SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2002
---------------------------------------------
FNB BANCORP
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
000-49693 92-2115369
(Commission File Number) (IRS Employer Identification No.)
975 El Camino Real, South San Francisco, California 94080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 588-6800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock as of May 10,
2002: 2,318,849 shares.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
March 31 December 31
2002 2001
--------- ---------
(UNAUDITED)
Cash and due from banks $ 18,465 $ 22,493
Federal funds sold 18,110 -
--------- ---------
Cash and cash equivalents 36,575 22,493
Securities available-for-sale 63,674 65,311
Loans, net 290,447 288,067
Premises and equipment, net 11,528 11,655
Accrued interest receivable and other assets 9,751 9,862
--------- ---------
$ 411,975 $ 397,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand, noninterest bearing $ 85,633 $ 87,982
Demand, interest bearing 61,410 55,357
Savings and money market 114,582 98,891
Time 100,341 101,849
--------- ---------
Total deposits 361,966 344,079
Federal funds purchased - 2,100
Accrued expenses and other liabilities 3,142 4,686
--------- ---------
Total liabilities 365,108 350,865
Stockholders' equity
Preferred stock, no par value, authorized 5,000,000
shares, issued and outstanding - none - -
Common stock, no par value, authorized 10,000,000 shares;
issued and outstanding 2,318,849 shares at March 31, 2002
and December 31, 2001 23,396 23,396
Retained earnings 23,034 22,546
Accumulated other comprehensive income 437 581
--------- ---------
Total stockholders' equity 46,867 46,523
--------- ---------
Total liabilities and stockholders' equity $ 411,975 $ 397,388
========= =========
See accompanying notes to consolidated financial statements.
2
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands, except per share amounts)
Three months ended
March 31,
2002 2001
---------- ----------
Interest income:
Interest and fees on loans $ 5,690 $ 6,527
Interest on securities 445 800
Interest on tax-exempt securities 341 397
Federal funds sold 52 328
---------- ----------
Total interest income 6,528 8,052
Interest expense:
Interest on deposits 1,158 2,290
Other 9 2
---------- ----------
Total interest expense 1,167 2,292
Net interest income 5,361 5,760
Provision for loan losses 75 75
---------- ----------
Net interest income after provision for loan losses 5,286 5,685
Noninterest income:
Service charges 407 415
Credit card fees 217 226
Gain on sales of securities - 52
Other income 62 154
---------- ----------
Total noninterest income 686 847
Noninterest expense:
Salaries and employee benefits 2,643 2,589
Occupancy expense 326 305
Equipment expense 758 349
Professional fees 247 123
Telephone, postage and supplies 254 223
Bankcard expenses 185 149
Other expense 457 501
---------- ----------
Total noninterest expense 4,870 4,239
---------- ----------
Earnings before income tax expense 1,102 2,293
Income tax expense 336 734
---------- ----------
NET EARNINGS $ 766 $ 1,559
========== ==========
Earnings per share data:
Basic $ 0.33 $ 0.70
========== ==========
Diluted $ 0.33 $ 0.70
========== ==========
Weighted average shares outstanding:
Basic 2,318,849 2,214,992
========== ==========
Diluted 2,328,474 2,219,606
========== ==========
See accompanying notes to consolidated financial statements.
3
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three months ended
March 31
2002 2001
-------- --------
Cash flow from operating activities
Net earnings $ 766 $ 1,559
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization 577 234
(Gain) on sale of securities - (52)
Provision for loan losses 75 75
Changes in assets and liabilities
Accrued interest receivable and other assets 111 175
Accrued expenses and other liabilities (163) 1,275
-------- --------
Total adjustments 600 1,707
-------- --------
Net cash provided by operating activities 1,366 3,266
Cash flows from investing activities
Purchase of securities available-for-sale (13,357) (10,880)
Proceeds from matured/called/securities available-for-sale 14,753 15,191
Net (increase) in loans (2,455) (20,060)
Purchases of bank premises, equipment, leasehold improvements (453) (1,115)
-------- --------
Net cash used in investing activities (1,512) (16,864)
Cash flows from financing activities
Net increase in demand and savings deposits 19,395 8,851
Net (decrease) increase in time deposits (1,508) 2,321
Net decrease in federal funds purchased (2,100) -
Dividends paid (1,484) (1,921)
Payments on capital note payable (75) (71)
-------- --------
Net cash provided by financing activities 14,228 9,180
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 14,082 (4,418)
Cash and cash equivalents at beginning of year 22,493 41,753
-------- --------
Cash and cash equivalents at end of year $ 36,575 $ 37,335
======== ========
Additional cash flow information
Interest paid $ 1,463 $ 2,299
Income taxes paid $ - $ -
See accompanying notes to consolidated financial statements.
