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 December 31, 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 December 31, 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
December 31, 1996 and March 31, 1996 1
Consolidated Statements of Income for the Three Months
Ended December 31, 1996 and 1995 3
Consolidated Statements of Income for the Nine Months
Ended December 31, 1996 and 1995 4
Consolidated Statements of Shareholders' Equity for
the Nine Months Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1996 and 1995 6
Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1996 and 1995 8
Notes to Consolidated Financial Statements 10
Item 2 --Management's Discussion and Analysis
Proposed Business Combination 12
Results of Operations 12
Changes in Financial Condition 13
Asset Quality 15
Liquidity & Capital Resources 17
Other Matters 18
Part II--Other Information
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
December 31, 1996 and March 31, 1996
(Unaudited)
ASSETS
December 31 March 31
1996 1996
(In thousands)
Cash and cash equivalents $3,467 $4,792
Investment securities held to maturity
(estimated fair value of $7,994
and $6,965 at December 31, 1996 and
March 31, 1996, respectively) 7,994 6,986
Mortgage-related securities available
for sale, at fair value 6,518 6,906
Mortgage-related securities held to
maturity (estimated fair value of
$16,871 and $17,986 at December 31,
1996 and March 31, 1996, respectively) 16,756 17,850
Investment in Federal Home Loan Bank
stock, at cost 3,170 2,595
Loans held for sale - Net of unrealized
loss of $44 and $101 at December 31,
1996 and March 31, 1996, respectively 3,561 5,161
Loans receivable - Net 220,655 204,897
Real estate held for investment 182 196
Interest receivable on loans 1,164 1,167
Interest receivable - Other 125 228
Office properties and equipment 4,092 4,211
Prepaid expenses and other assets 363 267
Accrued and deferred income taxes 481 404
-------- --------
TOTAL ASSETS $268,528 $255,660
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and March 31, 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31 March 31
1996 1996
(In thousands)
Liabilities:
Deposit accounts $152,800 $151,115
Borrowed funds 63,400 51,900
Advance payments by borrowers for
taxes and insurance 1,879 2,410
Accrued interest 795 949
Other liabilities 2,222 1,545
Dividends payable 424 360
Accrued income taxes 0 189
-------- --------
Total liabilities 221,520 208,468
-------- --------
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value 29 29
Additional paid-in capital 28,842 28,693
Retained earnings - Substantially
restricted 26,369 25,930
Unrealized loss on securities available
for sale - Net of tax (39) (26)
Unearned compensation - ESOP (928) (1,118)
Treasury common stock, at cost (7,265) (6,316)
--------- ---------
Total shareholders' equity 47,008 47,192
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $268,528 $255,660
========= =========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1996 and 1995
(Unaudited)
Three Months Ended
December 31
1996 1995
(In per share numbers)
Interest and dividend income:
Mortgage loans $3,786 $3,531
Other loans 721 568
Investment securities 121 107
Mortgage-related securities 382 429
Dividends on stock in Federal Home
Loan Bank 55 40
Interest-bearing deposits 16 20
------ -----
Total interest and dividend income 5,081 4,695
------ -----
Interest expense:
Deposit accounts 1,944 1,957
Borrowed funds 809 596
------ -----
Total interest expense 2,753 2,553
------ -----
Net interest income 2,328 2,142
Provision for loan losses 100 50
------ -----
Net interest income after provision
for loan losses 2,228 2,092
------ -----
Noninterest income:
Loan fees and charges 100 93
Savings fees and charges - Net 38 28
Gain on sale of loans - Net 146 59
Other income 41 46
------ -----
Total noninterest income 325 226
------ -----
Operating expenses:
Compensation, payroll taxes and
other employee benefits 612 583
Marketing 75 56
Occupancy 160 183
Data processing 64 62
Federal insurance premiums 92 89
Other 212 198
------ ------
Total operating expenses 1,215 1,171
------ ------
Income before provision for
