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Total number of pages: 12
Exhibit Index on page: 12
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 March 31, 1996
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.
(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 92025-4929
(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 March 31, 1996, the number of shares outstanding of the Registrant's only
class of common stock was 2,651,811.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 1996 December 31, 1995
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Cash and due from banks $ 14,965,000 $ 14,293,000
Federal funds sold 1,200,000 2,000,000
Investment securities available for sale 26,517,000 27,581,000
Investment securities held to maturity 7,613,000 7,753,000
Loans, net of allowance for loan losses of $2,145,000 at March 31, 1996
and $2,013,000 at December 31, 1995 146,880,000 141,930,000
Premises and equipment, net 6,627,000 6,550,000
Other real estate owned, net 2,223,000 3,139,000
Goodwill, net 1,512,000 1,603,000
Accrued interest and other assets 4,034,000 3,948,000
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$ 211,571,000 $ 208,797,000
================================================================================= =============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits:
Noninterest-bearing $ 38,911,000 $ 41,234,000
Interest-bearing 149,467,000 144,430,000
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Total deposits 188,378,000 185,664,000
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Accrued expenses and other liabilities 1,358,000 1,725,000
Subordinated debentures 4,575,000 4,575,000
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Total liabilities 194,311,000 191,964,000
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Stockholders' equity:
Common stock, par value $.001, authorized 4,000,000 shares, issued and
outstanding 2,651,811 and 2,650,811 in 1996 and 1995, respectively 3,000 3,000
Additional paid-in capital 24,561,000 24,556,000
Accumulated deficit (7,186,000) (7,910,000)
Unrealized holding gains (losses) on investment securities available for sale (118,000) 284,000
Receivable from ESOP -- (100,000)
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Total stockholders' equity 17,260,000 16,833,000
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$ 211,571,000 $ 208,797,000
================================================================================= =============== =================
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended
March 31,
------------------------------
1996 1995
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Interest income:
Interest and fees on loans $ 3,789,000 $3,115,000
Federal funds sold 79,000 54,000
Investment securities 555,000 317,000
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Total interest income 4,423,000 3,486,000
- ----------------------------------------------------- ----------- ----------
Interest expense:
Deposits 1,171,000 924,000
Other 122,000 125,000
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Total interest expense 1,293,000 1,049,000
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Net interest income 3,130,000 2,437,000
Provision for loan losses 250,000 --
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Net interest income after
provision for loan losses 2,880,000 2,437,000
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Other operating income:
Service charges 507,000 394,000
Other 63,000 125,000
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Total other operating income 570,000 519,000
- ----------------------------------------------------- ----------- ----------
Other operating expenses:
Salaries and employee benefits 1,413,000 1,232,000
Occupancy 296,000 244,000
Furniture and equipment 204,000 165,000
Professional services 414,000 364,000
Other real estate owned, net 84,000 118,000
Other 594,000 548,000
- ----------------------------------------------------- ----------- ----------
Total other operating expenses 3,005,000 2,671,000
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Earnings before income taxes 445,000 285,000
Net income tax benefit (279,000) --
- ----------------------------------------------------- ----------- ----------
Net earnings $ 724,000 $ 285,000
===================================================== =========== ==========
Primary earnings per share: $ 0.27 $ 0.16
===================================================== =========== ==========
Fully diluted earnings per share: $ 0.22 $ 0.16
===================================================== =========== ==========
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
---------------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 724,000 $ 285,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 244,000 179,000
Provision for loan losses 250,000 --
Provision for losses on other real estate owned 63,000 21,000
Gain on sale of other real estate owned (26,000) --
Increase in accrued interest and other assets (23,000) (190,000)
Increase (decrease) in accrued expenses and other liabilities (367,000) 50,000
Increase in deferred loan origination fees 67,000 (83,000)
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Net cash provided by operating activities 932,000 262,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in loans outstanding (5,401,000) 5,568,000
Proceeds on sale of other real estate owned 1,013,000 102,000
Maturities of investment securities available for sale 1,665,000 119,000
Maturities of investment securities held to maturity 134,000 23,000
Purchase of investment securities available for sale (1,030,000) (205,000)
Purchase of investment securities held to maturity -- (839,000)
Decrease in receivable from ESOP 100,000 8,000
Net capital expenditures for premises and equipment (260,000) (83,000)
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Net cash provided by (used in) investing activities (3,779,000) 4,693,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in interest-bearing deposits 5,037,000 6,783,000
Net increase in noninterest-bearing deposits (2,323,000) (985,000)
Proceeds from exercise of stock options 5,000 --
Decrease in Federal funds purchased -- (2,800,000)
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Net cash used in financing activities 2,719,000 2,998,000
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Net increase in cash and cash equivalents (128,000) 7,953,000
Cash and cash equivalents at beginning of period 16,293,000 9,627,000
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Cash and cash equivalents at end of period $ 16,165,000 $ 17,580,000
======================================================================= ============ ============
(continued)
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
Three Months Ended March 31,
------------------------------
1996 1995
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,506,000 $1,120,000
Supplemental disclosure of noncash investing and financing activities:
Transfer from loans to other real estate owned $ 229,000 $ 537,000
Change in unrealized holding gains (losses) on investment securities
available for sale $ (402,000) $ 217,000
===================================================================================== =========== ==========
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. (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 March 31,
1996 and for the three-month periods ended March 31, 1996 and 1995 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, 1995. The results of operations for
the three-month period ended March 31, 1996 are not necessarily indicative
of the results for the entire year ending December 31, 1996.
