<PAGE>
Page 1 of 17
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Quarter Ended September 30, 1996
-------------------------------------------------------------
Commission File Number 0-10232
----------------------------------------------------
FIRST REGIONAL BANCORP
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3582843
- ---------------------------------------------------------------------------
State or other jurisdiction of IRS Employer
incorporation or organization Identification Number
1801 Century Park East, Los Angeles, California 90067
- ---------------------------------------------------------------------------
Address of principal executive offices Zip Code
(310) 552-1776
- ---------------------------------------------------------------------------
Registrant's telephone number, including area code
Not applicable
- ---------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value 2,398,800
-------------------------- -------------------------------
Class Outstanding on November 7, 1996
<PAGE>
2
FIRST REGIONAL BANCORP
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flow 7
Notes to Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
3
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 4,051 $ 6,777
Time deposits with other financial
institutions 3,862 8,121
Investment securities, available for sale 30,190 13,882
Funds sold 19,610 20,690
Federally guaranteed loans 24,675 27,660
Other loans, net of allowance for losses of
$2,414,000 in 1996 and $2,000,000 in 1995 60,808 57,667
Premises and equipment, net of accumulated
depreciation 188 200
Other real estate owned 320 392
Accrued interest receivable and other assets 3,355 2,421
-------- --------
Total Assets $147,059 $137,810
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Demand deposits $ 25,259 $ 24,005
Savings deposits 4,736 4,706
Money market deposits 83,599 82,998
Time deposits 18,046 13,015
-------- --------
Total deposits 131,640 124,724
Securities sold under agreement to repurchase 20 36
Accrued interest payable and other liabilities 1,733 791
-------- --------
Total Liabilities 133,393 125,551
Shareholders' Equity:
Common Stock, no par value, 50,000,000 shares
authorized; 2,398,800 shares outstanding in
1996 and 1995, respectively 11,332 11,332
Retained earnings 2,314 922
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
Net unrealized gain (loss) on securities
available for sale 20 5
-------- --------
Total Shareholders' Equity 13,666 12,259
-------- --------
Total Liabilities and Shareholders' Equity $147,059 $137,810
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
5
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest and fees on loans $2,104 $1,802 $6,538 $6,234
Interest on time deposits with
other financial institutions 59 109 203 304
Interest on investment securities 353 93 889 441
Interest on funds sold 335 527 967 1,039
------ ------ ------ ------
Total revenue from earning assets 2,851 2,531 8,597 8,018
COST OF FUNDS:
Interest on deposits 748 744 2,161 2,014
Interest on securities sold under
agreements to repurchase 1 0 5 0
------ ------ ------ ------
Total cost of funds 749 744 2,166 2,014
Net revenue from earning assets
before provision for loan losses 2,102 1,787 6,431 6,004
PROVISION FOR LOAN LOSSES 0 160 250 535
------ ------ ------ ------
Net revenue from earning assets 2,102 1,627 6,181 5,469
Net gain (loss) on sales of
securities (45) 0 (65) 0
Other revenue 121 99 327 343
OPERATING EXPENSES:
Salaries and related benefits 628 558 1,905 1,644
Occupancy expense 94 91 281 256
Equipment expense 39 39 113 168
Promotion expense 37 38 101 121
Professional service expense 166 170 503 493
Customer service expense 324 308 962 893
Supply/communication expense 38 33 126 97
Other expenses 142 (117) 416 578
------ ------ ------ ------
Total operating expenses 1,468 1,120 4,407 4,250
------ ------ ------ ------
Income before provision for
income taxes 710 606 2,036 1,562
</TABLE>
<PAGE>
6
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per Share Amounts)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES 296 67 644 173
------- ------- ------- -------
NET INCOME $ 414 $ 539 $ 1,392 $ 1,389
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE
(Note 2) $ 0.17 $ 0.23 $ 0.58 $ 0.58
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
7
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1996 1995
---------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,392 $ 1,389
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 250 535
Provision for depreciation and
amortization 358 41
Amortization of investment securities
net discounts (119) (309)
Decrease (increase) in interest
receivable (19) (52)
Increase (decrease) in interest payable 24 34
Increase (decrease) in taxes payable 82 93
