1
Total number of pages: 16
Exhibit Index on page: 15
FORM 10-QSB
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 0-17650
FP Bancorp, Inc. (formerly FP Bancorp)
(Exact name of small business issuer as specified in its charter)
Delaware 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 September 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
September 30, December 31,
ASSETS 1995 1994
- ------------------------------------------------------------------------------ ------------ ------------
Cash and due from banks $ 12,884,000 $ 9,627,000
Federal funds sold 5,500,000 0
Interest earning deposits 198,000 0
Investment securities available for sale 16,339,000 8,192,000
Investment securities held to maturity 20,144,000 15,465,000
Loans, net of allowance for loan losses of $2,055,000 at September 30, 1995
and $2,666,000 at December 31, 1994 137,762,000 118,183,000
Premises and equipment, net 6,772,000 5,956,000
Other real estate owned, net 5,632,000 5,044,000
Goodwill, net 1,432,000 0
Accrued interest and other assets 3,313,000 2,251,000
- ------------------------------------------------------------------------------ ------------ ------------
$209,976,000 $164,718,000
============================================================================== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Deposits:
Non-interest bearing $ 42,317,000 $ 28,027,000
Interest bearing 145,042,000 118,416,000
- ------------------------------------------------------------------------------ ------------ ------------
Total Deposits 187,359,000 146,443,000
- ------------------------------------------------------------------------------ ------------ ------------
Federal funds purchased 0 2,800,000
Accrued expenses and other liabilities 1,897,000 1,080,000
Subordinated debentures 4,575,000 4,575,000
- ------------------------------------------------------------------------------ ------------ ------------
Total liabilities 193,831,000 154,898,000
- ------------------------------------------------------------------------------ ------------ ------------
Stockholders' equity:
Common stock 24,544,000 20,289,000
Accumulated deficit (8,366,000) (9,821,000)
Unrealized holding gains (losses) on investment securities available for sale 75,000 (515,000)
Receivable from ESOP (108,000) (133,000)
- ------------------------------------------------------------------------------ ------------ ------------
Total stockholders' equity 16,145,000 9,820,000
- ------------------------------------------------------------------------------ ------------ ------------
$209,976,000 $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 Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1995 1994 1995 1994
- ------------------------------------ ---------- ---------- ----------- ----------
Interest income:
Interest and fees on loans $3,780,000 $2,977,000 $10,954,000 $8,410,000
Federal funds sold 146,000 61,000 312,000 99,000
Interest earning deposits 7,000 0 19,000 4,000
Investment securities 488,000 303,000 1,217,000 913,000
- ------------------------------------ ---------- ---------- ----------- ----------
Total interest income 4,421,000 3,341,000 12,502,000 9,426,000
- ------------------------------------ ---------- ---------- ----------- ----------
Interest expense:
Deposits 1,176,000 667,000 3,250,000 1,928,000
Other 122,000 121,000 366,000 363,000
- ------------------------------------ ---------- ---------- ----------- ----------
Total interest expense 1,298,000 788,000 3,616,000 2,291,000
- ------------------------------------ ---------- ---------- ----------- ----------
Net interest income 3,123,000 2,553,000 8,886,000 7,135,000
Provision for loan losses 100,000 0 100,000 0
- ------------------------------------ ---------- ---------- ----------- ----------
Net interest income after
provision for loan losses 3,023,000 2,553,000 8,786,000 7,135,000
- ------------------------------------ ---------- ---------- ----------- ----------
Other operating income:
Service charges 297,000 199,000 799,000 587,000
Other 357,000 139,000 1,245,000 810,000
- ------------------------------------ ---------- ---------- ----------- ----------
Total other operating income 654,000 338,000 2,044,000 1,397,000
- ------------------------------------ ---------- ---------- ----------- ----------
Other operating expenses:
Salaries and employee benefits 1,387,000 1,210,000 4,057,000 3,699,000
Premises and equipment 555,000 533,000 1,511,000 1,446,000
Professional services 500,000 396,000 1,273,000 1,106,000
Loss on sale of investment securities 66,000 0 112,000 0
Other real estate owned 191,000 75,000 627,000 411,000
Other 775,000 515,000 2,017,000 1,585,000
- ------------------------------------ ---------- ---------- ----------- ----------
Total other operating expenses 3,474,000 2,729,000 9,597,000 8,247,000
- ------------------------------------ ---------- ---------- ----------- ----------
Earnings before income taxes 203,000 162,000 1,233,000 285,000
Net income tax benefit 222,000 0 222,000 0
- ------------------------------------ ---------- ---------- ----------- ----------
Net earnings $ 425,000 $ 162,000 $ 1,455,000 $ 285,000
==================================== ========== ========== =========== ==========
Primary earnings per share: $0.16 $0.13 $0.61 $0.23
==================================== ========== ========== =========== ==========
Fully diluted earnings per share: $0.11 $0.13 $0.54 $0.23
==================================== ========== ========== =========== ==========
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
--------------------------------
1995 1994
