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, 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 December 31, 1997: 3,862,531
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, 1997 and March 31, 1997 1
Consolidated Statements of Income for the Three
Months Ended December 31, 1997 and 1996 3
Consolidated Statements of Income for the Nine
Months Ended December 31, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity
for the Nine Months Ended December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1997 and 1996 6
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 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 16
Liquidity & Capital Resources 18
Special Note Regarding Forward-Looking Statements 19
Item 3 --Quantitative and Qualitative
Disclosures About Market Risk 19
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, 1997 and March 31, 1997
(Unaudited)
ASSETS
December 31 March 31
1997 1997
(In thousands)
Cash and cash equivalents $ 17,933 $ 4,628
Investment securities available
for sale, at fair value 897 --
Investment securities held to
maturity (estimated fair value of
$24,674 and $8,953 at December 31,
1997 and March 31, 1997, respectively) 24,409 8,995
Mortgage-related securities available
for sale, at fair value 33,744 6,363
Mortgage-related securities held to
maturity (estimated fair value of
$27,301 and $16,613 at December 31,
1997 and March 31, 1997, respectively) 26,913 16,531
Investment in Federal Home Loan
Bank stock, at cost 6,028 3,245
Loans held for sale - At cost at
December 31, 1997 and net of
unrealized loss of $87 at
March 31, 1997 9,029 3,270
Loans receivable - Net 389,246 221,496
Office properties and equipment 6,310 4,091
Other assets 5,402 2,566
------- -------
TOTAL ASSETS $ 519,911 $ 271,185
======= =======
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and March 31, 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31 March 31
1997 1997
(In thousands)
Liabilities:
Deposit accounts $ 315,978 $ 153,163
Borrowed funds 116,600 64,900
Advance payments by borrowers for taxes
and insurance 2,018 2,586
Other liabilities 12,031 3,104
--------- --------
Total liabilities 446,627 223,753
--------- --------
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value 45 29
Additional paid-in capital 59,185 28,911
Retained earnings - Substantially
restricted 28,317 26,630
Unrealized gain (loss) on securities
available for sale - Net of tax 315 (72)
Unearned compensation - ESOP (1,117) (869)
Treasury common stock, at cost (13,461) (7,197)
-------- --------
Total shareholders' equity 73,284 47,432
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 519,911 $ 271,185
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1997 and 1996
(Unaudited)
Three Months Ended
December 31
1997 1996
(In thousands except per
share numbers)
Interest and dividend income:
Mortgage loans $ 6,300 $ 3,786
Other loans 1,927 721
Investment securities 420 121
Mortgage-related securities 1,042 382
Dividends on stock in Federal Home Loan Bank 107 55
Interest-bearing deposits 87 16
-------- --------
Total interest and dividend income 9,883 5,081
-------- --------
Interest expense:
Deposit accounts 3,908 1,944
Borrowed funds 1,567 809
-------- --------
Total interest expense 5,475 2,753
-------- --------
Net interest income 4,408 2,328
Provision for loan losses 150 100
-------- --------
Net interest income after provision for
loan losses 4,258 2,228
-------- --------
Noninterest income:
Loan fees - Net 168 100
Gain on sale of loans - Net 188 146
Deposit fees 222 38
Other income 124 41
-------- --------
Total noninterest income 702 325
-------- --------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 1,385 612
Marketing 93 75
Occupancy 276 160
Data processing 119 64
Federal insurance premiums 51 92
Other 383 212
-------- --------
Total operating expenses 2,307 1,215
-------- --------
Income before provision for income taxes 2,653 1,338
Provision for income taxes 935 589
-------- --------
NET INCOME $ 1,718 $ 749
======== ========
BASIC EARNINGS PER SHARE - See note 5 $ 0.46 $ 0.32
======== ========
DILUTED EARNINGS PER SHARE - See note 5 $ 0.45 $ 0.31
======== ========
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
Nine Months Ended December 31, 1997 and 1996
(Unaudited)
Nine Months Ended
December 31
1997 1996
(In thousands except per
