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Total number of pages: 36
Exhibit Index on page: 14
FORM 10-QSB
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
________________________________________________________________________________
Commission File Number 0-17650
FP Bancorp, Inc. (formerly FP Bancorp)
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0018976
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
613 West Valley Parkway, Escondido 92025-2597
(Address of principal executive offices) (ZIP Code)
(619) 741-3312
(Issuer's telephone number)
Check whether the issuer (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
--- ---
As of June 30, 1995 the number of shares outstanding of the Registrant's only
class of common stock was 2,648,016.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 1995 December 31, 1994
------------------------------------------------------------------------ ------------- -----------------
Cash and due from banks $ 16,984,000 $ 9,627,000
Federal funds sold 15,000,000 -
Interest earning deposits 495,000 -
Investment securities available for sale, at fair value 12,767,000 8,192,000
Investment securities held to maturity, at amortized cost 16,390,000 15,465,000
Loans, net of allowance for loan losses of $2,848,000 at June 30, 1995
and $2,666,000 at December 31, 1994 139,209,000 118,183,000
Other real estate owned, net 5,985,000 5,044,000
Premises and equipment, net 6,920,000 5,956,000
Goodwill, net 1,456,000 -
Accrued interest and other assets 2,806,000 2,251,000
------------------------------------------------------------------------ ------------- -----------------
$218,012,000 $164,718,000
======================================================================== ============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------
Deposits:
Noninterest bearing $ 49,653,000 $ 28,027,000
Interest bearing 146,529,000 118,416,000
------------------------------------------------------------------------ ------------- -----------------
Total Deposits 196,182,000 146,443,000
------------------------------------------------------------------------ ------------- -----------------
Federal funds purchased - 2,800,000
Accrued expenses and other liabilities 1,642,000 1,080,000
Debentures 4,575,000 4,575,000
------------------------------------------------------------------------ ------------- -----------------
Total Liabilities 202,399,000 154,898,000
------------------------------------------------------------------------ ------------- -----------------
Stockholders' Equity:
Common stock 24,544,000 20,289,000
Accumulated deficit (8,791,000) (9,821,000)
Net unrealized losses on investments available for sale (23,000) (515,000)
Receivable from ESOP (117,000) (133,000)
------------------------------------------------------------------------ ------------- -----------------
Total Stockholders' Equity 15,613,000 9,820,000
------------------------------------------------------------------------ ------------- -----------------
$218,012,000 $164,718,000
======================================================================== ============= =================
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
--------------------------------------- ---------- ---------- ---------- ----------
Interest income:
Interest and fees on loans $4,059,000 $2,781,000 $7,174,000 $5,433,000
Federal funds sold 112,000 22,000 166,000 38,000
Interest earning deposits 12,000 1,000 12,000 4,000
Investment securities 412,000 289,000 729,000 610,000
--------------------------------------- ---------- ---------- ---------- ----------
Total interest income 4,595,000 3,093,000 8,081,000 6,085,000
--------------------------------------- ---------- ---------- ---------- ----------
Interest expense:
Deposits 1,150,000 619,000 2,074,000 1,261,000
Other 119,000 121,000 244,000 243,000
--------------------------------------- ---------- ---------- ---------- ----------
Total interest expense 1,269,000 740,000 2,318,000 1,504,000
--------------------------------------- ---------- ---------- ---------- ----------
Net interest income 3,326,000 2,353,000 5,763,000 4,581,000
Provision for loan losses - - - -
--------------------------------------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 3,326,000 2,353,000 5,763,000 4,581,000
--------------------------------------- ---------- ---------- ---------- ----------
Other operating income:
Service charges 296,000 197,000 502,000 388,000
Other 570,000 329,000 888,000 671,000
--------------------------------------- ---------- ---------- ---------- ----------
Total other operating income 866,000 526,000 1,390,000 1,059,000
--------------------------------------- ---------- ---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 1,438,000 1,182,000 2,670,000 2,489,000
Occupancy 310,000 286,000 554,000 575,000
Furniture and equipment 237,000 158,000 402,000 338,000