income taxes 1,338 1,147
Provision for income taxes 589 453
------ ------
NET INCOME $749 $694
====== ======
EARNINGS PER SHARE - See note 5 $0.31 $0.27
====== ======
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
Nine Months Ended December 31, 1996 and 1995
(Unaudited)
Nine Months Ended
December 31
1996 1995
(In thousands except
per share numbers)
Interest and dividend income:
Mortgage loans $11,219 $10,252
Other loans 2,010 1,557
Investment securities 323 341
Mortgage-related securities 1,172 1,290
Dividends on stock in Federal
Home Loan Bank 149 115
Interest-bearing deposits 46 39
------ ------
Total interest and dividend income 14,919 13,594
------ ------
Interest expense:
Deposit accounts 5,806 5,819
Borrowed funds 2,279 1,735
------ ------
Total interest expense 8,085 7,554
------ ------
Net interest income 6,834 6,040
Provision for loan losses 200 150
------ ------
Net interest income after provision
for loan losses 6,634 5,890
------ ------
Noninterest income:
Loan fees and charges 284 276
Savings fees and charges - Net 102 90
Gain on sale of loans - Net 270 103
Other income 135 148
------ ------
Total noninterest income 791 617
------ ------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 1,781 1,685
Marketing 199 191
Occupancy 499 537
Data processing 193 184
Federal insurance premiums 1,240 258
Other 582 533
------ ------
Total operating expenses 4,494 3,388
------ ------
Income before provision for income
taxes 2,931 3,119
Provision for income taxes 1,206 1,234
------ ------
NET INCOME $1,725 $1,885
====== ======
EARNINGS PER SHARE - See note 5 $0.71 $0.74
====== ======
DIVIDENDS DECLARED PER SHARE $0.54 $0.45
====== ======
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended December 31, 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) $48,017
Net income for nine months
ended December 31, 1995 1,885 1,885
Cash dividends declared
($.45 per share) (1,124) (1,124)
Amortization of unearned
compensation - ESOP 119 184 303
Unrealized loss on
securities available for
sale - Net of tax (4) (4)
------ ------ ------ ------ ------ ------ ------
Balance at December 31,
1995 29 28,645 25,677 (4) (1,177) (4,093) 49,077
Net income for three months
ended March 31, 1996 672 672
Cash dividends declared
($.15 per share) (360) (360)
Amortization of unearned
compensation - ESOP 48 59 107
Increase in unrealized
loss on securities
available for sale -
Net of tax (22) (22)
Exercise of stock
options - 12,500
treasury common shares (59) 184 125
Purchase of treasury
common stock - 131,530
shares (2,407) (2,407)
------ ------ ------ ------ ------ ------ ------
Balance at March 31, 1996 29 28,693 25,930 (26) (1,118) (6,316) 47,192
Net income for nine months
ended December 31, 1996 1,725 1,725
Cash dividends declared
($.54 per share) (1,268) (1,268)
Amortization of unearned
compensation - ESOP 149 190 339
Increase in unrealized
loss on securities
available for sale -
Net of tax (13) (13)
Exercise of stock options -
3,000 treasury common
shares (18) 48 30
Purchase of treasury
common stock - 56,000
shares (997) (997)
------ ------ ------ ------ ------ ------ ------
Balance at December 31,
1996 $29 $28,842 $26,369 $(39) $(928) $(7,265) $47,008
====== ====== ====== ====== ====== ====== ======
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1996 and 1995
(Unaudited)
Three Months Ended
December 31
1996 1995
(In thousands)
Operating activities:
Net income $ 749 $ 694
----- -----
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 60 67
Net accretion of discounts on
investment and mortgage-related
securities (8) (5)
Provision for loan losses 100 50
Gain on sale of loans - Net (146) (59)
Loss pass-through on real estate
held for investment 5 5
Loans originated for sale (5,443) (7,916)
Proceeds from loan sales 5,881 6,668
Changes in operating assets and
liabilities:
Interest receivable 208 (28)
Prepaid expenses and other assets 38 108
Accrued interest and other
liabilities (536) 368
Accrued income taxes 152 (210)
Unearned compensation - ESOP 117 105
----- -----
Total adjustments 428 (847)
----- -----
Net cash provided by (used in) operating
activities 1,177 (153)
----- -----
