<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 June 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 August 9, 1996
<PAGE>
2
FIRST REGIONAL BANCORP
----------------------
INDEX
-----
Part I - Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 5
Consolidated Statements 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31,
1996 1995
-------- ------------
ASSETS
- ------
<S> <C> <C>
Cash and due from banks $ 6,175 $ 6,777
Time deposits with other financial
institutions 4,063 8,121
Investment securities, available for sale 16,969 13,882
Funds sold 27,720 20,690
Federally guaranteed loans 26,085 27,660
Other loans, net of allowance for losses of
$2,235,000 in 1996 and $2,000,000 in 1995 53,823 57,667
Premises and equipment, net of accumulated
depreciation 196 200
Other real estate owned 350 392
Accrued interest receivable and other assets 3,275 2,421
-------- --------
Total Assets $138,656 $137,810
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Demand deposits $ 28,388 $ 24,005
Savings deposits 5,094 4,706
Money market deposits 74,330 82,998
Time deposits 15,921 13,015
-------- --------
Total deposits 123,733 124,724
Securities sold under agreement to repurchase 7 36
Accrued interest payable and other liabilities 1,691 791
-------- --------
Total Liabilities 125,431 125,551
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 1,900 922
</TABLE>
<PAGE>
4
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(In Thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
June 30 December 31,
1996 1995
--------- ------------
<S> <C> <C>
Net unrealized gain (loss) on securities
available for sale (7) 5
-------- --------
Total Shareholders' Equity 13,225 12,259
-------- --------
Total Liabilities and Shareholders' Equity $138,656 $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 Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest and fees on loans $2,314 $2,237 $4,434 $4,432
Interest on time deposits with
other financial institutions 47 93 144 195
Interest on investment securities 273 154 536 348
Interest on funds sold 338 303 632 512
------ ------ ------ ------
Total revenue from earning assets 2,972 2,787 5,746 5,487
COST OF FUNDS:
Interest on deposits 689 660 1,413 1,270
Interest on securities sold under
agreements to repurchase 0 0 4 0
------ ------ ------ ------
Total cost of funds 689 660 1,417 1,270
Net revenue from earning assets
before provision for loan losses 2,283 2,127 4,329 4,217
PROVISION FOR LOAN LOSSES 150 100 250 375
------ ------ ------ ------
Net revenue from earning assets 2,133 2,027 4,079 3,842
Net gain (loss) on sales of
securities 0 11 (20) 11
Other revenue 101 108 206 233
OPERATING EXPENSES:
Salaries and related benefits 652 565 1,277 1,086
Occupancy expense 98 82 187 165
Equipment expense 41 86 74 129
Promotion expense 34 46 64 83
Professional service expense 166 181 337 323
Customer service expense 320 297 638 585
Supply/communication expense 46 36 88 64
Other expenses 151 467 274 695
------ ----- ------ ------
Total operating expenses 1,508 1,760 2,939 3,130
------ ------ ------ ------
Income before provision for
income taxes 726 386 1,326 956
</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 Six Months Ended
June 30, June 30,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES 282 43 348 106
----- ----- ----- -----
NET INCOME $ 444 $ 343 $ 978 $ 850
===== ===== ===== =====
NET INCOME PER SHARE
(Note 2) $0.19 $0.14 $0.41 $0.35
===== ===== ===== =====
</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>
Six Months Ended
June 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 978 $ 850
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 250 375
Provision for depreciation and amortization 240 29
Amortization of investment securities
net discounts (68) (249)
Decrease (increase) in interest receivable 98 (59)
Increase (decrease) in interest payable 12 19
Increase (decrease) in taxes payable 98 26
Net increase (decrease) in other liabilities 790 115
----- ------
Net cash provided (used) by operating
activities $ 2,398 $ 1,106
INVESTING ACTIVITIES
Decrease (increase) in investment
securities available for sale $(3,031) $ 5,155
Decrease (increase) in time deposits
with other financial institutions 4,058 1,378
Decrease (increase) in guaranteed loans 1,359 (381)
Decrease (increase) in other loans 3,594 (763)
Purchases of premises and equipment (20) (15)
Net decrease (increase) in other real
estate owned 42 467
Net decrease (increase) in other assets (952) (189)
------ ------
Net cash provided by investing
activities $ 5,050 $ 5,652
FINANCING ACTIVITIES
Net decrease in demand deposits,
savings accounts, and money
market accounts $(3,897) $ 885
</TABLE>
<PAGE>
8
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(In Thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
---- ----
<S> <C> <C>
Net increase in time deposits 2,906 4,862
Increase (decrease) in securities sold
under agreement to repurchase (29) 2
------ -------
Net cash (used) provided by
financing activities $(1,020) $ 5,749
Increase in cash and cash equivalents $ 6,428 $12,507
Cash and cash equivalents, beginning of
period 27,467 25,977
------- -------
Cash and cash equivalents, end of period $33,895 $38,484
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
9
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
June 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 June 30, 1996 and December 31,
1995 and the results of operations for the three and six month periods
ended June 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 June 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, which was 2,398,800 in 1996 and 1995. No adjustment has
been made for outstanding stock options.
