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, 1997
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
of incorporation or organization Identification No.)
420 South Koeller Street, Oshkosh, WI 54902
(Address of principal executive office) (Zip Code)
(920) 236-3680
(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, 1997: 3,879,441
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, 1997
and March 31, 1997 1
Consolidated Statements of Income for
the Three Months Ended
September 30, 1997 and 1996 3
Consolidated Statements of Income for
the Six Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Shareholders'
Equity for the Six Months
Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for
the Three Months Ended
September 30, 1997 and 1996 6
Consolidated Statements of Cash Flows for
the Six Months Ended
September 30, 1997 and 1996 8
Notes to Consolidated Financial Statements 10
Item 2 --Management's Discussion and Analysis
Results of Operations 13
Changes in Financial Condition 14
Asset Quality 15
Liquidity & Capital Resources 17
Special Note Regarding Forward-Looking Statements 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, 1997 and March 31, 1997
(Unaudited)
ASSETS
September 30 March 31
1997 1997
(In thousands)
Cash and cash equivalents $11,501 $4,628
Investment securities available
for sale, at fair value 899 --
Investment securities held to
maturity (estimated fair value of
$28,680 and $8,953 at
September 30, 1997 and March 31, 1997,
respectively) 28,395 8,995
Mortgage-related securities available
for sale, at fair value 33,990 6,363
Mortgage-related securities held to
maturity (estimated fair value of
$27,891 and $16,613 at
September 30, 1997 and March 31, 1997,
respectively) 27,518 16,531
Investment in Federal Home Loan Bank
stock, at cost 6,028 3,245
Loans held for sale - At cost at
September 30, 1997 and net of
unrealized loss of $87 at
March 31, 1997 5,890 3,270
Loans receivable - Net 396,906 221,496
Office properties and equipment 6,326 4,091
Other assets 5,538 2,566
-------- --------
TOTAL ASSETS $522,991 $271,185
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and March 31, 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 March 31
1997 1997
(In thousands)
Liabilities:
Deposit accounts $316,547 $153,163
Borrowed funds 114,510 64,900
Advance payments by borrowers
for taxes and insurance 10,861 2,586
Other liabilities 8,440 3,104
-------- ---------
Total liabilities 450,358 223,753
------- ---------
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value 45 29
Additional paid-in capital 59,046 28,911
Retained earnings - Substantially
restricted 27,365 26,630
Unrealized gain (loss) on securities
available for sale - Net of tax 359 (72)
Unearned compensation - ESOP (1,198) (869)
Treasury common stock, at cost (12,984) (7,197)
--------- ---------
Total shareholders' equity 72,633 47,432
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $522,991 $271,185
========= =========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1997 and 1996
(Unaudited)
Three Months Ended
September 30
1997 1996
(In thousands except per share numbers)
Interest and dividend income:
Mortgage loans $6,303 $3,756
Other loans 1,844 668
Investment securities 513 106
Mortgage-related securities 1,074 390
Dividends on stock in Federal
Home Loan Bank 102 49
Interest-bearing deposits 34 17
------- -------
Total interest and dividend
income 9,870 4,986
------- -------
Interest expense:
Deposit accounts 4,045 1,946
Borrowed funds 1,641 769
------- -------
Total interest expense 5,686 2,715
------- -------
Net interest income 4,184 2,271
Provision for loan losses 150 50
------- -------
Net interest income after
provision for loan losses 4,034 2,221
------- -------
Noninterest income:
Loan fees - Net 169 93
Gain on sale of loans - Net 195 119
Deposit fees 185 34
Other income 169 45
------- --------
Total noninterest income 718 291
------- --------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 1,341 602
Marketing 88 73
Occupancy 295 168
Data processing 200 68
Federal insurance premiums 52 1,059
Other 359 187
------- --------
Total operating expenses 2,335 2,157
------- --------
Income before provision for
income taxes 2,417 355