4
NOTE A - BASIS OF PRESENTATION
FNB Bancorp (the "Company") is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. The Company was incorporated under the
laws of the State of California on February 28, 2001. The consolidated financial
statements include the accounts of FNB Bancorp and its wholly-owned subsidiary,
First National Bank of Northern California (the Bank). The Bank provides
traditional banking services in San Mateo and San Francisco counties.
The Bank and the Company entered into an Agreement and Plan of Reorganization
dated November 1, 2001 (the "Plan of Reorganization") for this purpose, and the
shareholders of the Bank approved the Plan of Reorganization at a Special
Meeting of the Shareholders of the Bank held on February 27, 2002. The Plan of
Reorganization was consummated on March 15, 2002. Each outstanding share of the
common stock, par value $1.25 per share, of the Bank (other than any shares as
to which dissenters' rights of appraisal have been properly exercised) was
converted into one share of the common stock of the Company, and the former
holders of Bank common stock became the holders of all of the Company common
stock. The change in capital structure has been included for all periods
presented.
Significant intercompany transactions and balances have been eliminated in
consolidation. The financial statements include all adjustments of a normal and
recurring nature, which are, in the opinion of management, necessary for a fair
presentation of the financial results for the interim periods.
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes normally included in financial statements prepared in
conformity with accounting principles generally accepted in the United States of
America. Accordingly, these financial statements should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 2001.
Results of operations for interim periods are not necessarily indicative of
results for the full year.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards 143 "Accounting for Retirement
Obligations"
In 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations.
SFAS 143 applies to all entities that have legal obligations associated with the
retirement of a tangible long-lived asset. SFAS 143 requires that a liability
for an asset retirement obligation be recognized if the obligation meets the
definition of a liability in FASB Concepts Statement 6, Elements of Financial
Statements, and if the amount of the liability can be reasonably estimated. When
a retirement obligation is initially recognized, the asset retirement cost is
capitalized by increasing the carrying amount of the related long-lived asset by
an amount equal to the liability. The initial recording of the obligation should
be at fair market value. The Bank must adopt SFAS 143 as of January 1, 2003, but
earlier application is allowed.
The Company does not expect that the adoption of this recent accounting
pronouncements to have a material effect of the Company's financial statements.
In 2002, the Company adopted SFAS 142. Under SFAS 142, goodwill and those
intangible assets that have indefinite lives are not amortized but are tested
for impairment annually and whenever there is an impairment indicator. The
adoption of SFAS 142 did not have an impact on the Company's consolidated
financial statements.
In 2002, the Company also adopted SFAS 144. SFAS 144, which replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Assets to Be
Disposed of," changes the accounting for long-lived assets by requiring that all
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing or discontinued operations. The
adoption of SFAS 144 did not have an impact on the Company's consolidated
financial statements.
5
NOTE B - LOANS
The loan portfolio consisted of the following at the dates indicated:
March 31, December 31,
2002 2001
(In thousands) ----------- -----------
Real Estate $ 213,434 $ 217,604
Construction 34,869 34,062
Commercial 44,836 39,195
Consumer 2,785 2,600
----------- -----------
Gross loans 295,924 293,461
Net deferred loan fees (1,878) (1,851)
Allowance for loan losses (3,599) (3,543)
----------- -----------
Net loans $ 290,447 $ 288,067
=========== ===========
NOTE C - EARNINGS PER SHARE CALCULATION
Earnings per common share (EPS) is computed based on the weighted average number
of common shares outstanding during the period. Basic EPS excludes dilution and
is computed by dividing net earnings by the weighted average of common shares
outstanding. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock.
