<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 SEPTEMBER 30, 1996
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 OCTOBER
4, 1996 WAS 2,167,283.
THIS REPORT INCLUDES A TOTAL OF 19 PAGES
================================================================================
<PAGE>
PNB FINANCIAL GROUP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
------
<S> <C> <C>
ITEM 1. Financial Statement
Condensed Consolidated Balance Sheets (unaudited) - 3
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 4
(unaudited) - Nine Months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Operations 5
(unaudited) - Three Months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows (unaudited) - Nine 6
Months ended September 30, 1996 and 1995
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>
September 30, 1996 December 31, 1995
------------------ -----------------
Assets
- ------
<S> <C> <C>
Cash and due from banks $ 11,888,000 $ 13,814,000
Interest bearing deposits 2,378,000 -
Investment securities 7,488,000 10,626,000
Federal funds sold 17,000,000 2,500,000
Mortgage loans held for sale 41,803,000 41,968,000
Loans 97,131,000 103,737,000
Less allowance for possible loan losses (2,065,000) (2,659,000)
------------ ------------
Net loans 95,066,000 101,078,000
Premises and equipment, net 1,122,000 1,340,000
Other real estate owned 5,798,000 1,337,000
Other assets 2,958,000 2,129,000
------------ ------------
Total assets $185,501,000 $174,792,000
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits $164,950,000 $157,303,000
Other liabilities 2,936,000 2,261,000
------------ ------------
Total liabilities 167,886,000 159,564,000
Shareholders' equity:
Common stock, no par value, 20,000,000
shares authorized; 2,167,283 and 2,187,933
shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 16,001,000 16,134,000
Retained earnings (deficit) 1,731,000 (822,000)
Net unrealized loss on investment securities available for sale (117,000) (84,000)
------------ ------------
Total shareholders' equity 17,615,000 15,228,000
------------ ------------
Total liabilities and shareholders' equity $185,501,000 $174,792,000
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
PNB FINANCIAL GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Interest income:
Loans, including fees $ 9,623,000 $ 8,883,000
Investment securities 331,000 617,000
Federal funds sold 342,000 88,000
Deposits with banks 3,000 -
----------- -----------
Total interest income 10,299,000 9,588,000
Interest expense 2,920,000 2,491,000
----------- -----------
Net interest income 7,379,000 7,097,000
Provision for possible loan losses 750,000 953,000
----------- -----------
Net interest income after provision for possible loan losses 6,629,000 6,144,000
Other income:
Commissions and other revenue from mortgage banking operations 8,363,000 3,725,000
Service charges, fees and other 1,177,000 629,000
----------- -----------
Total other income 9,540,000 4,354,000
Other expenses:
Mortgage banking operations 6,292,000 2,801,000
Salaries & employee benefits 2,983,000 2,710,000
Occupancy 1,178,000 1,243,000
Other 2,688,000 2,365,000
----------- -----------
Total other expense 13,141,000 9,119,000
Income before income taxes 3,028,000 1,379,000
Provision (benefit) for income taxes 475,000 ( 99,000)
----------- -----------
Net income $ 2,553,000 $1,478,000
=========== ===========
Net income per share $1.11 $.66
=========== ===========
Weighted average number of shares 2,324,199 2,239,394
</TABLE>
See accompanying notes
4
<PAGE>
PNB FINANCIAL GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income:
Loans, including fees $3,231,000 $3,180,000
Investment securities 109,000 180,000
Federal funds sold 226,000 29,000
Deposits with banks 3,000 -
---------- ----------
Total interest income 3,569,000 3,389,000
Interest expense 1,005,000 923,000
---------- ----------
Net interest income 2,564,000 2,466,000
Provision for possible loan losses 150,000 490,000
---------- ----------
Net interest income after provision for possible loan losses 2,414,000 1,976,000
Other income:
Commissions and other revenue from mortgage banking operations 2,966,000 1,786,000
Service charges, fees and other 451,000 205,000
---------- ----------
Total other income 3,417,000 1,991,000
Other expenses:
Mortgage banking operations 2,294,000 1,220,000
Salaries & employee benefits 1,003,000 885,000
Occupancy 376,000 407,000
Other 1,107,000 727,000
---------- ----------
Total other expense 4,780,000 3,239,000
Income before income taxes 1,051,000 728,000
Provision for income taxes 248,000 -
---------- ----------
Net income $ 803,000 $ 728,000
========== ==========
Net income per share $.35 $.32
