<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1997
COMMISSION FILE NUMBER: 0-11223
PROFESSIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 95-3701137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
606 BROADWAY
SANTA MONICA, CALIFORNIA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 458-1521
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
--- ---
As of May 1, 1997, 1,343,048 shares of the Registrant's $0.008 par value common
stock were outstanding.
================================================================================
<PAGE>
PROFESSIONAL BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996 4
Consolidated Statements of Cash flows for the three months ended
March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ---------------
<S> <C> <C>
Assets:
Cash and due from banks:
Noninterest-bearing $ 30,695,937 $ 32,322,030
Interest-bearing 544,989 617,948
Federal funds sold 14,700,000 33,400,000
------------ ------------
Cash and cash equivalents 45,940,926 66,339,978
Securities held-to-maturity (fair value of $39,615,000
and $41,478,000, respectively) 40,292,992 41,871,563
Securities available-for-sale (cost of $53,518,000 and 52,684,570 54,467,683
$55,225,000, respectively)
Loans, net of allowance for loan losses of $2,242,000
and $2,253,000, respectively 91,733,657 90,759,161
Premises and equipment 1,687,446 1,611,482
Accrued interest receivable and other assets 7,366,023 8,489,631
------------ ------------
$239,705,614 $263,539,498
============ ============
Liabilities:
Deposits:
Demand, noninterest-bearing $ 81,601,442 $ 96,208,449
Demand, interest-bearing 13,984,544 14,886,488
Savings and money market 96,066,855 98,859,034
Time certificates of deposit 25,695,850 31,322,777
------------ ------------
Total deposits 217,348,691 241,276,748
Convertible notes 4,895,375 4,869,292
Accrued interest payable and other liabilities 3,272,633 3,351,864
------------ ------------
Total liabilities 225,516,699 249,497,904
------------ ------------
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.008 par value; 12,500,000 shares
authorized; 1,412,515 and 1,410,783 issued
and 1,343,048 and 1,341,316 outstanding 11,300 11,286
Additional paid-in-capital 12,501,341 12,488,001
Retained earnings 2,704,136 2,514,501
Treasury stock, at cost (69,467 and 69,467 shares) (537,251) (537,251)
Unrealized loss on securities available-for-sale, net of taxes (490,611) (434,943)
------------ ------------
Total shareholders' equity 14,188,915 14,041,594
------------ ------------
$239,705,614 $263,539,498
============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
---------- ---------
<S> <C> <C>
INTEREST INCOME
Loans $2,262,394 $2,320,817
Securities 1,491,641 2,042,910
Federal funds sold and securities purchased
under agreements to resell 260,444 409,309
Interest-bearing deposits in other banks 4,565 4,800
---------- ---------
TOTAL INTEREST INCOME 4,019,044 4,777,836
---------- ---------
INTEREST EXPENSE
Deposits 801,449 1,374,798
Convertible notes 119,361 119,234
Federal funds purchased and securities
sold under agreements to repurchase -- 8,847
----------- ----------
Total interest expense 920,810 1,502,879
---------- ----------
Net interest income 3,098,234 3,274,957
Provision for loan losses 60,000 180,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,038,234 3,094,957
---------- -----------
OTHER OPERATING INCOME
Available-for-sale securities transactions, net - -
Merchant discount 67,953 53,408
Mortgage banking fees 33,170 24,073
Service charges on deposits 184,680 154,653
Other income 141,627 130,382
--------- ---------
TOTAL OTHER OPERATING INCOME 427,430 362,516
--------- ---------
OTHER OPERATING EXPENSES
Salaries and employee benefits 1,508,631 1,463,008
Occupancy 383,016 342,598
Furniture and equipment 173,935 211,019
Legal fees 116,169 185,033
Audit, accounting and examinations 27,735 48,865
Professional services 339,223 125,999
Office supplies 60,028 80,104
Telephone 75,837 58,681
Postage 34,967 34,521
Messenger service 30,165 26,464
Meetings and business development 33,234 15,518
Donations 15,280 56,369
FDIC assessment 6,211 500
Other assessment 52,357 83,730
Imprinted checks 28,655 62,757
Other expense 258,586 206,625
---------- -----------
TOTAL OTHER OPERATING EXPENSES 3,144,029 3,001,791
