<PAGE>
Page 1 of 18
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, 2000
-------------
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 2,814,720
-------------------------- -----------------------------
Class Outstanding on August 8, 2000
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2
FIRST REGIONAL BANCORP
----------------------
INDEX
-----
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial
Condition.................................... 3
Consolidated Statements of Income............ 4
Consolidated Statements of Cash Flows........ 5
Notes to Consolidated Financial
Statements................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................ 10
Part II - Other Information
Item 1. Legal Proceedings............................ 17
Item 4. Submission of Matters to a Vote of
Security Holders............................. 17
Item 6. Exhibits and Reports on Form 8-K............. 17
Signatures.................................................. 18
<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,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 16,014 $ 10,074
Federal funds sold 19,605 37,090
-------- --------
Cash and cash equivalents $ 35,619 $ 47,164
Investment securities 5,950 52,789
Interest-bearing deposits in financial
institutions 3,960 6,923
Government guaranteed loans 20,635 5,084
Loans, net of allowance for losses of
$3,109,000 in 2000 and $2,300,000 in 1999 165,886 116,732
Premises and equipment, net of accumulated
depreciation 1,272 1,172
Accrued interest receivable and other assets 3,957 3,169
-------- --------
Total Assets $237,279 $233,033
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Noninterest bearing $ 74,298 $ 65,405
Interest Bearing:
Savings deposits 9,940 8,605
Money market deposits 87,254 87,670
Time deposits 39,122 44,052
-------- --------
Total deposits 210,614 205,732
Note payable 1,237 1,313
Accrued interest payable and other liabilities 3,913 5,285
-------- --------
Total Liabilities 215,764 212,330
Shareholders' Equity:
Common Stock, no par value, 50,000,000 shares
authorized; 2,813,000 and 2,809,000 shares
outstanding in 2000 and 1999, respectively 14,247 14,410
Less: Unearned ESOP shares; 129,000 and 132,000
outstanding in 2000 and 1999, respectively (1,173) (1,244)
Total common stock, no par value;
-------- --------
Outstanding 2,683,000 (2000) and
2,677,000 (1999) shares 13,074 13,166
Retained earnings 8,438 7,538
Accumulated other comprehensive income 3 (1)
-------- --------
Total Shareholders' Equity 21,515 20,703
-------- --------
Total Liabilities and Shareholders' Equity $237,279 $233,033
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
4
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six
Ended Months Ended
June 30, June 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest on loans $4,441 $2,395 $7,834 $4,707
Interest on deposits in
financial Institutions 58 110 150 264
Interest on investment
securities 464 889 1,152 1,576
Interest on federal funds
sold 344 275 801 685
------ ------ ------ ------
Total interest income 5,307 3,669 9,937 7,232
COST OF FUNDS:
Interest on deposits 1,026 1,075 2,105 2,201
Interest on other borrowings 3 7 8 8
------ ------ ------ ------
Total interest expense 1,029 1,082 2,113 2,209
------ ------ ------ ------
Net interest income 4,278 2,587 7,824 5,023
PROVISION (REVERSAL OF
PROVISION) FOR LOAN LOSSES 564 25 714 (195)
------ ------ ------ ------
Net interest income after
provision for loan losses 3,714 2,562 7,110 5,218
OTHER OPERATING INCOME 283 427 744 793
------ ------ ------ ------
OPERATING EXPENSES:
Salaries and related benefits 1,764 1,290 3,447 2,495
Occupancy expense 213 170 415 326
Equipment expense 112 88 235 173
Promotion expense 81 68 131 95
Professional service expense 286 236 578 531
Customer service expense 121 182 282 391
Supply/communication expense 138 112 247 201
Other expenses 343 273 707 539
------ ------ ------ ------
Total operating expenses 3,058 2,419 6,042 4,751
------ ------ ------ ------
Income before provision
for income taxes 939 570 1,812 1,260
PROVISION FOR INCOME TAXES 389 237 749 518
------ ------ ------ ------
NET INCOME $ 550 $ 333 $1,063 $ 742
====== ====== ====== ======
EARNINGS PER SHARE (Note 2)
Basic $0.20 $0.11 $ 0.39 $ 0.26
Diluted $0.20 $0.11 $ 0.39 $ 0.25
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
5
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,063 $ 742
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision (reversal of provision)
for loan losses 714 (195)
Provision for depreciation and
amortization 113 82
Amortization of investment security
and guaranteed loan premiums 141 39
Accretion of investment security
discounts (62) (93)
Increase in interest receivable (430) (232)
(Decrease) increase in interest
payable (28) 33
(Decrease) Increase in taxes payable (121) 60
Net (Decrease) increase in other
Liabilities (1,223) 503
------- -------