========== ==========
Weighted average number of shares 2,319,484 2,249,483
</TABLE>
See accompanying notes
5
<PAGE>
PNB FINANCIAL GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Net cash provided by operating activities $ 3,344,000 $(13,804,000)
Cash flows from investing activities:
Net change in loans 301,000 (5,467,000)
Net change in investment securities 3,105,000 8,168,000
Other 335,000 2,621,000
----------- ------------
Net cash provided by investing activities 3,741,000 5,322,000
Cash flows from financing activities:
Net change in deposits 7,648,000 8,343,000
Net change in short-term borrowings 353,000 -
Payments for repurchase of common stock (133,000) -
----------- ------------
Net cash provided by financing activities 7,868,000 8,343,000
Net increase (decrease) in cash and cash equivalents 14,953,000 (139,000)
Cash and cash equivalents at beginning of period 16,313,000 12,836,000
----------- ------------
Cash and cash equivalents at end of period $31,266,000 $ 12,697,000
=========== ============
</TABLE>
See accompanying notes
6
<PAGE>
PNB FINANCIAL GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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
subsidiary, Pacific National Bank (the "Bank"), (collectively, the "Company").
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 September 30, 1996, and the consolidated results of operations and statements
of cash flows for the nine and three month periods ended September 30, 1996 and
September 30, 1995. Results for the nine and three months ended September 30,
1996 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. Preferred Stock
---------------
The Company has authorized 10,000,000 shares, no par value, preferred stock.
No shares of preferred stock have been issued.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1996
Item 2.
Summary
- -------
The Company reported net income of $2,553,000 for the nine months ended
September 30, 1996 compared to a net income of $1,478,000 for the same period in
1995. For the three months ended September 30, 1996 the Company reported a net
income of $803,000 compared to net income of $728,000 for the same period in
1995. The increase in earnings was primarily a result of an increase in profits
in the Bank's residential mortgage division which was a result of increased
lending activity. During the first nine months of 1996, the bank funded 4,770
mortgage loans totalling $592.4 million compared to the first nine months of
1995 during which the Bank funded 1,865 mortgage loans totaling $226.7 million.
In addition, the third quarter 1996 earnings were negatively effected by a
special assessment of $300,000 levied by the FDIC following passage of
legislation in September to recapitalize the Savings Association Insurance Fund
("SAIF"). As a result of this one time assessment, management believes a
portion of the Bank's deposit insurance premiums paid to the FDIC will be
reduced so that a full payback of the special assessment is achieved over a
three to four year period. A portion of the deposit insurance premiums paid by
the Bank to the FDIC are currently allocated to the SAIF fund as a result of the
acquisition of a savings and loan association in 1991.
The increase in mortgage lending activity is a result of a continual effort
to increase its market share within its current market, along with a continual
effort to expand into new marketing areas. In October 1996, the Bank will open
a San Diego office of its mortgage department which is expected to service the
entire San Diego area. Management is excited about expanding its coverage to
include this new market. In addition, the Bank has entered into an agreement
with American Savings to process government loans which American Savings loan
officers originate through their branch system. Management believes these two
activities will increase volume further and management will continue to look at
other growth opportunities.
As of September 30, 1996, the Company had total assets of $185.5 million,
total loans of $97.1 million and total deposits of $164.9 million, as compared
to total assets of $174.8 million, total loans of $103.7 million and total
deposits of $157.3 million as of December 31, 1995. Average deposits for the
first nine months of 1996 were $157.5 million as compared to an average deposit
level of $141.3 million during the first nine months of 1995. The increase in
deposits is due to the improved state of the local economy along with the
continual marketing effort toward expanding the deposit base of the Bank. This
marketing effort was aided by the local business market's renewed confidence in
the Bank's stability.