Provision for income taxes 727 136
------- --------
NET INCOME $ 1,690 $ 219
======= ========
EARNINGS PER SHARE - See note 5 $ 0.44 $ 0.09
======= ========
DIVIDENDS DECLARED PER SHARE $ 0.20 $ 0.18
======= ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended September 30, 1997 and 1996
(Unaudited)
Six Months Ended
September 30
1997 1996
(In thousands except per share numbers)
Interest and dividend income:
Mortgage loans $11,840 $7,433
Other loans 3,300 1,289
Investment securities 905 202
Mortgage-related securities 1,961 790
Dividends on stock in Federal
Home Loan Bank 189 94
Interest-bearing deposits 51 30
------- --------
Total interest and dividend
income 18,246 9,838
------- --------
Interest expense:
Deposit accounts 7,318 3,862
Borrowed funds 3,064 1,470
------- --------
Total interest expense 10,382 5,332
------- --------
Net interest income 7,864 4,506
Provision for loan losses 650 100
------- --------
Net interest income after provision
for loan losses 7,214 4,406
------- --------
Noninterest income:
Loan fees - Net 329 184
Gain on sale of loans - Net 335 124
Gain on sale of mortgage-related
securities available for sale 99 --
Deposit fees 322 64
Other income 266 94
-------- --------
Total noninterest income 1,351 466
-------- --------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 2,424 1,169
Marketing 180 124
Occupancy 581 339
Data processing 355 129
Federal insurance premiums 96 1,148
Merger-related charges 827 --
Other 661 370
------- --------
Total operating expenses 5,124 3,279
------- --------
Income before provision for
income taxes 3,441 1,593
Provision for income taxes 1,061 617
-------- --------
NET INCOME $ 2,380 $ 976
======== =======
EARNINGS PER SHARE - See note 5 $ 0.64 $ 0.40
======== =======
DIVIDENDS DECLARED PER SHARE $ 0.38 $ 0.36
======== =======
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended September 30, 1997 and 1996
(Unaudited-in thousands)
Unrealized
Gain (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, 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
Net income for six months
ended March 31, 1997 1,464 1,464
Cash dividends declared
($.36 per share) (851) (851)
Amortization of unearned
compensation - ESOP 123 122 245
Increase in unrealized loss on
securities available for sale -
Net of tax (22) (22)
Exercise of stock options -
4,189 treasury common shares (26) 68 42
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1997 29 28,911 26,630 (72) (869) (7,197) 47,432
Net income for six months
ended September 30, 1997 2,380 2,380
Cash dividends declared
($.38 per share) (1,453) (1,453)
Amortization of unearned
compensation - ESOP 228 158 386
Change in unrealized gain
(loss) on securities
available for sale -
Net of tax 431 431
Exercise of stock options -
41,426 treasury common
shares (192) 680 488
Purchase of treasury common
stock - 244,656 shares (6,467) (6,467)
Acquisition of OSB Financial
Corp. 16 29,907 (487) 29,436
-------- -------- -------- -------- -------- ------- --------
Balance at September 30, 1997 $ 45 $59,046 $27,365 $359 $(1,198) $(12,984) $72,633
======== ======== ======== ======== ======== ======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1997 and 1996
(Unaudited)
Three Months Ended
September 30
1997 1996
(In thousands)
Operating activities:
Net income $1,690 $219
-------- -------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and net
amortization (accretion) 84 55
Provision for loan losses 150 50
Gain on sale of loans (195) (119)
Loans originated for sale (12,505) (3,673)
Proceeds from loan sales 11,671 5,937
Changes in operating assets
and liabilities (145) (439)
Unearned compensation - ESOP 204 110
-------- --------
Total adjustments (736) 1,921
-------- --------
Net cash provided by operating
activities 954 2,140
-------- --------
Cash flows from investing
activities:
Purchases of investment securities
held to maturity (1,000) (2,000)
Maturities of investment securities
held to maturity 7,425 0
Principal repayments on mortgage-
related securities available
for sale 119 111
Principal repayments on mortgage-
related securities held to maturity 574 252
Purchase of Federal Home Loan
Bank stock 0 (257)
Net (increase) decrease in loans 1,525 (4,527)
