<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------
Form 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES ACT OF 1934
For the transition period from __________ to ___________
Commission file No. 2-78580
---------------------------
PNB FINANCIAL GROUP
------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
California 95-3847640
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Reorganization)
4665 MacArthur Court
Newport Beach, California 92660
-------------------------------
(Address of Principal Executive Offices)
(714) 851-1033
--------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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
------ ------
The number of shares of Registrant's common stock outstanding at August 4,
1995 was 2,186,933.
THIS REPORT INCLUDES A TOTAL OF 19 PAGES
================================================================================
<PAGE>
PNB FINANCIAL GROUP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statement
Condensed Consolidated Balance Sheets (unaudited) - 3
June 30, 1995 and December 31, 1994
Condensed Consolidated Statements of Operations 4
(unaudited) - Six Months ended June 30, 1995 and 1994
Condensed Consolidated Statements of Operations 5
(unaudited) - Three Months ended June 30, 1995 and 1994
Consolidated Statements of Cash Flows (unaudited) - Six 6
Months ended June 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial 8-17
Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Securities Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-KSB 18
Signatures of Registrants 19
</TABLE>
2
<PAGE>
PNB FINANCIAL GROUP
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
-------------- ------------------
<S> <C> <C>
Assets
------
Cash and due from banks $ 8,565,000 $ 9,836,000
Investment securities 14,881,000 19,129,000
Federal funds sold - 3,000,000
Mortgage loans held for sale 28,606,000 12,448,000
Loans 111,192,000 104,926,000
Less allowance for possible loan losses (2,693,000) (2,727,000)
------------ ------------
Net loans 108,499,000 102,199,000
Premises and equipment, net 1,473,000 1,735,000
Other assets 4,576,000 7,238,000
------------ ------------
Total assets $166,600,000 $155,585,000
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits $151,272,000 $142,459,000
Other liabilities 1,561,000 869,000
------------ ------------
Total liabilities 152,833,000 143,328,000
Shareholders' equity:
Preferred stock, no par value 10,000,000
shares authorized; none issued - -
Common stock, no par value, 20,000,000
shares authorized; 2,186,933
shares issued and outstanding at
June 30, 1995 and December 31, 1994 16,129,000 16,129,000
Accumulated deficit ( 2,112,000) ( 2,863,000)
Net unrealized loss on investment
securities available for sale ( 250,000) ( 1,009,000)
------------ ------------
Total shareholders' equity 13,767,000 12,257,000
------------ ------------
Total liabilities and
shareholders' equity $166,600,000 $155,585,000
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
PNB FINANCIAL GROUP
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -------------
<S> <C> <C>
Interest income:
Loans, including fees $5,703,000 $ 4,740,000
Investment securities 437,000 537,000
Federal funds sold 59,000 186,000
Deposits with banks - 24,000
---------- -----------
Total interest income 6,199,000 5,487,000
Interest expense 1,568,000 1,325,000
---------- -----------
Net interest income 4,631,000 4,162,000
Provision for possible loan losses 463,000 462,000
---------- -----------
Net interest income after provision for possible loan losses 4,168,000 3,700,000
Other income:
Commissions and other revenue from mortgage banking operations 1,939,000 2,179,000
Service charges, fees and other 424,000 332,000
---------- -----------
Total other income 2,363,000 2,511,000
Other expenses:
Mortgage banking operations 1,581,000 2,432,000
Salaries & employee benefits 1,825,000 1,827,000
Occupancy 836,000 952,000
Other 1,638,000 2,034,000
---------- -----------
Total other expense 5,880,000 7,245,000
Income (loss) before income taxes 651,000 (1,034,000)
Benefit for income taxes ( 99,000) -
---------- -----------
Net income (loss) $ 750,000 $(1,034,000)
========== ===========
Net income (loss) per share $ .34 $ (.47)
========== ===========
Weighted average number of shares 2,207,783 2,189,292
</TABLE>
See accompanying notes
4
<PAGE>
PNB FINANCIAL GROUP
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ------------
<S> <C> <C>
Interest income:
Loans, including fees $2,967,000 $2,251,000
Investment securities 189,000 388,000
Federal funds sold 19,000 84,000
Deposits with banks - 15,000
---------- ----------
Total interest income 3,175,000 2,738,000
Interest expense 864,000 663,000