The following section sets forth the Company's condensed consolidated average
balance of each principal category of assets, liabilities, and shareholders'
equity for the nine month period ended September 30, 1996 as compared to the
same period in 1995. 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996 1995
------------ ------------
Assets
- ------
<S> <C> <C>
Cash and due from banks $ 11,060,000 $ 9,325,000
Interest-bearing deposits in other banks 76,000 -
Investment securities 8,206,000 16,262,000
Federal funds sold 8,912,000 2,077,000
Mortgage loans held for sale 44,866,000 17,609,000
Loans 99,704,000 108,483,000
Less allowance for possible loan losses (2,348,000) (2,708,000)
------------ ------------
Net loans 97,356,000 105,775,000
Premises and equipment, net 1,244,000 1,542,000
Other assets 5,387,000 4,441,000
------------ ------------
Total assets $177,107,000 $157,031,000
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
Noninterest-bearing $ 56,341,000 $ 49,705,000
Interest-bearing 101,135,000 91,581,000
Short-term borrowings 382,000 961,000
Other liabilities 2,745,000 1,296,000
------------ ------------
Total liabilities 160,603,000 143,543,000
Shareholders' equity:
Capital stock 16,007,000 16,129,000
Retained earning (deficit) 647,000 (2,222,000)
Net unrealized loss on investment securities available
for sale (150,000) (419,000)
------------ ------------
Total shareholders' equity 16,504,000 13,488,000
Total liabilities and shareholders' equity $177,107,000 $157,031,000
============ ============
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
Capital Resources
- -----------------
The federally-mandated minimum capital requirements and the actual
capitalization of the Company and the Bank as of September 30, 1996 are set
forth below.
CAPITAL REQUIREMENTS AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Pacific PNB
Regulatory National Financial
Requirements Bank Group
------------- --------- ----------
<S> <C> <C> <C>
Leverage Capital Ratio 4.0% 7.8% 9.6%
Risk Based Capital:
Tier 1 Capital 4.0% 11.9% 14.2%
Tier 2 Capital 8.0% 13.2% 15.5%
</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 and, to a lesser extent, its ability to raise capital
by selling additional shares of common stock. In addition, due to the well
capitalized position of the Bank, the Holding Company can receive a dividend
from its wholly owned subsidiary. In May, 1996, the Bank Holding Company
purchased at a substantial discount two troubled real estate dependent loans for
$1.1 million. Of this amount, $800,000 was financed with the seller. During
July, one of these loans was liquidated for a profit of $244,000. The other
loan was foreclosed upon and as of September 30, 1996, the property is owned by
the Company. Management anticipates that this asset will be sold at a gain
before March 31, 1997. As of September 30, 1996, the Bank Holding Company has
cash balances of approximately $112,000. These liquid assets, along with cash
generated from the sale of REO, will support its operating requirements through
1997.
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 third quarter of 1996, the Bank's
average liquid assets as a percentage of average assets equaled 25.9% compared
to 22.6% during the third quarter of 1995. The Bank's average commercial loan
to deposit ratio during the third quarter of 1996 was 57.8% compared to an
average commercial loan to deposit ratio of 73.4% during the third quarter of
1995. The change in these liquidity ratios is the result of an increase in the
average deposit level and decrease of the average commercial loan balance of the
Bank. A large portion of the Bank's deposits consist of deposits maintained by
escrow and title insurance companies. During the third quarter of 1996, the
average deposits from escrow and title companies were $23.9 million or
approximately 14.5% of total average deposits. This is compared to total escrow
and title
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
deposits of $18.2 million in the third quarter of 1995 or 12.2% of total average
deposits. Currently, no escrow or title customer accounts for over 3% of the
Bank's total deposits.
To cushion against unanticipated fluctuations in its liquidity position, the
Bank has secured secondary lines of credit with its correspondent bank and the
Federal Home Loan Bank ("FHLB") of approximately $10.8 million as of September
30, 1996. The FHLB line of credit is collateralized by a portion of the Bank's
loan portfolio. The Bank also can borrow money against a portion of its
investment 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 Nine Months
Ended September 30, 1996 and September 30, 1995
-----------------------------------------------
Total interest and loan fee income
- ----------------------------------
Total interest and loan fee income increased $711,000 (7.4%) between the
periods presented primarily due to the increase in volume of interest earning
assets which was partially offset by the decrease in rate of interest earning
assets. The increase in volume was centered in mortgage loans held for sale and
is due to the increased activity in the Bank's mortgage loan business. This
increase in volume of mortgage loans was partially offset with a decrease in
volume of loans and investment securities. The decrease in interest income due
to interest rate, was primarily the result of the decrease in interest rate on
loans. This was due to the decrease in prime from 1995 to 1996.
