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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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 March 31, 1996
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
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PNB FINANCIAL GROUP
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(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
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(Address of Principal Executive Offices)
(714) 851-1033
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(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 May 10, 1996
was 2,164,933.
THIS REPORT INCLUDES A TOTAL OF 15 PAGES
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PNB FINANCIAL GROUP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1996
PAGE
NUMBER
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) - 3
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Income
(unaudited) - Three Months ended March 31, 1996 and
1995 4
Consolidated Statements of Cash Flows (unaudited) -
Three 5
Months ended March 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-13
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings. 14
ITEM 2. Changes in Securities. 14
ITEM 3. Defaults upon Senior Securities. 14
ITEM 4. Submission of Matters to a Vote of Security Holders. 14
ITEM 5. Other Information. 14
ITEM 6. Exhibits and Reports on Form 8-KSB. 14
Signatures of Registrants. 15
2
PNB FINANCIAL GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1996 December 31, 1995
----------------- ------------------
Assets
- ------
Cash and due from banks $ 14,409,000 $ 13,814,000
Investment securities 7,951,000 10,626,000
Federal funds sold 8,000,000 2,500,000
Mortgage loans held for sale 43,646,000 41,968,000
Loans 100,543,000 103,737,000
Less allowance for loan losses (2,176,000) (2,659,000)
------------ ------------
Net loans 98,367,000 101,078,000
Premises and equipment, net 1,298,000 1,340,000
Other real estate owned 3,214,000 1,337,000
Other assets 2,137,000 2,129,000
------------ ------------
Total assets $179,022,000 $174,792,000
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits $160,772,000 $157,303,000
Other liabilities 2,536,000 2,261,000
------------ ------------
Total liabilities 163,308,000 159,564,000
------------ ------------
Shareholders' equity:
Common stock, no par value, 20,000,000
shares authorized; 2,164,933 and 2,187,933
shares issued and outstanding at
March 31, 1996 and December 31, 1995 15,991,000 16,134,000
Accumulated deficit (124,000) (822,000)
Net unrealized loss on investment securities available for sale (153,000) (84,000)
------------ ------------
Total shareholders' equity 15,714,000 15,228,000
------------ ------------
Total liabilities and shareholders' equity $179,022,000 $174,792,000
============ ============
See accompanying notes
3
PNB FINANCIAL GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
---------- -----------
Interest income:
Loans, including fees $3,054,000 $2,736,000
Investment securities 109,000 248,000
Federal funds sold 78,000 40,000
---------- ----------
Total interest income 3,241,000 3,024,000
Interest expense 923,000 704,000
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Net interest income 2,318,000 2,320,000
Provision for loan losses 300,000 228,000
---------- ----------
Net interest income after provision for loan losses 2,018,000 2,092,000
---------- ----------
Other income:
Commissions and other revenue from mortgage banking operations 2,330,000 691,000
Service charges, fees and other 251,000 182,000
---------- ----------
Total other income 2,581,000 873,000
---------- ----------
Other expenses:
Mortgage banking operations 1,724,000 648,000
Salaries & employee benefits 954,000 935,000
Occupancy 409,000 429,000
Other 814,000 834,000
---------- ----------
Total other expense 3,901,000 2,846,000
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Income before income taxes 698,000 119,000
Benefit for income taxes - (99,000)
---------- ----------
Net income $ 698,000 $ 218,000
========== ==========
Net income per share $.30 $.10
========== ==========
Weighted average number of shares used in per share computation 2,301,192 2,186,933
See accompanying notes
4
PNB FINANCIAL GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
------------ ------------
Net Cash provided by (used in) operating activities: $ (300,000) $ 2,853,000
----------- -----------
Cash flows from investing activities:
Net change in loans 320,000 (3,175,000)
Net change in investment securities 2,606,000 2,688,000
Other 143,000 (6,000)
----------- -----------
Net cash provided by (used in) investing activities 3,069,000 (493,000)
----------- -----------
Cash flows from financing activities:
Net change in deposits 3,470,000 (9,299,000)
Net change in short-term borrowings - 2,000,000
Net change in common stock (143,000) -
----------- -----------
Net cash provided by (used in) financing activities 3,327,000 (7,299,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 6,096,000 (4,939,000)
Cash and cash equivalents at beginning of period 16,313,000 12,836,000
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Cash and cash equivalents at end of period $22,409,000 $ 7,897,000
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See accompanying notes
5
PNB FINANCIAL GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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
subsidiary, Pacific National Bank (the "Bank"), (collectively, the "Company").
