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 June 30, 1998
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: 0-2206
FCB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1760287
(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) 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 June 30, 1998: 3,857,280
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 June 30,
1998 and March 31, 1998 1
Consolidated Statements of Income for the Three Months Ended
June 30, 1998 and 1997 3
Consolidated Statements of Shareholders' Equity for the
Three Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 7
Item 2 --Management's Discussion and Analysis
Results of Operations 10
Changes in Financial Condition 11
Asset Quality 12
Liquidity & Capital Resources 14
Impact of Year 2000 15
Special Note Regarding Forward-Looking Statements 15
Item 3 --Quantitative and Qualitative Disclosures About Market Risk 16
Part II--Other Information
Item 5 --Other Information 16
Item 6 --Exhibits and Reports on Form 8-K 16
Part I - Financial Information
Item 1--Financial Statements
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and March 31, 1998
(Unaudited)
ASSETS
June 30 March 31
1998 1998
(In thousands)
Cash and cash equivalents $ 37,174 $ 28,359
Investment securities available for
sale, at fair value 4,880 2,894
Investment securities held to maturity
(estimated fair value of $30,918
and $20,719 at June 30, 1998 and
March 31, 1998, respectively) 30,640 20,424
Mortgage-related securities available
for sale, at fair value 33,251 33,870
Mortgage-related securities held to
maturity (estimated fair value of
$19,873 and $26,124 at June 30, 1998
and March 31, 1998, respectively) 19,618 25,754
Investment in Federal Home Loan Bank
stock, at cost 5,468 6,028
Loans held for sale 12,932 16,692
Loans receivable - Net 358,514 370,934
Office properties and equipment 6,753 6,610
Other assets 6,286 6,207
------- --------
TOTAL ASSETS $ 515,516 $ 517,772
======= ========
See accompanying notes to the unaudited consolidated financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and March 31, 1998
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 March 31
1998 1998
(In thousands)
Liabilities:
Deposit accounts $ 320,779 $ 318,508
Borrowed funds 103,850 109,350
Advance payments by borrowers for
taxes and insurance 6,706 4,644
Other liabilities 8,811 10,354
-------- --------
Total liabilities 440,146 442,856
-------- --------
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value 45 45
Additional paid-in capital 59,978 59,638
Retained earnings - Substantially
restricted 29,939 29,211
Accumulated other comprehensive income,
unrealized gain on securities
available for sale - Net of tax 335 502
Unearned compensation - ESOP (954) (1,036)
Treasury common stock, at cost (13,973) (13,444)
-------- ---------
Total shareholders' equity 75,370 74,916
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 515,516 $ 517,772
======== =========
See accompanying notes to the unaudited consolidated financial
statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 1998 and 1997
(Unaudited)
Three Months Ended
June 30
1998 1997
(In thousands except per
share numbers)
Interest and dividend income:
Mortgage loans $ 5,681 $ 5,537
Other loans 2,042 1,456
Investment securities 431 392
Mortgage-related securities 974 887
Dividends on stock in Federal Home
Loan Bank 93 87
Interest-bearing deposits 427 17
-------- --------
Total interest and dividend
income 9,648 8,376
-------- --------
Interest expense:
Deposit accounts 3,845 3,273
Borrowed funds 1,482 1,423
-------- --------
Total interest expense 5,327 4,696
-------- --------
Net interest income 4,321 3,680
Provision for loan losses 150 500
-------- --------
Net interest income after provision
for loan losses 4,171 3,180
-------- --------
Noninterest income:
Loan fees - Net 181 160
Gain on sale of loans - Net 501 140
Gain on sale of mortgage-related
securities available for sale 0 99
Deposit fees 235 137
Other income 164 97
-------- --------
Total noninterest income 1,081 633
-------- --------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 1,423 1,083
Marketing 88 92
Occupancy 303 286
Data processing 122 155
Federal insurance premiums 50 44
Merger-related charges 0 827
Other 462 302
-------- --------
Total operating expenses 2,448 2,789
-------- ---------
Income before provision for income
taxes 2,804 1,024
Provision for income taxes 1,065 334
-------- --------
NET INCOME $ 1,739 $ 690
======== ========
BASIC EARNINGS PER SHARE - See
note 5 $ 0.46 $ 0.21
======== ========
DILUTED EARNINGS PER SHARE - See
note 5 $ 0.45 $ 0.20
======== ========
DIVIDENDS DECLARED PER SHARE $ 0.22 $ 0.18
======== ========
See accompanying notes to the unaudited consolidated financial
statements.
