SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-11337
FOOTHILL INDEPENDENT BANCORP
----------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3815805
-------------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
510 SOUTH GRAND AVENUE, GLENDORA, CALIFORNIA 91741
-------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(818) 963-8551 or (714) 599-9351
(Registrants's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed, since last year)
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 /XX/. NO / /.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
3,947,026 shares of Common Stock
as of November 10, 1995
<PAGE>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1995 DECEMBER 31, 1994
<S> <C> <C>
Cash and due from banks $ 27,911,022 $ 29,218,006
Federal Funds Sold 43,575,000 7,450,000
------------ ------------
Total Cash and Cash Equivalents 71,486,022 36,668,006
------------ ------------
Interest bearing deposits at other banks 4,059,188 1,188,000
------------ ------------
Investment securities held to maturity
(approximate market value $31,979,699
in 1995 and $20,191,254 in 1994)
U.S. Treasury 7,928,605 16,454,851
U.S. Government agencies 22,045,019 996,104
Municipal agencies 2,665,755 2,759,135
Other Securities 250,000 250,000
------------ ------------
Total Investment securities
held to maturity 32,889,379 20,460,090
------------ ------------
Investment securities available for sale 14,959,316 10,517,101
------------ ------------
Loans, net of unearned discount and
prepaid points and fees 245,583,084 245,289,324
Direct lease Financing 2,754,089 3,726,697
Less reserve for possible loan
and lease losses (3,723,793) (3,145,193)
------------ ------------
Total Loans & Leases, net 244,613,380 245,870,828
------------ ------------
Bank premises and equipment 7,299,721 6,626,777
Accrued interest 2,657,209 2,393,707
Other real estate owned, net of allowance
for possible losses of $876,549 in 1995
and $515,503 in 1994 3,527,557 2,469,469
Cash surrender value of life insurance 3,066,741 2,862,019
Prepaid expenses 1,267,556 527,170
Deferred income taxes 1,103,663 1,103,663
Other assets 1,268,462 574,829
------------ ------------
TOTAL ASSETS $388,198,194 $331,261,659
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Deposits
Demand deposits $ 89,211,879 $ 77,385,387
Savings and NOW deposits 78,576,971 78,966,296
Money market deposits 47,584,695 41,954,406
Time deposits in denominations of
$100,000 or more 62,786,401 51,294,361
Other time deposits 77,390,437 51,621,654
------------ ------------
Total deposits 355,550,383 301,222,104
Accrued employee benefits 1,112,502 992,955
Accrued interest and other liabilities 1,418,702 1,930,236
Long-term debt 217,985 245,098
------------ ------------
Total Liabilities 358,299,572 304,390,393
------------ ------------
Stockholders' Equity
Unrealized gain (loss) on marketable
equity securities (296,819) (399,610)
Unrealized gain (loss) on securities
available for sale 15,651 (4,240)
Contributed capital
Capital stock-authorized 12,500,000
shares without par value; issued and
outstanding 3,944,502 shares in 1995
and 3,547,565 in 1994 10,701,052 7,439,924
Additional Paid-in Capital 455,997 455,997
Retained Earnings 19,022,741 19,379,195
------------ ------------
Total Stockholders' Equity 29,898,622 26,871,266
------------ ------------
Total Liabilities and
Stockholders' Equity $388,198,194 $331,261,659
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended September 30, Three Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $21,546,388 $18,378,434 $ 7,249,737 $ 6,727,834
Interest on investment securities
U.S. Treasury 388,098 854,415 98,232 172,730
Obligations of other U.S. government
agencies 943,138 168,703 485,550 53,667
Municipal agencies 66,180 70,727 22,830 24,953
Other securities 101,850 0 34,398 0
Interest on deposits 98,845 44,911 53,350 16,333
Interest on Federal funds sold 1,423,164 314,721 631,019 157,978
Lease financing income 166,193 103,745 44,583 34,593
---------- ---------- ---------- ----------
Total Interest Income 24,733,856 19,935,656 8,619,699 7,188,088
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on savings & NOW deposits 912,120 876,934 295,495 308,699
Interest on money market deposits 996,354 711,292 392,969 257,451
Interest on time deposits in denominations
of $100,000 or more 2,469,242 1,452,055 1,014,079 539,254