Other real estate owned 313,000 265,000 436,000 336,000
Other 1,149,000 877,000 2,061,000 1,779,000
--------------------------------------- ---------- ---------- ---------- ----------
Total other operating expenses 3,447,000 2,768,000 6,123,000 5,517,000
--------------------------------------- ---------- ---------- ---------- ----------
Earnings before income taxes 745,000 111,000 1,030,000 123,000
Income taxes - - - -
--------------------------------------- ---------- ---------- ---------- ----------
Net earnings $ 745,000 $ 111,000 $1,030,000 $ 123,000
======================================= ========== ========== ========== ==========
Primary earnings per share $ 0.28 $ 0.09 $ 0.46 $ 0.10
====================================== ========== ========== ========== ==========
Fully diluted earnings per share $ 0.27 $ 0.09 $ 0.46 $ 0.10
====================================== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1994
------------------------------------------------------------------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,030,000 $ 123,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 449,000 409,000
Provision for losses on other real estate owned 196,000 217,000
Gain on sale of other real estate owned (278,000) (40,000)
(Gain) loss on sale of investment securities available for sale 46,000 (18,000)
Decrease in accrued interest and other assets 132,000 386,000
Increase (decrease) in accrued expenses and other liabilities 3,000 (150,000)
Increase (decrease) in deferred loan origination fees (112,000) 122,000
------------------------------------------------------------------------ ----------- -----------
Net cash provided by operating activities 1,466,000 1,049,000
------------------------------------------------------------------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in loans outstanding 6,733,000 2,762,000
Proceeds on sale of other real estate owned 2,311,000 1,469,000
Net maturities of interest earning deposits 1,358,000 788,000
Maturities of investment securities available for sale 237,000 1,786,000
Maturities of investment securities held to maturity 83,000 237,000
Purchase of investment securities available for sale (5,398,000) (1,000,000)
Purchase of investment securities held to maturity (839,000) -
Proceeds from sale of investment securities available for sale 4,798,000 2,198,000
Payments from ESOP 16,000 17,000
Net capital expenditures for premises and equipment (561,000) (36,000)
Net cash acquired in merger 4,312,000 -
------------------------------------------------------------------------ ----------- -----------
Net cash provided by investing activities 13,050,000 8,221,000
------------------------------------------------------------------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in interest bearing deposits (1,686,000) (5,373,000)
Net increase in noninterest bearing deposits 12,327,000 2,568,000
Decrease in Federal funds purchased (2,800,000) -
------------------------------------------------------------------------ ----------- -----------
Net cash provided by (used in) financing activities 7,841,000 (2,805,000)
------------------------------------------------------------------------ ----------- -----------
Net increase in cash and cash equivalents 22,357,000 6,465,000
Cash and cash equivalents at beginning of period 9,627,000 12,546,000
------------------------------------------------------------------------ ----------- -----------
Cash and cash equivalents at end of period $31,984,000 $19,011,000
======================================================================== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,163,000 $ 1,478,000
Supplemental disclosure of noncash investing and financing activities:
Transfer from loans to other real estate owned $ 1,533,000 $ 3,031,000
Transfer of investment securities from held to maturity to available
for sale upon adoption of Statement 115 $ - $11,792,000
Change in unrealized losses on investment securities available for sale $ (492,000) $ 317,000
Common stock issued in merger $ 4,255,000 $ -
========================================================================================================
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include the accounts of FP
Bancorp, Inc. (formerly FP Bancorp) (the "Company") and its
wholly-owned subsidiary, First Pacific National Bank (FPNB). All
material intercompany accounts and transactions have been eliminated.
The consolidated financial statements as of June 30, 1995 and for the
three- and six-month periods ended June 30, 1995 and 1994 are
unaudited and reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results of
the interim periods. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1994. The results of operations for the three- and six-month periods
ended June 30, 1995 are not necessarily indicative of the results for
the entire year ending December 31, 1995.
