===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
Form 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from __________ to ___________
Commission file No. 2-78580
---------------------------
PNB FINANCIAL GROUP
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
California 95-3847640
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Reorganization)
4665 MacArthur Court
Newport Beach, California 92660
----------------------------------------
(Address of Principal Executive Offices)
(714) 851-1033
---------------------------------------------------
(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
--- ---
The number of shares of Registrant's common stock outstanding at October 4, 1995
was 2,186,933.
THIS REPORT INCLUDES A TOTAL OF 19 PAGES
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PNB FINANCIAL GROUP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
PART I FINANCIAL INFORMATION PAGE
NUMBER
------
ITEM 1. Financial Statement
Condensed Consolidated Balance Sheets (unaudited) - 3
September 30, 1995 and December 31, 1994
Condensed Consolidated Statements of Operations 4
(unaudited) - Nine Months ended September 30, 1995 and 1994
Condensed Consolidated Statements of Operations 5
(unaudited) - Three Months ended September 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows (unaudited) - 6
Nine Months ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial 8-17
Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Securities Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-KSB 18
Signatures of Registrants 19
2
PNB FINANCIAL GROUP
Condensed Consolidated Balance Sheets
(unaudited)
September 30, 1995 December 31, 1994
------------------ -----------------
Assets
- ------
Cash and due from banks $ 10,497,000 $ 9,836,000
Investment securities 11,729,000 19,129,000
Federal funds sold 2,200,000 3,000,000
Mortgage loans held for sale 30,988,000 12,448,000
Loans 109,307,000 104,926,000
Less allowance for possible loan losses (2,484,000) (2,727,000)
------------ ------------
Net loans 106,823,000 102,199,000
Premises and equipment, net 1,350,000 1,735,000
Other assets 3,857,000 7,238,000
------------ ------------
Total assets $167,444,000 $155,585,000
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits $150,802,000 $142,459,000
Other liabilities 2,089,000 869,000
------------ ------------
Total liabilities 152,891,000 143,328,000
Shareholders' equity:
Preferred stock, no par value 10,000,000
shares authorized; none issued - -
Common stock, no par value, 20,000,000
shares authorized; 2,186,933
shares issued and outstanding at
September 30, 1995 and December 31, 1994 16,129,000 16,129,000
Accumulated deficit (1,385,000) (2,863,000)
Net unrealized loss on investment securities available for sale (191,000) (1,009,000)
------------ ------------
Total shareholders' equity 14,553,000 12,257,000
------------ ------------
Total liabilities and shareholders' equity $167,444,000 $155,585,000
============ ============
See accompanying notes
3
PNB FINANCIAL GROUP
Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 1995 and 1994
(unaudited)
1995 1994
------------ -------------
Interest income:
Loans, including fees $8,883,000 $ 7,282,000
Investment securities 617,000 905,000
Federal funds sold 88,000 246,000
Deposits with banks - 36,000
---------- -----------
Total interest income 9,588,000 8,469,000
Interest expense 2,491,000 1,992,000
---------- -----------
Net interest income 7,097,000 6,477,000
Provision for possible loan losses 953,000 693,000
---------- -----------
Net interest income after provision for possible loan losses 6,144,000 5,784,000
Other income:
Commissions and other revenue from mortgage banking operations 3,725,000 2,726,000
Service charges, fees and other 629,000 548,000
---------- -----------
Total other income 4,354,000 3,274,000
Other expenses:
Mortgage banking operations 2,801,000 3,298,000
Salaries & employee benefits 2,710,000 2,696,000
Occupancy 1,243,000 1,337,000
Other 2,365,000 3,006,000
---------- -----------
Total other expense 9,119,000 10,337,000
Income (loss) before income taxes 1,379,000 (1,279,000)
Benefit for income taxes (99,000) -
---------- -----------
Net income (loss) $1,478,000 $(1,279,000)
========== ===========
Net income (loss) per share $ .66 $ (.58)
