision decreased from $781,000 for the six months ended September 30,
1995 to $617,000 for the same period ended September 30, 1996. The
decrease was primarily due to lower income before provision for income
taxes which resulted from the special deposit insurance assessment.
Changes in Financial Condition
Total Assets. Total assets increased $13.6 million to $269.3 million at
September 30, 1996 from $255.7 million at March 31, 1996. The principal
reason for the increase in total assets was an increase in net loans
receivable of $13.7 million. The growth in total assets was funded
primarily by a $10.5 million increase in borrowed funds and a $2.8 million
increase in advance payments by borrowers for taxes and insurance.
Investment Securities Held to Maturity. Investment securities held to
maturity increased to $9.0 million at September 30, 1996 from $7.0 million
at March 31, 1996 as a result of the purchase of a $2.0 million Federal
Home Loan Bank callable debenture.
Net Loans Receivable. Net loans receivable increased from $204.9 million
at March 31, 1996 to $218.6 million at September 30, 1996. This increase
resulted from a combination of continued strength in the demand for
adjustable rate mortgage loans, which are held to maturity by the Bank,
and increases in the commercial real estate and indirect auto loan
portfolios. For the six months ended September 30, 1996, $2.8 million
of commercial real estate loans and $5.8 million of indirect auto loans
were originated. The commercial real estate portfolio increased $1.5
million from $35.9 million at March 31, 1996 to $37.4 million at September
30, 1996. Total indirect auto loans increased from $10.5 million at March
31, 1996 to $12.8 million at September 30, 1996.
Borrowed Funds. Borrowed funds increased from $51.9 million at March 31,
1996 to $62.4 million at September 30, 1996. The increase came from a
combination of fixed rate, short-term advances and overnight borrowings
which were at interest rates that adjust daily.
Advance Payments by Borrowers for Taxes and Insurance. Advance payments
by borrowers for taxes and insurance increased from $2.4 million at March
31, 1996 to $5.2 million at September 30, 1996. The increase was
attributable to a normal accumulation of customer property tax escrow
funds which occurs ratably before calendar year-end.
Other Liabilities. The $1.3 million increase in other liabilities from
$1.5 million at March 31, 1996 to $2.8 million at September 30, 1996 was
largely due to the accrual of the $970,000 special deposit insurance
assessment during the quarter ended September 30, 1996.
Shareholders' Equity. Total shareholders' equity decreased from $47.2
million at March 31, 1996 to $46.6 million at September 30, 1996. The
decrease was primarily due to the purchase of treasury stock in connection
with the stock repurchase programs referred to in Note 5 of the Notes to
Consolidated Financial Statements.
Asset Quality
Loans are placed on nonaccrual status when either principal or interest is
more than 90 days past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
Impaired loans are measured at the fair value of the expected future cash
flows at the loan's effective interest rate, the loan's observable market
price or the fair value of the collateral for loans which are collateral
dependent. Subsequent changes in the estimated value of impaired loans
are accounted for as bad debt expense.
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at fair value at the date of foreclosure.
Subsequently, the foreclosed properties are carried at the lower of the
newly established cost or fair value less estimated selling costs. Costs
related to the development and improvement of property are capitalized,
whereas costs relating to the holding of property are expensed.
The following table sets forth the amounts and categories of
non-performing assets in the Bank's loan portfolio at the dates indicated.
For all dates presented, the Bank had no troubled debt restructurings
(which involve forgiving a portion of interest or principal on any loans
or making loans at terms materially more favorable than those which would
be provided to other borrowers) or accruing loans more than 90 days
delinquent. Foreclosed properties include assets acquired in settlement
of loans.