NOTE 3 - As of June 30, 1996 the Bank had a total of $354,000 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 June 30, 1996 the Company had identified loans having an
aggregate average balance of $589,000 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 June
30, 1996 totalled $113,000 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 June 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 decrease
shareholders' equity at June 30, 1996 by $7,000 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 did not conduct any significant business activities
independent of First Regional Bank. The following discussion and analysis
relates primarily to the Bank.
At June 30, 1996 total assets were $138,656,000 compared to $137,810,000 at
December 31, 1995, an increase of $846,000 or 1%. This modest increase was due
to a slight shrinkage in deposits combined with a small amount of growth in
other liabilities. The overall stability which took place in liabilities was
matched by generally stable asset composition as well. Other loans declined
slightly, falling by $3,844,000 or 7% to $53,823,000 at June 30, 1996 from
$57,667,000 at the end of 1995. The reduction in loans combined with the
overall stability in deposits resulted in an increase in liquid assets,
principally funds sold, which rose from $20,690,000 at December 31, 1995 to
$27,720,000 at June 30, 1996, an increase of $7,030,000 or 34%. In addition,
changes in the levels and the relationships in yield between time deposits with
other financial institutions, investment securities, and funds sold resulted in
higher levels of investment securities and lower levels of time deposits; time
deposits with other financial institutions fell from $8,121,000 at December 31,
1995 to $4,063,000 at June 30, 1996, while investment securities rose from a
yearend 1995 level of $13,882,000 to $16,969,000 at June 30, 1996. Most other
categories of assets and liabilities experienced relatively minor changes in the
period from December 31, 1995 to June 30, 1996.
The Company earned a profit of $444,000 in the three months ended June 30, 1996
compared to $343,000 in the second quarter of 1995. The results for the six
months ended June 30, 1996 were profits of $978,000 compared to a profit of
$850,000 for the corresponding period of 1995.
NET INTEREST INCOME
- -------------------
Net revenue from earning assets before provisions for loan losses rose by
$156,000 (7%) for the three months ended June 30, 1996 compared to the same
period in 1995. The results for the six month period ending June 30, 1996 were
an increase of $112,000 (3%) compared to the corresponding period in 1995.
Total revenue increased due to higher levels of earning assets, general
stability in interest rates, and the continued low levels of non-performing or
non-earning assets. In the area of the cost of funds, expense levels likewise
remained quite stable, as modest growth in total deposits and overall interest
rate stability served to limit the increase in this category of expense.
OTHER REVENUE
- -------------
Other revenue fell slightly, to $101,000 in the second quarter of 1996 from
$108,000 for the three months ended June 30, 1995, a 6% decrease. For the first
half of 1995 other revenue was $233,000 compared to $206,000 for the six months
ended June 30, 1996, for a 1996 decrease of $27,000 or 12%. The changes between
1995 and 1996 primarily reflect lower income from service
<PAGE>
12
charges on deposit accounts. Most other categories of other revenue were
largely unchanged between the two years. During the second quarter of 1995,
total gains of $11,000 were realized on the sale of investment securities. No
gains on securities sales were realized in the second quarter of 1996. For the
first six months of 1996, a loss on securities sales of $20,000 was incurred.
For the like period of 1995, gains of $11,000 were realized.
PROVISION FOR LOAN LOSSES
- -------------------------
The allowance for loan losses is intended to reflect known and inherent risks in
the loan portfolio. The allowance for loan losses is increased by provisions
for 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. Management believes the allowance
for loan losses is adequate to provide for losses that might be reasonably
anticipated.