Net cash provided by
operating activities $ 167 $ 939
INVESTING ACTIVITIES
Decrease in investments in time deposits
with other financial institutions $ 2,963 $ 5,052
Decrease (increase) in investment securities 46,895 (36,556)
(Increase) decrease in guaranteed loans (15,682) 164
Net increase in other loans (48,868) (8,795)
Increase in premises and equipment (213) (251)
Net increase in other assets (358) (643)
-------- --------
Net cash used in investing activities $(16,263) $(41,029)
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits
money market deposits, and other deposits $ 9,812 $ 41,246
Net decrease in time deposits (4,930) (3,478)
Decrease in note payable (76) (76)
Increase in securities sold under
agreement to repurchase 0 190
Decrease in shareholders' equity (255) (101)
------- -------
Net cash provided by financing activities $ 4,551 $ 37,781
Decrease in cash and cash equivalents $(11,545) $ (2,309)
Cash and cash equivalents, beginning of period 47,164 41,177
-------- --------
Cash and cash equivalents, end of period $ 35,619 $ 38,868
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
6
FIRST REGIONAL BANCORP AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
June 30, 2000
(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). Certain
amounts in the 1999 financial statements have been reclassified to be
comparable with the classifications used in the 2000 financial
statements.
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the financial
position as of June 30, 2000 and December 31, 1999 and the results of
operations for the three and six month periods ended June 30, 2000 and
1999.
While the Company 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 1999 annual report.
Certain statements in this Report on Form 10-Q constitute "forward
looking statements" under the Private Securities Litigation Reform Act
of 1995 which involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such a
difference include, but are not limited to, economic conditions,
competition in the geographic and business areas in which the Company
conducts operations, fluctuations in interest rates, credit quality
and government regulations.
NOTE 2 - Basic earnings per share are computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding during each period. The computation of diluted earnings
per share also considers the number of shares issuable upon the
assumed exercise of outstanding common stock options. All earnings
per common share amounts presented have been restated in accordance
with the provisions of this statement. A reconciliation of the
numerator and the denominator used in the computation of basic and
diluted earnings per share is:
<PAGE>
7
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
----------------------------------------
Weighted
Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic EPS
---------
Income available to
common shareholders $ 550,000 2,690,176 $ 0.20
Effect of Dilutive
Securities
----------
Incremental shares from
assumed exercise of
outstanding options 9,966 (0.00)
----------- --------- ------
Diluted EPS
-----------
Income available to
common shareholders $ 550,000 2,700,142 $ 0.20
=========== ========= ======
</TABLE>
<TABLE>
<CAPTION> Three Months Ended June 30, 2000
----------------------------------------
Weighted
Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic EPS
---------
Income available to
common shareholders $ 333,000 2,989,837 $ 0.11
Effect of Dilutive
Securities
----------
Incremental shares from
assumed exercise of
outstanding options 99,376 (0.00)
------------ --------- ------
Diluted EPS
-----------
Income available to
common shareholders $ 333,000 2,999,213 $ 0.11
=========== ========= ======
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
----------------------------------------
Weighted
Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic EPS
---------
Income available to
common shareholders $ 1,063,000 2,699,615 $ 0.39
Effect of Dilutive
Securities
----------
Incremental shares from
assumed exercise of
outstanding options 15,551 (0.00)
----------- --------- ------
Diluted EPS
-----------
Income available to
common shareholders $ 1,063,000 2,715,166 $ 0.39
=========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
----------------------------------------
Weighted
Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Basic EPS
---------
Income available to
common shareholders $ 742,000 2,877,784 $ 0.26
Effect of Dilutive
Securities
----------
Incremental shares from
assumed exercise of
outstanding options 115,422 (0.01)
----------- --------- ------
Diluted EPS
-----------
Income available to
common shareholders $ 742,000 2,993,206 $ 0.25
=========== ========= ======
</TABLE>
NOTE 3 - As of June 30, 2000 the Bank had a total of $1,059,000 in standby
letters of credit outstanding. No losses are anticipated as a result
of these transactions.