Cash flows from investing activities:
Purchases of investment securities held
to maturity (5,000) (2,000)
Maturities of investment securities held
to maturity 6,000 4,000
Principal repayments on mortgage-related
securities available for sale 100 0
Principal repayments on mortgage-related
securities held to maturity 368 447
Purchase of Federal Home Loan Bank stock (50) (59)
Net increase in loans (2,177) (3,461)
Capital expenditures (1) (20)
------ ------
Net cash used in investing activities (760) (1,093)
------ ------
Cash flows from financing activities:
Net increase (decrease) in deposit
accounts 1,673 (851)
Net increase in borrowed funds 1,000 4,450
Net decrease in advance payments by
borrowers for taxes and insurance (3,349) (3,664)
Dividends paid (422) (374)
------ ------
Net cash used in financing activities (1,098) (439)
------ ------
Net decrease in cash and cash equivalents (681) (1,685)
Cash and cash equivalents at beginning 4,148 4,618
------ ------
Cash and cash equivalents at end $3,467 $2,933
====== ======
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $1,862 $1,917
Interest on borrowed funds 793 575
Income taxes 437 674
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended December 31, 1996 and 1995
(Unaudited)
Nine Months Ended
December 31
1996 1995
(In thousands)
Operating activities:
Net income $1,725 $1,885
----- -----
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 186 204
Net accretion of discounts on
investment and mortgage-related
securities (20) (3)
Provision for loan losses 200 150
Gain on sale of loans - Net (270) (103)
Loss pass-through on real estate held
for investment 14 14
Loans originated for sale (14,484) (19,066)
Proceeds from loan sales 16,354 14,343
Changes in operating assets and
liabilities:
Interest receivable 106 (95)
Prepaid expenses and other assets (96) 163
Accrued interest and other
liabilities 523 849
Accrued income taxes (251) (159)
Unearned compensation - ESOP 339 303
------ ------
Total adjustments 2,601 (3,400)
------ ------
Net cash provided by (used in)
operating activities 4,326 (1,515)
------ ------
Cash flows from investing activities:
Purchases of investment securities
held to maturity (9,000) (4,000)
Maturities of investment securities
held to maturity 8,000 8,000
Principal repayments on mortgage-
related securities available for
sale 360 0
Principal repayments on mortgage-
related securities held to maturity 1,106 1,154
Purchase of Federal Home Loan Bank
stock (575) (59)
Net increase in loans (15,958) (13,809)
Proceeds from sale of foreclosed
property 0 53
Capital expenditures (67) (39)
------ ------
Net cash used in investing activities (16,134) (8,700)
------ ------
Cash flows from financing activities:
Net increase in deposit accounts 1,685 6,043
Net increase in borrowed funds 11,500 4,150
Net decrease in advance payments by
borrowers for taxes and insurance (531) (770)
Proceeds from exercise of stock options 30 0
Purchase of treasury common stock (997) 0
Dividends paid (1,204) (1,048)
------ -----
Net cash provided by financing activities 10,483 8,375
------ -----
Net decrease in cash and cash equivalents (1,325) (1,840)
Cash and cash equivalents at beginning 4,792 4,773
------ -----
Cash and cash equivalents at end $3,467 $2,933
====== ======
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $5,634 $5,569
Interest on borrowed funds 2,230 1,751
Income taxes 1,457 1,392
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 nine months
ended December 31, 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 or nine months ended December 31, 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 is required to 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, $59,000 in the
quarter ended September 30, 1996, and $59,000 in the quarter ended
December 31, 1996. The Corporation is amortizing OMSR assets over the
period of estimated net servicing income. During the quarter ended
December 31, 1996, approximately $2,600 of OMSR were amortized to loan
servicing income. There was no impairment of OMSR in the quarter or nine
months ended December 31, 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 Force Abstracts.