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 March 31, 1996, and the consolidated results of operations and statements of
cash flows for the three month periods ended March 31, 1996 and March 31, 1995.
Results for the three months ended March 31, 1996 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. Preferred Stock
---------------
The Company has authorized 10,000,000 shares, no par value, preferred stock.
No shares of preferred stock have been issued.
6
PNB FINANCIAL GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
ITEM 2.
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Summary
- -------
The Company reported net income of $698,000 for the three months ended March
31, 1996 compared to a net income of $218,000 for the same period in 1995. The
increase in earnings was primarily a result of an increase in the profits in the
Bank's residential mortgage division which was a result of increased lending
activity. During the first quarter of 1996, the Bank funded 1,319 mortgage
loans totalling $170.2 million compared to the first quarter of 1995 during
which the Bank funded 314 mortgage loans totalling $39.2 million.
As of March 31, 1996, the Company had total assets of $179.0 million, total
loans of $100.5 million, and total deposits of $160.8 million, as compared to
total assets of $174.8 million, total loans of $103.7 million, and total
deposits of $157.3 million as of December 31, 1995. Average deposits for the
first quarter of 1996 were $147.2 million as compared to an average deposit
level of $138.8 million during the first quarter of 1995.
The following section sets forth the Company's condensed consolidated average
balances of each principal category of assets, liabilities, and shareholders'
equity for the three month period ended June 30, 1996 as compared to the same
period in 1995. 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.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
MARCH 31, 1996
UNAUDITED
1996 1995
------------ ------------
Assets
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Cash and due from banks $ 11,190,000 $ 9,607,000
Investment securities 8,392,000 19,313,000
Federal funds sold 6,093,000 2,923,000
Mortgage loans held for sale 35,689,000 8,600,000
Loans 100,864,000 106,450,000
Less allowance for loan losses (2,723,000) (2,734,000)
------------ ------------
Net loans 98,141,000 103,716,000
Premises and equipment, net 1,302,000 1,671,000
Other assets 4,563,000 5,626,000
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Total assets $165,370,000 $151,456,000
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest-bearing $ 53,691,000 $ 50,455,000
Interest-bearing 93,551,000 87,196,000
Short-term borrowings 475,000 298,000
Other liabilities 2,048,000 813,000
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Total liabilities 149,765,000 138,762,000
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Shareholders' equity:
Capital stock 15,988,000 16,129,000
Accumulated deficit (302,000) (2,741,000)
Net unrealized loss on investment securities available for sale (81,000) (694,000)
------------ ------------
Total shareholders' equity 15,605,000 12,694,000
Total liabilities and shareholders' equity $165,370,000 $151,456,000
============ ============
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
MARCH 31, 1996
Capital Resources
- -----------------
The federally-mandated minimum capital requirements and the actual
capitalization of the Company and the Bank as of March 31, 1996 are set forth
below.
CAPITAL REQUIREMENTS AS OF MARCH 31, 1996
Pacific PNB
Regulatory National Financial
Requirements Bank Group
------------- --------- ----------
Leverage Capital Ratio 4.0% 7.7% 9.0%
Risk Based Capital:
Tier 1 Capital 4.0% 10.3% 12.8%
Tier 2 Capital 8.0% 11.5% 14.1%
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. During the first quarter of 1996, the Bank
Holding Company liquidity position decreased due to the purchase of 25,000
shares of the Company's common stock. These funds are part of an overall
program the Board has approved to purchase back up to $1.0 million of the
Company's common stock without reducing the BHC working capital below $250,000.