2. Primary earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Stock options for all
periods presented are considered to be common stock equivalents and are
used in the primary earnings per share calculations unless they are
antidilutive. The weighted average number of shares used for the
primary earnings per share calculations for the three-month periods
ended June 30, 1995 and 1994 were 2,658,000 and 1,213,000,
respectively. The weighted average numbers of shares used for the
primary earnings per share calculations for the six-month periods
ended June 30, 1995 and 1994 were 2,247,000 and 1,213,000,
respectively.
Fully diluted earnings per share is computed by dividing net earnings
by the weighted average number of shares of common stock, common stock
equivalents, and other potentially dilutive securities. Stock options
are considered to be common stock equivalents and are used in the fully
diluted earnings per share calculations unless they are antidilutive.
The subordinated convertible debentures are considered to be other
potentially dilutive securities and are used in the fully diluted
earnings per share calculations unless they are antidilutive. The
weighted average numbers of shares used for the fully diluted earnings
per share calculations for the three-month periods ended June 30, 1995
and 1994 were 3,115,000 and 1,213,000 in 1995 and 1994, respectively.
The weighted average numbers of shares used for the fully diluted
earnings per share calculations for the six-month periods ended June
30, 1995 and 1994 were 2,705,000 and 1,213,000, respectively.
3. In May 1993, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" ("Statement 114"), and in
October 1994, the FASB issued Statement of Financial Accounting
Standards No. 118. "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" ("Statement 118"). Under the
provisions of Statement 114, a loan is considered impaired when it is
probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Statement 114
defines methods of measuring impairment and if the measure of the
impaired loan is less than the recorded investment in the loan. It
requires a creditor to create a valuation allowance with a
corresponding charge to the provision for loan losses. Statement 118
amends Statement 114 to allow a creditor to use existing methods for
recognizing interest income on impaired loans. In addition, Statement
118 amends certain disclosure requirements for Statement 114. Statement
114 and 118 apply to financial statements for fiscal years beginning
after December 15, 1994, and initial adoption is required to be
reflected prospectively. The Company adopted Statements 114 and 118
effective January 1, 1995. The adoption of these statements did not
have a material impact on the Company's financial position or results
of operations.
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4. Because of the nature of its activities, the Company is at all times
subject to pending and threatened legal actions which arise out of the
normal course of its business. In the opinion of management, based in
part upon opinions of legal counsel, the disposition of all litigation
will not have a material effect on the Company's financial position or
results of operations.
5. Goodwill is amortized on a straight-line basis over an estimated useful
life of fifteen years.
6. Certain 1994 amounts have been reclassified to conform to the
presentation used in 1995.
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FP BANCORP, INC.
MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
1. On April 1, 1995, the Company completed the merger of Overland Bank
("Overland") into FPNB (the "Overland Merger"). Overland was a
state-chartered bank with branch offices located in Moreno Valley and
Temecula, California. The merger was consummated after obtaining all
applicable regulatory approvals and the approval of the shareholders of
both the Company and Overland on March 22, 1995.
Pursuant to the merger agreement, all of the outstanding shares of
Overland common stock were converted into newly issued shares of
Company common stock and all outstanding Overland warrants were
converted into warrants to purchase Company stock. The number of shares
of Company common stock issued upon the conversion of each share of
Overland common stock was .1006 shares, resulting in the issuance of
826,000 shares of Company common stock. Upon consummation of the
merger, Overland ceased to exist and FPNB continued as the surviving
entity.
The calculation of the exchange ratio of .1006 shares of Company common
stock for each share of Overland common stock was based on each
entity's relative book value at December 31, 1994, adjusted for various
items as defined in the merger agreement.