Capital expenditures (13) (12)
-------- -------
Net cash provided by (used in)
investing activities 8,630 (6,433)
-------- -------
Cash flows from financing activities:
Net decrease in deposit accounts (1,082) (2,304)
Net increase (decrease) in borrowed
funds (2,650) 5,145
Net increase in advance payments
by borrowers for taxes and
insurance 4,586 1,353
Proceeds from exercise of stock
options 105 0
Purchase of treasury common stock (5,520) 0
Dividends paid (707) (422)
-------- ---------
Net cash provided by (used in)
financing activities (5,268) 3,772
-------- ---------
Net increase (decrease) in cash
and cash equivalents 4,316 (521)
Cash and cash equivalents at
beginning 7,185 4,669
-------- ---------
Cash and cash equivalents at end $11,501 $4,148
======== =========
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $4,034 $1,919
Interest on borrowed funds 1,658 752
Income taxes 830 830
Loans transferred to foreclosed
property $ 49 $ 0
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended September 30, 1997 and 1996
(Unaudited)
Six Months Ended
September 30
1997 1996
(in thousands)
Operating activities:
Net income $ 2,380 $ 976
-------- ------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and net
amortization (accretion) 129 114
Provision for loan losses 650 100
Gain on sale of assets (434) (124)
Loans originated for sale (19,682) (9,041)
Proceeds from loan sales 17,921 10,473
Changes in operating assets
and liabilities 1,332 429
Unearned compensation - ESOP 386 222
--------- ---------
Total adjustments 302 2,173
--------- ---------
Net cash provided by operating
activities 2,682 3,149
--------- ---------
Cash flows from investing activities:
Purchases of investment securities
held to maturity (2,968) (4,000)
Maturities of investment securities
held to maturity 7,425 2,000
Principal repayments on mortgage-
related securities available
for sale 694 260
Sale of mortgage-related securities
available for sale 3,426 0
Principal repayments on mortgage-
related securities held to maturity 1,074 738
Redemption of Federal Home Loan
Bank stock 175 0
Purchase of Federal Home Loan Bank
stock (40) (525)
Net increase in loans (408) (13,781)
Capital expenditures (16) (66)
Net cash received in acquisition 3,104 0
-------- --------
Net cash provided by (used in)
investing activities 12,466 (15,374)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts 1,108 12
Net increase (decrease) in borrowed
funds (8,750) 10,500
Net increase in advance payments
by borrowers for taxes and
insurance 6,480 2,818
Proceeds from exercise of stock
options 488 30
Purchase of treasury common stock (6,467) (997)
Dividends paid (1,134) (782)
-------- --------
Net cash provided by (used in)
financing activities (8,275) 11,581
-------- --------
Net increase (decrease) in cash
and cash equivalents 6,873 (644)
Cash and cash equivalents at
beginning 4,628 4,792
-------- --------
Cash and cash equivalents at end $ 11,501 $ 4,148
======== ========
Supplemental cash flow information:
Cash paid during the quarter for:
Interest on deposit accounts $ 7,292 $ 3,772
Interest on borrowed funds 3,087 1,437
Income taxes 703 1,019
Supplemental schedule of non-cash
investing activities:
Loans transferred to foreclosed
property $ 112 $ 0
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 (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 investment securities. 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, 1997 are not necessarily indicative of results that
may be expected for the fiscal year ending March 31, 1998. 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, 1997 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-BUSINESS COMBINATION
Effective May 1, 1997, OSB Financial Corp. ("OSB"), a Wisconsin
corporation, was merged (the "Merger") with and into the Corporation. The
Corporation was the surviving corporation in the Merger. The Merger was
consummated in accordance with the terms of an Agreement and Plan of
Merger, dated November 13, 1996 (the "Merger Agreement"), between the
Corporation and OSB. Matters with respect to the Merger were approved by
shareholders of the Corporation and OSB at special meetings of
shareholders of such companies held on April 24, 1997.