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 March 31, 1996 and 1995 were
2,712,000 and 1,838,000, respectively.
Fully diluted earnings per share is computed by dividing net earnings,
subject to certain adjustments, 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 adjusted
net earnings used for the fully diluted earnings per share calculations for
the three-month periods ended March 31, 1996 and 1995 were $698,000 and
$285,000 in 1996 and 1995, respectively. The weighted average numbers of
shares used for the fully diluted earnings per share calculations for the
three-month periods ended March 31, 1996 and 1995 were 3,170,000 and
1,838,000, respectively.
3. 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.
4. Goodwill is amortized on a straight-line basis over an estimated useful
life of fifteen years.
5. Certain 1995 amounts have been reclassified to conform to the presentation
used in 1996.
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FP BANCORP, INC.
MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
1. On April 1, 1996, The Company completed the merger of RB Bancorp and its
wholly-owned subsidiary, The Bank of Rancho Bernardo, with and into FPNB.
The Bank of Rancho Bernardo was a state-chartered bank with one office
located in the community of Rancho Bernardo in North San Diego County,
California. The merger was consummated after obtaining all applicable
regulatory approvals and the approval of the shareholders of RB Bancorp on
February 16, 1996.
Pursuant to the merger agreement, shareholders of RB Bancorp received
$7,350,000 in cash for the exchange of all outstanding RB Bancorp shares.
$7,095,000 of the funds were provided from the liquidity of FPNB, and
$256,000 of the funds were provided by a good faith deposit made by the
Company. The amount of consideration was determined by negotiations between
the Company and RB Bancorp.
Upon consummation of the merger, RB Bancorp and The Bank of Rancho Bernardo
ceased to exist and FPNB continued as the surviving entity. The combined
institution had assets of approximately $270,000,000, loans of $193,000,000
and deposits of $240,000,000 after the transaction.
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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 March 31, 1996
reflect the Company's acquisition of Overland Bank on April 1, 1995 (the
"Overland Merger").
The Company's net earnings for the quarter ended March 31, 1996 were $724,000 or
$.27 per share, compared to net earnings of $285,000 or $.16 per share for the
same quarter in 1995. The Company's return on average assets and return on
average stockholders' equity were .34% and 4.20%, respectively, for the
three-month period ended March 31, 1995 as compared to .17% and 2.80%,
respectively, for the same period in 1995. The increase in earnings of $439,000
for the three-month period ended March 31, 1996 as compared to the same period
in 1995 was due to an increase in net interest income of $693,000 or 28.44%
offset by an increase in other operating expenses of $334,000 or 12.51%. A net
income tax benefit of $279,000 was also recorded during the quarter ended March
31, 1996.
The increase in net interest income and other operating expenses during the
three-month period ended March 31, 1996 as compared to 1995 was primarily due to
the growth accomplished through the Overland Merger.
Total assets increased $2,774,000 or 1.33% from $208,797,000 as of December 31,
1995 to $211,571,000 as of March 31, 1996. The increase in total assets was due
to an increase in total loans of $5,082,000 or 3.53%, offset by a decrease of
$916,000 or 29.18% in other real estate owned ("OREO") and a decrease of
$1,192,000 or 2.72% in liquid assets.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $693,000 or
28.44% for the quarter ended March 31, 1996 as compared to the same period in
1995. Net interest income is affected by changes in average rates, average
volumes of interest-earning assets and average volumes of interest-bearing
liabilities. On April 1, 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 in net interest income during the first quarter of
1996 as compared to 1995. Changes in the interest rate environment and the
Company's cost of funds also effected net interest income.
The rate earned on interest-earning assets for the quarter ended March 31, 1996
decreased to 9.54% from 9.63% for the same period in 1995 due to the net
decrease in interest rates during 1996 and 1995. Average loans outstanding
during the quarter ended March 31, 1996 were $145,562,000 which earned interest
at an average rate of 10.47%, as compared to average loans outstanding of
$118,869,000 which earned a rate of 10.63% during the same period in 1995.