Cash and due from banks $ 2,867,000
Federal funds sold 2,500,000
Investment securities 4,015,000
Interest earning deposits 1,853,000
Loans, net 29,180,000
Other real estate owned, net 1,637,000
Premises and equipment, net 746,000
Goodwill from merger 1,482,000
Accrued interest and other assets 687,000
-----------
Total assets 44,967,000
-----------
Deposits 39,098,000
Accrued expenses and other liabilities 559,000
-----------
Total liabilities 39,657,000
-----------
Aggregate purchase price, including
costs of acquisition $ 5,310,000
===========
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The following pro forma data presents the historical results of the combined
bank as if the Overland Merger had occurred at the beginning of the three- and
six-month periods ended June 30, 1995 and 1994, with intangibles from the
merger being amortized on a straight-line basis over a period of 15 years. This
data is presented for information purposes only and does not purport to be
indicative of what would have occurred had the merger been consummated at the
beginning of each of the periods, or of results which may occur in the future.
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
(in thousands, except for share
and per share data) 1995 1994 1995 1994
---------- ---------- ---------- ----------
Interest income $ 4,595 $ 4,030 $ 9,232 $ 8,059
Interest expense 1,269 1,045 2,547 2,090
Provision for loan losses - 46 - 92
Noninterest income 866 683 1,518 1,366
Noninterest expense 3,447 3,535 6,737 7,069
---------- ---------- ---------- ----------
Net earnings before income taxes $ 745 $ 87 $ 1,466 $ 174
========== ========== ========== ==========
Net earnings $ 745 $ 87 $ 1,466 $ 174
========== ========== ========== ==========
Net earnings per share $ 0.28 $ 0.04 $ 0.65 $ 0.09
========== ========== ========== ==========
Average shares outstanding 2,658,000 2,039,000 2,247,000 2,039,000
========== ========== ========== ==========
2. Effective Tuesday, April 11, 1995, following the approval of the
shareholders of the Company on March 22, 1995, the Company was
reincorporated as a Delaware corporation under the name FP Bancorp, Inc.
3. On Thursday, April 13, 1995, the Company's common stock was listed for
trading on the Nasdaq SmallCap Market under the symbol FPBN. The
Company's common stock had previously been traded in the
over-the-counter market.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The Company's net earnings for the quarter ended June 30, 1995 were $745,000 or
$.28 per share, compared to net earnings of $111,000 or $.09 per share for the
same quarter in 1994. The Company's return on average assets and return on
average stockholders' equity were .36% and 4.88%, respectively, for the
three-month period ended June 30, 1995, compared with .07% and 1.59%,
respectively, for the same period in 1994. The increase in earnings of $634,000
for the three-month period ended June 30, 1995 as compared with the same period
in 1994 was due to an increase in net interest income of $973,000 or 41.35%, an
increase in noninterest income of $340,000 or 64.64% and an offsetting increase
in noninterest expenses of $679,000 or 24.53%.
The Company's net earnings for the six months ended June 30, 1995 were
$1,030,000 or $.46 per share compared to net earnings of $123,000 or $.10 per
share for the same period in 1994. The Company's return on average assets and
return on average stockholders' equity were .55% and 8.08% for the six-month
period ended June 30, 1995 compared with .07% and 1.76%, respectively, for the
same period in 1994. The increase in earnings of $907,000 or 737.40% for the
six-month period ended June 30, 1995 as compared to the same period in 1994 was
due to an increase in net interest income of $1,182,000 or 25.80%, an increase
in other operating income of $331,000 or 31.26%, and an offsetting increase in
noninterest expenses of $606,000 or 10.98%.
The increases in net interest income during the three- and six-month periods
ended June 30, 1995 as compared to 1994 were a result of the Overland Merger,
the effect of increases in interest rates on the Company's asset sensitive
balance sheet and active liability management. Total noninterest expenses for
the three- and six-month periods ended June 30, 1995 increased by only 24.53%
and 10.98%, respectively, including additional expenses from the Overland
Merger, due to increased efficiencies.