Accumulated
Additional Other Unearned Treasury
Common Paid-in Retained Comprensive Compensation- Common
Stock Capital Earnings Income ESOP Stock Total
Balance at
March 31, 1997 $ 29 $ 28,911 $ 26,630 $ (72) $ (869) $ (7,197) $ 47,432
--------
Net income 690 690
Other comprehensive income,
change in unrealized
gain (loss) on securities
available for sale - Net
of tax 87 87
--------
Comprehensive Income 777
Cash dividends declared
($.18 per share) (707) (707)
Amortization of unearned
compensation - ESOP 108 74 182
Exercise of stock options-
32,666 treasury common
shares (149) 532 383
Purchase of treasury
common stock -
40,000 shares (947) (947)
Acquisition of OSB
Financial Corp. 16 29,907 (487) 29,436
------ ------- ------- ------- -------- ------- --------
Balance at June 30, 1997 45 58,926 26,464 15 (1,282) (7,612) 76,556
--------
Net income 5,154 5,154
Other comprehensive
income, change in
unrealized gain (loss) on
securities available
for sale - Net of tax 487 487
--------
Comprehensive Income 5,641
Cash dividends declared
($.60 per share) (2,239) (2,239)
Amortization of unearned
compensation - ESOP 422 246 668
Exercise of stock options-
21,549 treasury common
shares 290 (168) 406 528
Purchase of treasury
common stock -
229,806 shares (6,238) (6,238)
------ ------- ------- ------- -------- ------- --------
Balance at March 31, 1998 45 59,638 29,211 502 (1,036) (13,444) 74,916
--------
Net income 1,739 1,739
Other comprehensive
income, change in
unrealized gain (loss) on
securities available for
sale - Net of tax (167) (167)
-------
Comprehensive Income 1,572
Cash dividends declared
($.22 per share) (824) (824)
Amortization of unearned
compensation - ESOP 176 82 258
Exercise of stock options-
19,308 treasury common
shares 164 (187) 396 373
Purchase of treasury
common stock -
29,108 shares (925) (925)
------ ------- ------- ------- ------- -------- -------
Balance at June 30, 1998 $ 45 $ 59,978 $ 29,939 $ 335 $ (954) $ (13,973) $ 75,370
====== ======= ======= ======= ======= ======== =======
See accompanying notes to the unaudited consolidated
financial statements.
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
(In thousands)
Operating activities:
Net income $ 1,739 $ 690
------ ------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and net amortization
accretion 20 45
Provision for loan losses 150 500
Gain on sale of assets (536) (239)
Loans originated for sale (32,512) (7,177)
Proceeds from loan sales 36,773 6,250
Changes in operating assets and
liabilities (1,478) 1,477
Unearned compensation - ESOP 258 182
------- --------
Total adjustments 2,675 1,038
------- --------
Net cash provided by operating
activities 4,414 1,728
------- --------
Cash flows from investing activities:
Purchases of investment securities
held to maturity (12,183) (1,968)
Maturities of investment securities
held to maturity 2,000 0
Purchases of investment securities
available for sale (1,997) 0
Principal repayments on mortgage-related
securities available for sale 381 575
Sale of mortgage-related securities
available for sale 0 3,426
Principal repayments on mortgage-related
securities held to maturity 6,169 500
Redemption of Federal Home Loan Bank
stock 560 175
Purchase of Federal Home Loan Bank
stock 0 (40)
Proceeds from sale of foreclosed
property 152 0
Net (increase) decrease in loans 12,197 (1,933)
Capital expenditures (245) (3)
Net cash received in acquisition 3,104
------- --------
Net cash provided by investing
activities 7,034 3,836
------- --------
Cash flows from financing activities:
Net increase in deposit accounts 2,271 2,190
Net decrease in borrowed funds (5,500) (6,100)
Net increase in advance payments by
borrowers
for taxes and insurance 2,062 1,894
Proceeds from exercise of stock
options 209 383
Purchase of treasury common stock (925) (947)
Dividends paid (750) (427)
------- --------
Net cash used in financing activities (2,633) (3,007)
------- --------
Net increase in cash and cash
equivalents 8,815 2,557
Cash and cash equivalents at beginning
of period 28,359 4,628
------- --------
Cash and cash equivalents at end of
period $ 37,174 $ 7,185
======= ========
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Months Ended June 30, 1998 and 1997
(Unaudited)
1998 1997
(In thousands)
Supplemental cash flow information:
Cash paid during the period for:
Interest on deposit accounts $ 3,973 $ 3,258
Interest on borrowed funds 1,535 1,429
Income taxes 803 (127)
Supplemental schedule of non-cash
investing activities:
Loans transferred to foreclosed
property $ 73 $ 63
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 months ended June
30, 1998 are not necessarily indicative of results that may be expected
for the fiscal year ending March 31, 1999. 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, 1998 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.