Earnings per share have been computed based on the following (dollars in
thousands):
Three months ended March 31,
----------------------------
2002 2001
---------- ----------
Net earnings $ 766 $ 1,559
Average number of shares outstanding 2,318,849 2,214,992
Effect of dilutive options 9,625 4,614
---------- ----------
Average number of shares outstanding used to calculate diluted
earnings per share 2,328,474 2,219,606
========== ==========
Options to purchase 17,086 shares of common stock were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. The options which expire on May
31, 2008, were still outstanding as of March 31, 2002.
NOTE D - COMPREHENSIVE INCOME
The Company accounts for comprehensive income under the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards to provide prominent disclosure of comprehensive
income items. Comprehensive income is the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Other comprehensive income consists of net unrealized
gains on investment securities available for sale. Comprehensive income for the
first three months of 2002 was $622,000 compared to $2,121,000 for the first
three months of 2001.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain statements relating to future results of the Company
(including certain projections and business trends) that are considered
"forward-looking statements." Actual results may differ materially from those
projected as a result of certain risks and uncertainties including, but not
limited to, changes in political and economic conditions, interest rate
fluctuations, competitive product and pricing pressures within the Company's
market, equity and bond market fluctuations, personal and corporate customers'
bankruptcies and financial condition, inflation and results of litigation.
Accordingly, historical performance, as well as reasonably applied projections
and assumptions, may not be a reliable indicator of future earnings due to risks
and uncertainties.
As circumstances, conditions or events change that affect the Company's
assumptions and projections on which any of the statements are based, the
Company disclaims any obligation to issue any update or revision to any
forward-looking statement contained herein.
Earnings Analysis
-----------------
Net earnings for the quarter ended March 31, 2002 were $766,000, a
50.9% decrease from net earnings of $1,559,000 during the quarter ended March
31, 2001. This represented net earnings of $0.33 per share in 2002 versus $0.70
in 2001.
The year 2001 experienced a succession of 11 reductions in the prime
lending rate and the effects of the lower rate have continued through the first
quarter of 2002. As a result, net interest income for the quarter ended March
31, 2002 decreased $399,000 compared to the same quarter in 2001.
Net interest income is the difference between interest yield generated
by earning assets and the interest expense associated with the funding of those
assets.
The following table presents an analysis of net interest income and
average earning assets and liabilities.
7
Table 1 NET INTEREST INCOME AND AVERAGE BALANCES
- ------- FNB BANCORP AND SUBSIDIARY
Three months ended March 31
2002 2001
---------- ---------
(In thousands) Interest Average Interest Average
Average Income Yield Average Income Yield
INTEREST EARNING ASSETS Balance (Expense) (Cost) Balance (Expense) (Cost)
---------- ------- ---------- ------
Loans, gross $ 293,784 $ 5,690 7.85% $ 242,508 $ 6,527 10.92%
Taxable securities 34,805 445 5.19 50,198 800 6.46
Nontaxable securities 28,231 341 4.90 34,623 397 4.65
Federal funds sold 12,506 52 1.69 24,173 328 5.50
---------- ---------- ---------- ----------
Total interest earning assets $ 369,326 $ 6,528 7.17 $ 351,502 $ 8,052 9.29
---------- ---------- ---------- ----------
NONINTEREST EARNING ASSETS
Cash and due from banks $ 19,395 $ 21,777
Premises and equipment 11,724 11,300
Other assets 3,887 4,032
---------- ----------
Total noninterest earning assets $ 35,006 $ 37,109
---------- ----------
TOTAL ASSETS $ 404,332 $ 388,611
========== ==========
INTEREST BEARING LIABILITIES
Deposits:
Demand, interest bearing $ 58,671 ($64) (0.44) $ 53,043 ($215) (1.64)
Money market 57,326 (237) (1.68) 50,379 (410) (3.30)
Savings 50,364 (73) (0.59) 45,134 (221) (1.99)
Time deposits 100,585 (784) (3.16) 104,092 (1,444) (5.63)
Federal funds purchased and
other borrowings 445 (9) (8.20) 176 (2) (4.61)
---------- ---------- ---------- ----------
Total interest bearing liabilities $ 267,391 ($1,167) (1.77) $ 252,824 ($2,292) (3.68)
---------- ---------- ---------- ----------
NONINTEREST BEARING LIABILITIES:
Demand deposits 85,155 86,704
Other liabilities 4,349 4,794
---------- ----------
Total noninterest bearing liabilities $ 89,504 $ 91,498
---------- ----------
TOTAL LIABILITIES $ 356,895 $ 344,322
Stockholders' equity $ 47,437 $ 44,289
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 404,332 $ 388,611
========== ==========
NET INTEREST INCOME AND MARGIN
ON TOTAL EARNING ASSETS $ 5,361 5.89% $ 5,760 6.65%
Interest income is reflected on an actual basis, not on a fully taxable basis.
