<PAGE>
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, 1997
--------------------------------------------------------------
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 2,446,131
-------------------------- -----------------------------
Class Outstanding on August 8, 1997
1
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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 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>
2
<PAGE>
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,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 5,443 $ 6,499
Time deposits with other financial
institutions 3,756 5,242
Investment securities 25,257 26,817
Funds sold 31,970 22,780
Federally guaranteed loans 3,036 7,498
Other loans, net of allowance for losses of
$1,697,000 in 1997 and $2,300,000 in 1996 77,420 80,104
Premises and equipment, net of accumulated
depreciation 465 362
Other real estate owned 0 0
Accrued interest receivable and other assets 2,563 3,147
-------- --------
Total Assets $149,910 $152,499
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Demand deposits $ 26,476 $ 22,516
Savings deposits 4,945 5,444
Money market deposits 85,485 83,956
Time deposits 16,416 24,839
-------- --------
Total deposits 133,322 136,755
Securities sold under agreement to repurchase 52 0
Accrued interest payable and other liabilities 1,573 1,378
-------- --------
Total Liabilities 134,947 138,133
Shareholders' Equity:
Common Stock, no par value, 50,000,000 shares
authorized; 2,446,131 and 2,398,800 shares
outstanding in 1997 and 1996, respectively 11,332 11,332
Retained earnings 3,616 2,958
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Net unrealized gain (loss) on securities
available for sale 15 26
-------- --------
Total Shareholders' Equity 14,963 14,316
-------- --------
Total Liabilities and Shareholders' Equity $149,910 $152,499
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
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,
------------------ ------------------
1997 1996 1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest and fees on loans $2,091 $2,314 $4,098 $4,434
Interest on time deposits with
other financial institutions 65 47 143 144
Interest on investment securities 569 273 1,162 536
Interest on funds sold 240 338 495 632
------ ------ ------ ------
Total revenue from earning assets 2,965 2,972 5,898 5,746
COST OF FUNDS:
Interest on deposits 797 689 1,643 1,413
Interest on securities sold under
agreements to repurchase 0 0 (1) 4
------ ------ ------ ------
Total cost of funds 797 689 1,642 1,417
Net revenue from earning assets
before provision for loan losses 2,168 2,283 4,256 4,329
PROVISION FOR LOAN LOSSES 257 150 413 250
------ ------ ------ ------
Net revenue from earning assets 1,911 2,133 3,843 4,079
Net gain (loss) on sales of
securities 0 0 0 (20)
Other revenue 186 101 369 206
OPERATING EXPENSES:
Salaries and related benefits 722 652 1,413 1,277
Occupancy expense 97 98 189 187
Equipment expense 44 41 90 74
Promotion expense 38 34 75 64
Professional service expense 217 166 382 337
Customer service expense 306 320 604 638
Supply/communication expense 36 46 67 88
Other expenses 115 151 252 274
------ ------ ------ ------
Total operating expenses 1,575 1,508 3,072 2,939
------ ------ ------ ------
Income before provision for
income taxes 522 726 1,140 1,326
</TABLE>
5
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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,
------------------ ------------------
1997 1996 1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES 224 282 480 348
----- ----- ----- -----
NET INCOME $ 298 $ 444 $ 660 $ 978
===== ===== ===== =====
NET INCOME PER SHARE
(Note 2) $0.12 $0.19 $0.27 $0.41
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1997 1996
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 660 $ 978
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 413 250
Provision for real estate losses 0 30
Provision for depreciation and
amortization 52 240
Amortization of investment securities
net discounts (116) (68)
Decrease (increase) in interest
receivable 574 98
Increase (decrease) in interest payable (27) 12
Increase (decrease) in taxes payable 79 98
Net increase (decrease) in other
liabilities 143 790
------ -------
Net cash provided (used) by
operating activities $1,778 $ 2,428
INVESTING ACTIVITIES
Decrease (increase) in investment
securities available for sale $1,662 $(3,031)
Decrease (increase) in time deposits
with other financial
institutions 1,486 4,058
Decrease (increase) in guaranteed loans 4,446 1,359
Decrease (increase) in other loans 2,271 3,594
Purchases of premises and equipment (138) (20)
Sales of other real estate owned 0 12
Net decrease (increase) in other assets 10 (952)
------ -------
Net cash provided by
investing activities $9,737 $ 5,020
FINANCING ACTIVITIES
Net decrease in demand deposits,
savings accounts, and money
market accounts $4,990 $(3,897)
</TABLE>
7
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FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(In Thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Net increase in time deposits (8,423) 2,906
Increase (decrease) in securities sold
under agreement to repurchase 52 (29)
------- -------
Net cash (used) provided by
financing activities $(3,381) $(1,020)
Increase in cash and cash equivalents $ 8,134 $ 6,428
Cash and cash equivalents, beginning of
period 29,279 27,467
------- -------
Cash and cash equivalents, end of period $37,413 $33,895
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 1,669 $ 1,406
Taxes paid $ 401 $ 250
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
June 30, 1997
(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, 1997 and December 31,
1996 and the results of operations for the three and six month periods
ended June 30, 1997 and 1996 contain all adjustments (which consist
only of normal recurring adjustments) necessary to present fairly the
financial position of the Company. Certain items in the 1996
consolidated financial statements have been reclassified to conform to
the 1997 presentation. The results of operations for the periods
ended June 30, 1997 and 1996 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 1996 annual report.
