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Total number of pages: 13
Exhibit Index on page: 13
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, 1997
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, California 92025-4929
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(Address of principal executive offices) (ZIP Code)
(760) 741-3312
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(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, 1997, the number of shares outstanding of the Registrant's
only class of common stock was 2,777,830.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS September 30, 1997 December 31, 1996
- ------------------------------------------------------------------ ------------------ -----------------
Cash and due from banks $ 27,912,000 $ 22,919,000
Investment securities available for sale 61,425,000 47,405,000
Investment securities held to maturity 20,112,000 9,279,000
Loans, net of allowance for loan losses of $2,922,000 as of
September 30, 1997 and $3,121,000 as of December 31, 1996 229,562,000 210,876,000
Premises and equipment, net 7,623,000 7,672,000
Other real estate owned, net 1,545,000 1,329,000
Goodwill and other intangibles, net 4,085,000 3,431,000
Accrued interest and other assets 6,236,000 5,674,000
- ------------------------------------------------------------------ ---------------- -----------------
$ 358,500,000 $ 308,585,000
================================================================== ================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits:
Noninterest-bearing $ 73,994,000 $ 59,541,000
Interest-bearing 240,868,000 204,980,000
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Total deposits 314,862,000 264,521,000
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Federal funds purchased 7,050,000 11,802,000
Other borrowings 5,000,000 4,950,000
Accrued expenses and other liabilities 2,137,000 1,759,000
Subordinated debentures 4,575,000 4,575,000
- ------------------------------------------------------------------ ---------------- -----------------
Total liabilities 333,624,000 287,607,000
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Stockholders' equity:
Common stock, par value $.001, authorized 4,000,000 shares;
issued and outstanding 2,777,830 as of September 30, 1997
and 2,653,641 as of December 31, 1996 3,000 3,000
Additional paid-in capital 25,219,000 24,571,000
Accumulated deficit (601,000) (3,702,000)
Unrealized gains on investment securities available for sale, net 255,000 106,000
- ------------------------------------------------------------------ ---------------- -----------------
Total stockholders' equity 24,876,000 20,978,000
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$ 358,500,000 $ 308,585,000
================================================================== ================ =================
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------------
1997 1996 1997 1996
- ------------------------------------- ------------ ------------ -------------- --------------
INTEREST INCOME:
Interest and fees on loans $ 5,952,000 $ 4,935,000 $ 17,530,000 $ 13,716,000
Federal funds sold 94,000 201,000 124,000 385,000
Interest-earning deposits - 1,000 - 5,000
Investment securities:
Taxable 1,076,000 737,000 3,195,000 1,822,000
Nontaxable 74,000 - 94,000 -
- ------------------------------------- ------------ ------------ -------------- --------------
Total interest income 7,196,000 5,874,000 20,943,000 15,928,000
- ------------------------------------- ------------ ------------ -------------- --------------
INTEREST EXPENSE:
Deposits 2,006,000 1,657,000 5,453,000 4,324,000
Other 140,000 121,000 761,000 365,000
- ------------------------------------- ------------ ------------ -------------- --------------
Total interest expense 2,146,000 1,778,000 6,214,000 4,689,000
- ------------------------------------- ------------ ------------ -------------- --------------
Net interest income 5,050,000 4,096,000 14,729,000 11,239,000
Provision for loan losses 108,000 150,000 324,000 550,000
- ------------------------------------- ------------ ------------ -------------- --------------
Net interest income after
provision for loan losses 4,942,000 3,946,000 14,405,000 10,689,000
- ------------------------------------- ------------ ------------ -------------- --------------
OTHER OPERATING INCOME:
Service charges 587,000 483,000 1,596,000 1,290,000
Gain on sale of investment securities 19,000 - 20,000 -
Other 45,000 14,000 173,000 143,000
- ------------------------------------- ------------ ------------ -------------- --------------
Total other operating income 651,000 497,000 1,789,000 1,433,000
- ------------------------------------- ------------ ------------ -------------- --------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,869,000 1,726,000 5,703,000 4,812,000
Occupancy 486,000 388,000 1,148,000 1,034,000
Professional services 257,000 463,000 1,006,000 1,473,000
Furniture and equipment 274,000 315,000 848,000 801,000
Other real estate owned, net 17,000 19,000 94,000 225,000