The allowance for loan losses was $2,235,000 and $2,000,000 (or 2.80% and 2.34%
of gross outstanding loans) at June 30, 1996 and December 31, 1995 respectively.
Although the credit quality of the Company's loan portfolio has steadily
improved, based on its ongoing analysis of the risks presented by its loan
portfolio and the expectation of future loan growth the Company made provisions
of $150,000 and $250,000, respectively, for the second quarter and the first six
months of 1996. By comparison, the Company's provisions for losses were
$100,000 and $375,000 for the three and six month periods ended June 30, 1995,
respectively. In 1995, the Bank generated net loan recoveries of $14,000 and
$52,000, respectively, for the three and six month periods ended June 30, 1995;
by comparison, the Bank experienced net loan chargeoffs of $58,000 in the second
quarter of 1996 and net chargeoffs of $15,000 for the first six months of 1996.
OPERATING EXPENSES
- ------------------
Overall, the Company experienced decreases in operating expenses in 1996
compared to the prior year. Those decreases were the result of management's
continuing efforts to control non-interest expenses. Operating expenses
decreased to a total of $1,508,000 for the three months ended June 30, 1996 from
$1,760,000 for the same period in 1995. For the six months ended June 30, 1995,
operating expenses totaled $3,130,000, and declined to just $2,939,000 in the
corresponding period in 1996.
Salary and related benefits increased from $565,000 for the three month period
ended June 30, 1995 to $652,000 for the same period in 1996, and also rose for
the six month periods ended June 30, from $1,086,000 in 1995 to $1,277,000 in
1996. The increases in salary expense reflect additions to staff required by
the Company's program to resume business development activity and the addition
of new business customers. Occupancy expense remained generally stable for the
three and six month periods of 1996 and 1995. While most of the remaining
categories of expenses underwent reductions or only slight increases in 1996
compared to 1995, there were important exceptions: customer service expense
rose due to the costs associated with servicing the new account relationships
which been developed by the bank, and other expenses fell substantially in 1996
compared to 1995 due to the virtual absence of FDIC deposit insurance premiums
in 1996 due to the financial strength of the Bank Insurance Fund.
<PAGE>
13
PROVISION FOR INCOME TAXES
- --------------------------
Tax provisions increased substantially in the three and six month periods ended
June 30, 1996 compared to the same periods of 1995. For the second quarter of
1996, tax provisions totalled $282,000 versus provisions of $43,000 for the like
period of 1995, while for the six months ended June 30 the 1996 provisions were
$348,000 compared to $106,000 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 $444,000
for the second quarter of 1996, compared to net income of $343,000 for the
comparable period of 1995. For the six months ended June 30, net income in 1996
was $978,000, while 1995 net income was $850,000.
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 44.4% of total deposits at June 30, 1996. This compares with a level
of 39.7% which existed at December 31, 1995; this change reflects growth in the
level of liquid asset components at the same time that slight shrinkage was
taking place in the various deposit categories. In addition, at both June 30,
1996 and December 31, 1995, the Bank held over $26 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 64.6% and 68.4% as of June 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. Agency securities or securities guaranteed by
the U.S. Treasury. As mentioned above, a total of $11,000 in gains on
securities sales were realized in the second quarter of 1995, and no gains or
losses on securities sales were recorded for the same period in 1996. Gains of
$11,000 were recorded for the first six months of 1995, but for the first half
of 1996 losses of $20,000 were incurred on securities sales. At June 30, 1996
the Bank's investment portfolio contained gross unrealized gains of $48,279 and
gross unrealized losses of $57,857; at December 31, 1995 the portfolio contained
gross unrealized gains of $47,080 and gross unrealized losses of $39,267. As
discussed more fully in Note 5, the Company adopted SFAS No. 115 in 1994, with
the result that the unrealized losses of $7,000 (net of taxes) gave rise to a
corresponding $7,000 decrease in the Company's shareholders' equity. 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 there was 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 rates and maturities of