- ---------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,455,000 $ 285,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 713,000 629,000
Provision for loan losses 100,000 0
Provision for losses on other real estate owned 284,000 217,000
Gain on sale of other real estate owned (315,000) (81,000)
(Gain) loss on sale of investment securities available for sale 112,000 (18,000)
Decrease (increase) in accrued interest & other assets (375,000) 477,000
Increase (decrease) in accrued expenses and other liabilities 258,000 (76,000)
Increase in deferred loan origination fees 113,000 49,000
- ---------------------------------------------------------------------- ----------- -----------
Net cash provided by operating activities 2,345,000 1,482,000
- ---------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in loans outstanding 7,474,000 2,518,000
Proceeds on sale of other real estate owned 2,994,000 2,648,000
Net maturities of interest earning deposits 1,655,000 887,000
Maturities of investment securities available for sale 1,606,000 1,792,000
Maturities of investment securities held to maturity 1,151,000 333,000
Purchase of investment securities available for sale (18,734,000) (1,000,000)
Purchase of investment securities held to maturity (1,871,000) (1,859,000)
Proceeds from sale of investment securities available for sale 9,399,000 2,198,000
Decrease in receivable from ESOP 25,000 25,000
Additions to premises and equipment (617,000) (141,000)
Net cash acquired in merger 4,312,000 0
- ---------------------------------------------------------------------- ----------- -----------
Net cash provided by investing activities 7,394,000 7,401,000
- ---------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in interest bearing deposits (3,172,000) (7,389,000)
Net increase in non-interest bearing deposits 4,990,000 1,376,000
Decrease in Federal funds purchased (2,800,000) 0
- ---------------------------------------------------------------------- ----------- -----------
Net cash used in financing activities (982,000) (6,013,000)
- ---------------------------------------------------------------------- ----------- -----------
Net increase in cash and cash equivalents 8,757,000 2,870,000
Cash and cash equivalents at beginning of period 9,627,000 12,546,000
- ---------------------------------------------------------------------- ----------- -----------
Cash and cash equivalents at end of period $18,384,000 $15,416,000
====================================================================== =========== ===========
(continued)
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
Nine Months Ended September 30,
-------------------------------
1995 1994
---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $3,530,000 $ 2,374,000
Supplemental disclosure of noncash investing and financing activities:
Transfer from loans to other real estate owned $1,976,000 $ 4,117,000
Transfer from other real estate owned to loans $ 62,000 $ 850,000
Transfer from other real estate owned to fixed assets $ 0 $ 460,000
Transfer of investment securities from held to maturity to available
for sale $ 0 $11,792,000
Common stock issued in merger $4,255,000 $ 0
Change in net unrealized gain (loss) on investment securities
available for sale $ 590,000 $ (340,000)
====================================================================== ========== ===========
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 September 30, 1995 and for the three- and nine-month periods ended
September 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 nine-month periods
ended September 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 numbers of shares used for the primary earnings per share
calculations for the three-month periods ended September 30, 1995 and 1994
were 2,690,000 and 1,213,000, respectively. The weighted average numbers of
shares used for the primary earnings per share calculations for the
nine-month periods ended September 30, 1995 and 1994 were 2,404,000 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. Outstanding warrants are
considered contingent issuances and are included in the fully diluted
earnings per share calculation 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 September 30, 1995 and 1994
were 3,250,000 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 nine-month periods ended September 30, 1995 and 1994
were 2,981,000 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 of 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. 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. 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 aquisition $ 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
nine-month periods ended September 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 informational 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 Nine months ended
-------------------------- ----------------------------
(in thousands, except share and per share data) 1995 1994 1995 1994
--------- --------- --------- ---------
Interest income $ 4,421 $ 4,335 $ 13,653 $ 12,345
Interest expense 1,298 1,038 3,845 3,092
Provision for loan losses 100 - 100 92
Noninterest income 654 477 2,172 1,843
Noninterest expense 3,474 3,708 10,211 10,498
--------- --------- --------- ---------
Net earnings before income taxes 203 66 1,669 506
Income tax benefit 222 8 222 8
--------- --------- --------- ---------
Net earnings $ 425 $ 74 $ 1,891 $ 514
========= ========= ========= =========
Net earnings per share $ 0.16 $ 0.04 $ 0.70 $ 0.26
========= ========= ========= =========
Average shares outstanding 2,690,000 2,002,000 2,706,000 2,002,000
========= ========= ========= =========
5. 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.