========== ===========
Weighted average number of shares 2,239,394 2,188,755
See accompanying notes
4
PNB FINANCIAL GROUP
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1995 and 1994
(unaudited)
1995 1994
---------- ------------
Interest income:
Loans, including fees $3,180,000 $2,542,000
Investment securities 180,000 368,000
Federal funds sold 29,000 60,000
Deposits with banks - 13,000
---------- ----------
Total interest income 3,389,000 2,983,000
Interest expense 923,000 667,000
---------- ----------
Net interest income 2,466,000 2,316,000
Provision for possible loan losses 490,000 231,000
---------- ----------
Net interest income after provision for possible loan losses 1,976,000 2,085,000
Other income:
Commissions and other revenue from mortgage banking operations 1,786,000 547,000
Service charges, fees and other 205,000 216,000
---------- ----------
Total other income 1,991,000 763,000
Other expenses:
Mortgage banking operations 1,220,000 866,000
Salaries & employee benefits 885,000 869,000
Occupancy 407,000 385,000
Other 727,000 972,000
---------- ----------
Total other expense 3,239,000 3,092,000
Income (loss) before income taxes 728,000 (244,000)
Provision for income taxes - -
---------- ----------
Net income (loss) $ 728,000 $ (244,000)
========== ==========
Net income (loss) per share $ .32 $ (.11)
========== ==========
Weighted average number of shares 2,249,483 2,187,716
See accompanying notes
5
PNB FINANCIAL GROUP
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994
(unaudited)
1995 1994
------------- -------------
Net cash provided by (used in) operating activities $(13,804,000) $ 21,897,000
Cash flows from investing activities:
Net change in loans (5,467,000) 2,676,000
Net change in investment securities 8,168,000 (13,820,000)
Other 2,621,000 1,071,000
------------ ------------
Net cash provided by (used in) investing activities 5,322,000 (10,073,000)
Cash flows from financing activities:
Net change in deposits 8,343,000 (13,671,000)
Payments for repurchase of common stock - (10,000)
------------ ------------
Net cash provided by (used in) financing activities 8,343,000 (13,681,000)
------------ ------------
Net decrease in cash and cash equivalents (139,000) (1,857,000)
Cash and cash equivalents at beginning of period 12,836,000 23,630,000
------------ ------------
Cash and cash equivalents at end of period $ 12,697,000 $ 21,773,000
============ ============
See accompanying notes
6
PNB FINANCIAL GROUP
Notes to Condensed Consolidated Financial Statements
September 30, 1995
(unaudited)
1. Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
PNB Financial Group (the "Bank Holding Company") and its wholly-owned
subsidiaries, Pacific National Bank (the "Bank") and Merchant Overseas Financial
Group ("MOFG") (collectively, the "Company"). In June 1993, all operating
activities of MOFG were suspended. All significant intercompany balances and
transactions have been eliminated. The condensed consolidated financial
statements contain all adjustments (consisting only of normal, recurring
accruals) which are, in the opinion of management, necessary to present fairly
the consolidated financial position of the Company at September 30, 1995, and
the consolidated results of operations and statements of cash flows for the nine
and three month periods ended September 30, 1995 and September 30, 1994. Results
for the nine and three months ended September 30, 1995 are not necessarily
indicative of results which may be expected for any other interim period, or for
the year as a whole. These condensed consolidated financial statements do not
include all disclosures associated with the Company's annual financial
statements and, accordingly, should be read in conjunction with such statements.
2. Consolidated Statement of Cash Flows
------------------------------------
For purposes of reporting cash flows, the Company defines cash and cash
equivalents as cash on hand, cash due from banks, interest-bearing deposits in
other banks and federal funds sold.
3. Reclassifications
-----------------
Certain reclassifications have been made to the 1994 financial statements
to conform to the 1995 presentation.
7
PNB FINANCIAL GROUP
-------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations
September 30, 1995
Item 2.