---------- ----------
Net interest income 2,311,000 2,075,000
Provision for possible loan losses 235,000 231,000
---------- ----------
Net interest income after provision for possible loan losses 2,076,000 1,844,000
Other income:
Commissions and other revenue from mortgage banking operations 1,248,000 694,000
Service charges, fees and other 242,000 144,000
---------- ----------
Total other income 1,490,000 838,000
Other expenses:
Mortgage banking operations 933,000 1,072,000
Salaries & employee benefits 890,000 913,000
Occupancy 407,000 483,000
Other 804,000 988,000
---------- ----------
Total other expense 3,034,000 3,456,000
Income (loss) before income taxes 532,000 ( 774,000)
Provision for income taxes - -
---------- ----------
Net income (loss) $ 532,000 ( 774,000)
========== ==========
Net income (loss) per share $ .24 $ (.35)
========== ==========
Weighted average number of shares 2,217,199 2,189,195
</TABLE>
See accompanying notes
5
<PAGE>
PNB FINANCIAL GROUP
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $(13,986,000) $ 19,074,000
Cash flows from investing activities:
Net change in loans (6,686,000) 3,327,000
Net change in investment securities 4,894,000 (18,985,000)
Other 2,694,000 836,000
------------ ------------
Net cash provided by (used in) investing activities 902,000 (14,822,000)
Cash flows from financing activities:
Net change in deposits 8,813,000 1,663,000
Payments for repurchase of common stock - (2,000)
------------ ------------
Net cash provided by financing activities 8,813,000 1,665,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (4,271,000) 2,587,000
Cash and cash equivalents at beginning of period 12,836,000 23,630,000
------------ ------------
Cash and cash equivalents at end of period $ 8,565,000 $ 26,217,000
============ ============
</TABLE>
See accompanying notes
6
<PAGE>
PNB FINANCIAL GROUP
Notes to Condensed Consolidated Financial Statements
June 30, 1995
(unaudited)
1. Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
PNB Financial Group (the "Bank Holding Company") and its wholly-owned
subsidiaries, Pacific National Bank (the "Bank") and Merchant Overseas Financial
Group ("MOFG") (collectively, the "Company"). In June 1993, all operating
activities of MOFG were suspended. All significant intercompany balances and
transactions have been eliminated. The condensed consolidated financial
statements contain all adjustments (consisting only of normal, recurring
accruals) which are, in the opinion of management, necessary to present fairly
the consolidated financial position of the Company at June 30, 1995, and the
consolidated results of operations and statements of cash flows for the six and
three month periods ended June 30, 1995 and June 30, 1994. Results for the six
and three months ended June 30, 1995 are not necessarily indicative of results
which may be expected for any other interim period, or for the year as a whole.
These condensed consolidated financial statements do not include all disclosures
associated with the Company's annual financial statements and, accordingly,
should be read in conjunction with such statements.
2. Consolidated Statement of Cash Flows
------------------------------------
For purposes of reporting cash flows, the Company defines cash and cash
equivalents as cash on hand, cash due from banks, interest-bearing deposits in
other banks and federal funds sold.
3. Reclassifications
-----------------
Certain reclassifications have been made to the 1994 financial statements
to conform to the 1995 presentation.
7
<PAGE>
PNB FINANCIAL GROUP
-------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations
June 30, 1995
Item 2.
-------
Summary
-------
The Company reported net income of $750,000 for the six months ended June
30, 1995 compared to a net loss of $1,034,000 for the same period in 1994. For
the three months ended June 30, 1995 the Company reported a net income of
$532,000 compared to a net loss of $774,000 for the same period in 1994. The
second quarter's income is the highest quarterly net income reported by the
Company since its inception in 1982. The increase in earnings was primarily a
result of an increase in profits in the Bank's residential mortgage division
along with an increase in the net interest margin and a substantial decrease in
other expenses. The increased profits from the mortgage division is a result of
increased volume during the second quarter of 1995 compared with the second
quarter of 1994, along with a significant decrease in operating expenses. The
increase in net interest margin was primarily a result of the substantial
increase in interest rates on loans due to the increase of prime during the past
year.