Total assets increased $53,294,000 or 32.36% from $164,718,000 as of December
31, 1994 to $218,012,000 as of June 30, 1995. The increase was primarily due to
the Overland Merger, which increased the Company's assets by $45.0 million on
the merger date. Net loans increased from $118,183,000 as of December 31, 1994
to $139,209,000 as of June 30, 1994, an increase of $21,026,000 or 17.79%. The
Overland Merger accounted for $29,180,000 of the increase, offset by a net
decrease of $8,000,000 in loans due to a number of large individual loan
paydowns since year end and $1,533,000 of loans transferred into other real
estate owned. Deposits increased from $146,443,000 as of December 31, 1994 to
$196,182,000 as of June 30, 1995, an increase of $49,739,000 or 33.97%. The
Overland Merger resulted in $39,098,000 of the increase with the balance of the
increase primarily in noninterest bearing deposits.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $973,000 or
41.35% for the quarter ended June 30, 1995 compared with the same period in
1994. Net interest income is affected by changes in average rates, average
volumes of interest earnings assets, and average volumes of interest bearing
liabilities. During the three-month period ended June 30, 1995, $29,180,000 of
loans and $29,799,000 of interest bearing deposits were acquired in the
Overland Merger, which contributed to the increase.
The rate earned on interest earning assets for the quarter ended June 30, 1995
increased to 10.17% from 8.97% for the same period in 1994 due to the increase
in interest rate during 1994 and 1995. Average loans outstanding during the
quarter ended June 30, 1995 were $143,817,000 which earned interest at an
average rate of 11.32%. This rate was offset by the lower rates earned on
Federal funds sold and other investments during that period resulting in an
average rate of 10.17% for the three-month period ended June 30, 1995.
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The rate paid on interest bearing liabilities was 3.33% for the quarter ended
June 30, 1995 as compared to 2.38% for the same period in 1994. Average
outstanding interest bearing deposits of $148,375,000 for the three months
ended June 30, 1995 were paid an average rate of 3.11% as compared to average
outstanding interest bearing deposits of $120,211,000 which were paid an
average of 2.07%.
The rate earned on interest earning assets for the six-month period ended
June 30, 1995 increased to 9.94% from 8.71% for the same period in 1994 due to
the increase in interest rates during 1994 and 1995. Average loans outstanding
during the quarter ended June 30, 1995 were $131,402,000 which earned interest
at an average rate of 11.01%. This rate was offset by the lower rates earned on
Federal funds sold and other investments during that period resulting in an
average rate of 9.94% for the six-month period ended June 30, 1995.
The rate paid on interest bearing liabilities was 3.29% for the six-month period
ended June 30, 1995, as compared to 2.34% for the same period in 1994. Average
outstanding interest bearing deposits of $137,204,000 for the six months ended
June 30, 1995 were paid an average rate of 3.05% as compared to average
outstanding interest bearing deposits of $124,750,000 which were paid an
average rate of 2.04%.
The following table presents for the periods indicated a summary of changes in
interest income and interest expense for the major categories of average
interest earning assets and average interest bearing liabilities and the
amounts of change attributable to variations in volume and in interest rates.
Three Months Ended June 30, Six Months Ended June 30,
1995 compared to 1994 1995 compared to 1994
-------------------------- ----------------------------
(in thousands) (in thousands)
Increase (Decrease) Increase (Decrease)
-------------------------- ----------------------------
Volume Rate Net Volume Rate Net
------ ---- ------ ------ ------ ------
Interest earned on interest earning assets:
Loans(1) $786 $492 $1,278 $848 $ 893 $1,741
Taxable investment securities 71 61 132 71 88 159
Nontaxable investment securities (9) - (9) (40) - (40)
Interest earning deposits 8 3 11 6 2 8
Federal funds sold 50 40 90 67 61 128
---- ---- ------ ---- ------ ------
Total interest on interest earning assets $906 $596 $1,502 $952 $1,044 $1,996
==== ==== ====== ==== ====== ======
Interest paid on interest bearing liabilities:
Interest bearing deposits:
Savings and time $132 $291 $ 423 $269 $ 449 $ 718
Interest bearing demand 38 70 108 (8) 103 95
---- ---- ------ ---- ------ ------
Total interest bearing deposits 170 361 531 261 552 813
Debentures and Federal funds purchased (3) 1 (2) 4 (3) 1
---- ---- ------ ---- ------ ------
Total interest on interest bearing liabilities $167 $362 $ 529 $265 $ 549 $ 814
==== ==== ====== ==== ====== ======
(1) Nonaccrual loans are included in the loan totals used in the calculation
of this table.