Yield on gross loans was not adjusted considered not material for this
calculation.
Table 1, above, shows the various components that contributed to
changes in net interest income for the two quarterly periods. The principal
earning assets are loans. After a series of 11 declines in the prime lending
rate, interest on loans decreased $837,000 or 12.8%, and the yield decreased 307
basis points, although average loans outstanding increased $51,276,000. Average
taxable securities decreased $15,393,000, because many were called as a result
of declining rates, and were not replaced, as funds were invested in higher
yielding loans. Yields on these securities decreased 127 basis points, and their
income decreased $355,000. Average nontaxable securities decreased $6,392,000,
with a 25-basis point increase in yield, and a $56,000 decrease in income.
Average federal funds sold decreased $11,667,000, while their yield decreased
significantly from 5.50% to 1.69%, and income decreased $276,000. Although
average total interest earning assets increased by $17,824,000, their yield
decreased 212 basis points, and income decreased $1,524,000.
On the expense side, average interest bearing demand deposits increased
$5,628,000, but the rate decreased 120 basis points, and reducing cost $151,000.
Average money market deposits increased $6,947,000, but the rate dropped from
8
3.30% to 1.68%, and the cost was decreased $173,000. Average savings accounts
increased $5,230,000, but their rate decreased 140 basis points, and the cost
decreased $148,000. Average time deposits decreased $3,507,000, as rates
decreased 247 basis points, and their cost decreased $660,000. Average fed funds
purchased and other borrowings represented well below 0.5% of interest bearing
liabilities. The average increased $269,000, while the interest increased 359
basis points, and the cost increased $7,000, mainly due to a short term
borrowing by the Company, paid off in March 2002. Average total interest bearing
liabilities increased by $14,567,000, while the overall rate decreased 191 basis
points, and the cost decreased $1,125,000.
The following table shows the dollar amount of change in interest
income and expense and the changes in dollar amounts attributable to: (a)
changes in volume (changes in volume at the current year rate), (b) changes in
rate (changes in rate times the prior year's volume) and (c) changes in
rate/volume (changes in rate times change in volume). In this table, the dollar
change in rate/volume is prorated to volume and rate proportionately.
Table 2 FNB BANCORP AND SUBSIDIARY
- ------- RATE/VOLUME VARIANCE ANALYSIS
Three Months Ended March 31,
(In thousands) 2002 Compared To 2001
Increase (decrease)
Interest Variance
Income/Expense Attributable To
Variance Rate Volume
----------- ----------- -----------
INTEREST EARNING ASSETS
Loans ($837) ($1,830) $ 993
Taxable securities (355) (110) (245)
Nontaxable securities (56) 17 (73)
Federal funds sold (276) (118) (158)
----------- ----------- -----------
Total ($1,524) ($2,041) $ 517
----------- ----------- -----------
INTEREST BEARING LIABILITIES
Demand deposits ($151) ($157) $ 6
Money market (173) (202) 29
Savings deposits (148) (156) 8
Time deposits (660) (611) (49)
Federal funds purchased & other borrowings 7 2 5
----------- ----------- -----------
Total ($1,125) ($1,124) ($1)
----------- ----------- -----------
NET INTEREST INCOME ($399) ($917) $ 518
=========== =========== ===========
9
Noninterest income
- ------------------
The following table shows the principal components of noninterest
income for the periods indicated.