Loss on sale of investment securities - 9,000 9,000 145,000
Goodwill and other intangible amortization 97,000 75,000 276,000 178,000
Other 575,000 484,000 1,778,000 1,515,000
- ------------------------------------- ------------ ------------ -------------- --------------
Total other operating expenses 3,575,000 3,479,000 10,862,000 10,183,000
- ------------------------------------- ------------ ------------ -------------- --------------
Earnings before income taxes 2,018,000 964,000 5,332,000 1,939,000
Income taxes (benefit) 841,000 (5,000) 2,231,000 (1,262,000)
- ------------------------------------- ------------ ------------ -------------- --------------
Net earnings $ 1,177,000 $ 969,000 $ 3,101,000 $ 3,201,000
===================================== ============ ============ ============== ==============
Primary earnings per share $ 0.41 $ 0.36 $ 1.10 $ 1.18
===================================== ============ ============ ============== ==============
Fully diluted earnings per share $ 0.37 $ 0.32 $ 1.00 $ 1.07
===================================== ============ ============ ============== ==============
See accompanying notes to consolidated financial statements.
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
--------------------------------
1997 1996
- ----------------------------------------------------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,101,000 $ 3,201,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 1,077,000 914,000
Provision for loan losses 324,000 550,000
Provision for losses on other real estate owned 33,000 152,000
Gain on sale of other real estate owned (38,000) (17,000)
(Gain) loss on sale of investment securities available for sale (11,000) 145,000
Increase in accrued interest and other assets (626,000) (876,000)
(Decrease) increase in accrued expenses and other liabilities 303,000 (665,000)
(Decrease) increase in deferred loan origination fees (57,000) 13,000
- ----------------------------------------------------------- --------------- ---------------
Net cash provided by operating activities 4,106,000 3,417,000
- ----------------------------------------------------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans outstanding (19,025,000) (12,318,000)
Proceeds on sale of other real estate owned 1,506,000 2,346,000
Net maturities of interest-earning deposits - 396,000
Maturities of investment securities available for sale 4,420,000 2,814,000
Maturities of investment securities held to maturity 222,000 384,000
Purchase of investment securities available for sale (25,080,000) (23,431,000)
Purchase of investment securities held to maturity (11,036,000) -
Proceeds from sale of investment securities available for sale 6,828,000 10,992,000
Decrease in receivable from ESOP - 100,000
Capital expenditures for premises and equipment (418,000) (1,149,000)
Net cash acquired in merger/acquisition 14,042,000 5,302,000
- ----------------------------------------------------------- --------------- ---------------
Net cash used in investing activities (28,541,000) (14,564,000)
- ----------------------------------------------------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 23,473,000 13,310,000
Net increase in noninterest-bearing deposits 10,009,000 11,602,000
Proceeds from exercise of stock options 648,000 15,000
Decrease in Federal funds purchased (4,752,000) -
Decrease in other borrowings 50,000 -
- ----------------------------------------------------------- --------------- ---------------
Net cash provided by financing activities 29,428,000 24,927,000
- ----------------------------------------------------------- --------------- ---------------
Net increase in cash and cash equivalents 4,993,000 13,780,000
Cash and cash equivalents at beginning of period 22,919,000 16,293,000
- ----------------------------------------------------------- --------------- ---------------
Cash and cash equivalents at end of period $ 27,912,000 $ 30,073,000
=========================================================== =============== ===============
(continued)
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(UNAUDITED)
Nine Months Ended September 30,
--------------------------------
1997 1996
--------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,278,000 $ 4,834,000
Income taxes $ 118,000 $ 33,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer from loans to other real estate owned $ 1,717,000 $ 467,000
Loans to facilitate sale of other real estate owned $ - $ 95,000
Change in unrealized gains (losses) on investment
securities available for sale, net of tax effect $ 149,000 $ (520,000)
=========================================================== =============== ===============
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 September
30, 1997 and for the three- and nine-month periods ended September 30, 1997
and 1996 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, 1996. The results of operations for
the nine-month period ended September 30, 1997 are not necessarily
indicative of the results for the entire year ending December 31, 1997.