6. Goodwill is amortized on a straight-line basis over an estimated
useful life of fifteen years.
7. 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. Effective Tuesday, April 11, 1995, following the approval of the
stockholders of the Company on March 22, 1995, the Company was
reincorporated as a Delaware corporation under the name FP Bancorp, Inc.
2. 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.
3. On August 21, 1995, the Company announced that it had entered into a letter
of intent to acquire RB Bancorp and its only subsidiary, The Bank of Rancho
Bernardo, subject to entering into a definitive agreement and obtaining
regulatory and shareholder approvals. Shareholders of RB Bancorp will
receive $7,000,000 in cash for the exchange of all outstanding RB Bancorp
shares. The Bank of Rancho Bernardo is located in the community of Rancho
Bernardo in San Diego County, approximately six miles south of the City of
Escondido, where the Company is headquartered. As of June 30, 1995, The
Bank of Rancho Bernardo's assets totaled $57,300,000, deposits were
$52,300,000 and loans were $38,900,000. The merger is expected to be
completed in the first half of 1996.
4. On September 14, 1995, the Company announced that effective September 18,
1995, its common stock was listed on the Nasdaq National Market System.
The stock had previously been listed on the Nasdaq SmallCap Market. The
stock will continue to trade under the symbol FPBN.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The financial position and the results of operations as of September 30, 1995
reflect the Company's acquisition of Overland Bank on April 1, 1995 (see
footnote 4 to the financial statements).
The Company's net earnings for the quarter ended September 30, 1995 were
$425,000 or $.16 per share, compared to net earnings of $162,000 or $.13 per
share for the same quarter in 1994. The Company's return on average assets and
return on average stockholders' equity were .20% and 2.68%, respectively, for
the three-month period ended September 30, 1995, compared with .10% and 2.34%,
respectively, for the same period in 1994. The increase in earnings of $263,000
for the three-month period ended September 30, 1995 as compared with the same
period in 1994 was due to an increase in net interest income of $570,000 or
22.33% and an increase in noninterest income of $316,000 or 93.49%, offset by a
provision for loan losses of $100,000 in the quarter ended September 30, 1995
as compared to $0 in 1994 and an increase in noninterest expenses of $745,000
or 27.30% as compared to the same quarter in 1994. A net income tax benefit of
$222,000 was also recorded during the quarter ended September 30, 1995.
The Company's net earnings for the nine months ended September 30, 1995 were
$1,455,000 or $.61 per share compared to net earnings of $285,000 or $.23 per
share for the same period in 1994. The Company's return on average assets and
return on average stockholders' equity were .74% and 10.54%, respectively, for
the nine-month period ended September 30, 1995 compared with .18% and 4.12%,
respectively, for the same period in 1994. The increase in earnings of
$1,170,000 or 410.53% for the nine-month period ended September 30, 1995 as
compared to the same period in 1994 was due to an increase in net interest
income of $1,751,000 or 24.54% and an increase in other operating income of
$647,000 or 46.31%, offset by a provision for loan losses of $100,000 in 1995
as compared to $0 in 1994, and an increase in noninterest expenses of
$1,350,000 or 16.37% as compared to the same period in 1994. A net tax benefit
of $222,000 was also recorded during the nine months ended September 30, 1995
as compared to $0 in 1994.
The increases in net interest income during the three- and nine-month periods
ended September 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. The increase in
noninterest income was also a direct result of the Overland Merger. Total
noninterest expenses for the three- and nine-month periods ended September 30,
1995 increased by only 27.30% and 16.37%, respectively, including additional
expenses from the Overland Merger, due to increased efficiencies.
Total assets increased $45,258,000 or 27.48% from $164,718,000 as of December
31, 1994 to $209,976,000 as of September 30, 1995. The increase was primarily
due to the Overland Merger, which increased the Company's assets by $44,967,000
on the merger date. Net loans increased from $118,183,000 as of December 31,
1994 to $137,762,000 as of September 30, 1995, an increase of $19,579,000 or
16.57%. The Overland Merger accounted for $29,180,000 of the increase, offset
by a net decrease of $9,600,000 in loans due to a number of large individual
loan paydowns since year end and $1,976,000 of loans transferred into other
real estate owned. Deposits increased from $146,443,000 as of December 31, 1994
to $187,359,000 as of September 30, 1995, an increase of $40,916,000 or 27.94%.