Under the terms of the Merger Agreement, each share of common stock, $.01
par value, of OSB (the "OSB Common Stock") issued and outstanding
immediately prior to the effectiveness of the Merger was (except as
otherwise provided below) canceled and converted into the right to receive
1.46 shares of the common stock, $.01 par value, of the Corporation (the
"FCB Common Stock") plus cash in lieu of any fractional share. All shares
of OSB Common Stock (i) owned by OSB as treasury stock, (ii) owned by OSB
Management Development and Recognition Plans and not allocated to
participants thereunder and (iii) owned by the Corporation were canceled
and no FCB Common Stock or other consideration was given in exchange
therefor. Of the 1,157,534 shares of OSB Common Stock issued and
outstanding at the effective time of the Merger, 48,650 shares were
canceled pursuant to the preceding sentence and the remaining 1,108,884
shares were converted into shares of FCB Common Stock and cash in lieu of
fractional shares as described above. Shares of FCB Common Stock which
were issued and outstanding at the time of the Merger were not affected by
the Merger and remain outstanding. In connection with the Merger, Oshkosh
Savings Bank, F.S.B., a federally chartered stock savings association and
subsidiary of OSB, was merged with and into the Bank. The Bank was the
surviving corporation in that merger.
The Merger was accounted for as a purchase. Accordingly, the related
accounts and results of operations of OSB are included in Corporation's
consolidated financial statements from the date of acquisition. Prior
period results and balances have not been restated in connection with the
Merger.
The following presents pro-forma information as though the two
corporations had combined at the beginning of each of the periods
presented (dollars in thousands, except per share information):
Six Months Three Months
Ended Ended
September 30, September 30,
1997 1996 1997 1996
Revenue $21,287 $19,839 $10,588 $10,105
Income before extraordinary
items and cumulative
effect of accounting
changes $2,322 $1,282 $1,690 $68
Net income $2,322 $1,282 $1,690 $68
Earnings per share before
extraordinary items and
cumulative effect of
accounting changes $0.60 $0.32 $0.44 $0.02
Earnings per share $0.60 $0.32 $0.44 $0.02
Additional information relating to the Merger is included in the
Corporation's Current Report on Form 8-K, dated May 1, 1997, to which
reference is hereby made.
NOTE 4-ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." This statement simplifies the standards for computing
earnings per share ("EPS"). It replaces the presentation of primary EPS
with basic EPS and further requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. The statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. The statement
requires restatement of all prior-period EPS data presented. Management
anticipates that adoption of this statement will not materially affect
the consolidated financial statements of the Corporation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display
of comprehensive income in a full set of general-purpose financial
statements. This statement requires that all items that are required to
be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement requires
that an enterprise display an amount representing total comprehensive
income for the period in a financial statement, but does not require a
specific format for that financial statement. This statement also
requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the
statement of financial position. The statement is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. Management, at this time, cannot determine the effect that
adoption of this statement may have on the financial statements of the
Corporation as comprehensive income is dependent on the amount and nature
of assets and liabilities held which generate non-income changes to
equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers. It also amends SFAS No. 94, "Consolidation of All Majority-
Owned Subsidiaries," to remove the special disclosure requirements for
previously unconsolidated subsidiaries. The statement is effective for
financial statements for periods beginning after December 15, 1997. In
the initial year of application, comparative information for earlier years
is to be restated. This statement need not be applied to interim
financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods
in the second year of application. The statement is not expected to have
an effect on the financial position or operating results of the
Corporation, but may require additional disclosures in the financial
statements.
NOTE 5-EARNINGS PER SHARE
Earnings per share of common stock for the three and six months ended
September 30, 1997 and 1996 were computed based on consolidated net income
and weighted average number of shares outstanding. The weighted average
number of shares outstanding for the three months ended September 30, 1997
and 1996 were 3,933,315 and 2,395,993, respectively, and were 3,707,270
and 2,409,006 for the six months ended September 30, 1997 and 1996,
respectively.
NOTE 6-STOCK REPURCHASE PROGRAMS
On July 3, 1997, the Corporation completed a previously announced stock
repurchase program under which the Corporation repurchased 125,630 shares.
On July 2, 1997, the Corporation announced an additional stock repurchase
program. Under this program, the Corporation is authorized to purchase an
additional 5% of its outstanding common stock, or 203,704 shares, over the
twelve-month period beginning with the date of the announcement. At
September 30, 1997, 177,500 shares had been repurchased. On September 23,
1997, the Corporation announced the continuation of its stock repurchase
program under which up to 5% or 193,000 shares may be repurchased. These
programs were the fourth, fifth, and sixth 5% stock repurchase programs
adopted by the Corporation since it became a public company in September,
1993.