Interest on other time deposits 2,615,202 1,250,159 1,080,109 500,934
Interest on borrowings 30,074 23,144 5,604 6,483
---------- ---------- ---------- ----------
Total Interest Expense 7,022,992 4,313,584 2,788,256 1,612,821
---------- ---------- ---------- ----------
Net Interest Income 17,710,864 15,622,072 5,831,443 5,575,267
PROVISION FOR LOAN AND LEASE LOSSES 1,669,536 1,503,650 170,000 640,000
---------- ---------- ---------- ----------
Net Interest Income After Provisions
for Loan and Lease Losses 16,041,328 14,118,422 5,661,443 4,935,267
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INCOME
Fees and service charges 3,109,018 3,241,877 982,354 1,208,150
Other 292,921 584,572 40,207 166,858
---------- ---------- ---------- ----------
Total other income 3,401,939 3,826,449 1,022,561 1,375,008
---------- ---------- ---------- ----------
OTHER EXPENSES
Salaries and benefits 7,192,943 6,678,093 2,435,092 2,292,757
Occupancy expenses, net of revenue
of $103,033 in 1995 and $80,640 in 1994 1,436,545 1,155,083 506,670 413,425
Furniture and equipment expenses 922,038 868,347 301,434 289,085
Other operating expenses (Note 2) 5,749,633 5,514,366 2,015,077 1,921,721
---------- ---------- ---------- ----------
Total other expenses 15,301,159 14,215,889 5,258,273 4,916,988
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,142,108 3,728,982 1,425,731 1,393,287
---------- ---------- ---------- ----------
INCOME TAXES
Current payable 1,556,188 1,375,700 522,738 548,570
Deferred 0 0 0 130
---------- ---------- ---------- ----------
Total income taxes 1,556,188 1,375,700 552,738 548,700
---------- ---------- ---------- ----------
NET INCOME $ 2,585,920 $ 2,353,282 $ 902,993 $ 844,587
========== ========== ========== ==========
EARNINGS PER SHARE OF COMMON STOCK $0.66 $0.61 $0.23 $0.22
========== ========== ========== ==========
(Note 3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
VALUATION
NUMBER OF ADDITIONAL ALLOWANCE
SHARES CAPITAL PAID-IN RETAINED FOR
OUTSTANDING STOCK CAPITAL EARNINGS INVESTMENT TOTAL
----------- ------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,December 31, 1993 3,531,460 $ 7,334,623 $ 455,997 $ 17,323,727 $ (155,297) $ 24,959,050
As previously reported
Prior year correction 17,732 (17,732) -
--------- ---------- -------- ----------- ---------- -----------
BALANCE,January 1, 1994 3,531,460 $ 7,334,623 $ 455,997 $ 17,341,459 $ (173,029) $ 24,959,050
Cash dividend paid (707,762) (707,762)
Cash dividend declared (353,986) (353,986)
Exercise of stock options 8,400 46,000 46,000
Net income for six
months 2,353,282 2,353,282
Net unrealized loss on
marketable equity securities
available for sale (196,523) (196,523)
Change in net unrealized
loss on securities
available for sale (4,290) (4,290)
--------- ---------- -------- ----------- ---------- -----------
BALANCE, September 30, 1994 3,539,860 $ 7,380,623 $ 455,997 $ 18,632,993 $ (373,842) $ 26,095,771
========= ========== ======== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BALANCE,Jan. 1, 1995 $ 3,547,565 $ 7,439,924 $ 455,997 $ 19,379,195 $ (403,850) $ 26,871,266
10% stock dividend 356,433 2,939,689 (2,939,689) -
Fractional shares of stock
dividend paid in cash (2,685) (2,685)
Exercise of stock 6,300 39,000 39,000
Common stock issued under
employer benefit/dividend
reinvestment plans 34,204 282,439 282,439
Net income for the six
months 2,585,920 2,585,920
Net unrealized loss on
marketable equity
securities available for sale 102,791 102,791
Change in net unrealized
loss on securities available
for sale 19,891 19,891
--------- ---------- -------- ----------- --------- -----------
BALANCE,June 30, 1995 3,944,502 $10,701,052 $ 455,997 $ 19,022,741 $ (281,168) $ 29,898,622
========= ========== ======== =========== ========= ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1995 1994
Cash Flows From Operating Activities:
Interest and fees received $24,070,330 $19,533,829
Service fees and other income received 3,090,449 2,730,201
Financing revenue received under leases 166,193 103,745
Interest paid (6,836,818) (4,102,733)
Cash paid to suppliers and employees (16,500,612) (12,839,898)
Income taxes paid (1,823,194) (1,688,507)
---------- ----------
Net Cash Provided by Operating Activities 2,166,348 3,736,637
---------- ----------
Cash Flows From Investing Activities:
Proceeds from maturity of investment
securities 34,822,420 28,870,390
Purchase of investment securities (51,343,465) (17,557,191)
Proceeds from maturity of deposits in
other financial institutions 792,000 2,363,000
Purchase of deposits in other financial
institutions (3,663,188) (1,682,975)
Net (increase) decrease in credit card and
revolving credit receivables (50,032) (265,519)
Recoveries on loans previously written off 515,787 108,503
Net (increase) decrease in loans (1,846,033) (43,745,230)
Net (increase) decrease in leases 1,055,613 965,474
Capital expenditures (2,217,998) (1,894,629)
Proceeds from sale of property, plant
and equipment 136,294 42,937
---------- ----------
Net Cash Used in Investing Activities (21,698,538) (32,795,240)
---------- ----------
Cash Flows From Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts, savings accounts, and money
market deposits 17,153,013 22,686,259
Net increase (decrease) in certificates of
deposit with maturities of three months or less 8,164,170 9,681,480
Net increase (decrease) in certificates of
deposit with maturities of more than three
months 29,096,654 11,332,732
Proceeds from sale of stock options 39,000 46,000
Proceeds from dividend reinvestment/employee
benefit plans 282,439 0
Principal payment on long term debt (27,113) (212,043)
Dividends paid (357,957) (1,065,161)
---------- ----------
Net Cash Provided byFinancing Activities 54,350,206 42,469,267
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 34,818,016 13,410,664
Cash and Cash Equivalents at Beginning of Year 36,668,006 25,694,366
---------- ----------
Cash and Cash Equivalents at Sept.30, 1995 & 1994 $71,486,022 $39,105,030
========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
1995 1994
<S> <C> <C>
Net Income $ 2,585,920 $ 2,353,282
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation and amortization 457,439 597,195
Provision for possible credit losses 1,669,536 1,503,650
(Gain) loss on disposition of property,
plant & equipment (106,768) (25,042)
(Increase) decrease in taxes payable (267,006) (312,807)
(Increase) decrease in other assets (1,517,024) 393,753
Increase (decrease) in interest receivable (497,333) (298,082)
(Increase) decrease in interest payable 186,174 210,851
Increase (decrease) in fees and other
receivables (204,722) (1,071,205)
(Increase) decrease in accrued expenses
and other liabilities (89,485) 512,220
Gain on sale of investments and other assets (50,383) (127,178)
---------- -----------
Total Adjustments (419,572) 1,383,355
---------- -----------
Net Cash Provided by Operating Activities $ 2,166,348 $ 3,736,637
========== ==========
DISCLOSURE OF ACCOUNTING POLICY
- -------------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and Federal funds sold. Generally, Federal funds
are purchased and sold for one-day periods.
See accompanying notes to financial statements
</TABLE>
<PAGE>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1994
NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
statement of the results for the interim periods presented have been included.
For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K the year ended
December 31, 1994. The results of operations for the nine month period ended
September 30, 1995 are not necessarily indicative of the results to be expected
for the full year.
<PAGE>
<TABLE>
<CAPTION>
NOTE #2 - OTHER EXPENSES
The following is a breakdown of other expenses for each of the three and nine month periods ended September 30, 1995 and
1994.
Nine Months Ended September 30, Three Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Data processing $ 675,782 $ 666,916 $ 272,574 $ 257,906
Marketing expenses 560,909 393,761 275,271 106,092
Office supplies, postage
and telephone 808,170 624,488 287,874 239,810
Bank insurance & assessment 760,568 812,065 168,883 287,876
Professional expenses 725,762 679,778 204,671 250,003
Provision for OREO loss 850,000 758,210 290,000 0
Other expenses 1,368,442 1,579,148 515,804 780,034
----------- ----------- ---------- ----------
Total Other Expenses $ 5,749,633 $ 5,514,366 $2,015,077 $1,921,721
=========== =========== ========== ==========
</TABLE>
<PAGE>
NOTE #3 - EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares
outstanding during each period. Stock options have been excluded from the
computation of earning per share, as their effect is immaterial.