-------
Summary
-------
The Company reported net income of $1,478,000 for the nine months ended
September 30, 1995 compared to a net loss of $1,279,000 for the same period in
1994. For the three months ended September 30, 1995 the Company reported a net
income of $728,000 compared to a net loss of $244,000 for the same period in
1994. The third quarter's income is the highest quarterly net income reported by
the Company since its inception in 1982. The increase in earnings was primarily
a result of an increase in profits in the Bank's residential mortgage division
along with an increase in the net interest margin and a substantial decrease in
other expenses. The increased profits from the mortgage division is a result of
increased volume during the second and third quarter of 1995 compared with the
second and third quarter of 1994, along with a decrease in mortgage banking
operating expenses. The increase in net interest margin was primarily a result
of the substantial increase in interest rates earned on loans due to the
increase of prime during the past year.
As of September 30, 1995, the Company had total assets of $167.4 million,
total loans of $109.3 million and total deposits of $150.8 million, as compared
to total assets of $155.6 million, total loans of $104.9 million and total
deposits of $142.5 million as of December 31, 1994. Average deposits for the
first nine months of 1995 were $141.3 million as compared to an average deposit
level of $158.2 million during the first nine months of 1994. The decrease in
total deposits is primarily due to a reduced level of deposits from the Bank's
title and escrow customers. An increased marketing effort for new loans has
resulted in the increase in loans during the past year.
The following section sets forth the Company's condensed consolidated
average balances of each principal category of assets, liabilities, and
shareholders' equity for the nine month period ended September 30, 1995 as
compared to the same period in 1994. Average balances are based on daily
averages for the Bank, and monthly averages for the Bank Holding Company, since
the Bank Holding Company does not maintain daily average information. Management
believes that the difference between monthly and daily average data (where
monthly data has been used) is not significant.
(Continued on next page)
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
1995 1994
------------ -----------
Assets
- ------
Cash and due from banks $ 9,325,000 $ 13,441,000
Interest-bearing deposits in other banks - 1,177,000
Investment securities 16,262,000 25,476,000
Federal funds sold 2,077,000 9,321,000
Mortgage loans held for sale 17,609,000 14,708,000
Loans 108,483,000 102,454,000
Less allowance for possible loan losses (2,708,000) (3,211,000)
------------ ------------
Net loans 105,775,000 99,243,000
Premises and equipment, net 1,542,000 2,009,000
Other assets 4,441,000 7,363,000
------------ ------------
Total assets $157,031,000 $172,738,000
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest-bearing $ 49,705,000 $ 66,105,000
Interest-bearing 91,581,000 92,082,000
Short-term borrowings 961,000 114,000
Other liabilities 1,296,000 1,060,000
------------ -----------
Total liabilities 143,543,000 159,361,000
Shareholders' equity:
Capital stock 16,129,000 16,136,000
Accumulated deficit (2,222,000) (2,252,000)
Net unrealized loss on investment securities available for sale (419,000) (507,000)
------------ ------------
Total shareholders' equity 13,488,000 13,377,000
Total liabilities and shareholders' equity $157,031,000 $172,738,000
============ ============
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
Capital Resources
- -----------------
The federally-mandated minimum capital requirements and the actual
capitalization of the Company and the Bank as of September 30, 1995 are set
forth below.
CAPITAL REQUIREMENTS AS OF SEPTEMBER 30, 1995
Pacific PNB
Regulatory National Financial
Requirements Bank Group
------------- --------- ----------
Leverage Capital Ratio 4.0% 7.2% 8.8%
Risk Based Capital:
Tier 1 Capital 4.0% 9.5% 11.9%
Tier 2 Capital 8.0% 10.8% 13.1%
Liquidity
- ---------
Liquidity, as it relates to the Bank Holding Company, represents the
ability to obtain funds to support its investment activities and operating
needs. The Bank Holding Company's principal sources of funds are its cash
balances and short-term loan portfolio as well as its ability to raise capital
by selling additional shares of common stock. As of September 30, 1995, the Bank
Holding Company has cash balances of approximately $690,000. These liquid
assets, along with cash generated from its loan portfolio, will easily support
its operating requirements.