As of March 31, 1996, the Bank Holding Company has cash balances of
approximately $610,000. These liquid assets, along with cash generated from its
loan portfolio, will support its 1996 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 first quarter of 1996, the Bank's
average liquid assets as a percentage of average assets equaled 24.9% compared
to 20.1% during the first quarter of 1995. The Bank's average loan to deposit
ratio during the first quarter of 1996 was 67.5% compared to an average loan to
deposit ratio of 76.1% during the first quarter of 1995. The change in these
liquidity ratios is the result of an increase in the average deposit level of
the Bank and decrease of the average loan balance during the first quarter of
1996. A large portion of the Bank's deposits consist of deposits maintained by
title insurance companies and escrow companies. During the first quarter of
1996, the average deposits from escrow and title companies were $18.3 million or
approximately 12.4% of total average deposits. This is compared to total title
and escrow deposits of $19.4 million in the first quarter of 1995 or 14% of
total average deposits. Currently, no title or escrow customer accounts for
over 3% of the Bank's total deposits.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
MARCH 31, 1996
To cushion against unanticipated fluctuations in its liquidity position, the
Bank has secured secondary lines of credit with its correspondent bank and the
Federal Reserve Bank of approximately $9 million as of March 31, 1996. These
lines of credit 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. During the first quarter of 1996, the Bank was approved to become
a member of the Federal Home Loan Bank ("FHLB"). The FHLB has given the Bank a
credit line of up to 20% of its assets. This credit facility will serve as a
backup source of liquidity and will allow the Bank to increase its asset size.
Results of Operations for the Three Months
Ended March 31, 1996 and March 31, 1995
---------------------------------------
Total interest and loan fee income
- ----------------------------------
Total interest and loan fee income increased $217,000 (7.2%) between the
periods presented primarily due to the increase in volume of mortgage loans
which was partially offset by the decrease in volume of investment securities
and loans. The increase in the volume of mortgage loans is due to the increased
activity in the Bank's mortgage loan business.
The table below sets forth the Company's rate and volume analysis for
interest-earning assets for the three months ended March 31, 1996 as compared to
the three months ended March 31, 1995.
Change in interest income due to:
Volume Rate Total
---------- ---------- -----------
Loans $(130,000) $(32,000) $(162,000)
Mortgage loans held for sale 539,000 (60,000) 479,000
Investment securities (141,000) 3,000 (138,000)
Federal funds sold 42,000) (5,000) 37,000
--------- -------- ---------
Total $ 310,000 $(94,000) $ 216,000
========= ======== ---------
Change in loan fees 1,000
---------
Total change in interest and loan fee income $ 217,000
=========
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
MARCH 31, 1996
Total interest expense
- ----------------------
Total interest expense increased $219,000 (31.1%) between the periods
presented due to an increase in the volume and rate of interest bearing
deposits. The increase in deposit volume was due to an increase of higher
costing time deposits. The following table sets forth the Company's rate and
volume analysis for interest-bearing liabilities for the three months ended
March 31, 1996 as compared to the corresponding period ended March 31, 1995.
Change in interest expense due to:
Volume Rate Total
----------- ---------- ----------
Savings deposits $ (7,000) $ (3,000) (10,000)
Time deposits 150,000 104,000 254,000
Interest-bearing demand deposits (26,000) 1,000 (25,000)
---------- -------- ---------
Total $ 117,000 $102,000 $219,000
========== ======== =========
Allowance for loan losses
- -------------------------
An analysis of the allowance for loan losses is summarized as follows:
Three Months Ended March 31
---------------------------
1996 1995
---------- ------------
Balance at beginning of period $2,658,000 $ 2,727,000
---------- ------------
Charge-offs (813,000) (224,000)
Recoveries 31,000 9,000
---------- ------------
Net charge-offs (782,000) (215,000)
---------- ------------
Contribution to allowance for loan losses 300,000 228,000
---------- ------------
Balance at end of period $2,176,000 $ 2,740,000
========== ============
Allowance as a percentage of total loans 2.2% 2.5%
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
MARCH 31, 1996
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 March 31, 1996 and 1995 as well as December
31, 1995.