Net increase (decrease) in other
liabilities 836 255
-------- -------
Net cash provided (used) by
operating activities $ 2,804 $ 1,986
INVESTING ACTIVITIES
Decrease (increase) in investment
securities $(16,184) $ 3,966
Decrease (increase) in time deposits
with other financial
institutions 4,259 (2,384)
Decrease (increase) in guaranteed loans 2,673 (2,373)
Decrease (increase) in other loans (3,391) 1,282
Purchases of premises and equipment (24) (84)
Net decrease (increase) in other assets (843) 586
-------- -------
Net cash provided by
investing activities $(13,510) $ 993
FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits, savings accounts,
and money market accounts $ 1,885 $ 4,112
Net increase (decrease) in time deposits 5,031 3,852
</TABLE>
<PAGE>
8
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(In Thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in securities sold
under agreement to repurchase (16) 2,465
-------- --------
Net cash provided by
financing activities $ 6,900 $ 10,429
Increase (decrease) in cash and cash
equivalents $ (3,806) $ 13,408
Cash and cash equivalents, beginning of
period 27,467 25,977
-------- --------
Cash and cash equivalents, end of period $ 23,661 $ 39,385
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
9
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
September 30, 1996
(Unaudited)
NOTE 1 - The consolidated financial statements include the accounts of First
Regional Bancorp (the Company), a bank holding company, and its
wholly-owned subsidiary, First Regional Bank (the Bank).
In the opinion of management, the unaudited consolidated financial
statements of First Regional Bancorp at September 30, 1996 and
December 31, 1995 and the results of operations for the three and nine
month periods ended September 30, 1996 and 1995 contain all
adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the financial position of the Company.
Certain items in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation. The results of
operations for the periods ended September 30, 1996 and 1995 are not
necessarily indicative of operating results that may be expected for
any other interim period or for the full year.
While management believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these
financial statements be read in conjunction with the financial
statements and the notes included in the Company's 1995 annual report.
NOTE 2 - Per share information was based on the number of common shares
outstanding. The number of shares outstanding was 2,398,800 in 1996
and 1995.
NOTE 3 - As of September 30, 1996 the Bank had a total of $434,000 in standby
letters of credit outstanding. No losses are anticipated as a result
of these transactions.
NOTE 4 - The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan," effective
January 1, 1995. This Statement defines an impaired loan as one for
which it is likely that an institution will be unable to collect all
amounts due (that is, all principal and interest) according to the
contractual terms of the loan. The Statement generally requires
impaired loans to be measured at the present value of expected future
cash flows discounted at the effective interest rate of the loan, or,
as an expedient, at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. For the
quarter ended September 30, 1996 the Company had identified loans
having an aggregate average balance of $336,542 which it concluded
were impaired under SFAS No. 114. The Company's policy is to
discontinue the accrual of interest income on impaired loans, and to
recognize income on such loans only after the loan principal has been
repaid in full. Pursuant to this policy, the Company had already
ceased to accrue interest on the impaired loans, and had
<PAGE>
10
established a general loss reserve for each of the loans which at
September 30, 1996 totalled $138,470 for the loans as a group. As the
loss reserves established by the Company were greater than those
called for under SFAS No. 114, the adoption of SFAS No. 114 had no
effect on the Company's financial statements as of September 30, 1996.
NOTE 5 - The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Investments in Certain Debt and Equity
Securities," effective January 1, 1994. This Statement supersedes
SFAS No. 12, and significantly amends SFAS No. 65 and SFAS No. 60, the
standards previously used by the Company. The effect of adopting SFAS
No. 115 on the Company's financial statements was to increase
shareholders' equity at September 30, 1996 by $20,000 from the level
which would have existed had SFAS No. 115 not been adopted. Because
the applicable investment securities are classified by the Company as
"available for sale," there was no effect on the Company's income
statement.