Liquidity, as it relates to banking, represents the ability to obtain
funds to meet loan commitments and to satisfy demand for deposit withdrawals.
The principal sources of funds that provide liquidity to the Bank are its cash
balances, federal funds sold, investment securities and a portion of its
mortgage loans held for sale. During the third quarter of 1995, the Bank's
average liquid assets as a percentage of average assets equaled 22.6% compared
to 26.7% during the third quarter of 1994. The Bank's average loan to deposit
ratio during the third quarter of 1995 was 73.4% compared to an average loan to
deposit ratio of 65.4% for the third quarter of 1994 and a loan to deposit ratio
72.5% at December 31, 1994. The change in these liquidity ratios is the result
of both a decrease in the average deposit levels of the Bank and an increase in
loans. A portion of the Bank's deposits consist of deposits maintained by title
insurance companies and escrow companies. During the third quarter of 1995, the
average deposits from escrow and title companies were approximately $18.2
million or 12.2% of total average deposits. This is compared to total title and
escrow deposits of approximately $32.6 million in the third quarter of 1994 or
21.2% of total average deposits. The decrease in these deposits occurred during
the first quarter of 1995 is a result of the general decrease in real estate
activity in Southern California along with the reduction of one large
depositor's balances. Currently, no title or escrow customer accounts for over
3% of the Bank's total deposits.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
To cushion against unanticipated fluctuations in its liquidity position, the
Bank has secured secondary credit sources with its correspondent bank and the
Federal Reserve Bank of approximately $9.7 million as of September 30, 1995.
These credit facilities are collateralized by a portion of the Bank's investment
portfolio and its installment loan portfolio. Additionally, the majority of the
Bank's mortgage loans held for sale, while not considered a primary source of
liquidity, can significantly aid in the Bank's ability to meet its liquidity
requirements.
Results of Operations for the Nine Months
Ended September 30, 1995 and September 30, 1994
-----------------------------------------------
Total interest and loan fee income
- ----------------------------------
Total interest and loan fee income increased $1,119,000 (13%) between the
periods presented primarily due to the increase in interest rates for loans and
other interest earning assets along with an increase in the average loans and
mortgage loans outstanding. These increases were partially offset by a decrease
in the average balance of investment securities and federal funds sold. The
increase in the yield on loans and other interest earning assets is due to the
Federal Reserve Board's increase in short-term interest rates and the
corresponding increase in the prime rate from 6.0% to 8.75% during the past
year. A significant portion of the Bank's loans are based on a variable interest
rate tied to prime.
The increase in loans and mortgage loans outstanding caused a decrease in
the volume of federal funds sold and investment securities. The increase in the
average of mortgage loans outstanding is due to increased levels of mortgage
loans outstanding during the second and third quarters of 1995. Management
anticipates this increased level of mortgage lending to continue through the
next quarter. The table below sets forth the Company's rate and volume analysis
for interest-earning assets for the nine months ended September 30, 1995 as
compared to the nine months ended September 30, 1994.