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, 1997 and 1996
Net income was $1.7 million and $219,000 for the quarters ended September
30, 1997 and 1996, respectively, and $2.4 million and $976,000 for the six
month periods ended on the same dates, respectively. The increase in
earnings for the quarter and six-month period ended September 30, 1997
from the same periods in the prior fiscal year was primarily the result of
including the operating results of OSB Financial Corp. ("OSB") from the
date of the merger (the "Merger") with OSB (see Note 3 of Notes to
Consolidated Financial Statements). Also contributing to the increase was
the $970,000 special Savings Association Insurance Fund ("SAIF")
assessment paid to the Federal Deposit Insurance Corporation ("FDIC") in
the quarter ended September 30, 1996; there was no such special assessment
paid in the quarter or six months ended September 30, 1997.
Net interest income increased to $4.2 million for the quarter ended
September 30, 1997 from $2.3 million for the quarter ended September 30,
1996, and increased to $7.9 million from $4.5 million for the six months
ended September 30, 1997 and 1996, respectively. The increase was due to
growth in average earning assets to $510.7 million at September 30, 1997
from $259.4 million at March 31, 1997 and $256.2 million at September 30,
1996. The major factor contributing to this average earning asset growth
was the addition of approximately $244.0 million of earning assets as a
result of the Merger. Partially offsetting the effect of the earning
asset growth on net income was a decrease in the net interest spread to
2.62% for the quarter ended September 30, 1997 from 2.75% for the same
quarter ended one year ago. The net interest margin also slipped to 3.37%
for the quarter just ended from 3.57% for the quarter ended September 30,
1996. Net interest spread for the six-month periods ended September 30,
1997 and 1996 were 2.61% and 2.71%, respectively. The net interest margin
also decreased to 3.31% for the six-month period ended September 30, 1997
from 3.57% for the six-month period ended September 30, 1996. Interest
spread and net interest margin decreases were primarily driven by an
increase in the cost of borrowed funds as a result of adding higher cost
debt which was assumed in the Merger. 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 from $50,000 for the quarter ended
September 30, 1996 to $150,000 for the same quarter of 1997. The
provision for the six-month periods also increased from $100,000 for the
period ended September 30, 1996 to $650,000 for the same period ended
September 30, 1997. The increases were primarily a result of a provision
of $350,000 made to equalize the loan loss allowance percentages
historically maintained by the Bank and the former Oshkosh Savings Bank,
F.S.B. The remaining increase was due to a change in the mix of loans
after completing the Merger. For more information on the allowance for
loan losses, see the " Asset Quality" section below.
Noninterest income increased from $291,000 for the quarter ended September
30, 1996 to $718,000 for the quarter ended September 30, 1997.
Noninterest income also increased from $466,000 for the six months ended
September 30, 1996 to $1.4 million for the six months ended September 30,
1997. These increases were primarily the result of including in the
Corporation's financial statements the operating results of OSB from the
date of the Merger. Also contributing to the increase, however, was the
gain of $99,000 on the sale of a mortgage-related security held for sale
during the six months ended September 30, 1997. There were no such sales
in the six months ended September 30, 1996.
Operating expenses increased to $2.3 million for the quarter ended
September 30, 1997 from $2.1 million for the quarter ended September 30,
1996, and increased to $5.1 million for the six months ended September 30,
1997 from $3.3 million for the six months ended September 30, 1996.
Included in the increase for the six- month period for 1997 was a charge
of $827,000 for costs associated with Merger. These merger-related items
included (but were not limited to) the cost of combining the respective
banks' loan and deposit products, contract termination charges, data
processing conversion charges, costs of personnel training, and severance
costs. The remainder of the increase in operating expenses for both
periods presented was primarily due to adding the operating expenses of
the former OSB from the date of the Merger. Partially offsetting the
increase was a decrease in deposit insurance premiums due to the
industry-wide reduction in the deposit insurance assessment rate
commencing September 30, 1996, as well as the occurance of the special
deposit insurance assessment of $970,000 paid by the Bank in the quarter
ended September 30, 1996.
Changes in Financial Condition
Total Assets. Total assets increased $251.8 million to $523.0 million at
September 30, 1997 from $271.2 million at March 31, 1997. The Merger
added $256.7 million in assets to the Corporation.