The table below sets forth the Company's rate and volume analysis for
interest-earning assets for the nine months ended September 30, 1996 as compared
to the nine months ended September 30, 1995.
<TABLE>
<CAPTION>
Change in interest income due to:
Volume Rate Total
---------- --------- -----------
<S> <C> <C> <C>
Loans $ (427,000) $(343,000) $ (770,000)
Mortgage loans held for sale 1,429,000 36,000 1,465,000
Investment securities (328,000) 42,000 (286,000)
Federal funds sold 276,000 (21,000) 255,000
---------- --------- ----------
Total $ 950,000 $(286,000) $ 664,000
========== =========
Change in loan fees 47,000
----------
Total change in interest and loan fee income $ 711,000
==========
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
Total interest expense
- ----------------------
Total interest expense increased $429,000 (17.2%) between the periods
presented due to an increase in the volume and rate of time deposits. The
average volume of time deposits increased from $35.8 million for the nine months
ended September 30,1995 to $43.1 million for the nine months ended September 30,
1996, and the average interest rate paid on these deposit increased from 5.10%
to 5.43% during the same time frame. The following table sets forth the
Company's rate and volume analysis for interest-bearing liabilities for the nine
months ended September 30, 1996 as compared to the corresponding period ended
September 30, 1995.
<TABLE>
<CAPTION>
Change in interest expense due to:
Volume Rate Total
----------- -------- ---------
<S> <C> <C> <C>
Short-term borrowing $ (38,000) $ 28,000 $ (10,000)
Savings deposits (20,000) (11,000) (31,000)
Time deposits 291,000 100,000 391,000
Interest-bearing demand deposits 63,000 16,000 79,000
----------- -------- ---------
Total $ 296,000 $133,000 $ 429,000
=========== ======== =========
</TABLE>
Allowance for loan losses
- -------------------------
An analysis of the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Balance at beginning of period $ 2,659,000 $2,727,000
----------- ----------
Charge-offs (1,567,000) (1,253,000)
Recoveries 223,000 57,000
----------- ----------
Net charge-offs (1,344,000) (1,196,000)
----------- ----------
Contribution to allowance for loan losses 750,000 953,000
----------- ----------
Balance at end of period $ 2,065,000 $2,484,000
=========== ==========
Allowance as a percentage of total loans 2.1% 2.3%
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
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 September 30, 1996 and 1995 as well as
December 31, 1995.
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995 Sept. 30, 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $4,686,000 $ 9,666,000 $11,571,000
Accruing loans contractually past due 90 days or more 399,000 382,000 321,000
Total classified loans 8,750,000 20,534,000 17,148,000
Other real estate owned 5,798,000 1,337,000 1,553,000
Troubled debt restructurings (Included in non-accrual 1,749,000 3,589,000 2,234,000
and classified loans)
</TABLE>
The Company's provision for loan losses was $750,000 for the first nine
months of 1996 compared to $953,000 during the same period in 1995. The reduced
provision is a result of the significant reduction of classified and nonaccrual
loans. Classified loans have decreased $11.8 million from December 31, 1995,
while nonaccrual loans have decreased $5.0 million over the same period. This
contribution to the provision resulted in an allowance of 2.1% of total
outstanding loans at September 30, 1996, compared to 2.3% at September 30, 1995.
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 September 30, 1996 is adequate to absorb the inherent risks in
the Company's loan portfolio.
The decline in the September 30, 1996 allowance for loan losses compared to
the September 30, 1995 allowance is due to the write off of a portion of several
large real estate loans during 1996. These write-offs were a result of real
estate foreclosures and equal the amount of collateral deficiency in the loan.