Interest income on loans includes the accretion of loan fees resulting from the
Company's lending activities. Net fees included in interest income for the three
months ended June 30, 1995 and 1994 were $48,000 and $83,000, respectively. Net
fees included in interest income for the six months ended June 30, 1995 and 1994
were $129,000 and $144,000, respectively.
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OTHER OPERATING EXPENSES
Total other operating expenses for the three months ended June 30, 1995 were
$3,447,000, an increase of $679,000 or 24.53% compared to the same quarter in
1994. An increase of $256,000 or 21.66% was reported in salaries and employee
benefits during the quarter ended June 30, 1995. Occupancy expenses increased
$24,000 or 8.39%, other real estate owned expenses increased $48,000 or 18.11%,
and the balance of the other operating expenses increased $351,000 or 33.91%
for the three-month period ended June 30, 1995 as compared to 1994. These
increases were a direct result of the Overland Merger.
Total other operating expenses for the six months ended June 30, 1995 were
$6,123,000, an increase of $606,000 or 10.98% compared to the same period in
1994. An increase of $181,000 or 7.27% was reported in salaries and employee
benefits during the six months ended June 30, 1995. Occupancy expenses were
reduced by $21,000 or 3.65%, other real estate owned expenses increased
$100,000 or 29.76%, and the balance of the other operating expenses increased
$346,000 or 16.34% for the six-month period ended June 30, 1995 as compared to
1994. The increases were a direct result of the Overland Merger offset by
efficiencies and cost reductions realized during 1995.
OTHER OPERATING INCOME
Other operating income was $866,000 for the quarter ended June 30, 1995
compared with $526,000 for the same period in 1994, an increase of $340,000 or
64.64%. Service charges increased by $99,000 or 50.25% while other noninterest
income increased $241,000 or 73.25%.
Other operating income was $1,390,000 for the six month period ended June 30,
1995 compared with $1,059,000 for the same period in 1994, an increase of
$331,000 or 31.26%. Service charges increased by $114,000 or 29.38% while other
noninterest income increased $217,000 or 32.34%.
The increases in service charges during the three- and six-month periods ended
June 30, 1995 as compared to the same periods in 1994 were a result of the
Overland Merger and an increase in merchant VISA activity. The increases in
other noninterest income were due primarily to gains on the sale of other real
estate owned of $278,000 as well as additional increases in service charges and
other fee income due to the deposits acquired in the Overland Merger.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Loan quality is monitored on an ongoing basis. On a quarterly basis, management
conducts an analysis of the composition and quality of the Company's loan
portfolio. The Company determines the allocation for allowances based upon the
evaluation of quality of the loan portfolio, total outstanding loans, previous
charges against the allowance, and current and anticipated economic conditions.
The provision for loan losses is a charge against earnings in the period
in which the potential loss is identified. Actual loan losses are charged
against the allowance for loan losses in the period in which they occur.
No provision for loan losses was recognized for the three- and six-month
periods ended June 30, 1995 and 1994. Based on a review of the loan portfolio
and considering historical experience with regard to potential loan losses, the
allowances for loan losses as of June 30, 1995 and 1994 were deemed adequate to
absorb potential losses.
At June 30, 1995, the allowance for loan losses totaled $2,848,000, or 1.99% of
total loans outstanding compared with $2,666,000 or 2.21% of total loans
outstanding as of December 31, 1994. Due to the positive trend in asset quality
and based on management's evaluation of the loan portfolio considering the
factors mentioned above, management believes that the allowance for loan losses
was adequate as of June 30, 1995.