<PAGE>
14
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
Floating Less than but less than but less than
Category Rate one month six months one year
=======================================================================================
<S> <C> <C> <C> <C>
Fed funds sold 27,720 0 0 0
Time deposits with other banks 0 793 3,270 0
Investment securities 10,468 1,000 3,049 1,238
------ ----- ----- -----
Subtotal 38,188 1,793 6,319 1,238
Loans 74,304 0 3,947 1,657
------ - ----- -----
Total earning assets 112,492 1,793 10,266 2,895
Cash and due from banks 0 0 0 0
Premises and equipment 0 0 0 0
Other real estate owned 0 0 0 0
Other assets 0 0 0 0
- - - -
Total non-earning assets 0 0 0 0
- - - -
Total assets 112,492 1,793 10,266 2,895
Funds purchased 7 0 0 0
Repurchase agreements 0 0 0 0
- - - -
Subtotal 7 0 0 0
Savings deposits 5,094 0 0 0
Money market deposits 74,330 0 0 0
Time deposits 0 6,971 6,881 1,902
- ----- ----- -----
Total bearing liabilities 79,431 6,971 6,881 1,902
Demand deposits 0 0 0 0
Other liabilities 0 0 0 0
Equity capital 0 0 0 0
- - - -
Total non-bearing liabilitie 0 0 0 0
- - - -
Total liabilities 79,431 6,971 6,881 1,902
GAP 33,061 (5,178) 3,385 993
Cumulative GAP 33,061 27,883 31,268 32,261
<CAPTION>
One year Non-interest
but less than Five years earning
five years or more or bearing Total
=======================================================================================
<S> <C> <C> <C> <C>
Fed funds sold 0 0 0 27,720
Time deposits with other banks 0 0 0 4,063
Investment securities 225 989 0 16,969
--- --- - ------
Subtotal 225 989 0 48,752
Loans
Total earning assets 0 0 0 79,908
- - - ------
225 989 0 128,660
Cash and due from banks
Premises and equipment 0 0 6,175 6,175
Other real estate owned 0 0 196 196
Other assets 0 0 350 350
Total non-earning assets 0 0 3,275 3,275
- - ----- -----
0 0 9,996 9,996
- - ----- -----
Total assets
225 989 9,996 138,656
Funds purchased 0 0 0 7
Repurchase agreements 0 0 0 0
- - - -
Subtotal 0 0 0 7
Savings deposits
Money market deposits 0 0 0 5,094
Time deposits 0 0 0 74,330
Total bearing liabilities 167 0 0 15,921
--- - - ------
167 0 0 95,352
Demand deposits
Other liabilities 0 0 28,388 28,388
Equity capital 0 0 1,691 1,691
Total non-bearing liabilitie 0 0 13,225 13,225
- - ------ ------
0 0 43,304 43,304
- - ------ ------
Total liabilities
167 0 43,304 138,656
GAP
58 989 (33,308) 0
Cumulative GAP
32,319 33,308 0 0
</TABLE>
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
<PAGE>
15
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
$13,225,000 and $12,259,000 as of June 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>
06-30-96 12-31-95
-------- --------
<S> <C> <C>
Leverage Ratio (Tier I Capital
to Total Assets)
Regulatory requirement 3.00% 3.00%
First Regional Bancorp 9.51% 8.96%
</TABLE>
In addition, bank regulators have issued risk-adjusted capital guidelines which
assign risk weights 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>
06-30-96 12-31-95
-------- --------
<S> <C> <C>
Tier I Capital to Risk-Weighted Assets:
Regulatory requirement 4.00% 4.00%
First Regional Bancorp 17.84% 15.91%
06-30-96 12-31-95
-------- --------
Tier I + Tier II Capital to Risk-Weighted
Assets:
Regulatory requirement 8.00% 8.00%
First Regional Bancorp 19.12% 17.17%
</TABLE>
The "regulatory requirement" figures listed above represent the level of capital
required for Adequately Capitalized status. 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 to a number of lawsuits that 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 on the Bank beyond what
has already been provided in the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
The 1996 annual meeting of shareholders was held on May 16, 1996. The following
persons were nominated and elected to the Board of Directors to serve until the
1997 annual meeting of shareholders:
Alexander S. Lowy
Thomas E. McCullough
Frank R. Moothart
Mark Rubin
Lawrence J. Sherman
Jack A. Sweeney
Steven J. Sweeney
There was no other action taken at the meeting.
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 second 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: August 9, 1996 /s/ Jack A. Sweeney
-------------------- ------------------------------------------
Jack A. Sweeney, Chairman of the Board
and Chief Executive Officer
Date: August 9, 1996 /s/ Thomas McCullough
-------------------- ------------------------------------------
Thomas McCullough, Chief Financial Officer
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<PAGE>
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