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. There was
no goodwill recorded as a result of the transaction.
NOTE 4-ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative investments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Statement requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition, and measure
those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative
and the resulting designation. Generally, for a derivative designated as
a hedge, the gain or loss resulting from the ineffective portion of the
hedge is reported in earnings in the period in which the change in value
has occurred. The effective portion of the hedge either offsets the
change in value of the item being hedged on the statement of financial
condition or is reported as a component of other comprehensive income.
For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of the change in value. The
Statement amends SFAS No. 52, "Foreign Currency Translation" and SFAS No.
107, "Disclosures about Fair Value of Financial Instruments." It
supersedes SFAS No. 80, "Accounting for Futures Contracts," SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-
Sheet Risk and Financial Instruments with Concentrations of Credit Risk,"
and SFAS No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments." The Statement also nullifies or
modifies the consensuses reached on a number of issues addressed by the
Emerging Issues Task Force. The Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Early adoption is
encouraged and retroactive application is prohibited. Management
anticipates that adoption of this Statement will not have a material
effect on the 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 Corporation adopted this Statement
on April 1, 1998. As required by the Statement, the Corporation has
reclassified its financial statements for earlier periods which are
provided for comparative purposes.
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 at March 31, 1999.
NOTE 5-EARNINGS PER SHARE
The following table reflects a reconciliation for the three months ended
June 30, 1998 and 1997 of basic earnings per share and diluted earnings
per share:
Three Months Ended June 30,
1998 1997
(In thousands, except share and per-share amounts)
Basic EPS:
Income available to common
shareholders $ 1,739 $ 690
Average common shares
outstanding 3,748,282 3,423,949
Earnings per share - basic $ 0.46 $ 0.21
========= =========
Diluted EPS:
Income available to common
shareholders $ 1,739 $ 690
Average common shares
outstanding 3,748,282 3,423,949
Effect of options - net 93,614 58,858
Average common shares
outstanding - diluted 3,841,896 3,482,807
Earnings per share - diluted $ 0.45 $ 0.20
========= =========
NOTE 6-STOCK REPURCHASE PROGRAMS
On September 23, 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 193,000
shares, over the twelve-month period beginning with the date of the
announcement. At June 30, 1998, 22,500 shares had been repurchased. This
is the 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 Ended June 30, 1998
and 1997
Net income was $1.7 million and $690,000 for the quarters ended June 30,
1998 and 1997, respectively. The increase in earnings for the quarter
ended June 30, 1998 was primarily the result of charges related to the
Merger which were recorded in the quarter ended June 30, 1997 (see Note 3
of Notes to Consolidated Financial Statements) and a decrease in the
provision for loan losses in the quarter ended June 30, 1998, also related
to the Merger. Net income was also enhanced by increases in net interest
income and noninterest income for the quarter ended June 30, 1998. These
revenue increases were primarily due to a full quarter effect of the
addition of the operating results of OSB. In the quarter ended June 30,
1997, the operations of OSB were included from May 1, 1997 only, in
accordance with generally accepted accounting principles.