Table 3 NONINTEREST INCOME
- -------
Three months ended March 31,
(In thousands) 2002 2001
------------ ------------
Service charges $ 407 $ 415
Credit card fees 217 226
Gain on sale of securities - 52
Other income 62 154
------------ ------------
Total noninterest income $ 686 $ 847
============ ============
Noninterest income consists mainly of service charges on deposits and
credit card fees, gain on sale of securities, and other miscellaneous types of
income. Service charges and credit card fees were relatively stable in both
quarters, while sales of securities resulted in gains of $52,000 in 2001, with
no sales in 2002.
Noninterest expense
- -------------------
Table 4 NONINTEREST EXPENSE
- -------
Three months ended March 31,
(In thousands) 2002 2001
------------ ------------
Salaries and employee benefits $ 2,643 $ 2,589
Occupancy expense 326 305
Equipment expense 758 349
Professional fees 247 123
Telephone, postage and supplies 254 223
Bankcard expenses 185 149
Other expense 457 501
------------ ------------
Total noninterest expense $ 4,870 $ 4,239
============ ============
Noninterest expense consists of salaries and employee benefits,
representing more than half of the total, and various other categories. The only
significant variance from quarter to quarter was the equipment expense and
professional fees, which increased by a total of $533,000. This increase is
attributable to additional expenses incurred in the final phase of the
conversion of the Bank's accounting and related application systems, which was
substantially completed in March 2002.
Asset and Liability Management
- ------------------------------
Ongoing management of the Company's interest rate sensitivity limits
interest rate risk by controlling the mix and maturity of assets and
liabilities. Management regularly reviews the Company's position and evaluates
alternative sources and uses of funds as well as changes in external factors.
10
Various methods are used to achieve and maintain the desired rate sensitivity
position including the sale or purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth
and deposit withdrawals, as well as to provide for general needs, the Company
must maintain an adequate level of liquidity. Asset liquidity comes from the
Company's ability to convert short-term investments into cash and from the
maturity and repayment of loans and investment securities. Liability liquidity
is provided by the Company's ability to attract deposits. The primary source of
liability liquidity is the Company's customer base, which provides core deposit
growth. The overall liquidity position of the Company is closely monitored and
evaluated regularly. Management believes the Company's liquidity sources at
March 31, 2002 are adequate to meet its operating needs in 2002 and going
forward into the foreseeable future.
The following table sets forth information concerning rate sensitive
assets and rate sensitive liabilities as of March 31, 2002. The assets and
liabilities are classified by the earlier of maturity or repricing date in
accordance with their contractual terms. Since all interest rates and yields do
not adjust at the same speed or magnitude, and since volatility is subject to
change, the gap is only a general indicator of interest rate sensitivity.
The Company's asset/liability gap is the difference between the cash
flow amounts of interest-sensitive assets and liabilities that will be
refinanced (or repriced) during a given period. For example, if the asset amount
to be repriced exceeds the corresponding liability amount for a certain day,
month, year or longer period, the institution is in an asset-sensitive gap
position. In this situation, net interest income would increase if market
interest rates rose or decrease if market interest rates fell. Alternatively, if
more liabilities than assets will reprice, the institution is in a
liability-sensitive position. Accordingly, net interest income would decline
when rates rose and increase when rates fell.