---------- -----------
Earnings before taxes 321,635 455,682
Provision for income taxes 132,000 180,300
---------- -----------
NET EARNINGS $189,635 $275,382
========== ===========
EARNINGS PER SHARE
Primary $0.14 $0.20
Fully diluted $0.14 $0.20
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
PROFESSIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
================================
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 189,635 $ 275,382
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 147,611 157,171
Provision for loan losses 60,000 180,000
Amortization of convertible note expense 26,083 26,086
Decrease in accrued interest receivable and other assets 1,144,299 214,241
Decrease in accrued interest payable and other liabilities (79,231) (728,609)
Net amortization (accretion) of premiums and discounts
on securities held-to-maturity 54,841 (71,076)
Net amortization (accretion) of premiums and discounts
on securities available-for-sale 42,657 (276,221)
------------ ------------
Net cash provided by (used in) operating activities 1,585,895 (223,026)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 4,515,680 2,020,639
Proceeds from maturities of securities available-for-sale 1,664,097 2,937,948
Purchases of securities held-to-maturity (2,991,950) (1,002,802)
Net (increase) decrease in loans (1,034,496) 1,031,357
Purchases of bank premises and equipment, net (223,575) (82,218)
------------ ------------
Net cash provided by investing activities 1,929,756 4,904,924
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits and savings accounts (18,301,130) (14,797,611)
Net decrease in time certificates of deposit (5,626,927) (14,267,286)
Proceeds from exercise of stock options 13,354 181,668
------------ ------------
Net cash used in financing activities (23,914,703) (28,883,229)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (20,399,052) (24,201,331)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 66,339,978 85,199,673
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 45,940,926 $ 60,998,342
============ ============
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest $ 1,125,741 $ 1,980,104
Income taxes $ - $ 300
Supplemental disclosure of noncash items:
Pretax change in unrealized losses on securities
available-for-sale $ (76,359) $ (142,583)
Conversion of notes $ - $ 1,700
Tax benefit on stock options exercised $ - $ 270,054
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
The unaudited financial statements included herein have been prepared by
the Registrant pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Registrant, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
results of operations for the periods covered have been made. Certain
information and note disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Registrant
believes that the disclosures are adequate to make the information presented not
misleading.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Registrant's latest annual report on Form 10-K. The results for the periods
covered hereby are not necessarily indicative of the operating results for a
full year.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on control. Under this approach,
after a transfer of financial assets, the Company will recognize the financial
and servicing assets it controls and the liabilities incurred, and derecognize
financial assets when control has been surrendered and liabilities have been
extinguished. SFAS No. 125 provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. In
December of 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB No. 125" ("SFAS No. 127"). SFAS No. 127 defers for
one year the effective date of certain provisions. The adoption of SFAS No. 125
has not had a material effect on the Company's financial position or results of
operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Professional Bancorp, Inc. (the "Bancorp"), holding company for First
Professional Bank, N.A. (the "Bank"), recorded net earnings of $190,000 or $0.14
per share for the first quarter of 1997, compared with net earnings of $275,000
or $0.20 per share for the first quarter of 1996. At March 31, 1997, the
Bancorp and Bank (the "Company") had consolidated assets totaling $239,706,000,
compared with $263,539,000 at December 31, 1996.