Net interest income increased to $4.3 million for the quarter ended June
30, 1998 from $3.7 million for the quarter ended June 30, 1997. The
increase was due to growth in average earning assets to $503.9 million for
the quarter ended June 30, 1998 from $429.4 million for the quarter ended
June 30, 1997. 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. Complimenting the effect of the
earning asset growth on net income was an increase in the net interest
spread to 2.80% for the quarter ended June 30, 1998 from 2.65% for the
comparable quarter in the prior year. The net interest margin also
improved to 3.48% for the quarter ended June 30, 1998 from 3.43% for the
quarter ended June 30, 1997. Interest spread and net interest margin
improvements were primarily driven by a decrease in the overall 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 decreased from $500,000 for the quarter
ended June 30, 1997 to $150,000 for the same quarter of 1998. The
decrease was primarily a result of a provision of $350,000 made in the
quarter ended June 30, 1997 to equalize the loan loss allowance
percentages historically maintained by the Bank and the former Oshkosh
Savings Bank, F.S.B. There was no such charge in the quarter ended June
30, 1998. The remaining increase for the quarter ended June 30, 1998 was
due to a change in the mix of loans post-Merger. For more information on
the allowance for loan losses, see the "Asset Quality" section below.
Noninterest income increased from $633,000 for the three months ended June
30, 1997 to $1.1 million for the quarter ended June 30, 1998. The
largest component of the increase was an increase in gain on sale of
loans, which escalated from $140,000 for the quarter ended June 30, 1997
to $501,000 for the same quarter of 1998. The increase was due to an
increase in loan sales of $30.5 million to $36.8 million when comparing
the quarter just ended to the same quarter last year. The increase in
noninterest income was somewhat offset by the sale of a mortgage-related
security held for sale at a gain of $99,000 in the quarter ended June 30,
1997. There was no such sale in the quarter ended June 30, 1998. The
increase in noninterest income also resulted from the inclusion of a full
quarter of the operating results of OSB for the quarter ended June 30,
1998, whereas the same quarter in the previous year only included OSB
results from the date of the Merger.
Operating expenses decreased to $2.4 million for the quarter ended June
30, 1998 from $2.8 million for the quarter ended June 30, 1997. Included
in this amount for 1997 was a charge of $827,000 for costs related to the
Merger. There were no such merger-related charges in the quarter ended
June 30, 1998. Without the effect of the merger-related charges,
operating expenses would actually have increased $486,000 comparing the
1997 quarter to the 1998 quarter. This increase was primarily due to
including a full quarter of operating expenses relating to OSB.
Changes in Financial Condition
Total Assets. Total assets were $515.5 million at June 30, 1998 compared
to $517.8 million at March 31, 1998. The largest components of the
slight decrease in assets were reductions in net loans receivable and
mortgage-related securities held to maturity, which were somewhat offset
by increases in cash and cash equivalents and investment securities held
to maturity.
Cash and Cash Equivalents. Cash and cash equivalents increased from $28.4
million at March 31, 1998 to $37.2 million at June 30, 1998. The increase
was the result of the receipt of proceeds from loan sales and loan
principal repayments, as well as principal repayments on mortgage-related
securities held to maturity. Loan and mortgage-related security principal
repayments increased as customers refinanced into lower rate mortgages
during the low interest rate environment experienced during 1998. Many of
the mortgage loans originated by the Bank were long-term, fixed rate loans
which were sold in the secondary market.
Investment Securities. Total investment securities increased from $23.3
million at March 31, 1998 to $35.5 million at June 30, 1998. During the
quarter, the Corporation purchased $14.2 million in U.S. Agency securities
to deploy excess cash and had securities totaling $2.0 million mature.
Mortgage-related Securities. Total mortgage-related securities decreased
to $52.9 million from $59.6 million primarily as a result of principal
repayments. During the quarter, long-term interest rates were at or near
historic lows. During low interest rate environments, prepayments of
loans which underlie the securities generally increase as refinancings
occur, causing similar principal reduction on the related security.
Net Loans Receivable. Net loans receivable totaled $358.5 million at June
30, 1998 compared to $370.9 million at March 31, 1998. The decrease is
primarily attributable to loan paydowns, payoffs, and a high volume of
loan sales, all of which are accelerated due to the low interest rate
environment referred to above. The low interest rate environment causes
borrowers to refinance existing loans at lower rates, as well as to
convert adjustable-rate loans to fixed-rate. As a matter of practice, the
Bank sells a large portion of its fixed-rate loans, rather than hold them
in its portfolio.