Investment and Mortgage-related Securities. Total investment and
mortgage-related securities increased from $31.9 million at March 31, 1997
to $89.9 million at September 30, 1997. The Merger added $67.8 million
to total investment and mortgage-related securities. On the date of the
Merger, the OSB investment portfolio was evaluated, and reclassifications
were made between securities available for sale and held to maturity to
reconcile the former OSB portfolio with the Corporation's investment
policy. These securities were transferred at their market value on the
date of the Merger.
Net Loans Receivable. Net loans receivable increased $175.4 million to
$396.9 million at September 30, 1997 from $221.5 million at March 31,
1997. This increase resulted primarily from the addition of $175.8
million in net loans due to the Merger.
Borrowed Funds. Borrowed funds increased $49.6 million to $114.5 million
at September 30, 1997 from $64.9 million at March 31, 1997. The Merger
added $58.4 million to the Corporation's borrowed funds.
Deposit Accounts. Deposit accounts totaled $316.5 million at September
30, 1997 compared with $153.2 million at March 31, 1997. The September
30, 1997 total includes $162.3 million in deposits added as a result of
the Merger.
Other Liabilities. Other liabilities increased from $3.1 million at March
31, 1997 to $8.4 million at September 30, 1997. The increase resulted
primarily from the Merger.
Shareholders' Equity. Total shareholders' equity increased from $47.4
million at March 31, 1997 to $72.6 million at September 30, 1997. The
increase was due to issuance of additional common shares in connection
with the Merger. This was partially offset by a decrease of approximately
$6.5 million which resulted from 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.
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,
1997 1997 1996 1995
(In thousands)
Non-accruing loans:
One- to four-family $978 $379 $212 $243
Five or more family - - - -
Commercial real estate - - - -
Consumer and other 103 25 - 27
------ ---- ---- ----
Total 1,081 404 212 270
------ ---- ---- ----
Foreclosed assets:
One- to four-family 162 - - -
Five or more family - - - -
Commercial real estate - - - -
Repossessed assets - - 22 -
----- ---- ---- ----
Total 162 0 22 0
----- ---- ---- ----
Total non-performing assets $1,243 $404 $234 $270
===== ==== ==== ====
Total non-performing assets
as a percentage of
total assets 0.24% 0.15% 0.09% 0.11%
==== ==== ==== ====
Allowance for loan losses
to loans and foreclosed
properties 0.87% 0.51% 0.51% 0.47%
==== ==== ==== ====
The allowance for loan losses includes specific allowances related to
commercial loans which have been judged to be impaired. The Corporation
generally considers credit card, residential mortgage, and consumer
installment loans to be large groups of smaller-balance homogeneous loans.
These loans are collectively evaluated in the analysis of the adequacy of
the allowance for loan losses.
A loan is impaired when, based on current information, it is probable the
Corporation will not collect all amounts due in accordance with the
contractual terms of the loan agreement. Management considers, on a loan
by loan basis, the conditions which may constitute a minimum delay or
shortfall in payment, as well as the factors which may influence its
decision in determining when a loan is impaired. These specific
allowances are based on discounted cash flows of expected future payments
using the loan's initial effective interest rate or the fair value of the
collateral if the loan is collateral dependent. Subsequent changes in the
estimated value of impaired loans are accounted for as bad debt expense.
The Corporation continues to maintain a general allowance for loans and
foreclosed properties not considered impaired. The allowance for loan and
foreclosed property losses is maintained at a level which management
believes is adequate to provide for possible losses. Management
periodically evaluates the adequacy of the allowance using the
Corporation's past loss experience, known and inherent risks in the
portfolio, composition of the portfolio, current economic conditions, and
other relevant factors. This evaluation is inherently subjective since it
requires material estimates that may be susceptible to significant change.
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.
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, 1997, on a net basis, the Bank classified
$342,000 of its assets as special mention, $901,000 as substandard, and
$20,000 as doubtful. There were no loans classified as loss at September
30, 1997. As of September 30, 1997, management believes that these asset
classifications were consistent with those of the Office of Thrift
Supervision (the "OTS").