The following table sets forth the amount of loans outstanding by category
and the percentage of each category to the total loan portfolio.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------------- ---------------------
(dollars in thousands) Amount % of Total Amount % of Total
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Commercial $ 77,205 82.0% $ 73,577 79.0%
Real estate secured commercial 8,150 8.7 10,079 10.8
-------- -------- -------- --------
Subtotal 85,355 90.7 83,656 89.8
Equity lines of credit 5,537 5.9 6,202 6.7
Other lines of credit 1,757 1.9 1,832 2.0
Installment 1,403 1.4 1,375 1.5
Lease financing 54 0.1 68 -
-------- -------- -------- --------
Gross loans 94,106 100.0% 93,133 100.0%
-------- --------
Less:
Allowance for loan losses 2,242 2,253
Deferred loan fees, net 130 121
-------- --------
Net loans $ 91,734 $90,759
-------- --------
</TABLE>
In accordance with management's credit administration and regulatory
policy, loans are placed on nonaccrual status when collection of principal or
interest is questionable. Generally, this means that loans are placed on
nonaccrual status when interest is 90 days or more past due, unless the loan is
well secured and in the process of collection or in the process of renewal.
Nonperforming loans and nonperforming assets do not include accruing loans 90
days or more past due where loan quality is not impaired, but rather the renewal
in process is pending receipt of the borrower's updated financial information.
7
<PAGE>
The following table sets forth information about nonperforming assets
(which include nonaccrual loans, other real estate and other repossessed
assets), accruing loans 90 days or more past due, and certain ratios.
<TABLE>
<CAPTION>
March 31, December 31,
(dollars in thousands) 1997 1996
--------- ------------
<S> <C> <C>
Nonperforming loans $ 1,220 $ 1,521
Other real estate owned (OREO) - -
Other repossessed assets 272 272
--------- ------------
Total nonperforming assets $ 1,492 $ 1,793
========= ============
Accruing loans 90 days or more
past due $ 361 $ 507
========= ============
Nonperforming loans to total
loans 1.30% 1.63%
Nonperforming assets
to total loans 1.59 1.93
to total loans, OREO and
repossessed assets 1.58 1.92
to total assets 0.62 0.68
</TABLE>
The total accrued interest on loans 90 days or more past due and still
accruing was approximately $13,000 at March 31, 1997, and $19,000 at December
31, 1996.
The Company maintains the allowance for loan losses at a level considered
adequate by management to provide for potential loan losses. While the Company's
policy is to charge-off in the current period those loans for which a loss is
considered probable, there also exists the risk of future losses which cannot be
precisely quantified or attributed to particular loans. The following table
provides a summary of the Company's allowance for loan losses and charge-off and
recovery activity during the first quarter of 1997 and fourth quarter of 1996.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, December 31,
(dollars in thousands) 1997 1996
--------- ------------
<S> <C> <C>
Balance at beginning of period $ 2,253 $ 2,034
Provision for loan losses 60 (120)
Charge-offs 147 -
Recoveries (76) (339)
--------- ------------
Net charge-offs 71 (339)
--------- ------------
Balance at end of period $ 2,242 $ 2,253
========= ============
Loans outstanding at end of period $ 94,106 $ 93,133
Average loans outstanding 92,263 91,148
Net charge-offs to average loans 0.31% -1.48%
Allowance for loan losses:
to total loans 2.38 2.42
to nonperforming loans(1) 183.77 148.13
to nonperforming assets(1) 150.27 125.66
(1) Nonperforming loans and nonperforming assets do not include accruing
loans 90 days or more past due.
</TABLE>
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
agreement on a timely basis. Impairment of a loan is measured by the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent. Impairment is recognized by the establishment
of a valuation allowance equal to the excess of the recorded investment in the
loan over its measured value.
The Company had $1,355,000 in impaired loans as of March 31, 1997. The
carrying value of impaired loans for which there is a related allowance for loan
losses was $558,000, with the amount of specific allowance for loan losses
allocated to these loans of $314,000. There were $797,000 in impaired loans for
which there were general reserves allocated consistent with the Company's
allowance for loan losses methodology. The average recorded investment in
impaired loans during the first quarter of 1997 was approximately $1,625,000 and
income recorded utilizing the cash basis and accrual basis method of accounting
was $12,000. Nonaccrual loans at March 31, 1997, included $907,000 of impaired
loans.