Deposit Accounts. Deposit accounts increased to $320.8 at June 30, 1998
from $318.5 million at March 31, 1998. The primary reason for the
increase in deposit accounts was an advertising campaign for checking
accounts.
Borrowed Funds. Borrowed funds decreased $5.5 million to $103.9 million
at June 30, 1998 from $109.4 million at March 31, 1998. The decrease
resulted from the scheduled maturity of advances from the Federal Home
Loan Bank of Chicago which were paid off from excess liquidity.
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). Foreclosed properties include assets
acquired in settlement of loans.
At June 30, At March 31,
1998 1998 1997 1996
(In thousands)
Non-accruing loans:
One- to four-family $849 $941 $379 $212
Five or more family - - - -
Commercial real estate - - - -
Consumer and other 179 188 25 -
Commercial 38 96 - -
------ ------ ----- -----
Total 1,066 1,225 404 212
------ ------ ----- -----
Foreclosed assets:
One- to four-family 41 113 - -
Five or more family - - - -
Commercial real estate - - - -
Repossessed assets 20 - - 22
------ ------ ----- -----
Total 61 113 0 22
------ ------ ----- -----
Total non-performing
assets $1,127 $1,338 $404 $234
====== ====== ===== =====
Total non-performing
assets as a percentage
of total assets 0.22% 0.26% 0.15% 0.09%
====== ====== ===== =====
Allowance for loan losses
to loans and foreclosed
properties 1.02% 0.96% 0.63% 0.51%
===== ===== ====== ======
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 June 30, 1998, on a net basis, the Bank classified $652,000 of
its assets as special mention, $799,000 as substandard, and $21,000 as
doubtful. There were no loans classified as loss at June 30, 1998. As of
June 30, 1998, management believes that these asset classifications were
consistent with those of the Office of Thrift Supervision (the "OTS").
During the quarter ended June 30, 1998, the Corporation added $150,000 to
its allowance for loan losses. Based on management's evaluation at June
30, 1998, $150,000 in general loan loss provisions were deemed appropriate
for the quarter ended June 30, 1998 and the aggregate allowance for loan
losses of $3.7 million 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
Ended June 30,
1998 1997
(In thousands)
Allowance at beginning of
period $3,567 $1,405
Provision for losses on loans
and real estate owned: 150 500
------ ------
Charge-offs:
Residential real estate loans (15) -
Consumer loans (12) (2)
Commercial loans - -
------ ------
Total Charge-offs (27) (2)
------ ------
Recoveries:
Residential real estate loans 2 -
Consumer loans - -
Commercial loans 1 -
------ ------
Total recoveries 3 0
------ ------
Net charge-offs (24) (2)
------ ------
Allowance acquired through
acquisition: - 1,419
------ ------
Allowance at end of period $3,693 $3,322
====== ======
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 4.0%. On June 30, 1998, the Bank's
liquidity ratio, calculated in accordance with OTS requirements, was
28.4%.
At June 30, 1998, the Bank had outstanding commitments to originate loans
of $17.3 million, with varying interest rates. At June 30, 1998, the Bank
had outstanding commitments to sell mortgage loans of $10.7 million, and
had no commitments to purchase loans. In addition, the Bank had
commitments to fund unused lines of credit of $8.7 million at June 30,
1998. 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 Federal laws and regulations at June 30, 1998:
Total
Risk-
Tangible Leverage Based
Equity Capital Capital
(Dollars in thousands)
Bank's regulatory percentage 11.79 % 11.79 % 19.31 %
Required regulatory percentage 2.00 4.00 8.00
----- ----- ------
Excess regulatory percentage 9.79 % 7.79 % 11.31 %
===== ===== ======
Bank's regulatory capital $60,081 $60,081 $63,774
Required regulatory capital 10,194 20,388 26,422
------- ------- -------
Excess regulatory capital $49,887 $39,693 $37,352
======= ======= =======
Impact of Year 2000
Historically, computer programs generally abbreviated dates by eliminating
the century digits of the year. Many resources, such as software,
hardware, telephones, alarms, heating, ventilating and air conditioning
("Systems") were affected. These Systems were designed to assume a
century value of "19" to save memory and disk space within their programs.