Change in interest income due to:
Volume Rate Total
--------- ---------- ----------
Loans $ 419,000 $ 936,000 $1,355,000
Mortgage loans held for sale 144,000 147,000 291,000
Investment securities (319,000) 31,000 (288,000)
Deposits in other banks (18,000) (19,000) (37,000)
Federal funds sold (248,000) 90,000 (158,000)
--------- ---------- ----------
Total $ (22,000) $1,185,000 $1,163,000
========= ========== ==========
Change in loan fees (44,000)
----------
Total change in interest and loan fee income $1,119,000
==========
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
Total interest expense
- ----------------------
Total interest expense increased $499,000 (25.1%) between the periods
presented primarily due to an increase in the interest rates of interest-bearing
deposits, and partially due to increased volume of time deposits and short-term
borrowings. The increase in the interest rates on deposits was caused by
competitive forces and the market's reaction to the increase in short-term
interest rates. The increase in time deposit volume was primarily due to
increased marketing for these deposits which was due to the decrease of title
and escrow demand deposits. The increase in short-term borrowings is primarily
due to the increase of mortgage loans held for sale. The following table sets
forth the Company's rate and volume analysis for interest-bearing liabilities
for the nine months ended September 30, 1995 as compared to the corresponding
period ended September 30, 1994.
Change in interest expense due to:
Volume Rate Total
-------- -------- --------
Short-term borrowings $ 19,000 $ 24,000 $ 43,000
Savings deposits (4,000) - (4,000)
Time deposits 62,000 354,000 416,000
Interest-bearing demand deposits (40,000) 84,000 44,000
-------- -------- --------
Total $ 37,000 $462,000 $499,000
======== ======== ========
Allowance for possible loan losses
- ----------------------------------
An analysis of the allowance for possible loan losses is summarized as
follows:
Nine Months Ended September 30
------------------------------
1995 1994
----------- -----------
Balance at beginning of period $ 2,727,000 $ 3,473,000
Charge-offs (1,253,000) (1,368,000)
Recoveries 57,000 506,000
----------- -----------
Net charge-offs (1,196,000) (862,000)
Contribution to allowance for possible loan losses 953,000 693,000
----------- -----------
Balance at end of period $ 2,484,000 $ 3,304,000
=========== ===========
Allowance as a percentage of total loans 2.3% 3.1%
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
The following table sets forth the total amount of nonaccrual loans,
accruing loans past due 90 days or more, troubled debt restructurings,
classified loans and other real estate owned as of September 30, 1995 and 1994
as well as December 31, 1994. The troubled debt restructurings are included in
the loans accounted for on a nonaccrual basis.
9/30/95 12/31/94 9/30/94
----------- ----------- -----------
Loans accounted for on a nonaccrual basis $11,571,000 $ 3,136,000 $ 3,887,000
Accruing loans contractually past due 90 days or more 321,000 826,000 1,570,000
Total classified loans 17,148,000 11,968,000 12,404,000
Other real estate owned 1,553,000 4,522,000 2,639,000
Troubled debt restructurings 2,234,000 - -
The Company's contribution to the provision for possible loan losses was
$953,000 for the first nine months of 1995 compared to $693,000 during the same
period in 1994. This contribution resulted in an allowance of 2.3% of total
outstanding loans at September 30, 1995, compared to 3.1% at September 30, 1994.
The allowance is a result of management's analysis of the estimated inherent
losses in the Bank's loan portfolio. This analysis takes into consideration the
level and trend of loan losses, loan delinquencies, classified loan volumes and
management's analysis of current market conditions. Management believes that the
allowance at September 30, 1995 is adequate to absorb the inherent risks in the
Company's loan portfolio.
Classified loans are those that have some identified weaknesses as
determined by management that may jeopardize the orderly collection of the debt
in the future. Classified loans increased from $14.9 million or 13.5% of total
loans at June 30, 1995 to $17.1 million or 15.6% of total loans at September 30,
1995. Nonperforming assets (nonaccrual loans and other real estate owned)
increased from $8.0 million or 4.8% of total assets at June 30, 1995, to $13.1
million or 7.8% of total assets at September 30, 1995. The increase in
classified loans and nonperforming assets during the third quarter of 1995 is a
reversal of a trend which saw the company reduce its classified assets over the
past two years. This reversal is primarily due to two borrowers whose loans
total approximately $3.0 million. Management is working on reducing the
nonperforming assets and anticipates a reduction over the next three quarters.