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-PENDING BUSINESS COMBINATION
On November 13, 1996, the Corporation signed a definitive agreement to
merge with OSB Financial Corp. ("OSB"). OSB is the parent company of
Oshkosh Savings Bank, F.S.B., a $255 million thrift institution with seven
banking locations in East Central Wisconsin. The resulting company will
operate as FCB Financial Corp. and be headquartered in Oshkosh, Wisconsin.
The transaction is to be accounted for under the purchase accounting
method, and is expected to close in the second quarter of 1997. The
merger is subject to approval of the shareholders of both the Corporation
and OSB, as well as various regulatory authorities. In the merger, each
share of OSB common stock issued and outstanding immediately prior to the
effective time of the merger will (except as provided below) be canceled
and converted into the right to receive 1.46 shares of Corporation common
stock plus cash in lieu of fractional shares. All shares of OSB common
stock (i) owned by OSB as treasury stock, (ii) owned by the OSB Management
Development and Recognition Plans and not allocated to participants
thereunder or (iii) owned by the Corporation will be canceled and no
consideration will be issued therefor. The Corporation has filed a
Current Report on Form 8-K, dated November 13, 1996, with respect to the
proposed merger with OSB. Reference is made to this filing for further
details regarding the proposed merger.
NOTE 5-EARNINGS PER SHARE
Earnings per share of common stock for the three- and nine-month periods
ended December 31, 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 December 31, 1996
and 1995 were 2,403,117 and 2,551,121 respectively, and 2,406,866 and
2,547,071 for the nine months ended December 31, 1996 and 1995,
respectively.
NOTE 6-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 December 31, 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.
Proposed Business Combination
The Corporation has entered into a definitive agreement, dated November
13, 1996, to merge with OSB Financial Corp. For additional information
regarding the proposed transaction, see Note 4 of the Notes to
Consolidated Financial Statements.
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 Nine Months Ended
December 31, 1996 and 1995
Net income was $749,000 and $694,000 for the quarters ended December 31,
1996 and 1995, respectively, and $1.7 million and $1.9 million for the
nine-month periods ended on the same dates, respectively. The increase in
earnings for the quarter was driven by an increase in net interest income
and an increase in the net gain on sale of loans, which was partially
offset by increases in the provision for loan losses and income taxes.
The decrease in earnings for the nine months ended December 31, 1996 as
compared with the same period in the prior fiscal year was primarily 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 the nine months ended December 31, 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 nine months ended December 31, 1996 would have been $2.3
million. The earnings growth for the current year to date compared to the
comparable prior year period was driven by increases in net interest
income of $794,000 and gain on sale of loans of $167,000. 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 nine months ended December 31, 1996 compared to the nine months ended
December 31, 1995.
Net interest income increased from $2.1 million for the quarter ended
December 31, 1995 to $2.3 million for the quarter ended December 31, 1996,
and increased to $6.8 million from $6.0 million for the nine months ended
December 31, 1996 and 1995, respectively. The increases resulted from
growth in earning assets to $261.4 million at December 31, 1996 from
$248.9 million at March 31, 1996 and $244.1 million at December 31, 1995.
The growth in earning assets was led by an increase in the loan portfolio
from $204.9 million at March 31, 1996 to $220.7 million at December 31,
1996. Loans receivable increased $19.8 million from December 31, 1995 to
December 31, 1996. Contributing to the increase in net interest income
was an increase in the net interest spread to 2.78% for the quarter ended
December 31, 1996 from 2.60% for the comparable quarter in the prior year.