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 $570,000 or
22.33% for the quarter ended September 30, 1995 as compared with the same
period in 1994. Net interest income is affected by changes in average rates,
average volumes of interest earning assets, and average volumes of interest
bearing liabilities. During the three-month period ended September 30, 1995,
$29,180,000 of loans and
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$29,799,000 of interest bearing deposits acquired in the Overland Merger
contributed to the increase in net interest income during the period.
The rate earned on interest earning assets for the quarter ended September 30,
1995 increased to 9.53% from 9.44% for the same period in 1994 due to the net
increase in interest rates during 1994 and 1995. Average loans outstanding
during the quarter ended September 30, 1995 were $141,222,000 which earned
interest at an average rate of 10.62% as compared to average loans outstanding
of $111,194,000 which earned a rate of 10.44% during the same period in 1994.
Average Federal funds sold were $10,254,000 which earned an average rate of
5.65% for the three months ended September 30, 1995 as compared to $5,779,000
which earned 4.19% during the same quarter in 1994. The investment securities
portfolios had an aggregate average balance of $32,244,000 and earned 6.00% for
the three months ended September 30, 1995 as compared to $23,416,000 which
earned 5.13% during the same period in 1994.
The rate paid on interest bearing liabilities was 3.37% for the quarter ended
September 30, 1995 as compared to 2.49% for the same period in 1994 due to the
net increase in interest rates and a change in deposit mix. Average
outstanding interest bearing deposits of $148,232,000 for the three months
ended September 30, 1995 were paid an average rate of 3.15% as compared to
average outstanding interest bearing deposits of $120,829,000 which were paid
an average rate of 2.19% during the same period in 1994.
The rate earned on interest earning assets for the nine-month period ended
September 30, 1995 increased to 9.79% from 8.99% for the same period in 1994
due to the net increase in interest rates during 1994 and 1995. Average loans
outstanding during the quarter ended September 30, 1995 were $134,714,000 which
earned interest at an average rate of 10.87% as compared to average loans
outstanding of $112,448,000 which earned a rate of 10.00% during the same
period in 1994. Average Federal funds sold were $7,293,000 which earned an
average rate of 5.72% for the nine months ended September 30, 1995 as compared
to $3,314,000 which earned 3.99% during the same period in 1994. The
investment securities portfolios had an aggregate average balance of
$28,279,000 and earned 5.75% for the nine months ended September 30, 1995 as
compared to $23,345,000 which earned 4.99% during the same period in 1994.
The rate paid on interest bearing liabilities was 3.32% for the nine-month
period ended September 30, 1995, as compared to 2.39% for the same period in
1994 due to the net increase in interest rates and a change in deposit mix.
Average outstanding interest bearing deposits of $140,924,000 for the nine
months ended September 30, 1995 were paid an average rate of 3.08% as compared
to average outstanding interest bearing deposits of $123,442,000 which were
paid an average rate of 2.09% during the same period in 1994.
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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 September 30, Nine Months Ended September 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) $ 790 $ 13 $ 803 $ 1,665 $ 879 $ 2,544
Taxable investment securities 114 71 185 184 161 345
Nontaxable investment securities 0 0 0 (41) 0 (41)
Interest earning deposits 0 7 7 10 5 15
Federal funds sold 47 38 85 119 94 213
--------- --------- --------- --------- --------- --------
Total interest on interest
earning assets $ 951 $ 129 $ 1,080 $ 1,937 $ 1,139 $ 3,076
========= ========= ========= ========= ========= ========
Interest paid on interest bearing
liabilities:
Interest bearing deposits:
Savings and time $ 136 $ 254 $ 390 $ 312 $ 795 $ 1,107
Interest bearing demand 40 79 119 34 181 215
--------- --------- --------- --------- --------- --------
Total interest bearing deposits 176 333 509 346 976 1,322
Debentures and Federal funds purchased 0 1 1 6 (3) 3
--------- --------- --------- --------- --------- --------
Total interest on interest
bearing liabilities $ 176 $ 334 $ 510 $ 352 $ 973 $ 1,325
========= ========= ========= ========= ========= ========
(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 September 30, 1995 and 1994 were $48,000 and $56,000,
respectively. Net fees included in interest income for the nine months ended
September 30, 1995 and 1994 were $177,000 and $200,000, respectively.
OTHER OPERATING EXPENSES
Total other operating expenses for the three months ended September 30, 1995
were $3,474,000, an increase of $745,000 or 27.30% as compared to the same
quarter in 1994. An increase of $177,000 or 14.63% was reported in salaries and
employee benefits during the quarter ended September 30, 1995. Premises and
equipment expenses increased $22,000 or 4.13%, professional services expense
increased $104,000 or 26.26%, other real estate owned expenses increased
$116,000 or 154.67%, and the balance of the other operating expenses increased
$326,000 or 63.30% for the three-month period ended September 30, 1995 as
compared to 1994. These increases were a direct result of the Overland Merger.