The weighted average number of shares used to compute earnings per share was
3,931,463 in 1995 and 3,893,555 in 1994. The number of shares for 1994 is
adjusted for a 10% stock dividend.
NOTE #4 - INCOME TAXES
The Bank adopted Statement No. 109 of the Financial Accounting Standard Board,
Accounting for Income Taxes, commencing January 1, 1993. This new statement
supersedes Statement No. 96 and among other things, changes the criteria for
the recognition and measurement of deferred tax assets. This adoption does not
create a material change in the financial statements of the Bank or the
Company.
NOTE #5 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement 107 is effective for financial
statements for fiscal years ended after December 15, 1992. The Statement
considers the fair value of financial instruments for both assets and
liabilities.
The following methods and assumptions were used to estimate the fair value of
financial instruments.
Investment Securities
For U.S. Government and U.S. Agency securities, fair values are based on market
prices. For other investment securities, fair value equals quoted market price
if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities as the basis for a
pricing matrix.
Loans
The fair value for loans with variable interest rates is the carrying amount.
The fair value of fixed rate loans is derived by calculating the discounted
value of the future cash flows expected to be received by the various
homogeneous categories of loans. All loans have been adjusted to reflect
changes in credit risk.
Deposits
The fair value of demand deposits, savings deposits, savings accounts and NOW
accounts is defined as the amounts payable on demand at September 30, 1994.
The fair value of fixed maturity certificates of deposit is estimated based on
the discounted value of the future cash flows expected to be paid on the
deposits.
Notes Payable
Rates currently available to the Bank for debt with similar terms and remaining
maturities are used to estimate the fair value of existing debt.
Commitments to Extend Credit and Standby Letter of Credit
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the parties involved. For
fixed-rate loan commitments, fair value also considered the difference between
current levels of interest rates and committed rates.
The fair value of guarantees and letters of credit are based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with parties involved at September 30, 1995.
The estimated fair value of the Bank's financial instruments are as follows:
SEPTEMBER 30, 1995
Carrying Amount Fair Value
--------------- --------------
Financial Assets
Cash 75,545,210 75,545,210
Investment securities 47,598,695 46,689,015
Real estate loans 77,572,235 77,571,225
Installment loans 12,866,857 12,867,222
Commercial loans 158,224,948 158,224,730
Direct lease financing 2,739,908 2,739,744
Financial Liabilities
Deposits 355,550,382 357,020,382
Long term debt 217,985 217,985
Unrecognized Financial Instruments
Commitments to extend credit 39,658,844 39,658,844
Standby letters of credit 2,022,990 2,022,990
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Foothill Independent Bancorp (the "Company") is a one-bank holding
company. Its principal asset is the common stock of, and its principal
operations are conducted by, Foothill Independent Bank, a California state
chartered bank (the "Bank"). The Bank accounts for substantially all of the
Company's revenues and income.
Results of Operations
Net Interest Income. Net interest income is the principal determinant
of a bank's income. Net interest income represents the difference or "margin"
between the interest earned on interest-earning assets, such as loans,
investment securities and Federal Funds sold, and the interest paid on
interest-bearing liabilities, principally deposits. The Bank's net interest
income increased by $256,000 or 4.6% and by $2,089,000 or 13.4% in the three
and nine month periods ended September 30, 1995, respectively, as compared to
the same three and nine month periods of 1994. These increases were primarily
attributable to increases in interest and fees earned on loans and increases
in interest earned on Federal Funds sold, which more than offset increases in
interest expense. The increase in interest and fees earned on loans during
the three months ended September 30, 1995 was due primarily to higher
prevailing rates of interest in that quarter as compared to the same quarter
of 1994; whereas the increase in interest and fees earned on loans in the nine
months ended September 30, 1995 was attributable to increases in both the
average volume of loans outstanding and prevailing rates of interest, as
compared to the same nine months of 1994. The increases in the interest
earned on Federal Funds sold were attributable primarily to increases in the
volume of Federal Funds that were outstanding during the quarter and nine
months ended September 30, 1995 and, to a lesser extent, to increases in
prevailing rates of interest during those periods.