These write-offs had no major impact on additional provisions to the allowance
for loan losses because they were specifically reserved for and were part of the
past year's allowance for loan losses.
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. This decrease in classified loans over the past nine months is due to
the collection of several loans along with the transfer of several loans to
other real estate owned. Due to the pending foreclosure on two real estate
loans, classified loans and nonaccrual loans are expected to continue to decline
in the next two quarters. The allowance for loan losses should not be effected
by these foreclosures.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
Other Income
- ------------
Other income increased $5,186,000 (119%) between the periods presented. The
increase was primarily due to higher revenue generated from the Bank's
residential mortgage operation. During the first nine months of 1996, gross
revenue from the mortgage operation was $8,363,000 compared to $3,725,000 in the
corresponding period in 1995. The increase in the mortgage divisions gross
revenue resulted in the division posting a pretax income, before administration
allocation, of $2,062,000 during the first nine months of 1996, compared to
$771,000 during the same period in 1995. Outside of the mortgage division, the
increase in other income was due to the $360,000 gain on sale of REO during the
first nine months of 1996.
Other Expenses
- --------------
Other expenses increased $4,022,000 (44.1%) between the periods presented.
Outside of the mortgage division, the Company's other expenses increased
$531,000 (8.4%), while the Bank's residential mortgage division's expenses
increased $3,491,000 (125%). The increase in the mortgage division's expenses
was due to the increased level of activity and was substantially associated with
the increase in salaries and benefits and commissions. The increase in the
Company's other expenses was primarily due to the special SAIF assessment of
$300,000 and an increase in the Bank's salary and benefits.
Provision for Income Taxes
- --------------------------
As of December 31, 1995, the Company had net deferred tax assets totalling
$890,000 which the Company had not recognized. These deferred tax assets
include Federal and State net operating loss carryforwards of $901,000 and
$34,000, respectively. A large portion of these unrecorded deferred tax assets
were utilized during the first nine months of 1996 to offset the Company's
profits. As of September 30, 1996, the Company had recognized deferred tax
assets of $758.000. Management anticipates recording the remaining deferred tax
assets during the fourth quarter.
Cash and Cash Equivalents
- -------------------------
As of September 30, 1996, cash and cash equivalents increased $15.0 million
from December 31, 1995 balances primarily due to a increase of deposits of $7.6
million and cash provided from operating activities of $3.3 million along with a
decrease in investment securities of $3.1 million. The cash provided by
operating activities primarily consists of cash generated from the profits of
the Company.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
Results of Operations for the Three Months
Ended September 30, 1996 and September 30, 1995
-----------------------------------------------
Total interest and loan fee income
- ----------------------------------
Total interest and loan fee income increased $180,000 (5.3%) between the
periods presented primarily due to the increase in volume of mortgage loans
which was partially offset by the decrease in volume of investment securities
and loans. The table below sets forth the Company's rate and volume analysis
for interest-earning assets for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995.
<TABLE>
<CAPTION>
Change in interest income due to:
Volume Rate Total
----------- ---------- ---------
<S> <C> <C> <C>
Loans $ (251,000) $ (84,000) $(335,000)
Mortgage loans held for sale 334,000 52,000 386,000
Investment securities (87,000) 17,000 (70,000)
Federal funds sold 211,000 199,000
---------- ---------- ---------
Total $ 207,000 $ (27,000) $ 180,000
========== ==========
Change in loan fees -
---------
Total change in interest and loan fee income $ 180,000
=========
</TABLE>
Total interest expense
- ----------------------
Total interest expense increased $82,000 (8.9%) between the periods presented
due to an increase in the volume of interest bearing demand deposits and time
deposits. The following table sets forth the Company's rate and volume analysis
for interest-bearing liabilities for the three months ended September 30, 1996
as compared to the corresponding period ended September 30, 1995.