Based on management's evaluation at September 30, 1997, $150,000 in
general loan loss provisions were deemed appropriate for the quarter ended
September 30, 1997 and the aggregate allowance for loan losses of
$3,452,000 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 September 30, Ended September 30,
1997 1996 1997 1996
(In thousands)
Allowance at
beginning of period $3,322 $1,118 $1,405 $1,075
Provision for loan
losses 150 50 650 100
Charge-offs:
Residential real
estate - - - -
Consumer (21) (4) (23) (11)
----- ----- ----- -----
Total Charge-
offs (21) (4) (23) (11)
----- ----- ----- -----
Recoveries:
Residential real
estate - - - -
Consumer 1 - 1 -
----- ----- ----- -----
Total
recoveries 1 0 1 0
----- ----- ----- -----
Net charge-
offs (20) (4) (22) (11)
----- ----- ----- -----
Allowance acquired
through acquisition 0 0 1,419 0
----- ----- ----- -----
Allowance at end of
period $3,452 $1,164 $3,452 $1,164
===== ===== ===== =====
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, 1997, the Bank's
liquidity ratio, calculated in accordance with OTS requirements, was
8.25%. 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,
1997, the Bank's short-term liquidity ratio was 4.53%.
At September 30, 1997, the Bank had outstanding commitments to originate
loans of $15.4 million, with varying interest rates. At September 30,
1997, the Bank had outstanding commitments to sell mortgage loans of $4.2
million, and commitments to purchase loans of $250,000. In addition, the
Bank had commitments to fund unused lines of credit of $7.6 million at
September 30, 1997. 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,
1997:
Risk-
Tangible Core Based
Capital Capital Capital
(Dollars in thousands)
Bank's regulatory
percentage 11.78% 11.78% 20.43%
Required regulatory
percentage 1.50 3.00 8.00
----- ----- -----
Excess regulatory
percentage 10.28% 8.78% 12.43%
===== ====== ======
Bank's regulatory capital $60,638 $60,638 $64,090
Required regulatory
capital 7,722 15,445 25,102
------ ------ ------
Excess regulatory capital $52,916 $45,193 $38,988
====== ====== ======
Special Note Regarding Forward-Looking Statements
The statements which are not historical facts contained in this Quarterly
Report on Form 10-Q are forward-looking statements intended to qualify for
the safe harbors from liability established by the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ
materially from those currently anticipated. These factors include,
without limitation, interest rate trends, the general economic climate in
the Corporation's market area, loan delinquency rates, regulatory
treatment and the ability of the Corporation to successfully integrate the
operations of OSB. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on
such statements. The forward-looking statements included herein are made
as of the date hereof and the Corporation undertakes no obligation to
update publicly such statements to reflect subsequent events or
circumstances.
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 28, 1997,
David L. Baston, Walter H. Drew, Donald S. Koskinen, and Ronald L. Tenpas
were elected as directors of the Corporation for three-year terms expiring
in 2000. 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
David L. Baston 3,223,884 80,228
Walter H. Drew 3,244,969 59,143
Donald S. Koskinen 3,247,932 56,180
Ronald L. Tenpas 3,224,846 79,266
The following table sets forth the other directors of the Corporation
whose terms of office continued after the 1997 annual meeting:
Year in Which
Name of Director Term Expires
David L. Erdmann 1998
Donald D. Parker 1998
William A. Raaths 1998
David L. Geurden 1998
David L. Omachinski 1998
Richard A. Bergstrom 1999
William J. Schmidt 1999
Edwin L. Downing 1999
Thomas C. Butterbrodt 1999
James J. Rothenbach 1999
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, 1998. With respect to such matter, the
number of shares voted for and against were 3,221,908 and 53,956,
respectively. The number of shares abstaining and the number of shares
subject to broker non-votes were 28,248 and -0-, respectively.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement with James J. Goetz, dated
August 28, 1997
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, 1997.
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: November 11, 1997 By:/s/ James J. Rothenbach
James J. Rothenbach
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 11, 1997 By:/s/ Phillip J. Schoofs
Phillip J. Schoofs
Vice President, Treasurer and Chief
Financial Officer (Principal
Financial and Accounting Officer)
EXHIBIT INDEX
Exhibit No. Exhibit
10.1 Employment Agreement with James J. Goetz, dated
August 28, 1997
27 Financial Data Schedule (EDGAR version only)