Certain matters discussed in this Quarterly Report on Form 10-Q may
constitute forward-looking statements within the meaning of the
Private Securities Reform Act of 1995 (the "Reform Act") and as such
may involve risks and uncertainties. These forward-loking statements
relate to, among other things, expectations of the business
environment in which the Company and the Bank operate, projections of
future performance, perceived opportunities in the market, and
statements regarding the Company's and/or the Bank's mission and
vision. The Company's and/or the Bank's actual results, performance,
or achievements may differ significantly from the results,
performance, or achievements expressed or implied in such forward-
looking statements. The following discusses certain factors which may
affect the Company's and/or the Bank's financial results and
operations and should be considered in evaluating the Company and/or
the Bank.
NOTE 2 - Per share information was based on the number of common shares
outstanding, which was 2,446,131 in 1997 and 2,398,800 in 1996. No
adjustment has been made for outstanding stock options.
NOTE 3 - As of June 30, 1997 the Bank had a total of $579,000 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
9
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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, 1997 the Company had
identified loans having an aggregate average balance of $2,571,000
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 established a general loss reserve for each of the loans which
at June 30, 1997 totalled $299,000 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, 1997.
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 June 30, 1997 by $15,000 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.
10
<PAGE>
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, 1997 total assets were $149,910,000 compared to $152,499,000 at
December 31, 1996, a decrease of $2,589,000 or 2%. This modest decrease 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
contrasted sharply with the significant changes in asset composition which took
place during the period. Other loans declined, falling by $2,684,000 or 3% to
$77,420,000 at June 30, 1997 from $80,104,000 at the end of 1996. The falling
loan total was principally due to the continuation of the Bank's program of
selling off its portfolio of government guaranteed loans in order to pursue
other lending opportunities, as well as the maturity of a number of bankers
acceptances. The reduction in loans combined with the general overall stability
in deposits resulted in an increase in liquid assets, principally funds sold,
which rose from a yearend 1996 level of $22,780,000 to $31,970,000 at June 30,
1997. The levels of other categories of liquid assets also underwent minor
changes: time deposits with other financial institutions fell from $5,242,000
at December 31, 1996 to $3,756,000 at June 30, 1997, while investment securities
fell to $25,257,000 on June 30, 1997 from $26,817,000 at the end of 1996. Most
other categories of assets and liabilities experienced relatively minor changes
in the period from December 31, 1996 to June 30, 1997.
The Company earned a profit of $298,000 in the three months ended June 30, 1997
compared to $444,000 in the second quarter of 1996. The results for the six
months ended June 30, 1997 were profits of $660,000 compared to a profit of
$978,000 for the corresponding period of 1996.
NET INTEREST INCOME
- -------------------
The Company's net interest income fell slightly for both the second quarter and
the first half of 1997 versus 1996. Net revenue from earning assets before
provisions for loan losses fell by $115,000 (5%) for the three months ended June
30, 1997 compared to the same period in 1996. The results for the six month
period ending June 30, 1997 were a decrease of $73,000 (2%) compared to the
corresponding period in 1996. The decline in total revenues reflected changes
in the levels of earning assets, slight increases in the overall level of
interest rates, and an increase in the levels of non-performing or non-earning
assets. In the area of the cost of funds, expense levels likewise rose despite
the slight shrinkage in total deposits, as the modest interest rate increases
led to a corresponding increase in this category of expense.