Table 5 RATE SENSITIVE ASSETS/LIABILITIES
- ------- As of March 31, 2002
Over
Three Three To Over One Over Not
(In thousands) Months Twelve Through Five Rate-
Or Less Months Five Years Years Sensitive Total
--------- --------- --------- --------- --------- ---------
Interest earning assets:
Federal funds sold $ 18,110 $ - $ - $ - $ - $ 18,110
Securities available for sale 1,298 9,469 33,052 19,855 - 63,674
Loans 247,845 22,446 10,714 13,077 (3,635) 290,447
--------- --------- --------- --------- --------- ---------
Total interest earning assets 267,253 31,915 43,766 32,932 (3,635) 372,231
Noninterest earning assets - - - - 39,744 39,744
--------- --------- --------- --------- --------- ---------
Total assets $ 267,253 $ 31,915 $ 43,766 $ 32,932 $ 36,109 $ 411,975
========= ========= ========= ========= ========= =========
Interest bearing liabilities:
Demand, interest bearing $ 61,410 $ - $ - $ - $ - $ 61,410
Savings and money market 114,582 - - - - 114,582
Time deposits 45,244 40,777 14,320 - - 100,341
--------- --------- --------- --------- --------- ---------
Total interest bearing liabilities 221,236 40,777 14,320 - - 276,333
--------- --------- --------- --------- --------- ---------
Noninterest demand deposits - - - - 85,633 85,633
Other liabilities - - - - 3,142 3,142
Stockholders' equity - - - - 46,867 46,867
--------- --------- --------- --------- --------- ---------
Total liabilities and
Stockholders' equity $ 221,236 $ 40,777 $ 14,320 $ - $ 135,642 $ 411,975
========= ========= ========= ========= ========= =========
Interest rate sensitivity gap $ 46,017 ($8,862) $ 29,446 $ 32,932 ($ 99,533) $ -
Cumulative interest rate
sensitivity gap $ 46,017 $ 37,155 $ 66,601 $ 99,533 $ - $ -
========= ========= ========= ========= ========= =========
Cumulative interest rate sensitivity
gap ratio 17.22% 12.42% 19.42% 26.48%
11
Financial Condition
- -------------------
Assets. Total assets increased to $411,975,000 at March 31, 2002 from
$397,388,000 at December 31, 2001.
Loans. Net loans at March 31, 2002 were $290,447,000, a slight increase
of $2,380,000 or 0.8% over December 31, 2001, which showed $288,067,000. The
portfolio breakdown was as follows.
Table 6 LOAN PORTFOLIO
- -------
March 31, December 31,
(In thousands) 2002 Percent 2001 Percent
--------- -------- ---------- --------
Real Estate $ 213,434 72.1% $ 217,604 74.1%
Construction 34,869 11.8 34,062 11.6
Commercial 44,836 15.2 39,195 13.4
Consumer 2,785 0.9 2,600 0.9
--------- -------- ---------- --------
Gross loans 295,924 100.0% 293,461 100.0%
======== ========
Net deferred loan fees (1,878) (1,851)
Allowance for loan losses (3,599) (3,543)
--------- ----------
Net loans $ 290,447 $ 288,067
========= ==========
Allowance for loan losses. The Company has the responsibility of
assessing the overall risks in its loan portfolio, assessing the specific loss
expectancy, and determining the adequacy of the loan loss reserve. The level of
reserves is determined by internally generating credit quality ratings,
reviewing economic conditions in the Company's market area, and considering the
Company's historical loan loss experience. The Company is committed to
maintaining adequate reserves, identifying credit weaknesses by consistent
review of loans, and maintaining the ratings and changing those ratings in a
timely manner as circumstances change.
12
A summary of transactions in the allowance for loan losses for the
three months ended March 31, 2002 and for the year ended December 31, 2001 is as
follows:
Table 7 ALLOWANCE FOR LOAN LOSSES
- -------
3 months ended Year ended
(In thousands) March 31, 2002 December 31, 2001
-------------- -----------------
Balance, beginning of period $ 3,543 $ 3,332
Provision for loan losses 75 300
Recoveries 5 5
Amounts charged off (24) (94)
------- -------
Balance, end of period $ 3,599 $ 3,543
======= =======
In management's judgment, the allowance was adequate to absorb potential losses
currently inherent in the loan portfolio at March 31, 2002. However, changes in
prevailing economic conditions in the Company's markets or in the financial
condition of its customers could result in changes in the level of nonperforming
assets and charge-offs in the future and, accordingly, changes in the allowance.