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 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, 1997 and 1996 were 2,862,000 and
2,724,000, respectively. The weighted average numbers of shares used for the
primary earnings per share calculations for the nine-month periods ended
September 30, 1997 and 1996 were 2,826,000 and 2,715,000, 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 September 30, 1997 and 1996 were $1,223,000
and $1,029,000, respectively. The weighted average numbers of shares used
for the fully diluted earnings per share calculations for the three-month
periods ended September 30, 1997 and 1996 were 3,289,000 and 3,195,000,
respectively. The adjusted net earnings used for the fully diluted earnings
per share calculations for the nine-month periods ended September 30, 1997
and 1996 were $3,266,000 and $3,415,000, respectively. The weighted average
numbers of shares used for the fully diluted earnings per share calculations
for the nine-month periods ended September 30, 1997 and 1996 were 3,271,000
and 3,187,000, respectively.
3. On February 21, 1997, the Company completed its acquisition of the Wells
Fargo Bank Valley Center branch, located in Valley Center in San Diego
County, California (the "Wells Acquisition"). The acquisition was accounted
for under the purchase accounting method. As a result of this transaction,
deposits increased by $16,838,000 and a core deposit intangible of
$1,038,000 was recorded.
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.
5. Goodwill is amortized on a straight-line basis over estimated useful lives
of twelve to fifteen years. The core deposit intangible is amortized on a
straight-line basis over an estimated useful life of ten years.
6. Certain 1996 amounts have been reclassified to conform to the presentation
used in 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements made in this report that state the Company's or management's
intentions, beliefs, expectations or predictions of the future are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company's actual results could differ
materially from those projected in such forward-looking statements. Additional
information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements is contained in the
Company's Form 10-KSB. Copies of that filing may be obtained by contacting the
Company or the SEC, or may be accessed via the Internet at www.nasdaq.com or
www.sec.gov.
OVERVIEW
The financial position and the results of operations as of and for the three-
and nine-month periods ended September 30, 1997 reflect the Wells Acquisition
on February 21, 1997.
The Company's net earnings for the quarter ended September 30, 1997 were
$1,177,000 or $.37 per fully diluted share, compared to net earnings of $969,000
or $.32 per fully diluted share for the same quarter in 1996. The Company's
return on average assets and return on average stockholders' equity were .34%
and 4.82%, respectively, for the quarter ended September 30, 1997 as compared to
.34% and 5.01%, respectively, for the same period in 1996. Net earnings
increased $208,000 or 21.47% for the quarter ended September 30, 1997 as
compared to the same period in 1996, despite the fact that the Company became
taxable at an effective rate of approximately 42% in 1997 as compared to having
recorded a net income tax benefit of $5,000 in 1996. The increase in pretax
earnings of $1,054,000 or 109.34% was primarily due to growth accomplished
through the Wells Acquisition, internal loan and deposit growth and a reduction
in other real estate owned ("OREO") expenses and other noninterest expenses
during the year.