At September 30, At March 31,
1996 1996 1995 1994
(In thousands)
Non-accruing loans:
One- to four-family $277 $212 $243 $178
Five or more family - - - -
Commercial real estate - - - -
Consumer and other 8 - 27 8
---- ---- ---- ----
Total 285 212 270 186
---- ---- ---- ----
Foreclosed assets:
One- to four-family - - - -
Five or more family - - - -
Commercial real estate - - - -
Repossessed assets - 22 - -
---- ---- ---- ----
Total 0 22 0 0
---- ---- ---- ----
Total non-performing assets $285 $234 $270 $186
==== ==== ==== ====
Total non-performing assets as a
percentage of total assets 0.11% 0.09% 0.11% 0.09%
==== ==== ==== ====
Allowance for loan losses to loans
and foreclosed properties 0.52% 0.51% 0.47% 0.59%
==== ==== ==== ====
Federal regulations require that each savings institution classify its own
assets on a regular basis. On the basis of management's review of its
assets, at September 30, 1996, on a net basis, the Bank classified
$348,000 of its assets as special mention, $119,000 as substandard, and
$147,000 as doubtful. There were no loans classified as loss at September
30, 1996. As of September 30, 1996, management believes that these asset
classifications were consistent with those of the Office of Thrift
Supervision (the "OTS").
The Bank's loan portfolios are evaluated on a continuing basis to
determine the additions to the allowances for losses and the related
balance in the allowances. These evaluations consider several factors
including, but not limited to, general economic conditions, loan portfolio
compositions, loan delinquencies, prior loss experience, and management's
estimation of future potential losses. The evaluation of allowances for
loan losses includes a review of both known loan problems as well as a
review of potential problems based upon historical trends and ratios.
Based on management's evaluation at September 30, 1996, $50,000 in loan
loss provisions were deemed appropriate for the quarter ended September
30, 1996 and the aggregate allowance for loan losses of $1,164,000 as of
such date was determined to be adequate.
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
Three months Six months
Ended Sep. 30, Ended Sep. 30,
1996 1995 1996 1995
(In thousands)
Allowance at beginning of period $1,118 $925 $1,075 $875
Provision for loan losses 50 50 100 100
Charge-offs:
Residential real estate - - - -
Consumer (4) - (11) -
---- ---- ---- ----
Total Charge-offs (4) 0 (11) 0
---- ---- ---- ----
Recoveries:
Residential real estate - - - -
Consumer - - - -
---- ---- ---- ----
Total recoveries 0 0 0 0
---- ---- ---- ----
Net charge-offs (4) 0 (11) 0
---- ---- ---- ----
Allowance at end of period $1,164 $975 $1,164 $975
===== ==== ===== ====
While management believes that the allowances are adequate and that it
uses the best information available to determine the allowance for losses
on loans, unforeseen market conditions could result in adjustments and net
earnings could be significantly affected if circumstances differ
substantially from the assumptions used in making the final determination.
Liquidity & Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. These requirements, which may be varied at
the direction of the OTS depending upon economic conditions and deposit
flows, are based upon a percentage of the average daily balance of an
institution's net withdrawable deposit accounts and short-term borrowings.
The required ratio is currently 5.0%. On September 30, 1996, the Bank's
liquidity ratio, calculated in accordance with OTS requirements, was
6.89%. In addition, according to current OTS regulations, short-term
liquid assets must constitute l.0% of the average daily balance of net
withdrawable deposit accounts and short-term borrowings. On September 30,
1996, the Bank's short-term liquidity ratio was 3.39%.
At September 30, 1996, the Bank had outstanding commitments to originate
mortgage loans of $7.4 million, with varying interest rates, and had
outstanding commitments to sell mortgage loans of $1.2 million. In
addition, the Bank had commitments to fund unused lines of credit of $1.7
million at September 30, 1996. Management does not believe the Bank will
suffer any adverse consequences as a result of fulfilling these
commitments.
The following table summarizes the Bank's capital ratios and the ratios
required by the Financial Institution Reform, Recovery and Enforcement Act
of 1989 and implementing regulations relating thereto at September 30,
1996:
Risk-
Tangible Core Based
Capital Capital Capital
(Dollars in thousands)
Bank's regulatory percentage 14.02 % 14.02 % 23.78 %
Required regulatory percentage 1.50 3.00 8.00
------ ----- -----
Excess regulatory percentage 12.52 % 11.02 % 15.78 %
====== ====== ======
Bank's regulatory capital $37,454 $37,454 $38,618
Required regulatory capital 4,008 8,016 15,991
------ ------ ------
Excess regulatory capital $33,446 $29,438 $22,627
====== ====== ======
Other Matters
Deposits of the Bank are insured by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). Deposits
of commercial banks are typically insured by the FDIC Bank Insurance Fund
("BIF"). The BIF previously achieved its designated reserve ratio, and
the FDIC lowered deposit insurance premiums for most BIF insured
institutions, creating a difference in BIF and SAIF deposit insurance
rates. On September 30, 1996, legislation was signed to recapitalize the
SAIF through a one-time special assessment (payable November 27, 1996) of
approximately 65.7 cents per $100 of insured deposits based on the deposit
assessment base as of March 31, 1995. As a result, the Corporation's
federal insurance premium included in its operating expenses for the
quarter and six months ended September 30, 1996 include a charge of
approximately $970,000 for this one time special assessment. It is
anticipated that the Corporation will receive a partial refund of the
normal SAIF premium it paid on September 30, 1996 for the fourth calendar
quarter as the premium paid was imposed prior to passing the legislation
which recapitalized the SAIF. Management is unable to estimate the
amount of the potential refund or the likelihood that any premiums will be
refunded by the FDIC.