Nonperforming Assets. Nonperforming assets consist of nonaccrual loans,
foreclosed assets, and loans that are 90 days or more past due but are still
accruing interest. At March 31, 2002, there was $1,841,000 in nonaccrual loans,
compared to $1,964,000 at December 31, 2001. There were no foreclosed assets or
loans past due 90 days and still accruing on either date.
Deposits. Total deposits at March 31, 2002 were $361,966,000 compared
to $344,079,000 on December 31, 2001. Of these totals, noninterest-bearing
demand deposits were $85,633,000 or 23.9% of the total on March 31, 2002 and
$87,982,000 or 25.6% on December 31, 2001. Time deposits were $100,341,000 on
March 31, 2002 and $101,849,000 at December 31, 2001.
The following table sets forth the maturity schedule of the time
certificates of deposit at March 31, 2002:
Table 8 CERTIFICATES OF DEPOSIT
- -------
(In thousands) Under $100,000
Maturities $100,000 or more Total
--------- --------- ---------
Three months or less $ 20,768 $ 24,476 $ 45,244
Over three through six months 12,957 13,013 25,970
Over six through twelve months 9,114 5,693 14,807
Over twelve months 11,584 2,736 14,320
--------- --------- ---------
Total $ 54,423 $ 45,918 $ 100,341
========= ========= =========
13
The following table shows the risk-based capital ratios and leverage
ratios at March 31, 2002 and December 31, 2001:
Table 9
- -------
Minimum "Well
March 31, December 31, Capitalized"
Risk-Based Capital Ratios 2002 2001 Requirements
Tier 1 Capital 12.74% 12.98% > 6.00%
-
Total Capital 13.73% 13.98% > 10.00%
-
Leverage Ratios 11.51% 11.41% > 5.00%
-
Liquidity. Liquidity is a measure of the Company's ability to convert
assets into cash with minimum loss. As of March 31, 2002, Liquid Assets were
$100,249,000, or 24.3% of total assets. Liquidity consists of cash and due from
other banks accounts, federal funds sold, and securities available-for-sale. The
Company's primary uses of funds are loans, and the primary sources of funds are
deposits. The relationship between total net loans and total deposits is a
useful additional measure of liquidity.
A higher loan to deposit ratio means the less liquid the assets will
be. This has to be balanced against the fact that loans represent the highest
earning assets, so that a low loan to deposit ratio means lower potential
income. On March 31, 2002, net loans were at 80.2% of deposits.
Forward-Looking Information and Uncertainties Regarding Future
Financial Performance.
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This report, including management's discussion above, concerning
earnings and financial condition, contains "forward-looking statements."
Forward-looking statements are estimates of or statements about our expectations
or beliefs regarding the Company's future financial performance or anticipated
future financial condition that are based on current information and that are
subject to a number of risks and uncertainties that could cause actual operating
results in the future to differ significantly from those expected at the current
time. Those risks and uncertainties include, although they are not limited to,
the following:
Increased competition. Increased competition from other banks and
financial service businesses, mutual funds and securities brokerage and
investment banking firms that offer competitive loan and investment products
could require us to reduce interest rates and loan fees to attract new loans or
to increase interest rates that we offer on time deposits, either or both of
which could, in turn, reduce interest income and net interest margins.
Possible Adverse Changes in Economic Conditions. Adverse changes in
national or local economic conditions could (i) reduce loan demand which could,
in turn, reduce interest income and net interest margins; (ii) adversely affect
the financial capability of borrowers to meet their loan obligations which, in
turn, could result in increases in loan losses and require increases in
provisions made for possible loan losses, thereby adversely affecting operating
results; and (iii) lead to reductions in real property values that, due to the
Company's reliance on real property to secure many of its loans, could make it
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more difficult to prevent losses from being incurred on non-performing loans
through the sale of such real properties.