As of June 30, 1995, the Company had total assets of $166.6 million, total
loans of $111.2 million and total deposits of $151.3 million, as compared to
total assets of $155.6 million, total loans of $104.9 million and total deposits
of $142.4 million as of December 31, 1994. Average deposits for the first six
months of 1995 were $137.7 million as compared to an average deposit level of
$160.5 million during the first six months of 1994. The decrease in total
deposits is primarily due to a reduced level of deposits from the Bank's title
and escrow customers. An increased marketing effort for new loans has resulted
in a net increase in loans of $8.8 million (8.6%) since June 30, 1994.
The following section sets forth the Company's condensed consolidated
average balances of each principal category of assets, liabilities, and
shareholders' equity for the six month period ended June 30, 1995 as compared to
the same period in 1994. Average balances are based on daily averages for the
Bank, and monthly averages for the Bank Holding Company, since the Bank Holding
Company does not maintain daily average information. Management believes that
the difference between monthly and daily average data (where monthly data has
been used) is not significant.
(Continued on next page)
8
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
<TABLE>
<CAPTION>
1995 1994
-------------- ------------
<S> <C> <C>
Assets
------
Cash and due from banks $ 9,261,000 $ 13,775,000
Interest-bearing deposits in other banks - 1,192,000
Investment securities 17,278,000 23,549,000
Federal funds sold 2,099,000 11,264,000
Mortgage loans held for sale 13,084,000 17,015,000
Loans 107,496,000 102,540,000
Less allowance for possible loan losses (2,765,000) (3,169,000)
------------ ------------
Net loans 104,731,000 99,371,000
Premises and equipment, net 1,608,000 2,052,000
Other assets 4,801,000 7,539,000
------------ ------------
Total assets $152,862,000 $175,757,000
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Noninterest-bearing $ 48,607,000 $ 68,248,000
Interest-bearing 89,187,000 92,229,000
Short-term borrowings 975,000 172,000
Other liabilities 1,011,000 1,376,000
------------ ------------
Total liabilities 139,780,000 162,025,000
Shareholders' equity:
Capital stock 16,129,000 16,138,000
Accumulated deficit (2,534,000) (1,992,000)
Net unrealized loss on investment securities available for sale (513,000) (414,000)
------------ ------------
Total shareholders' equity 13,082,000 13,732,000
Total liabilities and shareholders' equity $152,862,000 $175,757,000
============ ============
</TABLE>
9
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
Capital Resources
-----------------
The federally-mandated minimum capital requirements and the actual
capitalization of the Company and the Bank as of June 30, 1995 are set forth
below.
CAPITAL REQUIREMENTS AS OF JUNE 30, 1995
<TABLE>
<CAPTION>
Pacific PNB
Regulatory National Financial
Requirements Bank Group
------------- --------- ----------
<S> <C> <C> <C>
Leverage Capital Ratio 4.0% 7.5% 9.1%
Risk Based Capital:
Tier 1 Capital 4.0% 9.3% 11.3%
Tier 2 Capital 8.0% 10.6% 12.5%
</TABLE>
Liquidity
---------
Liquidity, as it relates to the Bank Holding Company, represents the
ability to obtain funds to support its investment activities and operating
needs. The Bank Holding Company's principal sources of funds are its cash
balances and short-term loan portfolio as well as its ability to raise
capital by selling additional shares of common stock. As of June 30, 1995,
the Bank Holding Company has cash balances of approximately $675,000. These
liquid assets, along with cash generated from its loan portfolio, will easily
support its 1995 operating requirements.
Liquidity, as it relates to banking, represents the ability to obtain
funds to meet loan commitments and to satisfy demand for deposit withdrawals.