NOTE 4 - The Company's comprehensive income includes all items which comprise
net income plus the unrealized holding gains on
<PAGE>
9
available-for-sale securities. For the three and six month periods
ended June 30, 2000 and 1999, the Company's comprehensive income was
as follows:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
June 30, 2000 June 30, 1999
------------- -------------
(in thousands)
<S> <C> <C>
Net Income $ 550 $ 333
Other comprehensive income 3 (10)
------ ------
Total comprehensive income $ 553 $ 323
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
(in thousands)
<S> <C> <C>
Net Income $ 1,063 $ 742
Other comprehensive income 4 (12)
-------- --------
Total comprehensive income $1,067 $730
</TABLE>
<PAGE>
10
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.
As of June 30, 2000 total assets were $237,279,000 compared to $233,033,000
at December 31, 1999, an increase of $4,246,000 or 1.8%. Moreover, the June 30,
2000 asset level represents a $4,289,000 (1.8%) increase over the $232,990,000
that existed on the same date in 1999. The 2000 asset growth reflects a
corresponding increase in total deposits of $4,882,000 or 2.4%, from
$205,732,000 at the end of 1999 to $210,614,000 at June 30, 2000. While overall
deposits increased slightly, the deposit growth was centered in noninterest
bearing deposits, savings deposits increased slightly and money market deposits
and time experienced some decline. There were several changes in the composition
of the Bank's assets during the first six months of 2000. The Bank's core loan
portfolio actually grew significantly by $64,705,000 during the six month period
bringing the Bank's total loans to $186,521,000 at June 30, 2000 from the
December 31, 1999 total of $121,816,000. The combined effect of the substantial
increase in loans and the slight growth in deposits was a decrease in the level
of total liquid assets. Of particular note, investment securities decreased by
approximately $46.8 million and time deposits in financial institutions fell by
$3.0 million. Federal funds sold fell by $17.4 million in order to accommodate
the changes that took place in the rest of the balance sheet.
The Company earned a profit of $550,000 in the three months ended June 30,
2000, compared to earnings of $333,000 in the second quarter of 1999 an increase
of 65%. The results for the six months ended June 30, 2000 were profits of
$1,063,000 compared to a profit of $742,000 for the corresponding period of
1999.