The increases in interest expense in the three and nine months ended
September 30, 1995 were attributable primarily to (i) an overall increase in
the average volume of interest-bearing deposits outstanding during these
periods, as compared to the corresponding periods of 1994, (ii) a change in
the mix of deposits due to proportionately greater increases in the average
volume of time deposits, which generally bear interest at higher rates than
savings deposits, and (iii) somewhat higher interest rates paid on deposits as
a result of increases in market rates of interest due primarily to the credit
tightening actions taken in the first half of the year by the Board of
Governors of the Federal Reserve System in response to concerns about
inflation. The increases in interest expense, coupled with the slowing of
loan growth in the third quarter of 1995 and a corresponding increase in the
volume of lower yielding interest earning assets, such as Federal Funds sold,
investment securities and cash held at other institutions, resulted in a
decline in the Bank's net interest margin (i.e., net interest income expressed
as a percentage of interest income) to 71.6% and 67.6%, respectively, in the
three and nine month periods ended September 30, 1995, from 78.4% and 77.6% in
the corresponding periods of 1994.
Provision for Possible Loan Losses. The Bank follows the practice of
maintaining a reserve for possible losses on loans and leases (the "Loan Loss
Reserve" or the "Reserve") that occur from time to time as an incidental part
of the banking business. Write-offs of loans (essentially reductions in the
carrying values of non-performing loans due to possible losses on their
ultimate recovery) are charged against the Reserve and the Reserve is adjusted
periodically to reflect changes in the volume of outstanding loans increases
and in the risk of potential losses due to a deterioration in the condition of
borrowers or in the value of property securing non-performing loans or changes
in general economic conditions. Additions to the Loan Loss Reserve are made
through a charge against income referred to as the "provision for loan and
lease losses." The Bank made provisions for potential loan and lease losses
of $170,000 in the third quarter of 1995, as compared to $640,000 in the
corresponding quarter of 1994. For the first nine months of 1995 the
provision for potential loan and lease losses (inclusive of the provision made
in the third quarter) totaled $1,700,000, as compared to $1,504,000 for the
first nine months of 1994. The increases in the provision during the nine
months ended September 30, 1995 were made primarily in response to the
increases, between October 1, 1994 and June 30, 1995, in the average volume of
the Bank's outstanding loans and a continued softness in the market values of
commercial real estate in Southern California, which adversely affected the
values of the real properties that secure and could become the source of
repayment for some of the Bank's non-performing loans. The provision made in
the quarter ended September 30, 1995 was lower than for the corresponding
period of 1994, due primarily to a slowing in the growth of the Bank's volume
of outstanding loans and the assessment of the Bank's management that the
amount of the Loan Loss Reserve was sufficient, in relation to the volume and
condition of the Bank's outstanding loans, to permit a reduction in the amount
of the provision as compared to the provision made in the quarter ended
September 30, 1994.
Other Income. Other income decreased by $352,000 or 26% and by $425,000
or 11%, respectively, in the quarter and nine months ended September 30, 1995,
as compared to the same quarter and nine month periods of 1994. These
decreases were due primarily to decreases in the volume of and, consequently,
in the fees generated from, sales of SBA loans and the provision by the Bank
of appraisal and other ancillary services, as compared to the same periods of
1994.
Other Expense. Other expense, consisting primarily of (i) salaries and
other employee expenses, (ii) occupancy expenses, (iii) furniture and
equipment expenses, and (iv) insurance, assessments and other operating and
miscellaneous expenses, increased by $341,000 or 6.9%, and by $1,085,000 or
7.6%, respectively, in the three and nine month periods ended September 30,
1995 as compared in each case to the corresponding three and nine month
periods of 1994. These increases were primarily attributable to internal
growth in the Bank's assets and operations subsequent to June 30, 1994. In
the first quarter of 1995, the Bank opened a new banking office in Glendale,
California and hired additional personnel to staff that office. In July 1995,
the Bank opened another new office, in Corona, California. The opening of
those offices, together with the implementation of new marketing programs
designed to attract new customers for the Bank, accounted for much of the
increases in occupancy expense, salary and other employee expenses and other
operating expenses in the quarter and nine months ended September 30, 1995.
Also contributing to the increase in other operating expense in the quarter
and nine months ended September 30, 1995 were increases of $290,000 and
$92,000, respectively, as compared to the corresponding periods of 1994, in
the provisions made for possible losses on other real estate owned, which is
real property acquired by the Bank on defaulted loans and held for resale.
These increases in the provision were made in response to continued softness
in the market for commercial real property in Southern California which caused
a decline in the value of some of those properties.