<PAGE>
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
SUMMARY
- -------
First Regional Bancorp (the "Company") did not conduct any significant business
activities independent of First Regional Bank (the "Bank"). The following
discussion and analysis relates primarily to the Bank.
At September 30, 1996 total assets were $147,059,000 compared to $137,810,000 at
December 31, 1995, an increase of $9,249,000 or 7%. During 1996 the Company
continued its program of expanded marketing and business development activities,
which resulted in growth in deposits of $6,916,000, or 6%, to $131,640,000 on
September 30, 1996 from $124,724,000 at December 31, 1995. This increase in
deposits occurred in all deposit categories, including demand deposits, savings
deposits, money market accounts, and time deposits. At the same time that
deposits were growing, Net Loans increased by a mere $156,000 to $85,483,000 at
September 30, 1996 compared to $85,327,000 at the end of 1995. The modest
growth in Net Loans reflected the difficulty in finding acceptable new loans in
light of the level of economic activity in the Bank's market area. The funds
resulting from the growth in deposits and the much more modest increase in loans
principally flowed into Investment Securities, which jumped from $13,882,000 at
December 31, 1995 to $30,190,000 at September 30, 1996, an increase of
$16,308,000 or 117%. Most other categories of assets and liabilities
experienced only minor changes in the period from December 31, 1995 to September
30, 1996.
The Company's successful program to increase asset levels while controlling
expenses led to revenues growing faster than expenses, and as a result, the
Company generated income before taxes of $710,000 in the third quarter of 1996,
compared to a gross profit of $606,000 for the same period in 1995. Higher tax
provisions in 1996 versus 1995 resulted in a decline in net income to $414,000
in the three months ended September 30, 1996 compared to $539,000 in the third
quarter of 1995. The results for the nine months ended September 30, 1996 were
profits of $1,392,000 versus a $1,389,000 profit for the like period in 1995.
NET INTEREST INCOME
- -------------------
Net revenue from earning assets rose by $315,000 (18%) for the three months
ended September 30, 1996 compared to the same period in 1995. This increase
reflects growth in earning assets combined with the generally stable level of
interest rates which existed during the two periods. Net interest income for
the nine month period ending September 30, 1996 showed a significant increase of
$579,000 (7%) compared to the corresponding period in 1995, and this result was
again due to higher levels of earning assets combined with stability in interest
rates giving rise to an increase in net revenue. For both the quarter and the
first nine months of 1996, total revenue increased, reflecting higher levels of
assets combined with the comparable levels of interest rates which prevailed
between the two years. Changes in the Cost of Funds were more modest; for the
three months ended September 30, 1996, Total Cost of Funds rose by just $5,000,
from the 1995 level of $744,000 to $749,000, while for the first nine months of
1996 funding costs rose by $152,000 (8%) to $2,166,000 from the 1995 total of
$2,014,000. The modest
<PAGE>
12
increases in deposit interest expense, combined with the generally larger
increases in interest revenues, gave rise to the improved net revenue
performance which occurred.
OTHER REVENUE
- -------------
Other revenue was $121,000 for the three months ended September 30, 1996, up
from the $99,000 recorded in the third quarter of 1995. For the nine months
ended September 30, 1995, other revenue was $343,000 versus a corresponding 1996
total of $327,000. The changes in other revenue between 1995 and 1996 primarily
reflect fluctuations in service charge income on various deposit accounts.
During the third quarter of 1996, losses on sales of securities of $45,000 were
incurred, while for the nine months ended September 30, 1996 a total of $65,000
in losses on sales of securities were experienced. No gains or losses on sales
of securities were realized in the three or nine month periods ended September
30, 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
- ----------------------------------
The allowance for possible loan losses is intended to reflect known and inherent
risks in the loan portfolio. The allowance for possible loan losses is
increased by provisions for possible loan losses, and is decreased by net loan
chargeoffs. Management continues to evaluate the loan portfolio in light of
many factors, including loan loss experience and current economic conditions.
While the economic recession has had and will continue to have a significant
impact on the Bank and its customers, management believes the allowance for
possible loan losses is adequate to provide for losses that might be reasonably
anticipated.