NET INTEREST INCOME
-------------------
Total interest income increased by $1,638,000 (45%) for the second quarter
of 2000 compared to the same period in 1999, and increased by $2,705,000 (37%)
for the six month period ended June 30, 2000 compared to the prior year although
total earning assets were only slightly higher (1.2%) in 2000 than in 1999. The
majority of the increase in interest income arises from a substantial increase
of $3,127,000 (66 %) in interest on loans from $4,707,000 for the six months
ended June 30, 1999 compared to $7,834,000 for the same period in 2000. This
increase in interest income on loans corresponds to an substantial increase in
core loan portfolio of
<PAGE>
11
$85,994,000 (86%) from June 30, 1999 to June 30, 2000 and generally higher
interest rates which have existed this year compared with 1999. For the three
months ended June 30, 2000 interest expense decreased by $53,000 (5%) to
$1,029,000 from the 1999 level of $1,082,000 and for the six months ended June
30, 2000 interest expense decreased slightly by $96,000 (4%) to $2,113,000 from
the 1999 level of $2,209,000. Interest expenses decreased in these periods
although total deposits were slightly higher than in the same periods in 1999,
as interest bearing deposits decreased from the prior period. The net result
was an increase in net interest income of $1,691,000 (65%), from $2,587,000 in
the second quarter of 1999 to $4,278,000 for the second quarter of 2000 and an
increase in net interest income of $2,801,000 (56%), from $5,023,000 for the six
months ended June 30, 1999 to $7,824,000 for the first six months of 2000.
OTHER OPERATING INCOME
----------------------
Other operating income decreased to $283,000 in the second quarter of 2000
from $427,000 in the three months ended June 30, 1999. For the first half of
2000 other operating income also decreased slightly from $793,000 for the six
months ended June 30, 1999 to $744,000 for the first six months of 2000. The
Bank's merchant services operation, which provides credit card deposit and
clearing services to retailers and other credit card accepting businesses, had
revenue that totaled $183,000 for the second quarter of 2000 and $342,000 for
the six months ended June 30, 2000 in contrast with $116,000 for the second
quarter of 1999 and $221,000 for the six months ended June 30, 1999. Offsetting
this income increase in part was the Bank's Trust Administration Services Corp.
(TASC), a wholly owned subsidiary that provides administrative and custodial
services to self-directed retirement plans. TASC had revenue that decreased to
$133,000 for the six months ended June 30, 2000 in contrast with $242,000 in the
first six months of 1999. Also offsetting this income increase was the decrease
in gains realized on the sale of land, which fell from $100,000 in 1999's first
half to $30,000 in the first half of 2000. Losses on securities sales totaled
$24,000 for both the 2nd quarter and the first six months of 2000 while no gains
or losses on securities sales were realized in the first half of 1999. No gains
or losses on the sale of loans were realized in the first half of 2000 or 1999.
<PAGE>
12
LOAN PORTFOLIO AND PROVISION FOR LOAN LOSSES
--------------------------------------------
The loan portfolio consisted of the following at June 30, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------------------
(Dollars in Thousands)
<S> <C> <C>
Commercial loans........................... $ 55,105 $ 42,789
Real estate construction loans............. 33,939 19,267
Real estate loans.......................... 79,739 56,741
Other loans................................ 1,234 961
-------- --------
Total loans......................... $170,017 $119,758
Less - Allowances for loan losses......... 3,109 2,300
- Deferred loan fees................. 1,022 726
-------- --------
Net loans............................ $165,886 $116,732
======== ========
Government guaranteed loans $ 20,635 $ 5,084
======== ========
</TABLE>
The allowance for loan losses is intended to reflect the known and unknown
risks which are inherent in a loan portfolio. The adequacy of the allowance for
loan losses is continually evaluated in light of many factors, including loan
loss experience and current economic conditions. The allowance for loan losses
is increased by provisions for loan losses, and is decreased by net chargeoffs.
Management believes the allowance for loan losses is adequate in relation to
both existing and potential risks in the loan portfolio.
The Bank has historically evaluated the adequacy of its allowance for loan
losses on an overall basis rather than by specific categories of loans. In
determining the adequacy of the allowance for loan losses, management considers
such factors as historical loan loss experience, known problem loans,
evaluations made by bank regulatory authorities, assessment of economic
conditions and other appropriate data to identify the risks in the loan
portfolio.
The allowance for losses was $3,109,000 and $2,300,000 (or 1.64% and 1.85%
of gross outstanding loans) at June 30, 2000 and December 31, 1999 respectively.