Other Income
- ------------
Other income increased $1,080,000 (3.3%) between the periods presented. The
increase was primarily due to higher revenue generated from the Bank's
residential mortgage division. During the first nine months of 1995, gross
revenue from the mortgage division was $3,725,000 compared to $2,726,000 in the
corresponding period in 1994. The increase in the mortgage division's gross
revenue resulted in the division
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
posting a pretax income, before administration allocation, of $771,000 during
the first nine months of 1995, compared to a loss of $562,000 during the same
period in 1994. Management believes that the mortgage division should remain
profitable throughout the remainder of 1995.
The increase in other income was partially due to an increase in other fees
and service charges. This increase was primarily due to increased income from
the Bank's SBA Department. During the first nine months of 1995, the sale of SBA
loans generated $224,000 of recognized sales premiums compared to $163,000
during the same period in 1994.
Other Expenses
- --------------
Other expenses decreased $1,218,000 (11.8%) between the periods presented.
The Bank's residential mortgage division's expenses decreased $497,000 (15.1%),
while expenses relating to other areas of the Company decreased $721,000
(10.2%). The decrease in the mortgage division's expenses was substantially
associated with the decrease in salaries and employee benefits. These reductions
were achieved by the more efficient utilization of personnel. The decrease in
expenses of $721,000 relating to other areas of the Company was due to decreases
in all areas of operations which resulted from the implementation of various
cost containment policies which were installed during 1994. The largest decrease
in other expenses occurred in other real estate owned expenses which declined
$189,000 due to the reduced levels of other real estate owned.
Provision for Income Taxes
- --------------------------
During the first nine months of 1995, the Company recognized an income tax
benefit of $99,000 due to alternative minimum tax credits realized. As of
December 31, 1994, the Company has federal and state net operating loss
carryforwards of $2,483,000 and $1,928,000, respectively. These net operating
loss carryforwards were used during the first nine months of 1995 to offset any
federal and state taxable income that were created by the Company's 1995
profits. Although management anticipates future earnings, the future tax benefit
of net operating losses are not assured of realization and therefore are not
recorded by the Company.
Cash and Cash Equivalents
- -------------------------
As of September 30, 1995, cash and cash equivalents decreased $139,000 from
December 31, 1994 balances primarily due to cash used in operating activities of
$13.8 million and an increase of loans of $5.5 million. These elements were
offset by an increase of deposits of $8.8 million and a decrease of investment
securities of $8.2 million. The cash used in operating activities primarily
consisted of an increase in the mortgage loans held for sale.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
Results of Operations for the Three Months
Ended September 30, 1995 and September 30, 1994
-----------------------------------------------
Total interest and loan fee income
----------------------------------
Total interest and loan fee income increased $406,000 (13.6%) between the
periods presented primarily due to the increase in interest rates and volume
for loans and mortgage loans. These increases were partially offset by a
decreased volume of investment securities and federal funds sold. The table
below sets forth the Company's rate and volume analysis for interest-earning
assets for the three months ended September 30, 1995 as compared to the three
months ended September 30, 1994.