The principal sources of funds that provide liquidity to the Bank are its
cash balances, federal funds sold, investment securities and a portion of its
mortgage loans held for sale. During the second quarter of 1995, the Bank's
average liquid assets as a percentage of average assets equaled 18.3%
compared to 30.5% during the second quarter of 1994. The Bank's average loan
to deposit ratio during the second quarter of 1995 was 77.5% compared to an
average loan to deposit ratio of 62.4% for the second quarter of 1994 and a
loan to deposit ratio 72.5% at December 31, 1994. The change in these
liquidity ratios is primarily the result of a decrease in the average deposit
level of the Bank, and partially a result of an increase in loans. A portion
of the Bank's deposits consist of deposits maintained by title insurance
companies and escrow companies. During the second quarter of 1995, the
average deposits from escrow and title companies were $14.7 million or
approximately 10.6% of total average deposits. This is compared to total
title and escrow deposits of $37.6 million in the second quarter of 1994 or
23.3% of total average deposits. The decrease in these deposits occurred
during the first quarter of 1995 is a result of the general decrease in real
estate activity in Southern California along with the reduction of one large
depositor's balances. Currently, no title or escrow customer accounts for
over 3% of the Bank's total deposits.
10
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
To cushion against unanticipated fluctuations in its liquidity position,
the Bank has secured secondary lines of credit with its correspondent bank and
the Federal Reserve Bank of approximately $12,000,000 as of June 30, 1995. These
lines of credit are collateralized by a portion of the Bank's investment
portfolio and its installment loan portfolio. Additionally, the majority of the
Bank's mortgage loans held for sale, while not considered a primary source of
liquidity, can significantly aid in the Bank's ability to meet its liquidity
requirements.
Results of Operations for the Six Months
Ended June 30, 1995 and June 30, 1994
-------------------------------------
Total interest and loan fee income
----------------------------------
Total interest and loan fee income increased $712,000 (13%) between the
periods presented primarily due to the increase in interest rates for loans and
other interest earning assets along with an increase in the average loans
outstanding. These increases were partially offset by a decrease in the average
balance of mortgage loans and federal funds sold. The increase in the yield on
loans and other interest earning assets is due to the Federal Reserve Board's
increase in short-term interest rates and the corresponding increase in the
prime rate from 6.0% to 9.0% during the past year. A significant portion of the
Bank's loans are based on a variable interest rate tied to prime.
The increase in loans outstanding caused a decrease in the volume of federal
funds sold and investment securities. The decrease in the average of mortgage
loans outstanding is due to reduced levels of mortgage loans outstanding during
the first quarter of 1995. During the second quarter of 1995, due to increased
volume of mortgage loans originated, mortgage loans held for sale increased
significantly. Management anticipates this increased level of mortgage lending
to continue through the next quarter. The table below sets forth the Company's
rate and volume analysis for interest-earning assets for the six months ended
June 30, 1995 as compared to the six months ended June 30, 1994.
Change in interest income due to:
<TABLE>
<CAPTION>
Volume Rate Total
-------------- ----------- ----------
<S> <C> <C> <C>
Loans $ 230,000 $ 801,000 $1,031,000
Mortgage loans held for sale (155,000) 85,000 (70,000)
Investment securities (151,000) 51,000 (100,000)
Deposits in other banks (23,000) - (23,000)
Federal funds sold (205,000) 78,000 (127,000)
--------- ---------- ----------
Total $(304,000) $1,015,000 $ 711,000
========= ========== ----------
Change in loan fees 1,000
----------
Total change in interest and
loan fee income $ 712,000
==========
</TABLE>
11
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
Total interest expense
----------------------
Total interest expense increased $243,000 (18.3%) between the periods
presented due to an increase in the interest rates of interest-bearing deposits,
which was partially offset by reduced volume of interest bearing deposits. The
increase in the interest rates on deposits was caused by competitive forces and
the market's reaction to the increase in short-term interest rates. The decrease
in deposit volume was primarily due to a decrease of interest-bearing demand
deposits. The following table sets forth the Company's rate and volume analysis
for interest-bearing liabilities for the six months ended June 30, 1995 as
compared to the corresponding period ended June 30, 1994.