The Company's net earnings for the nine-month period ended September 30, 1997
were $3,101,000 or $1.00 per fully diluted share, compared to net earnings of
$3,201,000 or $1.07 per fully diluted share for the same period in 1996. The
Company's return on average assets and return on average stockholders' equity
were .94% and 13.67%, respectively, for the nine-month period ended September
30, 1997 as compared to 1.25% and 17.61%, respectively, for the same period in
1996. Although net earnings decreased $100,000 or 3.12%, growth in pretax
earnings was $3,393,000 or 174.99% for the nine-month period ended September 30,
1997 as compared to the same period in 1996, due to the fact that the Company
became taxable at an effective rate of approximately 42% in 1997 as compared to
having recorded a net income tax benefit of $1,262,000 in 1996. The increase in
pretax earnings was primarily due to growth accomplished through the RB Merger
in April 1996 and the Wells Acquisition, internal loan and deposit growth and a
reduction in other real estate owned ("OREO") expenses and other noninterest
expenses during the year.
Total assets increased $49,915,000 or 16.18% from $308,585,000 as of December
31, 1996 to $358,500,000 as of September 30, 1997. The increase in asset size
was primarily a result of the Wells Acquisition and strong internal deposit
growth. Deposits of $314,862,000 as of September 30, 1997 increased $50,341,000
or 19.03% from $264,521,000 as of December 31, 1996. Deposits of $16,838,000
were acquired in the Wells Acquisition and the balance of the increase since
December 31, 1996 was attributed to internal growth in deposits generated at
branches throughout the FPNB franchise. Net loans increased $18,686,000 or 8.86%
to $229,562,000 as of September 30, 1997 from $210,876,000 as of December 31,
1996, due to an increase in new loan volume during the first nine months of
1997. Total investment securities increased $24,853,000 or 43.84% from December
31, 1996 to a balance of $81,537,000. Federal funds purchased and other
borrowings decreased by $4,702,000 or 28.07% since December 31, 1996.
NET INTEREST INCOME
Net interest income on a tax equivalent basis ("TE") before provision for loan
losses increased $1,000,000 or 24.41% for the quarter ended September 30, 1997
as compared to the same period in 1996. Net interest income is affected by
changes in average rates, average volumes of interest-earning assets and average
volumes of interest-bearing liabilities. The purchase of $9,000,000 in real
estate loans in October 1996 and significant new loan volume during the period
contributed to the increase in net interest income during 1997 as compared to
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1996. Changes in the interest rate environment, including a 25 basis point rate
increase implemented by the Federal Reserve Bank in February 1997, and the
Company's cost of funds also affected net interest income.
Net interest income before provision for loan losses increased $3,546,000 or
31.55% for the nine-month period ended September 30, 1997 as compared to the
same period in 1996. 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, 1996, $42,498,000 of net loans and
$43,982,000 of interest-bearing deposits were acquired in the RB Merger, which
contributed to the increase in net interest income during 1997 as compared to
1996. The purchase of $9,000,000 in real estate loans in October 1996 and
significant new loan volume contributed to the increase as well. Changes in the
interest rate environment, including a 25 basis point rate increase implemented
by the Federal Reserve Bank in February 1997, and the Company's cost of funds
also affected net interest income.
The weighted-average rate earned on interest-earning assets for the quarter
ended September 30, 1997 increased to 9.51% from 9.34% for the same period in
1996. Average loans outstanding during the quarter ended September 30, 1997 were
$228,231,000, which earned interest at an average rate of 10.37% as compared to
average loans outstanding of $192,908,000 which earned a rate of 10.18% during
the same period in 1996. Average Federal funds sold were $6,821,000, which
earned an average rate of 5.47% for the three months ended September 30, 1997 as
compared to $15,778,000 which earned 5.07% during the same quarter in 1996.
Conversely, taxable investment securities had an aggregate average balance of
$61,436,000 and earned 6.94% for the three months ended September 30, 1997 as
compared to $41,445,000 which earned 7.07% during the same period in 1996.
Nontaxable investment securities had an aggregate average balance of $5,540,000
which earned 7.88% (TE) for the three months ended September 30, 1997. There
were no nontaxable investment securities during 1996.