The Company had $1,894,000 in impaired loans as of December 31, 1996. The
carrying value of impaired loans for which there is a related allowance for loan
losses was $700,000, with the amount of specific allowance for loan losses
allocated to these loans of $379,000. There were $1,194,000 in impaired loans
for which there were general reserves allocated consistent with the Company's
allowance for loan losses methodology. The average recorded investment in
impaired loans during 1996 was approximately $4,161,000 and income recorded
utilizing the cash basis and accrual basis method of accounting was $53,000.
Nonaccrual loans at December 31, 1996, included $1,521,000 of impaired loans.
At March 31, 1997, the Company had troubled debt restructurings totaling
$736,000, of which $453,000 was on nonaccrual. The remaining $283,000 was
performing according to the renegotiated terms. The gross interest income that
would have been recorded in the first quarter of 1997 on troubled debt
9
<PAGE>
restructurings if the loans had been current in accordance with the original
terms totaled $18,000, which includes $10,000 on the restructured loans on
nonaccrual. The amount of interest income actually recognized in the first
quarter of 1997 on those loans totaled $8,000. At March 31, 1997, there were no
additional loan commitments outstanding to borrowers of troubled debt
restructurings.
At December 31, 1996, the Company had troubled debt restructurings totaling
$778,000, of which $510,000 was on nonaccrual. The remaining $268,000 was
performing according to the renegotiated terms. The gross interest income that
would have been recorded in 1996 on troubled debt restructurings if the loans
had been current in accordance with the original terms totaled $70,000, which
includes $41,000 on the restructured loans on nonaccrual. The amount of interest
income actually recognized in 1996 on those loans totaled $29,000. At December
31, 1996, there were no additional loan commitments outstanding to borrowers of
troubled debt restructurings.
Deposits were $217,349,000 at March 31, 1997, a decrease of approximately
$23,928,000 or 9.9% from $241,277,000 at December 31, 1996. However, on a
quarterly average basis, deposits for the first quarter of 1997 were
approximately $215,502,000, a decrease of 4.7% from $226,216,000 for the fourth
quarter of 1996. The Company's deposit base has historically declined during the
first quarter of a year as the Company's target market makes significant tax
payments and bonus distributions to shareholders and employees during this
period.
Capital
The Office of the Comptroller of the Currency (the "OCC"), the primary
regulator of the Bank, has established minimum leverage ratio guidelines for
national banks. These guidelines provide for a minimum Tier 1 capital leverage
ratio (Tier 1 capital to adjusted total assets less goodwill) of 3.0% for
national banks that meet certain specified criteria, including having the
highest regulatory rating. All other national banks will generally be required
to maintain a minimum Tier 1 capital leverage ratio of 3.0% plus an additional
cushion of 100 to 200 basis points. The OCC has not advised the Bank of any
specific minimum Tier 1 capital leverage ratio applicable to it.
The Federal Reserve Board, as the Company's primary regulator, has
similarly established minimum leverage ratio guidelines for bank holding
companies. These guidelines also provide for a minimum Tier 1 leverage ratio of
3.0% for bank holding companies that meet certain specified criteria, including
having the highest regulatory rating. All other bank holding companies will
generally be required to maintain a minimum Tier 1 capital leverage ratio of
3.0% plus an additional cushion of 100 to 200 basis points. The Federal Reserve
Board has not advised the Company of any specific minimum Tier 1 capital
leverage ratio applicable to it.
Risk-based capital standards were implemented on December 31, 1992 Since
December 31, 1992, banking organizations are expected to meet a minimum ratio
for qualifying total capital to risk-weighted assets of 8.0%, 4.0% of which must
be Tier 1 capital. A banking organization's risk-based capital ratios are
obtained by dividing its qualifying capital by its total risk-adjusted assets
and risk-weighted off-balance sheet items.
The Federal Deposit Insurance Act of 1991 contains "prompt correction
action" provisions pursuant to which insured depository institutions are to be
classified into one of five categories based primarily upon capital adequacy,
ranging from "well-capitalized" to "critically undercapitalized" and which
require, subject to certain exceptions, the appropriate federal banking agency
to take prompt corrective action with respect to an institution which becomes
"undercapitalized" and to take additional actions if the institution becomes
"significantly undercapitalized" or "critically undercapitalized." At March 31,
1997, the Company's and Bank's regulatory capital exceeded the thresholds
necessary to be considered "well-capitalized."