Also as part of the legislation, effective January 1, 1997, the risk-based
assessment schedule is expected to be the same for BIF and SAIF
institutions, and the Financing Corporation ("FICO") portion of the
deposit insurance annual premium for SAIF institutions is expected to be
6.4 cents per $100 of deposits as compared with 1.3 cents per $100 of
deposits for BIF insured institutions. Management anticipates that
earnings will be favorably impacted beginning in January 1997 as a result
of lower deposit insurance premiums. Because future deposit insurance
premiums are based on the Bank's future deposit assessment base, management
cannot predict the dollar amount that the Corporation will save on deposit
insurance in future periods.
Another significant element of the above legislation is that the Federal
savings association charter may no longer be available. The United States
Treasury Department is required to provide Congress with a report
regarding the development of a common charter for all depository
institutions by March 31, 1997. Assuming all charters have been converted
by January 1, 1999, it is contemplated that BIF and SAIF would be merged
on that date and pro-rata sharing of FICO premiums will begin. Changing
charters could have a significant impact on the type of operations the
Bank conducts since a bank charter could remove some limitations on the
type and volumes of lending, investment, and deposit activities which are
currently imposed on savings institutions. Management cannot, however,
currently predict what actual changes would be effected in the event that
the Bank obtained a different charter.
Provisions of the foregoing legislation also require recapture of
previously allowed tax bad debt provisions. The Corporation is required
to recapture its post 1987 reserves of approximately $1,067,000. The
recapture requires additional tax payments over a six-year period.
Certain institutions which meet a loan origination test have the option of
deferring the first payment of the recapture for up to two years.
Management has not yet determined if it would be cost effective for the
Corporation to defer the payment of the tax recapture, assuming that it
meets the loan origination test. In any event, the repayments are not
anticipated to have a material impact on the Corporation's results of
operations due to the current deferred tax implications of the allowance
for loan losses.
Part II - Other Information
Item 4--Submission of Matters to a Vote of Security Holders
At the Corporation's annual meeting of shareholders held on July 22, 1996,
Richard A. Bergstrom and William J. Schmidt were elected as directors of
the Corporation for three-year terms expiring in 1999. The following
table sets forth certain information with respect to the election of
directors at the annual meeting:
Shares Withholding
Name of Nominee Shares Voted For Authority
Richard A. Bergstrom 2,042,617 7,730
William J. Schmidt 2,043,337 7,010
The following table sets forth the other directors of the Corporation
whose terms of office continued after the 1996 annual meeting:
Year in Which
Name of Director Term Expires
Walter H. Drew 1997
Donald S. Koskinen 1997
David L. Erdmann 1998
Donald D. Parker 1998
William A. Raaths 1998
In addition, at the annual meeting, shareholders ratified the selection of
Wipfli Ullrich Bertelson LLP as the Corporation's independent auditors for
the fiscal year ending March 31, 1997. With respect to such matter, the
number of shares voted for and against were 2,040,677 and 2,100,
respectively. The number of shares abstaining and the number of shares
subject to broker non-votes were 7,569 and -0-, respectively.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 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.
FCB FINANCIAL CORP.
Date: October 31, 1996 By: /s/ Donald D. Parker
Donald D. Parker
President/CEO and Chairman of the
Board
Date: October 31, 1996 By: /s/ Phillip J. Schoofs
Phillip J. Schoofs
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
EXHIBIT INDEX
Exhibit No. Exhibit
27 Financial Data Schedule (EDGAR version only)