The weighted-average rate earned on interest-earning assets for the nine months
ended September 30, 1997 increased to 9.63% from 9.49% for the same period in
1996. Average loans outstanding during the nine months ended September 30, 1997
were $225,562,000, which earned interest at an average rate of 10.40% as
compared to average loans outstanding of $177,410,000 which earned a rate of
10.33% during the same period in 1996. Average Federal funds sold were
$3,107,000, which earned an average rate of 5.34% for the nine months ended
September 30, 1997 as compared to $10,222,000 which earned 5.03% during the same
quarter in 1996. Taxable investment securities had an aggregate average balance
of $60,614,000 and earned 7.05% for the nine months ended September 30, 1997 as
compared to $36,467,000 which earned 6.67% during the same period in 1996.
Nontaxable investment securities had an aggregate average balance of $2,345,000
which earned 7.93% (TE) for the nine months ended September 30, 1997.
The weighted-average rate paid on interest-bearing liabilities increased to
3.46% for the quarter ended September 30, 1997 from 3.42% for the quarter ended
September 30, 1996. Average outstanding interest-bearing deposits of
$240,347,000 for the quarter ended September 30, 1997 were paid an average rate
of 3.31% as compared to average outstanding interest-bearing deposits of
$202,089,000 which were paid an average rate of 3.26% for the same period in
1996. Debentures and other borrowings had an average outstanding balance of
$5,938,000 and paid 9.35% for the three-month period ended September 30, 1997 as
compared to an average balance of $4,575,000 which paid 10.52% for the
three-month period ended September 30, 1996.
The weighted-average rate paid on interest-bearing liabilities increased to
3.47% for the nine months ended September 30, 1997 from 3.37% for the nine
months ended September 30, 1996. Average outstanding interest-bearing deposits
of $225,643,000 for the nine months ended September 30, 1997 were paid an
average rate of 3.23% as compared to average outstanding interest-bearing
deposits of $181,092,000 which were paid an average rate of 3.19% for the same
period in 1996. Debentures and other borrowings had an average outstanding
balance of $14,094,000 and paid 7.22% for the nine-month period ended September
30, 1997 as compared to an average balance of $4,640,000 which paid 10.51% for
the nine-month period ended September 30, 1996.
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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 Nine Months Ended September 30,
1997 compared to 1996 1997 compared to 1996
---------------------------- --------------------------------
(in thousands) (in thousands)
Increase (Decrease) Increase (Decrease)
----------------------------- --------------------------------
Volume Rate Net Volume Rate Net
-------- -------- ------ ------- -------- --------
Interest earned on interest-earning
assets:
Loans (1) $ 906 $ 122 $ 1,028 $ 3,720 $ 106 $ 3,826
Taxable investment securities 356 (18) 338 1,205 168 1,373
Nontaxable investment securities - 110 110 - 139 139
Interest-earning deposits (1) - (1) (5) - (5)
Federal funds sold (114) 7 (107) (268) 7 (261)
------- ------- ------- ------- ------- -------
Total interest on
interest-earnings assets 1,147 221 1,368 4,652 420 5,072
Interest paid on interest-bearing
liabilities:
Interest-bearing deposits:
Savings and time 170 39 209 630 52 682
Interest-bearing demand 126 13 139 402 45 447
------- ------- ------- ------- ------- -------
Total interest-bearing deposits 296 52 348 1,032 97 1,129
Debentures and Federal funds purchased 36 (17) 19 743 (347) 396
------- ------- ------- ------- ------- -------
Total interest on
interest-bearing liabilities 332 35 367 1,775 (250) 1,525
------- ------- ------- ------- ------- -------
Change in net interest income $ 815 $ 186 $ 1,001 $ 2,877 $ 670 $ 3,547
======= ======= ======= ======= ======= =======
- ----------------------------------------
(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, 1997 and 1996 were $268,000 and $180,000,
respectively. Net fees included in interest income for the nine months ended
September 30, 1997 and 1996 were $824,000 and $547,000, respectively.