The net interest margin improved to 3.60% for the quarter ended December
31, 1996 from 3.53% for the quarter ended December 31, 1995. For the nine
months ended December 31, 1996 and 1995, the net interest spread was 2.73%
and 2.45%, respectively, and the net interest margins 3.57% and 3.41%,
respectively. The interest spread and net interest margin improvements
continued to be driven by both greater yields 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.
The provision for loan losses increased $50,000 for both the quarter and
nine months ended December 31,1996 over the comparable periods ended
December 31, 1995. The increase was made as a result of an increase in
the size of the loan portfolio and a change in the loan mix. For
additional discussion on the allowance for loan losses, see the "Asset
Quality" section below.
Net gain on sale of loans increased from $103,000 for the nine months
ended December 31, 1995 to $270,000 for the same period ended December 31,
1996, and an increase from $59,000 to $146,000 for the three months ended
December 31, 1995 and December 31, 1996, respectively. The gains were
$163,000 and $59,000 higher for the nine months and quarter 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 $4.5 million for the nine months
ended December 31, 1996 from $3.4 million for the nine months ended
December 31, 1995. The increase was 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 nine-month period ended December 31, 1996 was a $96,000 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 increased from $453,000 for the quarter
ended December 31, 1995 to $589,000 for the quarter just ended. The
increase was primarily due to an increase in income before provision for
income taxes.
Changes in Financial Condition
Total Assets. Total assets increased from $255.7 million at March 31,
1996 to $268.5 million at December 31, 1996. The principal reason for the
increase in total assets was an increase in net loans receivable of $15.8
million. The growth in total assets was funded primarily by a $11.5
million increase in borrowed funds and a $1.7 million increase in deposit
accounts.
Cash and Cash Equivalents. Cash and cash equivalents decreased from $4.8
million at March 31, 1996 to $3.5 million at December 31, 1996 primarily
due to lower immediate cash needs of the Corporation.
Mortgage-Related Securities Held to Maturity. Mortgage-related
securities held to maturity decreased from $17.9 million at March 31, 1996
to $16.8 million at December 31, 1996 primarily due to principal
repayments on the portfolio of securities. These repayments have occurred
ratably throughout the fiscal year.
Net Loans Receivable. Net loans receivable increased from $204.9 million
at March 31, 1996 to $220.7 million at December 31, 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 nine months ended December 31, 1996, $5.9 million
of commercial real estate loans and $8.8 million of indirect auto loans
were originated. The commercial real estate portfolio increased $2.4
million from $35.9 million at March 31, 1996 to $38.3 million at December
31, 1996. Total indirect auto loans increased from $10.5 million at March
31, 1996 to $13.9 million at December 31, 1996.
Borrowed Funds. Borrowed funds increased from $51.9 million at March 31,
1996 to $63.4 million at December 31, 1996. The increase came from a
combination of fixed rate, short-term advances and overnight borrowings
which were at interest rates that adjust daily.
Shareholders' Equity. Total shareholders' equity decreased from $47.2
million at March 31, 1996 to $47.0 million at December 31, 1996. The
decrease was primarily due to the purchase of treasury stock in connection
with the stock repurchase programs referred to in Note 6 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
December 31, At March 31,
1996 1996 1995 1994
(In thousands)
Non-accruing loans:
One- to four-family $252 $212 $243 $178
Five or more family - - - -
Commercial real estate - - - -
Consumer and other 26 - 27 8
----- ----- ----- -----
Total 278 212 270 186
----- ----- ----- -----
Foreclosed assets:
One- to four-family - - - -
Five or more family - - - -
Commercial real estate - - - -
Repossessed assets 18 22 - -
----- ----- ----- -----
Total 18 22 0 0
----- ----- ----- -----
Total non-performing assets $296 $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 0.57% 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 December 31, 1996, on a net basis, the Bank classified $304,000
of its assets as special mention, $94,000 as substandard, and $144,000 as
doubtful. There were no loans classified as loss at December 31, 1996.