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INCOME TAXES
No income tax expense or benefit was recorded during the three or six month
periods ended June 30, 1995 and 1994 due to the significant net operating loss
carryforward position of the Company for tax purposes. As of December 31,
1994, the Company had net operating loss carryforwards for Federal and state
income tax purposes of $5,650,000 and $3,949,000, respectively, which are
available to offset future Federal and state taxable income, if any, through
2009 and 1999, respectively. In addition, the Company has alternative minimum
tax credit carryforwards of approximately $119,000 which are available to
reduce future Federal regular income taxes, if any, over an indefinite period.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Effective asset liability management is achieved by maintaining adequate
liquidity and minimizing the impact of future interest rate changes on net
interest income. The responsibility of monitoring the Company's liquidity and
interest rate sensitivity lies with the Asset/Liability and Executive
Committees of FPNB. The Executive Committee meets weekly and the
Asset/Liability Committee meets quarterly to monitor liquidity, investment
strategies, rate sensitivity strategy, and loan demand as well as the adequacy
of funding sources.
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations, and to provide for customers' credit needs. Liquidity is
provided by cash and due from banks, Federal funds sold, investments available
for sale, interest earning deposits in other financial institutions, and loan
repayments. The Company's total liquid assets as a percentage of deposits
totaled 23.06% and 12.17% as of June 30, 1995 and December 31, 1994,
respectively. The increase in liquidity is due to a relative increase in
deposit balances since the end of the year as well as $8,000,000 in short-term
extraordinary deposits accepted on June 30, 1995.
The Company actively manages its interest rate sensitivity position. The
objectives of interest rate risk management are to control exposure of net
interest income to risks associated with interest rate movements to achieve
consistent growth in net interest income, and to profit from favorable market
opportunities. The Company manages the rate sensitivity position by adjusting
the average maturity of and establishing rates on earning assets and interest
bearing liabilities in line with its expectation for future interest rates.
However, even with perfectly matched repricing of assets and liabilities,
interest rate risk cannot be avoided entirely. Interest rate risk remains
in the form of prepayment risk of assets and liabilities, risks related to
differences in the timing and indexes for interest rate adjustments for assets
and liabilities with adjustable interest rates, and basis risk. In the
Company's experience, in a rising rate environment rates on short-term
liabilities rise more slowly than rates on its adjustable rate assets, while in
a decreasing rate environment, the Company would expect rates on its short-term
liabilities to decrease more consistently with the rates on its adjustable
assets.
CAPITAL RESOURCES
The Company engages in an ongoing assessment of its capital needs in order to
maintain an adequate level of capital to support business growth and to ensure
depositor protection. The Company's two sources of capital are internally
generated funds and the capital markets. In 1993, the Company completed the
offering of $4,575,000 of 9% convertible subordinated debentures due December
31, 1997. On November 22, 1994, the Company completed two private offerings of
the Company's common stock. After deducting the direct costs of approximately
$99,000 for the private offerings, the offerings generated $3,034,000 in
additional capital for the Company.
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The Federal Reserve Board (the "FRB") in December 1988, the Office of the
Comptroller of the Currency (the "OCC") in January 1989, and the Federal
Deposit Insurance Corporation in March 1989 adopted risk-based capital adequacy
guidelines for bank holding companies and banks. The risk-based capital
adequacy guidelines establish a risk-based capital ratio based on the overall
risk of the entity determined by assigning various weighted risks to each
balance sheet asset and certain off-balance sheet commitments, adding up all of
the weighted risk amounts, and dividing Tier 1 capital (capital, surplus, and
retained earnings) into the risk-weighted assets. At June 30, 1995, the
Company's Tier 1 risk-based capital to risk-weighted assets totaled 8.74%
compared to 7.82% at December 31, 1994.
Additionally, the FRB and the OCC adopted leverage requirements effective
January 1, 1992 which apply in addition to the risk-based capital requirements.