In addition, many Systems used a value of "99" in a year or "99/99/99" in
a date to indicate "no date" or "any date" or even a default expiration
date.
As the year 2000 approaches, this abbreviated date mechanism with Systems
threatens to disrupt the function of computer software at nearly every
business, including the Bank, which relies heavily on computer systems for
account and other recordkeeping functions. If the millennium issue is
ignored, system failures or miscalculations could occur, causing
disruptions of operations, including among other things, a temporary
inability to process transactions or engage in similar normal business
activities.
The Bank outsources a majority of its computer functions to Fiserv, Inc.
("Fiserv") of Milwaukee, Wisconsin. Because year 2000 problems could
affect Fiserv, and hence the Bank through its relationship with Fiserv,
the Bank has discussed potential year 2000 problems with Fiserv. These
discussions have kept the Bank abreast of Fiserv's progress in
anticipating and avoiding year 2000 problems that could affect the Bank's
operations.
Based on recent assessments, the Bank has determined that it will be
required to modify or replace certain portions of its internal software
and hardware so that its Systems will function properly with respect to
dates on or after September 9, 1999 ("9/9/99"). It is currently
anticipated that the cost of these modifications will not exceed a total
of $200,000. The Bank presently believes that with these modifications,
the year 2000 will not pose significant operational problems for its
Systems. However, if such modifications and conversions are not made, or
are not completed on a timely manner, the year 2000 could have an adverse
impact on the operations of the Bank.
The Bank has currently completed approximately 90% of the awareness and
assessment phases of its year 2000 project. These phases, along with the
renovation, validation and implementation phases are expected to be
completed by the fourth quarter of calendar 1998. The Bank expects to use
internal resources to reprogram, upgrade or replace and test its Systems.
The costs of the year 2000 project and the date on which the Bank believes
it will complete the year 2000 modifications are based on management's
best estimates, which were derived using numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ from those anticipated.
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 unanticipated issues associated with achieving year 2000
compliance. 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
The Corporation has not experienced any material changes to its
market risk position from that disclosed in the Corporation's Annual
Report on Form 10-K for the year ended March 31, 1998.
Part II - Other Information
Item 5--Other Information
Proposals of shareholders pursuant to Rule 14a-8 under the
Securities and Exchange Act of 1934, as amended ("Rule 14a-8"), that
are intended to be presented at the 1999 annual meeting must be
received by the Corporation no later than February 26, 1999 to be
included in the Corporation's proxy materials for that meeting.
Further, a shareholder who otherwise intends to present business at
the 1999 annual meeting must comply with the requirements set forth
in the Corporation's By-Laws. Among other things, to bring business
before an annual meeting, a shareholder must give written notice
thereof, complying with the By-Laws, to the Secretary of the
Corporation not less than 60 days and not more than 90 days prior to
the fourth Monday in the month of July. Under the By-Laws for
purposes of the 1999 annual meeting of shareholders, if the
Corporation does not receive notice of a shareholder proposal
submitted otherwise than pursuant Rule 14a-8 on or prior to May 27,
1999, then the notice will be considered untimely and the Corporation
will not be required to present such proposal at the 1999 annual
meeting. If the Board of Directors nontheless chooses to present
such proposal at the 1999 annual meeting, then the persons named in
proxies solicited by the Board of Directors for the 1999 annual
meeting may exercise discretionary voting power with respect to such
proposal.
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 FCB Financial Corp. 1998 Incentive Stock Plan
27.1 Financial Data Schedule at and for the period
ended June 30, 1998 (EDGAR version only)
27.2 Restated Financial Data Schedule at and for the period
ended June 30, 1997 (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
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: August 11, 1998 By: /s/ James J. Rothenbach
James J. Rothenbach
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 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
10.1 FCB Financial Corp. 1998 Incentive Stock Plan
27.1 Financial Data Schedule at and for the period
ended June 30, 1998 (EDGAR version only)
27.2 Restated Financial Data Schedule at and for the period
ended June 30, 1997 (EDGAR version only)