Reflecting the Company's ongoing analysis of the risks presented by its loan
portfolio, provisions for loan losses were $564,000 and $714,000 for the three
and six month period ended June 30, 2000, compared to $25,000 and $(195,000) for
the same periods of 1999. For the three and six months ended June 30, 2000, the
Company generated net loan
<PAGE>
13
recoveries of $85,000 and 95,000; by comparison, in the first half of 1999 the
Company experienced net loan recoveries of $21,000.
For the quarter ended June 30, 2000 the Company identified loans having an
aggregate average balance of $84,000 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, 2000 totaled
$45,000 for the loans as a group.
OTHER OPERATING EXPENSES
------------------------
Other operating expenses increased in the first six months of 2000 compared
to the same period of 1999, although some categories of expense actually
decreased from the levels of previous periods. Other operating expenses rose to
a total of $3,058,000 for the second quarter of 2000 from $2,419,000 for the
three months ended June 30, 1999. For the six months ended June 30, 2000 other
operating expenses totaled $6,042,000, an increase from $4,751,000 for the
corresponding period in 1999.
Salary and related benefits increased by $474,000, rising from a total of
$1,290,000 for the second quarter of 1999 to $1,764,000 for the same period in
2000, and also rose for the six months ended June 30, to $3,447,000 from
$2,495,000 in 1999. The increase principally reflects increases in staffing
which took place due to staffing in the new regional offices. The increase also
reflects employee salary adjustments. Occupancy expense rose to $213,000 for
the three months ended June 30, 2000 from $170,000 in the second quarter of
1999, the increases reflect the rent paid on the various facilities which house
the Bank's new regional offices and the TASC operation. Total other operating
expenses rose in 2000 compared to the prior year, increasing from $959,000 for
the second quarter of 1999 to $1,081,000 for the second quarter of 2000 and a
corresponding increase from $1,930,000 for the first six months of 1999 to
$2,180,000 for the same period of 2000.
The combined effects of the above-described factors resulted in income
before taxes of $939,000 for the three months ended June 30, 2000 compared to
$570,000 for the second quarter of 1999. For the six months ended June 30, 2000
income before taxes is $1,812,000 compared to $1,260,000 for the first six
months of the prior year. In the second quarter, the Company's provision for
taxes increased from $237,000 in 1999 to $389,000 in 2000. For the six months
ended June 30, 2000 the provisions were $749,000 compared to $518,000 in 1999.
This brought net income for the second quarter of 2000 to $550,000 compared to
$333,000 for the same period in
<PAGE>
14
1999. For the six months ended June 30, net income in 2000 was $1,063,000, while
1999 net income through June 30 was $742,000.
LIQUIDITY, SOURCES OF FUNDS, AND CAPITAL RESOURCES
--------------------------------------------------
The Company's financial position remains liquid. Total liquid assets (cash
and due from banks, interest bearing deposits in financial institutions,
investment securities available for sale, and federal funds sold) stood at 21.6%
of total deposits at June 30, 2000. This level represents a decrease from the
51.95% liquidity level which existed on December 31, 1999. In addition, at June
30, 2000 some $20.6 million of the Bank's total loans consisted of government
guaranteed loans, which represent a significant source of liquidity due to the
active secondary markets which exist for these assets. The ratio of net loans
(including government guaranteed loans) to deposits was 88.6% and 59.2% as of
June 30, 2000 and December 31, 1999, respectively.