The allowance for possible loan losses was $2,414,000 and $2,000,000 (or 2.75%
and 2.29% of gross outstanding loans) at September 30, 1996 and December 31,
1995 respectively. Reflecting continued improvement in perceived credit
quality, based on the Company's ongoing analysis of the risks presented by its
loan portfolio provisions for possible losses were zero and $250,000 for the
three and nine month periods ended September 30, 1996 respectively, compared to
provisions of $160,000 and $535,000 for the three and nine month periods ended
September 30, 1995. The Company experienced net loan recoveries of $179,000 in
the third quarter of 1996 and net recoveries of $165,000 for the first nine
months of 1996; by comparison, for 1995 the Company experienced net chargeoffs
of $465,000 in the quarter ended September 30, which brought the net chargeoff
total through the third quarter of the year to $434,000.
In addition, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," effective
January 1, 1995. This Statement defines an impaired loan as one for which it is
likely that an institution will be unable to collect all amounts due (that is,
all principal and interest) according to the contractual terms of the loan. The
Statement generally requires impaired loans to be measured at the present value
of expected future cash flows discounted at the effective interest rate of the
loan, or, as an expedient, at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. For the quarter
ended September 30, 1996 the Company had identified loans having an aggregate
average balance of $336,542 which it concluded were impaired under SFAS No. 114.
The Company's
<PAGE>
13
policy is to discontinue the accrual of interest income on impaired loans, and
to recognize income on such loans only after the loan principal has been repaid
in full. Pursuant to this policy, the Company had already ceased to accrue
interest on the impaired loans, and had established a general loss reserve for
each of the loans which at September 30, 1996 totalled $138,470 for the loans as
a group. As the loss reserves established by the Company were greater than those
called for under SFAS No. 114, the adoption of SFAS No. 114 had no effect on the
Company's financial statements as of September 30, 1996.
OPERATING EXPENSES
- ------------------
Management's ongoing programs to limit non-interest expenses led to overall
stability in most categories of operating expenses in 1996 compared to the prior
year. As mentioned earlier, however, the Company embarked on a growth program
in 1995 which required additions to the calling officer force, and as a result
salary and related benefits increased by $70,000 for the three month period
ended September 30, 1996 compared with the same period in 1995, and for the same
reason this category of expense also increased for the nine month period ended
September 30, to $1,905,000 in 1996 from $1,644,000 in 1995. Occupancy expense
remained essentially stable for the three month period ended September 30, 1996
versus the prior year, as there were no changes in the premises occupied by the
Company or the lease agreements covering those premises. Most of the remaining
categories of operating expenses either remained generally stable or declined
slightly in 1996 versus 1995, both for the third quarter and for the full year
to date. The only exception was in Other Expenses, which had fallen sharply in
the third quarter of 1995 due to a reclassification of loan premium
amortizations in that period which resulted in a one-time reduction of this
expense category. The 1996 results represent a return to normal for this item.
PROVISION FOR INCOME TAXES
- --------------------------
Tax provisions increased substantially in the three and nine month periods ended
September 30, 1996 compared to the same periods of 1995. For the third quarter
of 1996, tax provisions totalled $296,000 versus provisions of $67,000 for the
like period of 1995, while for the nine months ended September 30 the 1996
provisions were $644,000 compared to $173,000 in 1995. The higher 1996
provisions in comparison with those of the prior year reflected both the
Company's higher 1996 income and reduced tax provisions in 1995 resulting from
the reversal in that year of reserves for deferred tax assets which had been
established in a prior period.
The combined effects of the above-described factors were net income of $414,000
for the third quarter of 1996, compared to net income of $539,000 for the
comparable period of 1995. For the nine months ended September 30, net income
in 1996 was $1,392,000, while 1995 net income was $1,389,000.