Under these requirements, bank holding companies and national banking
associations are required to maintain core capital of at least 3% of total
assets. On June 30, 1995 and December 31, 1994, the Company's core capital to
total assets stood at 6.58% and 6.33%, respectively.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders of the Company was held on March 22, 1995 at
10:00 a.m. at the Lake San Marcos Country Club, 1750 San Pablo Drive, Lake San
Marcos, California. There were 1,175,316 shares represented at the meeting by
proxy or in person, constituting a quorum of all shareholders of FP Bancorp.
The following proposals were approved at the Company's Special Meeting of
Shareholders:
Votes Votes Broker
Votes For Against Withheld Non-votes
--------- ------- -------- ---------
1. Proposed merger of Overland Bank
with and into FPNB. 1,130,929 23,496 20,891 0
2. Proposed reincorporation of FP Bancorp
as a Delaware corporation. 1,136,655 25,935 12,726 0
The Annual Meeting of Stockholders of the Company was held on July 27, 1995 at
5:30 p.m. at the California Center for the Arts, 340 North Escondido Boulevard,
Escondido, California. There were 2,133,218 shares represented at the meeting by
proxy or in person, constituting a quorum of all stockholders of the Company.
The following proposals were approved at the Company's Annual Meeting of
Stockholders:
Votes Votes Broker
Votes For Against Withheld Non-votes
--------- ------- -------- ---------
1. Election of 12 persons to serve as
Directors of the Company until their
successors are duly elected and
qualified. 2,116,796 0 16,422 0
2. Ratification of the appointment of
KPMG Peat Marwick, LLP as the
independent auditor for 1995. 2,110,632 13,770 8,816 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Ex-2.(i) Agreement and Plan of Reorganization dated October 12,
1994 among FP Bancorp, First Pacific National Bank, and
Overland Bank (incorporated by reference to Exhibit A to
the Registration Statement on Form S-4, File No. 33-87388.)
Ex-2.(ii) Agreement to Merge made between First Pacific National Bank
and Overland Bank under the Charter of First Pacific
National Bank under the title of First Pacific National
Bank (incorporated by reference to Exhibit (1) to the
Current Report on Form 8-K, File No. 0-17650 dated April 1,
1995.)
Ex-2.(iii) Certificate of Ownership and Merger of FP Bancorp
(incorporated by reference to Exhibit (2) to the Current
Report of Form 8-K, File No. 0-17650 dated April 1, 1995.)
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Ex-3.(i) Certificate of Incorporation of FP Bancorp, Inc.
(incorporated by reference to Exhibit (3) to the Current
Report on Form 8-K, File No. 0-17650 dated April 1, 1995.)
Ex-3.(ii) Certificate of Amendment of Certificate of Incorporation of
FP Bancorp, Inc. (incorporated by reference to Exhibit (4)
to the Current Report on Form 8-K, File No. 0-17650 dated
April 1, 1995.)
Ex-3.(iii) Amended and Restated By-laws of FP Bancorp, Inc., adopted
June 20, 1995.
(b) Reports on Form 8-K.
Form 8-K, File No. 0-17650 dated April 1, 1995 was filed to report the
merger of Overland Bank with and into FP Bancorp's wholly-owned
subsidiary, First Pacific National Bank, on April 1, 1995, the
reincorporation of the Company as a Delaware Corporation on April 11,
1995, and the listing of the Company's common stock on the Nasdaq
SmallCap Market on April 13, 1995. The Overland Bank Report and
Financial Statements as of and for the years ended December 31, 1994,
1993, and 1992 were filed with the Form 8-K.
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SIGNATURES
In the opinion of management, the financial statements presented reflect all
adjustments which are necessary to a fair statement of the results for the
periods presented.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FP Bancorp, Inc.
By: /s/ MICHAEL J. PERDUE
-----------------------------
Michael J. Perdue
Executive Vice President and
Chief Operating Officer
(duly authorized officer and
principal financial officer)
Dated: August 11, 1995
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