share numbers)
Interest and dividend income:
Mortgage loans $ 18,140 $ 11,219
Other loans 5,227 2,010
Investment securities 1,325 323
Mortgage-related securities 3,003 1,172
Dividends on stock in Federal Home
Loan Bank 296 149
Interest-bearing deposits 138 46
-------- --------
Total interest and dividend income 28,129 14,919
-------- --------
Interest expense:
Deposit accounts 11,226 5,806
Borrowed funds 4,631 2,279
-------- --------
Total interest expense 15,857 8,085
-------- --------
Net interest income 12,272 6,834
Provision for loan losses 800 200
-------- --------
Net interest income after provision
for loan losses 11,472 6,634
-------- --------
Noninterest income:
Loan fees - Net 497 284
Gain on sale of loans - Net 523 270
Gain on sale of mortgage-related
securities available for sale 99 --
Deposit fees 544 102
Other income 390 135
-------- --------
Total noninterest income 2,053 791
-------- --------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 3,809 1,781
Marketing 273 199
Occupancy 857 499
Data processing 474 193
Federal insurance premiums 147 1,240
Merger-related charges 827 --
Other 1,044 582
-------- --------
Total operating expenses 7,431 4,494
-------- --------
Income before provision for income taxes 6,094 2,931
Provision for income taxes 1,996 1,206
-------- --------
NET INCOME $ 4,098 $ 1,725
======== ========
BASIC EARNINGS PER SHARE - See note 5 $ 1.12 $ 0.73
======== ========
DILUTED EARNINGS PER SHARE - See note 5 $ 1.09 $ 0.71
======== ========
DIVIDENDS DECLARED PER SHARE $ 0.58 $ 0.54
======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended December 31, 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 nine months
ended December 31, 1996 1,725 1,725
Cash dividends declared ($.54
per share) (1,268) (1,268)
Amortization of unearned
compensation - ESOP 149 190 339
Increase in unrealized loss on
securities available for sale -
Net of tax (13) (13)
Exercise of stock options -
3,000 treasury common shares (18) 48 30
Purchase of treasury common stock -
56,000 shares (997) (997)
------- -------- -------- ------- ------- -------- --------
Balance at December 31, 1996 29 28,842 26,369 (39) (928) (7,265) 47,008
Net income for three months
ended March 31, 1997 715 715
Cash dividends declared ($.18
per share) (428) (428)
Amortization of unearned
compensation - ESOP 69 59 128
Increase in unrealized loss on
securities available for sale -
Net of tax (33) (33)
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 nine months
ended December 31, 1997 4,098 4,098
Cash dividends declared ($.58
per share) (2,196) (2,196)
Amortization of unearned
compensation - ESOP 367 239 606
Change in unrealized gain
(loss) on securities
available for sale -
Net of tax 387 387
Exercise of stock options -
43,516 treasury common shares (215) 722 507
Purchase of treasury common
stock - 263,656 shares (6,986) (6,986)
Acquisition of OSB Financial
Corp. 16 29,907 (487) 29,436
------- -------- -------- ------- ------- -------- --------
Balance at December 31, 1997 $ 45 $ 59,185 $ 28,317 $ 315 $ (1,117) $ (13,461) $ 73,284
======= ======== ======== ======= ======= ======== ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1997 and 1996
(Unaudited)
Three Months Ended
December 31
1997 1996
(In thousands)
Operating activities:
Net income $ 1,718 $ 749
-------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and net amortization
(accretion) 47 52
Provision for loan losses 150 100
Gain on sale of assets (188) (146)
Loans originated for sale (16,620) (5,443)
Proceeds from loan sales 12,596 5,881
Changes in operating assets and
liabilities 3,757 (133)
Unearned compensation - ESOP 220 117
-------- --------
Total adjustments (38) 428
-------- --------
Net cash provided by operating activities 1,680 1,177
-------- --------
Cash flows from investing activities:
Purchases of investment securities held
to maturity 0 (5,000)
Maturities of investment securities held
to maturity 4,000 6,000
Principal repayments on mortgage-related
securities available for sale 205 100
Principal repayments on mortgage-related
securities held to maturity 614 368
Purchase of Federal Home Loan Bank stock 0 (50)
Net (increase) decrease in loans 8,583 (2,177)
Capital expenditures (82) (1)
-------- --------
Net cash provided by (used in) investing
activities 13,320 (760)