OTHER REVENUE
- -------------
Other revenue rose somewhat, from $101,000 in the second quarter of 1996 to
$186,000 for the three months ended June 30, 1997, an 84% increase. For the
11
<PAGE>
first half of 1997 other revenue was $369,000 compared to $206,000 for the six
months ended June 30, 1996, for an increase of $163,000 or 79%. The changes
between 1997 and 1996 primarily reflect the receipt of proceeds on the sale of
land associated with Silver Sands Estates, a real estate project in Arizona
which is selling off its few remaining lots. Most other categories of other
revenue were largely unchanged between the two years. No gains on securities
sales were realized in the second quarter of 1997 or 1996. For the first six
months of 1996, a loss on securities sales of $20,000 was incurred; no such
losses were incurred for the like period of 1997.
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 $1,697,000 and $2,300,000 (or 2.38% and 2.56%
of gross outstanding loans) at June 30, 1997 and December 31, 1996 respectively.
The Company's loan portfolio did experience some decline in its overall credit
quality due to problems with three borrowers, and based on its ongoing analysis
of the risks presented by its loan portfolio and the expectation of future loan
growth the Company's provisions for losses were $257,000 and $413,000 for the
three and six month periods ended June 30, 1997, respectively. By comparison,
the Company made provisions of $150,000 and $250,000, respectively, for the
second quarter and the first six months of 1996. In 1997, the Bank experienced
net loan chargeoffs of $475,000 and $1,016,000, respectively, for the three and
six month periods ended June 30, 1997; in sharp contrast, 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 modest increases in operating expenses in 1997
compared to the prior year. These increases reflected the overall growth of the
Company over the levels of the prior year, and were moderated by management's
continuing efforts to control non-interest expenses. Operating expenses
increased from a total of $1,508,000 for the three months ended June 30, 1996 to
$1,575,000 for the same period in 1997. For the six months ended June 30, 1997,
operating expenses totaled $3,072,000, after declining to just $2,939,000 in the
corresponding period in 1996.
Salary and related benefits increased to $722,000 for the three month period
ended June 30, 1997 from $652,000 for the same period in 1996, and also rose for
the six month periods ended June 30, to $1,413,000 in 1997 from $1,277,000 in
1996. The increases in salary expense reflect additions to staff required by
the Company's program to continue its business development programs and the
addition of new business customers, as well as cost of living and merit
increases in salary granted to the Bank's staff members. Occupancy expense
remained extremely stable for the three and six month
12
<PAGE>
periods of 1997 and 1996. While many categories of expenses underwent
reductions or only slight increases in 1997 compared to 1996, one important
exception was professional services expense, which rose due to the costs
associated with arranging the resolution or collection of nonperforming loans.
PROVISION FOR INCOME TAXES
- --------------------------
Reflecting the lower gross income levels experienced in 1997, tax provisions
decreased for the three month periods ended June 30, 1997 compared to the same
period of 1996. For the second quarter of 1997, tax provisions totalled
$224,000 versus provisions of $282,000 for the like period of 1996. For the six
months ended June 30, 1997 provisions were $480,000 compared to $348,000 in
1996. The higher 1997 provisions in comparison with those of the prior year
resulted from the reversal in 1996 of reserves for deferred tax assets which had
been established in a prior period. The reversal of these reserves had the
effect of lowering tax provisions in 1996; there were no such reserve reversals
in 1997.
The combined effects of the above-described factors were net income of $298,000
for the second quarter of 1997, compared to net income of $444,000 for the
comparable period of 1996. For the six months ended June 30, net income in 1997
was $660,000, while 1996 net income was $978,000.