OTHER OPERATING INCOME
Other operating income was $651,000 for the quarter ended September 30, 1997 as
compared to $497,000 for the same period in 1996, an increase of $154,000 or
30.99%. Service charges increased by $104,000 or 21.53% while all other
operating income increased $50,000 or 357.14%. The increase in service charges
during the three-month period ended September 30, 1997 as compared to the same
period in 1996 was due to the Wells Acquisition and significant deposit growth
during the period. The increase in other operating income was primarily a result
of a gain on the sale of investment securities of $19,000 and earnings on the
cash surrender value of keyman life insurance purchased during 1997.
Other operating income was $1,789,000 for the nine months ended September 30,
1997 as compared to $1,433,000 for the same period in 1996, an increase of
$356,000 or 24.84%. Service charges increased by $306,000 or 23.72% and all
other operating income increased by $50,000 or 34.97% for the nine months ended
September 30, 1997 as compared to the same period in 1996. The increase in
service charges during the nine-month period ended September 30, 1997 as
compared to the same period in 1996 was due to the Wells Acquisition and
significant deposit growth during the period. The increase in other operating
income was primarily a result of a gain on the sale of investment securities of
$20,000 and earnings on the cash surrender value of keyman life insurance
purchased during 1997.
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OTHER OPERATING EXPENSES
Total other operating expenses for the quarter ended September 30, 1997 were
$3,575,000, an increase of $96,000 or 2.76% as compared to the same quarter in
1996. Increases of $143,000 or 8.29% in salaries and benefits, $57,000 or 8.11%
in occupancy and furniture and equipment, and $91,000 or 18.80% in other
expenses were due to company growth mitigated by cost control efforts during the
period. Amortization of goodwill and other intangibles increased $22,000 or
29.33% due to a core deposit intangible recorded as a result of the Wells
Acquisition. These increases were offset by a decrease of $206,000 or 44.49% in
professional services primarily due to the elimination of third party data
processing expense, which was the result of bringing the function in-house in
July 1996, and to a reduction in legal expenses. Other real estate owned expense
decreased by $2,000 or 10.53% due to a reduction in other real estate owned.
Total other operating expenses for the nine months ended September 30, 1997 were
$10,862,000, an increase of $679,000 or 6.67% as compared to the same period in
1996. Increases of $891,000 or 18.52% in salaries and benefits, $161,000 or
8.77% in occupancy and furniture and equipment, and $263,000 or 17.36% in other
expenses were due to company growth mitigated by cost control efforts during the
period. Amortization of goodwill and other intangibles increased $98,000 or
55.06% due to goodwill recorded in the RB Merger on April 1, 1996 and a core
deposit intangible recorded as a result of the Wells Acquisition. These
increases were offset by a decrease of $467,000 or 31.70% in professional
services primarily due to the elimination of third party data processing center
expense, which was the result of bringing the function in-house in July 1996,
and to a reduction in legal expenses. In addition, there was a decrease in the
loss on sale of investment securities of $136,000. Other real estate owned
expense decreased by $131,000 or 58.22% due to a reduction in other real estate
owned.
ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES
The Company maintains an allowance for loan and lease losses ("ALLL") which it
considers adequate to cover the risk of losses in the loan portfolio. The ALLL
is based upon management's ongoing evaluation of the quality of the loan
portfolio, total outstanding and committed loans, previous charges against the
allowance and current and anticipated economic conditions. In making its
evaluation, the Company takes into account the results of regulatory
examinations of the Company and FPNB, which can be expected to occur at least
once each year. 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 $108,000 was recorded for the quarter ended
September 30, 1997 as compared to $150,000 recorded in the third quarter of
1996. A provision for loan losses of $324,000 was recorded for the nine months
ended September 30, 1997 as compared to $550,000 recorded in the same period in
1996. 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, 1997 and 1996 were
adequate to absorb potential losses.
As of September 30, 1997, the allowance for loan losses totaled $2,922,000 or
1.26% of total loans outstanding as compared to $3,121,000 or 1.46% of total
loans outstanding as of December 31, 1996. Based on management's evaluation of
the loan portfolio and considering the factors mentioned above, management
believes that the allowance for loan losses was adequate as of September 30,
1997. However, there is no assurance that future changes in economic conditions
or the other factors mentioned above will not require that additional provisions
be made.