10
<PAGE>
The following table presents the capital ratios for the Company and
the Bank, compared with the standards for "well-capitalized" depository
institutions (which standards do not apply to bank holding companies) and the
minimum required capital ratios to be deemed "adequately capitalized" under
applicable federal regulations, as of March 31, 1997.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- -------------------- ------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Leverage 1 $14,680 6.15% $ 9,546 4.00% $ 11,933 5.00%
Tier 1 Risk-Based 14,680 11.67 5,032 4.00 7,548 6.00
Total Risk-Based 21,867 17.38 10,064 8.00 12,580 10.00
BANK
Leverage $19,611 8.25% $ 9,505 4.00% $ 11,881 5.00%
Tier 1 Risk-Based 19,611 15.70 4,998 4.00 7,497 6.00
Total Risk-Based 21,181 16.95 9,995 8.00 12,494 10.00
</TABLE>
1 The minimum required by the FRB is 3%; for all but the most highly-rated bank
holding companies, the FRB expects a leverage ratio of 3% plus 100 to 200 basis
points.
Although the Company and the Bank at March 31, 1997, were considered "well-
capitalized" and exceeded all applicable minimum capital requirements, the
capital requirements of the federal banking regulators could limit the Company's
future growth if the Company were to rely solely on the retention of earnings to
generate additional capital or rapid growth.
Liquidity
The Company's primary sources of liquidity are federal funds sold to other
banks and the investment securities portfolio. The Company averaged $20,182,000
in federal funds sold during the first quarter of 1997 and sold $14,700,000 on
March 31, 1997. In addition, securities in the available-for-sale portfolio can
be sold in response to liquidity needs or used as collateral under reverse
repurchase agreements. Securities held-to-maturity are available for liquidity
needs primarily as collateral for reverse repurchase agreements. Securities
available-for-sale and securities held-to-maturity at March 31, 1997, were
$52,685,000 and $40,293,000, respectively.
The Bancorp's primary source of liquidity is dividends from the Bank.
Dividends from the Bank to the Bancorp are subject to certain regulatory
restrictions. Under federal banking law, dividends declared by the Bank in any
calendar year may not, without the approval of the OCC, exceed its net earnings,
as defined, for that year combined with its retained net earnings for the
proceeding two years. The Bancorp's annual operating expenses and interest
obligations with respect to its convertible notes are approximately $750,000.
11
<PAGE>
RESULTS OF OPERATIONS
The Company reported net earnings of $190,000 for the first quarter of
1997, compared with $275,000 for the first quarter of 1996. Primary and fully
diluted earnings per share for the first quarter of 1997 were $0.14 , compared
with $0.20 for the same period in 1996. Return on average equity for the first
quarter of 1997 and 1996, were 5.44% and 6.26%, respectively. Additionally,
return on average assets for the first quarter of 1997 and 1996, were 0.32% and
0.38%, respectively.
Net Interest Income
The Company's earnings depend primarily on net interest income, which is
the difference between the interest earned on loans and investments less the
interest paid on deposits, borrowings and convertible notes. For the quarter
ended March 31, 1997, net interest income decreased $177,000 to $3,098,000, when
compared with $3,275,000 for the quarter ended March 31, 1996. The Company's net
interest income is affected by changes in the amount and mix of interest-earning
assets and interest-bearing liabilities, referred to as "volume change." It is
also affected by changes in yields earned on interest-earning assets and
interest rates paid on interest-bearing deposits and other borrowed funds,
referred to as a "rate change." The following table sets forth changes in
interest income and interest expense for each major category of interest-earning
assets and interest-bearing liabilities, and the amount of change attributable
to volume and rate changes for the years indicated. The changes due to rate and
volume have been allocated to rate and volume in proportion to the relationship
between their absolute dollar amounts.