Change in interest income due to:
Volume Rate Total
-------------- ---------- ----------
Loans $ 190,000 $133,000 $ 323,000
Mortgage loans held for sale 275,000 85,000 360,000
Investment securities (189,000) - (189,000)
Deposits in other banks (14,000) - (14,000)
Federal funds sold (44,000) 10,000 (34,000)
--------- -------- ---------
Total $ 218,000 $228,000 $ 446,000
========= ======== ---------
Change in loan fees (40,000)
--------
Total change in interest and loan fee income $406,000
========
Total interest expense
----------------------
Total interest expense increased $256,000 (38.4%) between the periods
presented primarily due to an increase in the volume and interest rates of
time deposits. The following table sets forth the Company's rate and volume
analysis for interest-bearing liabilities for the three months ended
September 30, 1995 as compared to the corresponding period ended September
30, 1994.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
Change in interest expense due to:
Volume Rate Total
------- ------- ---------
Short-term borrowings $13,000 $ - $ 13,000
Savings deposits (5,000) - (5,000)
Time deposits 75,000 152,000 227,000
Interest-bearing demand deposits (7,000) 28,000 21,000
------- ------- -------
Total $76,000 $180,000 $256,000
======= ======== ========
Allowance for possible loan losses
- ----------------------------------
An analysis of the allowance for possible loan losses is summarized as
follows:
Three Months Ended September 30
-------------------------------
1995 1994
---------- ----------
Balance at beginning of period $2,693,000 $3,205,000
Charge-offs (713,000) (223,000)
Recoveries 14,000 91,000
---------- ----------
Net charge-offs (699,000) (132,000)
Contribution to allowance for possible loan losses 490,000 231,000
---------- ----------
Balance at end of period $2,484,000 $3,304,000
========== ==========
Allowance as a percentage of total loans 2.3% 3.1%
Other Income
- ------------
Other income increased $1,228,000 (161%) between the periods presented. The
increase was due to increased revenue generated from the Bank's residential
mortgage division. The increased revenue from the mortgage division was due to
the more efficient, streamlined operations, and an improved level of customer
service, along with reduced competition. During the third quarter of 1995, gross
revenue from the mortgage division was $1,786,000 compared to $547,000 in the
corresponding period in 1994. The increase in the
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
mortgage division's gross revenue was partially offset with an increase in
expenses of this division, and resulted in the division posting a pretax
income, before administration allocation, of $403,000 during the third
quarter of 1995, compared to a loss of $401,000 during the same period in
1994. The loss during the second and third quarters of 1994 resulted from
the rapid decline of mortgage loan demand which was due to the increase in
the interest rates charged on mortgage loans.
Other Expenses
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Other expenses increased $147,000 (4.8%) between the periods presented.
Due to the increased volume, the Bank's residential mortgage division's
expenses increased $354,000 (40.8%) while expenses relating to other areas of
the Company decreased $207,000 (9.3%). The increase in the mortgage
division's expenses was primarily due to increases in salaries, benefits, and
commissions. The decrease in expenses of $207,000 relating to other areas of
the Company, was due to decreases in all areas of operations, except salaries
and benefits.
Provision for Income Taxes
--------------------------
Due to the utilization of federal and state net operating loss
carryforwards, during the third quarter of 1995, the Company did not
recognize an income tax provision. These net operating loss carryforwards
were used during the third quarter of 1995 to offset any federal and state
taxable income that were created by the Company's profits.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1995
PART II - OTHER INFORMATION
---------------------------
SEPTEMBER 30, 1995
Item 1. Legal Proceedings.
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There are no pending legal proceedings to which the Company or the Bank
is a party or to which any of their respective subsidiaries are subject,
other than ordinary routine litigation incidental to the Bank's business.
While claims of a substantial dollar amount have been asserted against the
Bank in one judicial foreclosure proceeding which, due to events beyond the
Company's control, has been postponed twice by the court and is currently set
for trial in November 1995, the Bank does not believe the claims are
meritorious or the damages, if any, will be material. Accordingly, the
outcome of litigation brought against the Bank is not expected to be material
to the Company or its operations or properties.
Item 2. Changes in Securities.
------- ----------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
------- ----------------------------------------------------
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits and Reports on Form 8-KSB.
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(a) Exhibits Filed - none required.
--------------
(b) Reports on Form 8-KSB. During the third quarter of 1995, the Company
---------------------
did not file a report on form 8-KSB.
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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 thereto duly authorized.
PNB Financial Group
Date: November 3, 1995 By: /s/ Allen C. Barbieri
--------------------------- ----------------------------------
Allen C. Barbieri
President and C.E.O.
Date: November 3, 1995 By: /s/ Doug L. Heller
--------------------------- ---------------------------------
Doug L. Heller
Chief Financial Officer
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