Possible Adverse Changes in National Economic Conditions and Federal
Reserve Board Monetary Policies. Changes in national economic policies, such as
increases in inflation or declines in economic output often prompt changes in
Federal Reserve Board monetary policies that could reduce interest income or
increase the cost of funds to the Company, either of which could result in
reduced earnings.
Changes in Regulatory Policies. Changes in federal and national bank
regulatory policies, such as increases in capital requirements or in loan loss
reserve or asset/liability ratio requirements, could adversely affect earnings
by reducing yields on earning assets or increasing operating costs.
Due to these and other possible uncertainties and risks, readers are
cautioned not to place undue reliance on the forward-looking statements
contained in this Report, which speak only as of the date of this Quarterly
Report, or to make predictions based solely on historical financial performance.
We also disclaim any obligation to update any forward-looking statements
contained in this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss to future earnings, to fair values of
assets or to future cash flows that may result from changes in the price or
value of a financial instrument. The value of a financial instrument may change
as a result of changes in interest rates and other market conditions. Market
risk is attributed to all market risk sensitive financial instruments, including
loans, investment securities, deposits and borrowings. The Company does not
engage in trading activities or participate in foreign currency transactions for
its own account. Accordingly, exposure to market risk is primarily a function of
asset and liability management activities and of changes in market rates of
interest. Changes in rates can cause or require increases in the rates paid on
deposits that may take effect more rapidly or may be greater than the increases
in the interest rates that the Company is able to charge on loans and the yields
that it can realize on its investments. The extent of that market risk depends
on a number of variables including the sensitivity to changes in market interest
rates and the maturities of the Company's interest earning assets and deposits.
PART II--Other Information
Item 4. Submissions of Matters to a Vote of Security Holders
FNB Bancorp was incorporated under the laws of the State of California
on February 28, 2001, at the direction of the Board of Directors of First
National Bank of Northern California (the "Bank"), for the purpose of becoming
the holding company of the Bank. Prior to consummation of the holding company
formation, there were 100 shares of FNB Bancorp common stock issued and
outstanding, all of which were paid for, and held by, Michael R. Wyman, Chairman
of the Board of Directors of the Bank. As the sole shareholder of FNB Bancorp,
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Mr. Wyman approved the Agreement and Plan of Reorganization dated November 1,
2001, between FNB Bancorp and the Bank. To date, there have been no other
meetings of the shareholders of FNB Bancorp.
On February 27, 2002, at a Special Meeting of Shareholders of the Bank,
the shareholders of the Bank approved the Agreement and Plan of Reorganization.
A total of 1,734,916 shares were voted "For" the Plan of Reorganization; 24,007
shares were voted "Against" the Plan of Reorganization; and 10,842 shares
abstained from voting. Approval of the Plan of Reorganization required the
affirmative vote of at least two-thirds (2/3) of all shares of Bank common stock
outstanding on the record date, January 15, 2002. Effective as of March 15,
2002, each share of Bank common stock was exchanged for one share of FNB Bancorp
common stock (no dissenting shareholder rights have been asserted to date). Upon
consummation of the Plan of Reorganization, FNB Bancorp repurchased the 100
shares of Company common stock held by Michael R. Wyman at the same price paid
by Mr. Wyman for those shares. The 2002 annual meeting (the first annual
meeting) of the shareholders of FNB Bancorp is currently scheduled to be held on
May 15, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Bylaws of FNB Bancorp (as amended)
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed during the
quarter ended March 31, 2002:
Filed March 1, 2002: reporting results of special meeting of the
shareholders of First National Bank of Northern
California, approving reorganization
Filed March 20, 2002: reporting consummation of plan of
reorganization between FNB Bancorp and First National Bank
of Northern California, effective March 15, 2002, plus
certain senior management changes
Filed March 21, 2002: earnings release for the year 2001
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FNB BANCORP (Registrant)
Dated: May 14, 2002. By: /s/ JAMES B. RAMSEY
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James B. Ramsey
Senior Vice President and
Chief Financial Officer
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