NONPERFORMING ASSETS
Interest on loans is normally accrued from the date a disbursement is made and
recognized as income as it is accrued. Generally, the Company reviews any loan
on which payment has not been made for 90 days for potential nonaccrual. The
loan is examined and the collateral is reviewed to determine loss potential. If
the
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loan is placed on nonaccrual, any prior accrued interest which remains
unpaid is reversed. Classification of a loan as nonaccrual does not necessarily
mean that the loan will be charged off in the future.
The following table presents information with respect to the Company's past due
loans and the components of nonperforming assets as of the dates indicated.
(in thousands)
September 30, 1997 December 31, 1996
-------------------- ------------------
NONPERFORMING LOANS:
Loans greater than 90 days past due and
still accruing ionterest $ 435 $ 774
Loans on nonaccrual 900 1,374
------ ------
Total nonperforming loans 1,335 2,148
Other real estate owned 1,545 1,329
------ ------
Total Nonperforming Assets $2,880 $3,477
====== ======
Nonperforming assets totaled $2,880,000 or .80% of total assets as of September
30, 1997, as compared to $3,477,000 or 1.13% as of December 31, 1996.
INCOME TAXES
Income tax expense for the third quarter of 1997 was $841,000 as compared to an
income tax benefit of $5,000 recorded during the same period in 1996. Income tax
expense for the nine months ended September 30, 1997 was $2,231,000 as compared
to an income tax benefit of $1,262,000 recorded during the same period in 1996.
Net income tax benefits recorded in 1996 represented the last of the income tax
benefits recorded by the Company as a result of prior years' net operating
losses.
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 Management and Executive
Committees of FPNB. The Executive Committee meets weekly and the Asset/Liability
Management 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 and short-term
borrowings totaled 27.33% and 25.00% as of September 30, 1997 and December 31,
1996, 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 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.
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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 September 30, 1997, the Company's
Tier I risk-based capital to risk-weighted assets totaled 8.40% as compared to
7.47% as of December 31, 1996, and the Company's total capital to risk-weighted
assets totaled 9.59% as compared to 8.72% as of December 31, 1996. As of
September 30, 1997, FPNB's Tier I risk-based capital to risk-weighted assets
totaled 9.46% as compared to 8.79% as of December 31, 1996, and FPNB's total
capital to risk-weighted assets totaled 10.66% as compared to 10.04% as of
December 31, 1996.
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, 1997 and December 31, 1996, the Company's core capital to total assets stood
at 5.79% and 5.54%, respectively. On September 30, 1997 and December 31, 1996,
FPNB's core capital to total assets stood at 6.52% and 6.52%, respectively.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May 27, 1997
at 5:30 p.m. at the California Center for the Arts, 340 North Escondido
Boulevard, Escondido, California. There were 2,066,841 shares represented at the
meeting by proxy or in person, constituting a quorum of all stockholders of the
Company.
The following persons were elected to serve as Directors of the Company, each
with a two-year term:
Votes Votes Broker
Name Votes for Against Withheld Non-votes
---- --------- ------- -------- ---------
Earle W. Frey, Jr. 2,054,987 0 11,854 0
Robert W. Klemme 2,055,687 0 11,154 0
Randall C. Luce 2,055,687 0 11,154 0
Michael J. Perdue 2,055,687 0 11,154 0
Robert M. Spanjian 2,054,987 0 11,854 0
Michael W. Wexler 2,055,687 0 11,154 0
Harvey L. Williamson 2,055,687 0 11,154 0
The following proposals were approved at the Company's Annual Meeting of
Stockholders:
1. Ratification of the appointment
of KPMG Peat Marwick LLP
as the independent auditor for
1997. 2,060,406 1,617 4,818 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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 7, 1997
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