-------- --------
Cash flows from financing activities:
Net (increase) decrease in deposit accounts (569) 1,673
Net increase in borrowed funds 2,090 1,000
Net decrease in advance payments by borrowers
for taxes and insurance (8,843) (3,349)
Proceeds from exercise of stock options 19 0
Purchase of treasury common stock (519) 0
Dividends paid (746) (422)
-------- --------
Net cash used in financing activities (8,568) (1,098)
-------- --------
Net increase (decrease) in cash and
cash equivalents 6,432 (681)
Cash and cash equivalents at beginning 11,501 4,148
-------- --------
Cash and cash equivalents at end $ 17,933 $ 3,467
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $ 3,897 $ 1,862
Interest on borrowed funds 1,582 793
Income taxes 990 437
Loans transferred from held for sale to
held for investment $ 1,073 $ 0
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended December 31, 1997 and 1996
(Unaudited)
Nine Months Ended
December 31
1997 1996
(in thousands)
Operating activities:
Net income $ 4,098 $ 1,725
------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and net amortization
(accretion) 176 166
Provision for loan losses 800 200
Gain on sale of assets (622) (270)
Loans originated for sale (36,302) (14,484)
Proceeds from loan sales 30,517 16,354
Changes in operating assets and liabilities 5,089 296
Unearned compensation - ESOP 606 339
------- -------
Total adjustments 264 2,601
------- -------
Net cash provided by operating activities 4,362 4,326
------- -------
Cash flows from investing activities:
Purchases of investment securities held
to maturity (2,968) (9,000)
Maturities of investment securities held
to maturity 11,425 8,000
Principal repayments on mortgage-related
securities available for sale 899 360
Sale of mortgage-related securities
available for sale 3,426 0
Principal repayments on mortgage-related
securities held to maturity 1,688 1,106
Redemption of Federal Home Loan Bank stock 175 0
Purchase of Federal Home Loan Bank stock (40) (575)
Net (increase) decrease in loans 8,175 (15,958)
Capital expenditures (98) (67)
Net cash received in acquisition 3,104 0
------- -------
Net cash provided by (used in) investing
activities 25,786 (16,134)
------- -------
Cash flows from financing activities:
Net increase in deposit accounts 539 1,685
Net increase (decrease) in borrowed funds (6,660) 11,500
Net decrease in advance payments by borrowers
for taxes and insurance (2,363) (531)
Proceeds from exercise of stock options 507 30
Purchase of treasury common stock (6,986) (997)
Dividends paid (1,880) (1,204)
------- -------
Net cash provided by (used in) financing
activities (16,843) 10,483
------- -------
Net increase (decrease) in cash and
cash equivalents 13,305 (1,325)
Cash and cash equivalents at beginning 4,628 4,792
------- -------
Cash and cash equivalents at end $ 17,933 $ 3,467
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $ 11,189 $ 5,634
Interest on borrowed funds 4,669 2,230
Income taxes 1,693 1,457
Supplemental schedule of non-cash investing
activities:
Loans transferred to foreclosed property $ 112 $ 0
Loans transferred from held for sale to
held for investment $ 1,073 $ 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 nine months
ended December 31, 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 remained 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):
Nine Months Three Months
Ended Ended
December 31, December 31,
1997 1996 1997 1996
Revenue $31,872 $30,286 $10,585 $10,444
Income before extraordinary
items and cumulative effect of
accounting changes $4,040 $2,592 $1,718 $1,310
Net income $4,040 $2,592 $1,718 $1,310
Basic Earnings per share before
extraordinary items and
cumulative effect of accounting
changes $1.10 $0.65 $0.46 $0.33
Basic Earnings per share $1.10 $0.65 $0.46 $0.33
Diluted Earnings per share before
extraordinary items and
cumulative effect of accounting
changes $1.08 $0.64 $0.45 $0.32
Diluted Earnings per share $1.08 $0.64 $0.45 $0.32
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 requires restatement of
all prior-period EPS data presented. The Corporation adopted SFAS No. 128
in the period ended December 31, 1997. Earnings per share for prior
periods have been restated in accordance with the Statement. See Note 5-
Earnings Per Share below for the reconciliation of basic EPS to diluted
EPS.