In addition, an FDIC assessment refund of $130,000 was recorded during the
three-month period ended September 30, 1995, which was offset by a nonrecurring
loss on the sale of investment securities available for sale of $66,000
recorded during the same period.
Total other operating expenses for the nine months ended September 30, 1995
were $9,597,000, an increase of $1,350,000 or 16.37% compared to the same
period in 1994. An increase of $358,000 or 9.68% was reported in salaries and
employee benefits during the nine months ended September 30, 1995. Premises and
equipment expenses increased by $65,000 or 4.50%, professional services expense
increased $167,000 or 15.10%, other real estate owned expenses increased
$216,000 or 52.56%, and the balance of the other operating expenses increased
$544,000 or 34.32% for the nine-month period ended September 30, 1995 as
compared to 1994. The increases were a direct result of the Overland Merger
offset by
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efficiencies and cost reductions realized during 1995. In addition, a
nonrecurring loss on sale of investment securities of $112,000 was recorded
during the nine-month period ended September 30, 1995.
OTHER OPERATING INCOME
Other operating income was $654,000 for the quarter ended September 30, 1995
compared with $338,000 for the same period in 1994, an increase of $316,000 or
93.49%. Service charges increased by $98,000 or 49.25% while other noninterest
income increased $218,000 or 156.84%.
Other operating income was $2,044,000 for the nine-month period ended September
30, 1995 compared with $1,397,000 for the same period in 1994, an increase of
$647,000 or 46.31%. Service charges increased by $212,000 or 36.12% while other
noninterest income increased $435,000 or 53.70%.
The increases in service charges during the three- and nine-month periods ended
September 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 $46,000 and $324,000, respectively, for the three- and nine-
month periods ended September 30, 1995 as well as additional increases in 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.
A provision for loan losses of $100,000 was recognized for the three- and
nine-month periods ended September 30, 1995. No provision for loan losses was
booked in 1994. Based on a review of the loan portfolio and considering
historical experience with regard to potential loan losses, the provisions were
necessary so that the allowances for loan losses as of September 30, 1995 and
1994 were adequate to absorb potential losses.
At September 30, 1995, the allowance for loan losses totaled $2,055,000, or
1.47% 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 September 30, 1995.
INCOME TAXES
A net income tax benefit of $222,000 was recorded during the three- and
nine-month periods ended September 30, 1995. The amount of the benefit was
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", considering management's best estimate of
the effective tax rate expected to be applicable for the full fiscal year.
Management believes that it is more likely than not that the net deferred tax
asset recorded will be realized through future earnings and/or tax planning
strategies. No income taxes were recorded during 1994.
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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 for 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 18.64% and 12.17% as of September 30, 1995 and December 31, 1994,
respectively. The increase in liquidity is due to a relative increase in
deposit balances since the end of 1994.
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 or 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 rate
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. 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.
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. As of September 30, 1995,
the Company's Tier I risk-based capital to risk-weighted assets totaled 9.30%
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 September 30, 1995 and December 31, 1994, the Company's core
capital to total assets stood at 7.04% 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 Stockholders 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 stockholders of FP Bancorp.
The following proposals were approved at the Company's Special Meeting of
Stockholders:
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 2,116,796 0 16,422 0
qualified.
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
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.)
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.)
2(iii) Certificate of Ownership and Merger of FP Bancorp (incorporated
by reference to Exhibit
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(2) to the Current Report on Form 8-K, File No. 0-17650 dated
April 1, 1995.)
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.)
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.)
3(iii) Amended and Restated By-laws of FP Bancorp, Inc., adopted June
20, 1995
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, File No. 0-17650 dated August 21, 1995 was filed to report
the planned mergers of Rancho Santa Fe National Bank and RB Bancorp,
parent company of The Bank of Rancho Bernardo, into First Pacific
National Bank.
Form 8-K, File No. 0-17650 dated September 13, 1995 was filed to
report that FP Bancorp and Rancho Santa Fe National Bank had
terminated negotiations for the merger of Rancho Santa Fe National
Bank into First Pacific National Bank. The Company also reported
that effective September 18, 1995, its common stock was listed on the
Nasdaq National Market System. The stock had previously been traded
on the Nasdaq SmallCap Market.
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: November 10, 1995
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3(iii) Amended and Restated By-laws of FP Bancorp, Inc.,
adopted June 20, 1995
27 Financial Data Schedule