<TABLE>
<CAPTION>
Three Months Ended,
-------------------
March 31, 1997 and 1996
-----------------------
(dollars in thousands) Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Increase (decrease) in interest income:
Securities $(519) $ (32) $(551)
Loans (224) 165 (59)
Federal funds sold (137) (12) (149)
Interest-bearing deposits - banks (3) 3 -
----- ----- -----
(883) 124 (759)
----- ----- -----
Increase (decrease) in interest expense:
Interest-bearing demand deposits - 1 1
Savings and money market deposits (59) 12 (47)
Time deposits (471) (56) (527)
Convertible notes 3 (3) -
Repurchase agreements (4) (5) (9)
----- ----- -----
(531) (51) (582)
----- ----- -----
Increase (decrease) in net interest income $(352) $ 175 $(177)
===== ===== =====
</TABLE>
Interest income represents interest earned on loans, investment securities
and federal funds sold. For the quarter ended March 31, 1997, interest income
decreased $759,000 to $4,019,000 from $4,778,000 for the first quarter of 1996.
The decrease was primarily due to decreases in average investment securities and
loans during the first quarter of 1997 of $33,320,000 and $9,434,000,
respectively, from the first quarter of 1996.
12
<PAGE>
The change in the volume of earning assets decreased interest income
$883,000. This decrease was slightly offset by an increase in the yield on
earning assets to 7.81% for the first quarter of 1997, as compared with 7.33%
for the same period in 1996. The yield increase of 0.48% provided an additional
$124,000 in interest income.
Interest expense represents interest paid on deposits, borrowings and
convertible notes. For the first quarter of 1997, interest expense decreased to
$921,000, as compared with $1,503,000 for the first quarter of 1996. Of the
$582,000 decrease in interest expense, approximately $530,000 resulted from the
decrease in average interest-bearing deposits. The decrease in deposits was
concentrated in time deposits and was mainly due to one client who transferred
its cash management activities to the corporate headquarters in 1996. As time
deposits are a higher cost source of funds, the decrease in deposits reduced the
overall cost of average interest-bearing liabilities to 2.62% for the first
quarter of 1997, from 3.08% for the first quarter of 1996. The decline in the
average cost of funds of 0.46% reduced interest expense by $51,000.
Other Income
Other operating income totaled $427,000 for the first three months of 1997,
compared with $363,000 for the first three months of 1996. Service charges on
deposits increased $30,000 to $185,000 for the first quarter of 1997. The
Company also recorded increased merchant card servicing fees of $68,000 when
compared with $53,000 for the first quarter of 1996. Mortgage banking fees
increased $9,000 to $33,000 for the first quarter of 1997, when compared to
$24,000 for the first quarter of 1996.
Noninterest Expense
Noninterest expense for the first three months of 1997 increased $142,000
to $3,144,000 from $3,002,000 for the first quarter of 1996.
Salaries and other employee benefits increased approximately $46,000 to
$1,509,000 for the first three months of 1997. The number of full-time
equivalent employees at March 31, 1997, was 111, compared to 109 full-time
equivalent employees at March 31, 1996. Occupancy expense was $383,000 for the
first quarter of 1997, an increase of $40,000 from the same period in 1996. The
occupancy expense increase was due primarily to tenant costs of $32,000 incurred
during previous periods but recognized during the first quarter of 1997.
Legal fees decreased $69,000 to $116,000 for the first quarter of 1997 from
$185,000 for the first quarter of 1996, as a result of lower costs associated
with loan collection efforts and reduced corporate legal expenses. Other
professional services increased $176,000 to $253,000 for the first quarter of
1997, compared with $77,000 for the comparable period in 1996, as the Company
continues to utilize the services of outside professionals to augment staffing
and support strategic initiatives.
Meetings and business development expenses increased $18,000 to $33,000 for
the first quarter of 1997, as compared with $15,000 for the first quarter of
1996. The increase is due to increased marketing efforts of the Company.
The management of the Company is not aware of any trends, events,
uncertainties or recommendations by regulatory authorities that will have or
that are reasonably likely to have material effect on the liquidity, capital
resources or operations of the Company.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement regarding computation of per share earnings
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months
ended March 31, 1997.