As of December 31, 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 December 31, 1996, a loan loss
provision of $100,000 was deemed appropriate for the quarter ended
December 31, 1996 and the aggregate allowance for loan losses of
$1,262,000 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 Nine months
Ended Dec. 31, Ended Dec. 31,
1996 1995 1996 1995
(In thousands)
Allowance at beginning
of period $1,164 $975 $1,075 $875
Provision for loan losses 100 50 200 150
Charge-offs:
Residential real estate - - - -
Consumer (2) - (13) -
----- ----- ----- -----
Total Charge-offs (2) 0 (13) 0
----- ----- ----- -----
Recoveries:
Residential real estate - - - -
Consumer - - - -
----- ----- ----- -----
Total recoveries 0 0 0 0
----- ----- ----- -----
Net charge-offs (2) 0 (13) 0
----- ----- ----- -----
Allowance at end of period $1,262 $1,025 $1,262 $1,025
===== ===== ===== =====
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 December 31, 1996, the Bank's
liquidity ratio, calculated in accordance with OTS requirements, was
5.17%. 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 December 31,
1996, the Bank's short-term liquidity ratio was 3.93%.
At December 31, 1996, the Bank had outstanding commitments to originate
mortgage loans of $3.3 million, with varying interest rates, and had
outstanding commitments to sell mortgage loans of $1.4 million. In
addition, the Bank had commitments to fund unused lines of credit of $1.7
million at December 31, 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 December 31,
1996:
Risk-
Tangible Core Based
Capital Capital Capital
(Dollars in thousands)
Bank's regulatory percentage 14.08 % 14.08 % 24.14 %
Required regulatory percentage 1.50 3.00 8.00
----- ----- -----
Excess regulatory percentage 12.58 % 11.08 % 16.14 %
===== ===== =====
Bank's regulatory capital $37,745 $37,745 $39,051
Required regulatory capital 4,022 8,043 12,940
------ ------ ------
Excess regulatory capital $33,723 $29,702 $26,111
====== ====== ======
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 nine
months ended December 31, 1996 includes a charge of approximately $970,000
for this one-time special assessment. The Corporation received 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. The refund amounted to
approximately $20,000, and reduced the premium paid on January 2, 1997.
Also as part of the legislation, effective January 1, 1997, the risk-based
assessment schedule will be the same for BIF and SAIF institutions, and
the Financing Corporation ("FICO") portion of the deposit insurance annual
premium for SAIF institutions will be 6.4 cents per $100 of deposits as
compared with 1.3 cents per $100 of deposits for BIF insured institutions.
Earnings should 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. 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 6--Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of November 13,
1996, by and between FCB Financial Corp. and OSB
Financial Corp. (Incorporated by reference to Exhibit 2.1
to FCB Financial Corp.'s Current Report on Form 8-K,
dated November 13, 1996.)
2.2 Stock Option and Trigger Payment Agreement, dated as of
November 13, 1996, by and between FCB Financial Corp. and
OSB Financial Corp. (Incorporated by reference to Exhibit
2.2 to FCB Financial Corp.'s Current Report on Form 8-K,
dated November 13, 1996.)
2.3 Stock Option and Trigger Payment Agreement, dated as of
November 13, 1996, by and between OSB Financial Corp. and
FCB Financial Corp. (Incorporated by reference to Exhibit
2.3 to FCB Financial Corp.'s Current Report on Form 8-K,
dated November 13, 1996.)
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
On November 20, 1996, the Corporation filed a Current Report on
Form 8-K (under Item 5) to report that it had entered into an Agreement
and Plan of Merger, dated November 13, 1996, with OSB Financial Corp.
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: February 5, 1997 By: /s/ Donald D. Parker
Donald D. Parker
President/CEO and Chairman of the
Board
Date: February 5, 1997 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)