Change in interest expense due to:
<TABLE>
<CAPTION>
Volume Rate Total
--------- -------- ---------
<S> <C> <C> <C>
Short-term borrowings $ 12,000 $ 17,000 $ 29,000
Savings deposits 1,000 - 1,000
Time deposits (10,000) 199,000 189,000
Interest-bearing demand deposits (33,000) 57,000 24,000
--------- -------- ---------
Total $( 29,000) $272,000 $243,000
========= ======== =========
</TABLE>
Allowance for possible loan losses
----------------------------------
An analysis of the allowance for possible loan losses is summarized
as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
Balance at beginning of period $2,727,000 $ 3,473,000
Charge-offs (539,000) (1,145,000)
Recoveries 42,000 415,000
---------- -----------
Net charge-offs (497,000) (730,000)
Contribution to allowance for possible loan losses 463,000 462,000
---------- -----------
Balance at end of period $2,693,000 $ 3,205,000
========== ===========
Allowance as a percentage of total loans 2.4% 3.1%
</TABLE>
12
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
The following table sets forth the total amount of nonaccrual loans,
accruing loans past due 90 days or more, troubled debt restructurings,
classified loans and other real estate owned as of June 30, 1995 and 1994 as
well as December 31, 1994. The troubled debt restructurings are included in the
loans accounted for on a nonaccrual basis.
<TABLE>
<CAPTION>
June 30, 1995 Dec. 31, 1994 June 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 6,226,000 $ 3,136,000 $ 5,292,000
Accruing loans contractually past due 90 days or more 871,000 826,000 2,523,000
Total classified loans 14,990,000 11,968,000 18,482,000
Other real estate owned 1,806,000 4,522,000 5,145,000
Troubled debt restructurings 2,275,000 - -
</TABLE>
The Company's contribution to the provision for possible loan losses was
$463,000 for the first six months of 1995 compared to $462,000 during the same
period in 1994. This contribution resulted in an allowance of 2.4% of total
outstanding loans at June 30, 1995, compared to 3.1% at June 30, 1994. The
allowance is a result of management's analysis of the estimated inherent losses
in the Bank's loan portfolio. This analysis takes into consideration the level
and trend of loan losses, loan delinquencies, classified loan volumes and
management's analysis of current market conditions. Management believes that the
allowance at June 30, 1995 is adequate to absorb the inherent risks in the
Company's loan portfolio.
The decline in the allowance for possible loan losses is due to improving
trends in asset quality. Classified loans are those that have some identified
weaknesses as determined by management that may jeopardize the orderly
collection of the debt in the future. Classified loans fell from $18.5 million
or 18% of total loans at June 30, 1994 to $15 million or 13.5% of total loans at
June 30, 1995. Nonperforming assets (nonaccrual loans and other real estate
owned) fell from $10.4 million or 5.8% of total assets at June 30, 1994, to $8
million or 4.8% of total assets at June 30, 1995. Due to the stabilization of
the Southern California economy, together with management's efforts, the Company
anticipates the reduction of classified assets to continue.
Other Income
------------
Other income decreased $148,000 (5.9%) between the periods presented. The
reduction was due to reduced revenue generated from the Bank's residential
mortgage division. The reduced revenue from the mortgage division was due to
reduced volume in the first quarter of 1995 compared to the first quarter of
1994. The reduction in first quarter revenues was partially offset with an
increase in revenue during the second quarter of 1995 compared to the second
quarter of 1994. During the first six months of 1995, gross revenue from the
mortgage division was $1,939,000 compared to $2,179,000 in the corresponding
period
13
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
in 1994. The decrease in the mortgage division's gross revenue was offset by
decreased expenses of this division, which resulted in the division posting a
pretax income, before administration allocation, of $369,000 during the first
six months of 1995, compared to a loss of $283,000 during the same period in
1994. Management believes that the mortgage division should remain profitable
throughout the remainder of 1995.
The decrease in the mortgage division's revenue was partially offset with
an increase in other fees and service charges. This increase was primarily due
to increased income from the Bank's SBA Department. During the first six months
of 1995, the sale of SBA loans generated $167,000 of recognized sales premiums
compared to $87,000 during the same period in 1994.
Other Expenses
--------------
Other expenses decreased $1,365,000 (18.8%) between the periods presented.
The Bank's residential mortgage division's expenses decreased $851,000 (35%),
while expenses relating to other areas of the Company decreased $514,000
(10.7%). The decrease in the mortgage division's expenses was substantially
associated with the decrease in salaries,benefits and commissions. These
reductions were achieved by the more efficient utilization of personnel. The
decrease in expenses of $514,000 relating to other areas of the Company was due
to decreases in all areas of operations which resulted from the implementation
of various cost containment policies which were installed during 1994. The
largest decrease in other expenses occurred in other real estate owned expenses
which declined $159,000 due to the reduced levels of other real estate owned.