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
The following table reflects a reconciliation for the nine months ended
December 31, 1997 of basic earnings per share and diluted earnings per
share:
For the Nine Months Ended December 31, 1997
(In thousands, except share and per-share amounts)
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to
common shareholders $4,098 3,664,763 $1.12
=====
Effect of Dilutive
Securities
Options - net 79,492
------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $4,098 3,744,245 $1.09
=====
NOTE 6-STOCK REPURCHASE PROGRAMS
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
December 31, 1997, 196,500 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 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 and Nine Months Ended
December 31, 1997 and 1996
Net income was $1.7 million and $749,000 for the quarters ended December
31, 1997 and 1996, respectively, and $4.1 million and $1.7 million for the
nine-month periods ended on the same dates, respectively. The increase in
earnings for the quarter and nine-month period ended December 31, 1997
from the same periods in the prior fiscal year was primarily the result of
including the operating results of the former OSB Financial Corp. ("OSB")
from the date of the merger (the "Merger") of OSB with and into the
Corporation (see Note 3 of Notes to Consolidated Financial Statements).
The year to date period also was impacted by the nonrecurrence of 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
nine months ended December 31, 1997.
Net interest income increased to $4.4 million for the quarter ended
December 31, 1997 from $2.3 million for the quarter ended December 31,
1996, and increased to $12.3 million from $6.8 million for the nine months
ended December 31, 1997 and 1996, respectively. The increase was due to
growth in average earning assets to $504.9 million at December 31, 1997 as
compared with $259.4 million at March 31, 1997 and $260.4 million at
December 31, 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. Also contributing to the growth in net
interest income was an increase in the net interest spread to 2.82% for
the quarter ended December 31, 1997 from 2.78% for the same quarter ended
one year ago. However, other net interest spread and margin movements
partially mitigated the earning assets growth. The net interest margin
slipped to 3.47% for the quarter just ended from 3.60% for the quarter
ended December 31, 1996. Net interest spread for the nine-month periods
ended December 31, 1997 and 1996 were 2.67% and 2.72%, respectively. The
net interest margin also decreased to 3.38% for the nine-month period
ended December 31, 1997 from 3.57% for the nine-month period ended
December 31, 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 $100,000 for the quarter
ended December 31, 1996 to $150,000 for the same quarter of 1997. The
provision for the nine-month periods also increased from $200,000 for the
period ended December 31, 1996 to $800,000 for the same period ended
December 31, 1997. The increase for the nine months was 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 for the year to date and the
increase in the quarter were 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 $325,000 for the quarter ended December
31, 1996 to $702,000 for the quarter ended December 31, 1997. Noninterest
income also increased from $791,000 for the nine months ended December 31,
1996 to $2.1 million for the nine months ended December 31, 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. Additionally, as a result of deposit product restructuring in
connection with the Merger, deposit fee income increased from $38,000 for
the quarter ended December 31, 1996 to $222,000 for the same period ended
December 31, 1997. Deposit fees also increased to $544,000 for the nine
months ended December 31, 1997 from $102,000 for the nine-month period
ended December 31, 1996. Further contributing to the increase was the
gain of $99,000 on the sale of a mortgage-related security held for sale
during the nine months ended December 31, 1997. There were no such sales
in the nine months ended December 31, 1996.
Operating expenses increased to $2.3 million for the quarter ended
December 31, 1997 from $1.2 million for the quarter ended December 31,
1996, and increased to $7.4 million for the nine months ended December 31,
1997 from $4.5 million for the nine months ended December 31, 1996.
Included in the increase for the 1997 nine-month period 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, personnel training costs, 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.
Provision for income taxes increased from $589,000 and $1.2 million for
the three and nine months ended December 31, 1996, respectively, to
$935,000 and $2.0 million for the same three- and nine-month periods ended
December 31, 1997, respectively. The increase was primarily a result of
the increase in income before taxes. Partially offsetting this increase
was a larger proportional tax-free investment portfolio acquired as part
of the Merger.
The Corporation recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due
to processing errors, potentially arising from calculations using the Year
2000 date, are a known risk. The Corporation is in the process of
identifying these risk areas and implementing programs to ensure that its
operational and financial systems will not be adversely affected by Year
2000 software failures. The Corporation has not yet determined the cost,
which will be expensed as incurred, of evaluating software or making any
modifications necessary to correct any Year 2000 problems.