<TABLE>
<CAPTION>
Change in interest expense due to:
Volume Rate Total
-------- ------ -------
<S> <C> <C> <C>
Short-term borrowings $(10,000) $ 5,000 $ (5,000)
Savings deposits (6,000) (4,000) (10,000)
Time deposits 42,000 (18,000) 24,000
Interest-bearing demand deposits 58,000 15,000 73,000
--------- -------- ---------
Total $ 84,000 $ (2,000) $ 82,000
========= ========= =========
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Allowance for possible loan losses
- ----------------------------------
An analysis of the allowance for possible loan losses is summarized as follows:
Three Months Ended September 30
-------------------------------
<S> <C> <C>
1996 1995
---------- ----------
Balance at beginning of period $2,175,000 $2,693,000
---------- ----------
Charge-offs (448,000) (713,000)
Recoveries 188,000 14,000
---------- ----------
Net charge-offs (260,000) (699,000)
---------- ----------
Contribution to allowance for possible loan losses 150,000 490,000
---------- ----------
Balance at end of period $2,065,000 $2,484,000
========== ==========
Allowance as a percentage of total loans 2.1% 2.3%
</TABLE>
Other Income
- ------------
Other income increased $1,426,000 (71.6%) between the periods presented. The
increase was due to higher revenue generated from the Bank's residential
mortgage division. During the third quarter of 1996, gross revenue from the
mortgage division was $2,966,000 compared to $1,786,000 in the corresponding
period in 1995. The increase in the mortgage division's gross revenue resulted
in the division posting a pretax income, before administration allocation, of
$669,000 during the third quarter of 1996, compared to pretax income of $403,000
during the same period in 1995. The increase in other income outside of the
mortgage income was due to a $244,000 gain on the sale of REO recognized during
the third quarter of 1996.
Other Expenses
- --------------
Other expenses increased $1,541,000 (47.6%) between the periods presented.
The Bank's residential mortgage division's expenses increased $1,074,000 (88%),
while expenses relating to other areas of the Company increased $467,000 (23%).
The increase in the mortgage division's expenses was due to increased level of
activity and was primarily associated with increases in salaries and benefits
and commissions. The increase in the Company's other expense was due to the
special one time SAIF assessment of $300,000 and an increase in the Bank's
salaries and benefits.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SEPTEMBER 30, 1996
Provision for Income Taxes
- --------------------------
At the end of each interim period the company makes its best estimate of the
effective tax rate expected to be applicable for the full year. The rate
determined is then used on a current year to date basis. During the third
quarter, the Company revised its earnings estimate for the year and, therefore,
the third quarter's provision as a percent of income was higher than the first
and second quarter's provision as a percent of income.
17
<PAGE>
PART II - OTHER INFORMATION
---------------------------
SEPTEMBER 30, 1996
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.
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 third quarter of 1996, 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: 11/12/96 By: /s/ ALLEN C. BARBIERI
- ---------------------------- ----------------------------------
Allen C. Barbieri
Chief Operating Officer
Date: 11/12/96 By: /s/ DOUG L. HELLER
- ---------------------------- ---------------------------------
Doug L. Heller
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,888
<INT-BEARING-DEPOSITS> 2,378
<FED-FUNDS-SOLD> 17,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,488
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 97,131
<ALLOWANCE> 2,065
<TOTAL-ASSETS> 185,501
<DEPOSITS> 167,886
<SHORT-TERM> 353
<LIABILITIES-OTHER> 2,582
<LONG-TERM> 0
0
0
<COMMON> 16,001
<OTHER-SE> 1,614
<TOTAL-LIABILITIES-AND-EQUITY> 185,501
<INTEREST-LOAN> 9,623
<INTEREST-INVEST> 331
<INTEREST-OTHER> 345
<INTEREST-TOTAL> 10,299
<INTEREST-DEPOSIT> 2,886
<INTEREST-EXPENSE> 2,920
<INTEREST-INCOME-NET> 7,379
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,141
<INCOME-PRETAX> 3,028
<INCOME-PRE-EXTRAORDINARY> 3,028
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,553
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> .061
<LOANS-NON> 4,686
<LOANS-PAST> 399
<LOANS-TROUBLED> 1,749
<LOANS-PROBLEM> 8,750
<ALLOWANCE-OPEN> 2,658
<CHARGE-OFFS> 1,567
<RECOVERIES> 223
<ALLOWANCE-CLOSE> 2,065
<ALLOWANCE-DOMESTIC> 2,065
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