Provision for Income Taxes
--------------------------
During the first six months of 1995, the Company recognized an income tax
benefit of $99,000 due to alternative minimum tax credits realized. As of
December 31, 1994, the Company has federal and state net operating loss
carryforwards of $2,483,000 and $1,928,000, respectively. These net operating
loss carryforwards were used during the first six months of 1995 to offset any
federal and state taxable income that were created by the Company's first and
second quarters profits. Although management anticipates future earnings, the
future tax benefit of net operating losses are not assured of realization and
therefore are not recorded by the Company.
Cash and Cash Equivalents
-------------------------
As of June 30, 1995, cash and cash equivalents decreased $4.3 million from
December 31, 1994 balances primarily due to a decrease of deposits of $8.8
million and an increase of loans of $6.7 million. These elements were
partially offset by a decrease of investment securities of $4.9 million.
14
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
Results of Operations for the Three Months
Ended June 30, 1995 and June 30, 1994
-------------------------------------
Total interest and loan fee income
----------------------------------
Total interest and loan fee income increased $437,000 (16%) between the
periods presented primarily due to the increase in interest rates and volume for
loans and mortgage loans. These increases were partially offset by a decreased
volume of investment securities and federal funds sold. The table below sets
forth the Company's rate and volume analysis for interest-earning assets for the
three months ended June 30, 1995 as compared to the three months ended June 30,
1994.
Change in interest income due to:
<TABLE>
<CAPTION>
Volume Rate Total
-------------- ---------- ----------
<S> <C> <C> <C>
Loans $ 189,000 $377,000 $ 566,000
Mortgage loans held for sale 111,000 52,000 163,000
Investment securities (180,000) (18,000) (198,000)
Deposits in other banks (8,000) (8,000) (16,000)
Federal funds sold (93,000) 28,000 (65,000)
--------- -------- ---------
Total $ 19,000 $431,000 $ 450,000
========= ======== ---------
Change in loan fees (13,000)
---------
Total change in interest and
loan fee income $ 437,000
=========
</TABLE>
Total interest expense
----------------------
Total interest expense increased $201,000 (30.3%) between the periods
presented due to an increase in the interest rates of interest-bearing deposits.
The following table sets forth the Company's rate and volume analysis for
interest-bearing liabilities for the three months ended June 30, 1995 as
compared to the corresponding period ended June 30, 1994.
15
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
Change in interest expense due to:
<TABLE>
<CAPTION>
Volume Rate Total
-------- -------- --------
<S> <C> <C> <C>
Short-term borrowings $ 12,000 $ 14,000 $ 26,000
Savings deposits (4,000) 2,000 (2,000)
Time deposits 38,000 136,000 174,000
Interest-bearing demand deposits (32,000) 35,000 3,000
-------- -------- --------
Total $ 14,000 $187,000 $201,000
======== ======== ========
</TABLE>
Allowance for possible loan losses
----------------------------------
An analysis of the allowance for possible loan losses is
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Balance at beginning of period $2,740,000 $3,151,000
Charge-offs (315,000) (361,000)
Recoveries 33,000 184,000
---------- ----------
Net charge-offs (282,000) (177,000)
Contribution to allowance for possible loan losses 235,000 231,000
---------- ----------
Balance at end of period $2,693,000 $3,205,000
========== ==========
Allowance as a percentage of total loans 2.4% 3.1%
</TABLE>
Other Income
------------
Other income increased $652,000 (77.8%) between the periods presented. The
increase was due to increased revenue generated from the Bank's residential
mortgage division. The increased revenue from the mortgage division was due to
the more efficient, streamlined operations, and an improved level of customer
service, along with reduced competition. During the second quarter of 1995,
gross revenue from the mortgage division was $1,248,000 compared to $694,000 in
the corresponding period in 1994. The increase in the mortgage division's gross
revenue together with the decrease in expenses of this division, resulted in
16
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
the division posting a pretax income, before administration allocation, of
$299,000 during the second quarter of 1995, compared to a loss of $401,000
during the same period in 1994. The loss during the second quarter of 1994
resulted from the rapid decline of mortgage loan demand which was due to the
increase in the interest rates charged on mortgage loans.