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 58.0% of total deposits at June 30, 1997. This compares with a level
of 44.9% which existed at December 31, 1996; this change reflects growth in the
level of liquid asset components at the same time that slight shrinkage was
taking place in the overall deposits. In addition, at both June 30, 1997 and
December 31, 1996, the Bank held substantial amounts of bankers acceptances and
loans fully guaranteed by the United States government; due to the presence of
active secondary markets for such assets, they represent an important additional
source of liquidity. The ratio of net loans (including government guaranteed
loans) to deposits was 52.2% and 64.1% as of June 30, 1997 and December 31,
1996, 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, no gains or losses on securities sales
were realized in the second quarter of 1997 or 1996. Further, no gains or
losses on securities sales were recorded for the first six months of 1997,
although for the first half of 1996 losses of $20,000 were incurred on
securities sales. At June 30, 1997 the Bank's investment portfolio contained
gross unrealized gains of $70,000 and gross unrealized losses of $47,000; at
December 31, 1996 the portfolio contained gross unrealized gains of $83,000 and
gross unrealized losses of $43,000. As discussed more fully in Note 5, the
Company adopted SFAS No. 115 in 1994, with the result that the unrealized gains
of $15,000 (net of taxes) gave rise to a corresponding $15,000 increase 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
13
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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 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 Non-interest
Floating Less than but less than but less than but less 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 31,970 0 0 0 0 0 0 31,970
Time deposits with other banks 0 792 2,964 0 0 0 0 3,756
Investment securities 14,441 0 10,791 0 25 0 0 25,257
------- ----- ------ ------ ------ ------ ------ ------
Subtotal 46,411 792 13,755 0 25 0 0 60,983
Loans 69,100 2,994 8,237 50 75 0 0 80,456
------- ----- ------ ------ ------ ------ ------ ------
Total earning assets 115,511 3,786 21,992 50 100 0 0 141,439
Cash and due from banks 0 0 0 0 0 0 5,443 5,443
Premises and equipment 0 0 0 0 0 0 465 465
Other real estate owned 0 0 0 0 0 0 0 0
Other assets 0 0 0 0 0 0 2,563 2,563
------- ----- ------ ------ ------ ------ ------ ------
Total non-earning assets 0 0 0 0 0 0 8,471 8,471
------- ----- ------ ------ ------ ------ ------ ------
Total assets 115,511 3,786 21,992 50 100 0 8,471 149,910
Funds purchased 52 0 0 0 0 0 0 52
Repurchase agreements 0 0 0 0 0 0 0 0
------- ----- ------ ------ ------ ------ ------ ------
Subtotal 52 0 0 0 0 0 0 52
Savings deposits 4,945 0 0 0 0 0 0 4,945
Money market deposits 85,485 0 0 0 0 0 0 85,485
Time deposits 0 8,291 7,259 771 95 0 0 16,416
------- ----- ------ ------ ------ ------ ------ ------
Total bearing liabilities 90,482 8,291 7,259 771 95 0 0 106,898
Demand deposits 0 0 0 0 0 0 26,476 26,476
Other liabilities 0 0 0 0 0 0 1,573 1,573
Equity capital 0 0 0 0 0 0 14,963 14,963
------- ----- ------ ------ ------ ------ ------ ------
Total non-bearing liabilities 0 0 0 0 0 0 43,012 43,012
------- ----- ------ ------ ------ ------ ------ ------
Total liabilities 90,482 8,291 7,259 771 95 0 43,012 149,910
GAP 25,029 (4,505) 14,733 (721) 5 0 (34,541) 0
Cumulative GAP 25,029 20,524 35,257 34,536 34,541 34,541 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
14
<PAGE>
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
$14,963,000 and $14,316,000 as of June 30, 1997 and December 31, 1996,
respectively. The Company's capital ratios for those dates in comparison with
regulatory capital requirements were as follows:
<TABLE>
<CAPTION>
06-30-97 12-31-96
-------- --------
<S> <C> <C>
Leverage Ratio (Tier I Capital
to Total Assets)
Regulatory requirement 3.00% 3.00%
First Regional Bancorp 9.51% 9.38%
</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>
06-30-97 12-31-96
-------- --------
<S> <C> <C>
Tier I Capital to Risk-Weighted Assets:
Regulatory requirement 4.00% 4.00%
First Regional Bancorp 16.73% 17.07%
Tier I + Tier II Capital to Risk-Weighted
Assets:
Regulatory requirement 8.00% 8.00%
First Regional Bancorp 17.99% 18.34%
</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.
15
<PAGE>
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 1997 annual meeting of shareholders was held on May 22, 1997. The following
persons were nominated and elected to the Board of Directors to serve until the
1998 annual meeting of shareholders:
H. Anthony Gartshore
Alexander S. Lowy
Thomas E. McCullough
Frank R. Moothart
Mark Rubin
Lawrence J. Sherman
Jack A. Sweeney
Carolyn Zarro Nicholson
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 1997.
16
<PAGE>
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 8, 1997 /s/ Mark Rubin
------------------ -------------------------------------------
Mark Rubin, Vice Chairman of the Board
and President
Date: August 8, 1997 /s/ Thomas McCullough
------------------ ------------------------------------------
Thomas McCullough, Chief Financial Officer
17
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