LIQUIDITY, SOURCES OF FUNDS, AND CAPITAL RESOURCES
- --------------------------------------------------
The Company's financial position remains highly liquid. Total liquid assets
(cash and due from banks, time deposits, investment securities, and funds sold)
stood at 43.8% of total deposits at September 30, 1996. This compares with a
level of 39.7% which existed at December 31, 1995; this change reflects the fact
that, as deposits have risen during the course of 1996,
<PAGE>
14
most of the inflow of funds has taken place in the various liquid asset
components, particularly Investment Securities. In addition, at September 30,
1996 and December 31, 1995 respectively, the Bank held approximately $24.6
million and $27.7 million of loans fully guaranteed by the United States
government; due to the presence of an active secondary market for such loans,
these loans represent an important additional source of liquidity. The ratio of
net loans (including government guaranteed loans) to deposits was 64.9% and
68.4% as of September 30, 1996 and December 31, 1995, respectively.
The Bank's investment portfolio continues to be composed of high quality, low
risk securities, primarily U.S. Treasury or U.S. Agency securities. As noted
earlier, losses on sales of securities of $45,000 were incurred in the third
quarter of 1996, while for the nine months ended September 30, 1996 a total of
$65,000 in losses on sales of securities were experienced. No gains or losses
on sales of securities were realized in the three or nine month periods ended
September 30, 1995. At September 30, 1996 the Bank's investment portfolio
contained gross unrealized gains of $58,000 and gross unrealized losses of
$28,000, for net unrealized gains of $30,000; at December 31, 1995 the portfolio
contained gross unrealized gains of $47,000 and gross unrealized losses of
$39,000. As discussed more fully in Note 5, the Company adopted SFAS No. 115 in
1994, with the result that the net unrealized gains and losses gave rise to a
$20,000 increase (net of taxes) in the Company's shareholders' equity as of
September 30, 1996, and a $5,000 increase (net of taxes) in shareholders' equity
as of December 31, 1995. Because the Company's holdings of securities are
intended to serve as a source of liquidity should conditions warrant, the
securities have been classified by the Company as "available for sale," and thus
the unrealized gains and losses had no effect on the Company's income statement.
Because customer deposits are the Company's principal funding source outside of
its capital, management has attempted to match the rates and maturities of its
deposits with its investment and loan portfolios as part of its liquidity and
asset and liability management policies. The objective of these policies is to
limit the fluctuations of net interest income resulting from interest rate
changes. The table which follows indicates the repricing or maturity
characteristics of the major categories of the Bank's assets and liabilities,
and thus the relative sensitivity of the Bank's net interest income to changes
in the overall level of interest rates. A positive "gap" for a period indicates
that an upward or downward movement in the level of interest rates would cause a
corresponding change in net interest income, while a negative "gap" implies that
an interest rate movement would result in an inverse change in net interest
income.
<TABLE>
<CAPTION>
One month Six months One year
but less but less but less Non-interest
Floating Less than than than than Five years earning
Category Rate one month six months one year five years or more or bearing Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fed funds sold 19,610 0 0 0 0 0 0 19,610
Time deposits with other banks 0 297 3,565 0 0 0 0 3,862
Investment securities 12,921 0 17,045 0 224 0 0 30,190
------- ----- ------ ---- ---- --- ----- -------
Subtotal 32,531 297 20,610 0 224 0 0 53,662
Loans 85,205 31 100 147 0 0 0 85,483
------- ----- ------ ---- ---- --- ----- -------
Total earning assets 117,736 328 20,710 147 224 0 0 139,145
Cash and due from banks 0 0 0 0 0 0 4,051 4,051
Premises and equipment 0 0 0 0 0 0 188 188
Other real estate owned 0 0 0 0 0 0 320 320
Other assets 0 0 0 0 0 0 3,355 3,355
------- ----- ------ ---- ---- --- ----- -------
Total non-earning assets 0 0 0 0 0 0 7,914 7,914
------- ----- ------ ---- ---- --- ----- -------
Total assets 117,736 328 20,710 147 224 0 7,914 147,059
Funds purchased 20 0 0 0 0 0 0 20
Repurchase agreements 0 0 0 0 0 0 0 0