Other Expenses
--------------
Other expenses decreased $422,000 (12.2%) between the periods presented.
The Bank's residential mortgage division's expenses decreased $139,000 (13%),
while expenses relating to other areas of the Company decreased $283,000
(11.9%). The decrease in the mortgage division's expenses was primarily due to
decreases in salaries and benefits. The decrease in expenses of $283,000
relating to other areas of the Company, was due to decreases in all areas of
operations.
Provision for Income Taxes
--------------------------
Due to the utilization of federal and state net operating loss
carryforwards, during the second quarter of 1995, the Company did not recognize
an income tax provision. These net operating loss carryforwards were used during
the second quarter of 1995 to offset any federal and state taxable income that
were created by the Company's profits.
17
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
June 30, 1995
PART II - OTHER INFORMATION
---------------------------
JUNE 30, 1995
Item 1. Legal Proceedings.
------- ------------------
There are no pending legal proceedings to which the Company or the Bank
is a party or to which any of their respective subsidiaries are subject, other
than ordinary routine litigation incidental to the Bank's business. While claims
of a substantial dollar amount have been asserted against the Bank in one
judicial foreclosure proceeding which, due to events beyond the Company's
control, has been postponed twice by the court and is currently set for trial in
November 1995, the Bank does not believe the claims are meritorious or the
damages, if any, will be material. Accordingly, the outcome of litigation
brought against the Bank is not expected to be material to the Company or its
operations or properties.
Item 2. Changes in Securities.
------- ----------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
------- --------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
------- ----------------------------------------------------
Not applicable.
Item 5. Other Information.
------- ------------------
Item 6. Exhibits and Reports on Form 8-KSB.
------- ----------------------------------
(a) Exhibits Filed - none required.
--------------
(b) Reports on Form 8-KSB. During the second quarter of 1995, the Company
---------------------
did not file a report on form 8-KSB.
18
<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 thereto duly authorized.
PNB Financial Group
Date: August 4, 1995 By: /s/ Allen C. Barbieri
---------------------- ----------------------------------
Allen C. Barbieri
Chief Operating Officer
Date: August 4, 1995 By: /s/ Doug L. Heller
---------------------- ----------------------------------
Doug L. Heller
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000704693
<NAME> PNB FINANCIAL GROUP
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 APR-01-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 8,565 8,565
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 28,606 28,606
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 111,192 111,192
<ALLOWANCE> 2,693 2,693
<TOTAL-ASSETS> 166,600 166,600
<DEPOSITS> 151,272 151,272
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,561 1,561
<LONG-TERM> 0 0
<COMMON> 16,129 16,129
0 0
0 0
<OTHER-SE> (2,362) (2,362)
<TOTAL-LIABILITIES-AND-EQUITY> 166,600 166,600
<INTEREST-LOAN> 5,703 2,967
<INTEREST-INVEST> 437 189
<INTEREST-OTHER> 59 19
<INTEREST-TOTAL> 6,199 3,175
<INTEREST-DEPOSIT> 1,538 838
<INTEREST-EXPENSE> 1,568 864
<INTEREST-INCOME-NET> 4,631 2,311
<LOAN-LOSSES> 463 235
<SECURITIES-GAINS> (44) (17)
<EXPENSE-OTHER> 5,880 3,034
<INCOME-PRETAX> 651 532
<INCOME-PRE-EXTRAORDINARY> 651 532
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 750 532
<EPS-PRIMARY> .34 .24
<EPS-DILUTED> .34 .24
<YIELD-ACTUAL> 6.62 6.48
<LOANS-NON> 6,226 6,226
<LOANS-PAST> 871 871
<LOANS-TROUBLED> 2,275 2,275
<LOANS-PROBLEM> 14,990 14,990
<ALLOWANCE-OPEN> 2,727 2,740
<CHARGE-OFFS> 539 315
<RECOVERIES> 42 33
<ALLOWANCE-CLOSE> 2,693 2,693
<ALLOWANCE-DOMESTIC> 2,693 2,693
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