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 as
of June 30, 2000, 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 Six
Less month months One
than but less but less year but Five Non-interest
Floating one than six than one less than years earning
Category Rate month months year five years or more or bearing Total
------------------------------ -------- ----- -------- -------- ---------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fed funds sold 19,605 0 0 0 0 0 0 19,605
Time deposits with other banks 0 495 3,465 0 0 0 0 3,960
Investment securities 0 999 4,951 0 0 0 0 5,950
Subtotal 19,605 1,494 8,416 0 0 0 0 29,515
Loans 184,748 227 747 40 759 0 0 186,521
Total earning assets 204,353 1,721 9,163 40 759 0 0 216,036
Cash and due from banks 0 0 0 0 0 0 16,014 16,014
Premises and equipment 0 0 0 0 0 0 1,272 1,272
Other real estate owned 0 0 0 0 0 0 0 0
Other assets 0 0 0 0 0 0 3,957 3,957
Total non-earning assets 0 0 0 0 0 0 21,243 21,243
Total assets 204,353 1,721 9,163 40 759 0 21,243 237,279
Funds purchased 0 0 0 0 0 0 0 0
Repurchase agreements 0 0 0 0 0 0 0 0
Subtotal 0 0 0 0 0 0 0 0
Savings deposits 9,940 0 0 0 0 0 0 9,940
Money market deposits 87,254 0 0 0 0 0 0 87,254
Time deposits 0 20,209 17,315 1,421 177 0 0 39,122
Total bearing liabilities 97,194 20,209 17,315 1,421 177 0 0 136,316
Demand deposits 0 0 0 0 0 0 74,298 74,298
Other liabilities 0 0 0 0 0 0 5,150 5,150
Equity capital 0 0 0 0 0 0 21,515 21,515
Total non-bearing liabilities 0 0 0 0 0 0 100,963 100,963
Total liabilities 97,194 20,209 17,315 1,421 177 0 100,963 237,279
GAP 107,159 (18,488) (8,152) (1,381) 582 0 (79,720) 0
Cumulative GAP 107,159 88,671 80,519 79,138 79,720 79,720 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 Bank's investment portfolio continues to be composed of high quality,
low risk securities, primarily U.S. Treasury or Agency securities. As mentioned
above, no gains and $24,000 in losses were recorded on securities sales in the
first half of 2000. As of June 30, 2000 the Company's investment portfolio
contained gross unrealized gains of $4,000 and no unrealized losses. By
comparison, at June 30, 1999 the Company's investment portfolio contained gross
unrealized losses of $18,000 and no unrealized gains. The unrealized net gain
(adjusted for taxes) of $4,000 at June 30, 2000 gave rise to a $3,000 increase
in the Company's shareholders' equity as of that date. 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."
The Company continues to enjoy a strong capital position. Total capital
was $21,515,000 and $20,703,000 as of June 30, 2000 and December 31, 1999,
respectively. The Company's capital ratios for those dates in comparison with
regulatory capital requirements were as follows:
<PAGE>
16
<TABLE>
<CAPTION>
6-30-00 12-31-99
------- --------
<S> <C> <C>
Leverage Ratio (Tier I Capital
to Assets):
Regulatory requirement 4.00% 4.00%
First Regional Bancorp 9.10% 8.90%
</TABLE>
The "regulatory requirement" listed represents the level of capital required for
Adequately Capitalized status.
In addition, bank regulators have issued 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:
6-30-00 12-31-99
-------- --------
Tier I Capital to Assets:
Regulatory requirement 4.00% 4.00%
First Regional Bancorp 10.90% 10.50%
6-30-00 12-31-99
------- --------
Tier I + Tier II Capital to Assets:
Regulatory requirement 8.00% 8.00%
First Regional Bancorp 12.15% 11.70%
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>
17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
--------------------------
Litigation
----------
In the normal course of business, the Company and the Bank are involved in
litigation. Management does not expect the ultimate outcome of any pending
litigation to have a material effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The company held its annual meeting of shareholders on May 18, 2000. The
Board of Directors was elected as follows:
Fred M. Edwards
H. Anthony Gartshore
Gary Horgan
Thomas E. McCullough
Lawrence J. Sherman
Jack A. Sweeney
No other matters were submitted for shareholder vote.
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 2000.
<PAGE>
18
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, 2000 /s/ Jack A. Sweeney
-------------------
Jack A. Sweeney, Chairman of the Board
and Chief Executive Officer
Date: August 8, 2000 /s/ Thomas McCullough
---------------------
Thomas McCullough, Chief Financial Officer