March 31, 1996 Dec. 31, 1995 March 31, 1995
-------------- ------------- --------------
Loans accounted for on a nonaccrual basis $ 9,173,000 $ 9,666,000 $ 5,610,000
Accruing loans contractually past due 90 days or more 1,059,000 382,000 768,000
Total classified loans 15,200,000 20,534,000 15,053,000
Other real estate owned 3,213,000 1,336,000 1,833,000
Troubled debt restructurings (Included in non-accrual 3,532,000 3,589,000 2,316,000
and classified loans)
The Company's contribution to the provision for loan losses was $300,000 for
the first three months of 1996 compared to $228,000 during the same period in
1995. This contribution resulted in an allowance of 2.2% of total outstanding
loans at March 31, 1996, compared to 2.5% at March 31, 1995. 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 March 31, 1996 is adequate to absorb the inherent risks in the Company's loan
portfolio.
The decline in the allowance for loan losses is due to the write off of a
portion of several large real estate loans during the first quarter of 1996.
These write-offs were triggered by the pending foreclosure of the loans
collateral and equal the amount of collateral deficiency in the loan. These
write-offs had no major impact on additional contributions to the reserve for
loan losses because they were specifically reserved for and were part of the
past year's allowance for loan losses.
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 loan decreased $5.3 million from December 31, 1995 to March
31, 1996. This decrease is due to the collection of several loans along with
the transfer of two loans to other real estate owned. Due to the pending
foreclosure on several large real estate loans, classified loans and nonaccrual
loans are expected to decline in the next two quarters.
Other Income
- ------------
Other income increased $1,708,000 (196%) between the periods presented. The
increase was primarily due to higher revenue generated from the Bank's
residential mortgage operation. During the first three months of 1996, gross
revenue from the mortgage operation was $2,330,000 compared to $691,000 in the
corresponding period in 1995. The increase in the mortgage divisions gross
revenue resulted in the
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
MARCH 31, 1996
division posting a pretax income, before administration allocation, of $603,000
during the first quarter of 1996, compared to $70,000 during the same period in
1995. The increase in other income was partially due to an increase in other
fees and services charges. This increase was partially due to higher real
estate owned income and partially due to losses on security sales during 1995.
Other Expenses
- --------------
Other expenses increased $1,055,000 (37.1%) between the periods presented.
The Company's other expenses decreased $21,000 while the Bank's residential
mortgage division's expenses increased $1,076,000 (166%). The increase in the
mortgage division's expenses was due to the increased level of activity and was
substantially associated with the increase in salaries and benefits and
commissions. The decrease in the Company's other expenses of $21,000 (1%) was
due to a decrease in FDIC insurance premiums which was partially offset by
increases in other areas of operations.
Provision for Income Taxes
- --------------------------
During the first quarter of 1996, the Company did not record any income tax
expense based upon the utilization of a portion of its net deferred tax assets.
As of December 31, 1995, the Company had net deferred tax assets totalling
$890,000 which the Company had not recognized. These deferred tax assets
include Federal and State net operating loss carryforwards of $901,000 and
$34,000, respectively. A portion of these unrecorded deferred tax assets were
utilized during the first quarter of 1996 to offset the Company's first quarter
profits. Although Management anticipates future earnings, the future tax
benefit of any remaining deferred tax assets are not assured of realization and,
therefore, have not been recorded by the Company.
Cash and Cash Equivalents
- -------------------------
As of March 31, 1996, cash and cash equivalents increased $6.1 million from
December 31, 1995 balances primarily due to a increase of deposits of $3.5
million and a decrease in investment securities of $2.6 million.
13
PART II - OTHER INFORMATION
---------------------------
MARCH 31, 1996
Item 1. Legal Proceedings.
- ------- ------------------
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.
Item 2. Changes in Securities.
- ------- ----------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
- ------- --------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not applicable.
Item 5. Other Information.
- ------- ------------------
Item 6. Exhibits and Reports on Form 8-KSB.
- ------- ----------------------------------
(a) Exhibits Filed - none required.
--------------
(b) Reports on Form 8-KSB. During the first quarter of 1996, the Company did
---------------------
not file a report on form 8-KSB.
14
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: May 2, 1995 By: /s/ ALLEN C. BARBIERI
---------------------- -------------------------------------
Allen C. Barbieri
President and Chief Executive Officer
Date: May 5, 1995 By: /s/ DOUG L. HELLER
---------------------- -------------------------------------
Doug L. Heller
Chief Financial Officer
15