------- ------ ------- ------- ------ ------ ------- -------
Subtotal 20 0 0 0 0 0 0 20
Savings deposits 4,736 0 0 0 0 0 0 4,736
Money market deposits 83,599 0 0 0 0 0 0 83,599
Time deposits 0 9,392 7,589 1,051 14 0 0 18,046
------- ------ ------ ------- ------ ------ ------- -------
Total bearing liabilities 88,355 9,392 7,589 1,051 14 0 0 106,401
Demand deposits 0 0 0 0 0 0 25,259 25,259
Other liabilities 0 0 0 0 0 0 1,733 1,733
Equity capital 0 0 0 0 0 0 13,666 13,666
------ ------ ------ ------ ------ ------ ------- -------
Total non-bearing liabilities 0 0 0 0 0 0 40,658 40,658
------ ------ ------ ------ ------ ------ ------- -------
Total liabilities 88,355 9,392 7,589 1,051 14 0 40,658 147,059
GAP 29,381 (9,064) 13,121 (904) 210 0 (32,744) 0
Cumulative GAP 29,381 20,317 33,438 32,534 32,744 32,744 0 0
</TABLE>
<PAGE>
15
As the table indicates, the vast majority of the Company's assets are either
floating rate or, if fixed rate, have extremely short maturities. Since the
yields on these assets quickly adjust to reflect changes in the overall level of
interest rates, there are no significant unrealized gains or losses with respect
to the Company's assets, nor is there much likelihood of large realized or
unrealized gains or losses developing in the future. For this reason, realized
or unrealized gains or losses are not expected to have any significant impact on
the Company's future operating results or liquidity.
The Company continues to enjoy a strong capital position. Total capital was
$13,666,000 and $12,259,000 as of September 30, 1996 and December 31, 1995,
respectively. The Company's capital ratios for those dates in comparison with
regulatory capital requirements were as follows:
<TABLE>
<CAPTION>
09-30-96 12-31-95
-------- --------
<S> <C> <C>
Leverage Ratio (Tier I Capital
to Total Assets)
Regulatory requirement 3.00% 3.00%
First Regional Bancorp 9.26% 8.96%
</TABLE>
In addition, bank regulators have issued new risk-adjusted capital guidelines
which assign risk weighting to assets and off-balance sheet items and place
increased emphasis on common equity. The Company's risk adjusted capital ratios
for the dates listed in comparison with the risk adjusted regulatory capital
requirements were as follows:
<TABLE>
<CAPTION>
09-30-96 12-31-95
-------- --------
<S> <C> <C>
Tier I Capital to Risk-Weighted Assets:
Regulatory requirement 4.00% 4.00%
First Regional Bancorp 16.76% 15.91%
Tier I + Tier II Capital to Risk-Weighted
Assets:
Regulatory requirement 8.00% 8.00%
First Regional Bancorp 18.03% 17.17%
</TABLE>
The "regulatory requirement" figures listed above represent the level of capital
required for Adequately Capitalized status as established by federal regulators.
The Company believes that it will continue to meet all applicable capital
standards.
INFLATION
- ---------
The impact of inflation on the Company differs significantly from other
industries, since virtually all of its assets and liabilities are monetary.
During periods of rising inflation, companies with net monetary assets will
always experience a reduction in purchasing power. Inflation continues to have
an impact on salary, supply, and rent expenses, but the rate of inflation in
general and its impact on these expenses in particular has remained moderate in
recent years.
<PAGE>
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
Litigation
- ----------
The Company is a party as plaintiff or defendant to a number of lawsuits which
have arisen in connection with the normal conduct of its banking business. It
is management's opinion, based upon advice of legal counsel, that none of the
pending litigation will have a materially adverse effect on the Company or the
Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matters were submitted to a vote of security holders during the third quarter
of 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
Exhibits
- --------
There are no exhibits to this report.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed during the third quarter of 1996.
<PAGE>
17
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 thereunto duly authorized.
FIRST REGIONAL BANCORP
Date: November 7, 1996 /s/ Jack A. Sweeney
------------------ ------------------------------------------
Jack A. Sweeney, Chairman of the Board
Chief Executive Officer
November 7, 1996 /s/ Thomas McCullough
------------------ ------------------------------------------
Thomas McCullough, Chief Financial Officer
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