14
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: May 12, 1997 PROFESSIONAL BANCORP, INC.
--------------------------
(Registrant)
/s/ CHRIS CHAN
--------------------------
Chris Chan
Chief Financial Officer
15
<PAGE>
EXHIBIT 11 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended March 31,
-------------- --------------
Primary Earnings Per Share 1997 1996
-------------- --------------
<S> <C> <C>
Computation for Statement of Operations:
Net earnings per statement of
operations used in primary earnings
per share computation:
Net earnings $ 189,635 $ 275,382
Interest on borrowings, net of tax
effect, on application of assumed
exercise of warrants and options in
excess of 20% limitation 30,405 33,732
-------------- --------------
Net earnings as adjusted $ 220,040 $ 309,114
============== ==============
Weighted average number of shares
outstanding, as per primary computation
above 1,341,836 1,300,650
Net shares issuable from assumed exercise
of warrants and options, as determined by
the application of the Modified Treasury
Stock Method 257,759 275,425
-------------- --------------
Weighted average number of shares
outstanding 1,599,595 1,576,075
============== ==============
Primary earnings per share $ 0.14 $ 0.20
============== ==============
</TABLE>
16
<PAGE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
FULLY DILUTED EARNINGS PER SHARE 1997 1996
-------------- --------------
<S> <C> <C>
Computation for Statement of Operations:
Net earnings per statement of
operations used in fully diluted
earnings per share computation:
Net earnings $ 189,635 $ 275,382
Interest and amortized costs on
convertible notes, net of tax effect (1) 85,814
Interest on borrowings, net of tax
effect, on application of assumed
exercise of warrants and options in
excess of 20% limitation 30,405 33,732
-------------- --------------
Net earnings as adjusted $ 220,040 $ 394,928
============== ==============
Weighted average number of shares
outstanding, as per fully diluted
computation above 1,341,836 1,300,650
Net shares issuable from assumed exercise
of warrants and options, as determined by
the application of the Modified Treasury
Stock Method 257,759 275,425
Weighted average shares issuable from
assumed conversion of convertible notes (1) 421,276
-------------- --------------
Weighted average number of shares
outstanding 1,599,595 1,997,351
============== ==============
Fully diluted earnings per share $ 0.14 $ 0.20
============== ==============
(1) Anti-dilutive
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,695,937
<INT-BEARING-DEPOSITS> 544,989
<FED-FUNDS-SOLD> 14,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,684,570
<INVESTMENTS-CARRYING> 40,292,992
<INVESTMENTS-MARKET> 39,614,937
<LOANS> 94,105,992
<ALLOWANCE> 2,242,135
<TOTAL-ASSETS> 239,705,614
<DEPOSITS> 217,348,691
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,272,633
<LONG-TERM> 4,895,375
0
0
<COMMON> 11,300
<OTHER-SE> 14,177,615
<TOTAL-LIABILITIES-AND-EQUITY> 239,705,614
<INTEREST-LOAN> 2,262,394
<INTEREST-INVEST> 1,491,641
<INTEREST-OTHER> 265,009
<INTEREST-TOTAL> 4,019,044
<INTEREST-DEPOSIT> 801,449
<INTEREST-EXPENSE> 920,810
<INTEREST-INCOME-NET> 3,098,234
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,144,029
<INCOME-PRETAX> 321,635
<INCOME-PRE-EXTRAORDINARY> 321,635
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,635
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<YIELD-ACTUAL> 6.25
<LOANS-NON> 1,220,000
<LOANS-PAST> 361,000
<LOANS-TROUBLED> 283,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,253,031
<CHARGE-OFFS> 146,611
<RECOVERIES> 75,715
<ALLOWANCE-CLOSE> 2,242,135
<ALLOWANCE-DOMESTIC> 2,021,270
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 220,865
</TABLE>