Changes in Financial Condition
Total Assets. Total assets increased $248.7 million to $519.9 million at
December 31, 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 $85.9 million at December 31, 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 $167.7 million to
$389.2 million at December 31, 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 $51.7 million to $116.6 million
at December 31, 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 $316.0 million at December 31,
1997 compared with $153.2 million at March 31, 1997. The Merger added
$162.3 million in deposits.
Other Liabilities. Other liabilities increased from $3.1 million at March
31, 1997 to $12.3 million at December 31, 1997. The increase resulted
primarily from the Merger.
Shareholders' Equity. Total shareholders' equity increased from $47.4
million at March 31, 1997 to $73.3 million at December 31, 1997. The
increase was due to issuance of additional common shares in connection
with the Merger. The increase was partially offset by an expenditure of
approximately $7.0 million to repurchase stock pursuant to 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 management's
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 December 31, At March 31,
1997 1997 1996 1995
(In thousands)
Non-accruing loans:
One- to four-family $1,008 $379 $212 $243
Five or more family - - - -
Commercial real estate 17 - - -
Other commercial - - - -
Consumer and other 153 25 - 27
----- ---- ---- ----
Total 1,178 404 212 270
----- ---- ---- ----
Foreclosed assets:
One- to four-family 147 - - -
Five or more family - - - -
Commercial real estate - - - -
Repossessed assets 7 - 22 -
----- ---- ---- ----
Total 154 0 22 0
----- ---- ---- ----
Total non-performing
assets $1,332 $404 $234 $270
===== ==== ==== ====
Total non-performing assets
as a percentage of total
assets 0.26% 0.15% 0.09% 0.11%
===== ==== ==== ====
Allowance for loan losses
to loans and foreclosed
properties 0.92% 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 December 31, 1997, on a net basis, the Bank classified $486,000
of its assets as special mention, $919,000 as substandard, and $5,000 as
doubtful. Assets totaling $7,000 were classified as loss at December 31,
1997. As of December 31, 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 December 31, 1997, $150,000 in general
loan loss provisions were deemed appropriate for the quarter ended
December 31, 1997 and the aggregate allowance for loan losses of
$3,594,000 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 December 31, Ended December 31,
1997 1996 1997 1996
(In thousands)
Allowance at beginning of
period $3,452 $1,164 $1,405 $1,075
Provision for loan losses 150 100 800 200
Charge-offs:
Residential real estate - - - -
Commercial real estate (5) - (5) -
Other commercial - - - -
Consumer and other (6) (2) (29) (13)
----- ----- ----- ----
Total Charge-offs (11) (2) (34) (13)
----- ----- ----- ----
Recoveries:
Residential real estate 1 - 1 -
Commercial real estate 1 - 1 -
Other commercial - - - -
Consumer and other 1 - 2 -
----- ----- ----- ----
Total recoveries 3 0 4 0
----- ----- ----- ----
Net charge-offs (8) (2) (30) (13)
----- ----- ----- ----
Allowance acquired through
acquisition 0 0 1,419 0
----- ----- ----- -----
Allowance at end of period $3,594 $1,262 $3,594 $1,262
===== ===== ===== =====
While management believes 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 4.0%. On December 31, 1997, the Bank's
liquidity ratio, calculated in accordance with OTS requirements, was
16.3%.
At December 31, 1997, the Bank had outstanding commitments to originate
loans of $16.5 million, with varying interest rates. At December 31,
1997, the Bank had outstanding commitments to sell mortgage loans of $9.8
million, and commitments to purchase loans of $250,000. In addition, the
Bank had commitments to fund unused lines of credit of $7.3 million at
December 31, 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 December 31,
1997:
Risk-
Tangible Core Based
Capital Capital Capital
(Dollars in thousands)
Bank's regulatory percentage 11.51 % 11.51 % 19.79
Required regulatory
percentage 1.50 3.00 8.00
----- ----- -----
Excess regulatory percentage 10.01 % 8.51 % 11.79
===== ===== =====
Bank's regulatory capital $59,050 $59,050 $62,644
Required regulatory capital 7,694 15,388 25,327
------ ------ ------
Excess regulatory capital $51,356 $43,662 $37,317
====== ====== ======
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 complete its
integration of the operations of the former 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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Part II - Other Information
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
27 FFinancial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 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: February 11, 1998 By:/s/ James J. Rothenbach
James J. Rothenbach
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 1998 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
27 Financial Data Schedule (EDGAR version only)