Average Federal funds sold were $6,160,000 which earned an average rate of 5.16%
for the three months ended March 31, 1996, as compared to $3,809,000 which
earned 5.75% during the same quarter in 1995. Conversely, the investment
securities portfolios had an aggregate average balance of $34,718,000 and earned
6.43% for the three months ended March 31, 1996 as compared to $24,190,000 which
earned 5.31% during the same period in 1995. The increase in the Company's yield
on investment securities in a decreasing interest rate environment was the
result of a restructuring of the investment portfolio into higher-yielding
securities during the second and third quarters of 1995.
The rate paid on interest-bearing liabilities was 3.36% for the quarter ended
March 31, 1996 as compared to 3.25% for the same period in 1995 due to the
introduction of new deposit products during 1995 and a change in deposit mix.
Average outstanding interest-bearing deposits of $150,109,000 for the quarter
ended March 31, 1996 were paid an average rate of 3.14% as compared to average
outstanding interest-bearing deposits of $125,934,000 which were paid an average
rate of 2.98% for the same period in 1995.
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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 March 31,
1996 compared to 1995
---------------------------------
(in thousands)
Increase (Decrease)
---------------------------------
Volume Rate Net
------ ---- -----
Interest earned on interest-earning assets:
Loans (1) $ 705 $(31) $ 674
Taxable investment securities 139 99 238
Federal funds sold 34 (9) 25
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Total interest on interest-earning assets $ 878 $ 59 $ 937
===== ==== =====
Interest paid on interest-bearing liabilities:
Interest-bearing deposits:
Savings and time $ 109 $ 18 $ 127
Interest-bearing demand 64 56 120
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Total interest-bearing deposits 173 74 247
Debentures and Federal funds purchased (3) -- (3)
----- ---- -----
Total interest on interest-bearing liabilities $ 170 $ 74 $ 244
===== ==== =====
(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 March 31, 1996 and 1995 were $136,000 and $81,000, respectively.
OTHER OPERATING INCOME
Other operating income was $570,000 for the quarter ended March 31, 1996 as
compared to $519,000 for the same period in 1995, an increase of $51,000 or
9.83%. Service charges increased by $113,000 or 28.68% while all other operating
income decreased $62,000 or 48.60%. The increase in service charges during the
three-month period ended March 31, 1996 as compared to the same period in 1995
was due to the increase in the deposit base resulting from the Overland Merger
and an increase in merchant VISA activity.
OTHER OPERATING EXPENSES
Total other operating expenses for the three months ended March 31, 1996 were
$3,005,000, an increase of $334,000 or 12.51%, as compared to the same quarter
in 1995. An increase of $181,000 or 14.69% was reported in salaries and employee
benefits during the quarter ended March 31, 1996. Occupancy and furniture and
equipment expenses increased $91,000 or 22.25%, professional services expense
increased $50,000 or 13.74%, net other real estate owned expenses decreased
$34,000 or 28.81% and the balance of the other operating expenses increased
$46,000 or 8.39% for the three-month period ended March 31, 1996 as compared to
1995. These increases were a direct result of the Overland Merger, except for
the reduction in net other real estate owned expense, which was due to the
decrease in other real estate owned from $3,139,000 as of December 31, 1995 to
$2,223,000 as of March 31, 1996.
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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 $250,000 was recognized for the three-month
period ended March 31, 1996. No provision for loan losses was recorded in the
first quarter of 1995. Based on a review of the loan portfolio and considering
historical experience with regard to potential loan losses, the provision was
necessary so that the allowance for loan losses as of March 31, 1996 was
adequate to absorb potential losses.
As of March 31, 1996, the allowance for loan losses totaled $2,145,000 or 1.44%
of total loans outstanding compared with $2,013,000 or 1.40% of total loans
outstanding as of December 31, 1995. 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 March 31, 1996.
INCOME TAXES
A net income tax benefit of $279,000 was recorded during the three-month period
ended March 31, 1996. 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 tax
benefit was recorded during the first quarter of 1995.
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 22.66% and
23.63% as of March 31, 1996 and December 31, 1995, respectively.
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
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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.
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 March 31, 1996, the Company's
Tier I risk-based capital to risk-weighted assets totaled 9.72% compared to
9.32% at December 31, 1995.
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 March 31, 1996 and December 31, 1995, the Company's core capital to
total assets stood at 7.55% and 7.25%, respectively.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, File No. 0-17650 dated January 12, 1996 was filed to report
the signing of a Definitive Agreement for the merger of The Bank of
Rancho Bernardo with and into the Company's wholly-owned subsidiary,
First Pacific National Bank, and to announce the opening of a second
First Pacific National Bank branch in Temecula, California.
Form 8-K, File No. 0-17650 dated April 1, 1996 was filed to report that
the merger of The Bank of Rancho Bernardo with and into the Company's
wholly-owned subsidiary, First Pacific National Bank, had been
consummated.
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: May 13, 1996
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