Provision for Income Taxes. The higher provision for income taxes in
the nine months ended September 30, 1995, as compared to the provision for
income taxes in the corresponding period of 1994, is attributable to the
increase in income before income taxes and the fact that the Company had less
tax-exempt income during the nine months ended September 30, 1995 than it did
in the first nine months of 1994.
Financial Condition and Liquidity
Between January 1, 1995 and September 30, 1995, the Company's total
assets increased by approximately $56,937,000, or 17.2%. That increase was
primarily the result of the opening of two new banking offices and the
implementation of marketing programs designed to attract new customers and
increase deposits. The additional deposits that were generated by those
programs were used primarily to increase the Bank's liquidity and, to a lesser
extent, to fund new loans. As a result, the average volume of Federal Funds
sold, investment securities and cash held at other banks increased
significantly in the nine months ended September 30, 1995. At September 30,
1995, the Company had $31,970,000 of cash held on deposit at other financial
institutions, $47,849,000 of investment securities and $43,575,000 in Federal
Funds sold.
For the quarter ended September 30, 1995, the average volume of time
deposits ("TCD'S") in denominations greater than $100,000 was approximately
$12,799,000 higher than the average volume of those deposits for the quarter
ended December 31, 1994. Often, TCD's in denominations over $100,000 are of a
short-term duration and are quite sensitive to changes in interest rates. As
a result, reliance on these types of deposits can pose risks for banking
institutions. To reduce such risks, the Bank has made it a policy to seek
TCD's in denominations over $100,000 primarily from existing customers in its
local market areas and not to rely unduly on "brokered" deposits, which tend
to be more interest-sensitive and volatile.
In the first quarter of 1995, the Board of Directors decided to
discontinue payment of cash dividends in order to retain internally generated
funds to support internal growth of the Bank. In addition to the new banking
office opened in Glendale, California in March of 1995, the Bank opened a new
bank office in Corona, California on July 17, 1995 and has filed an
application for necessary regulatory approvals to open a new banking office in
Chino, California either late in 1995 or early in 1996. The Board of
Directors intends to consider, later in 1995, whether to resume cash
dividends. However, it is not possible to predict at this time whether cash
dividends will be resumed, as that will depend on a number of factors,
including the Company's earnings and the growth of the Company's assets in
1995 and whether opportunities for further growth may arise in the future.
During the first quarter of 1995, the Company did declare a 10% stock dividend
on the Company's outstanding shares, which was distributed on May 1, 1995, and
which, for accounting purposes, was recorded as a $2,940,000 reduction in
retained earnings, offset by a corresponding $2,940,000 increase in the
Company's contributed capital (see the Condensed Consolidated Statement of
Changes in Stockholders' Equity included elsewhere in this Report).
As a result of the increased earnings in the nine months ended September
30, 1995 and the retention of internally generated funds, the Company's total
shareholders' equity increased by $3,027,000 to $29,899,000 at September 30,
1995 as compared to $26,871,000 at December 31, 1994. As a result, despite
the substantial growth in assets that has occurred during the first nine
months of 1995, the Bank's Tier 1 Capital Ratio, which is the ratio of
shareholders' equity to average assets, remained substantially unchanged, at
7.55% at September 30, 1995, as compared to 7.77% at December 31, 1994, and
is above the minimum regulatory requirement applicable to the Bank of 5%.
Federal bank regulations also require federally insured banks to meet a "risk-
based capital ratio" of 8%. Under those regulations, a bank's assets are
weighted according to certain risk formulas; and, the higher the risk profile
of a bank's assets, the greater the amount of capital that is required to meet
the risk-based capital ratio. An asset that poses no risk, such as a U.S.
government security, is weighted at 0% and requires no capital; whereas, a
commercial loan or lease is weighted at 100% and requires 100% of the capital
requirement (i.e., 8%). Based upon the formulas set forth in the risk-based
capital regulations, the Bank's ratio of capital to risk-based assets at
September 30, 1995 was 11.6% , which is well in excess of the minimum ratio
required by these regulations.
Part II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibits 27. Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1995 FOOTHILL INDEPENDENT BANCORP
By: /S/CAROL ANN GRAF
--------------------------------
CAROL ANN GRAF
First Vice President
Chief Financial Officer
Assistant Secretary
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered Page
Exhibit 27. Financial Data Schedule 16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AS OF SEPTEMBER 30, 1995 AND THE STATEMENT OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH BALANCE SHEET AND STATEMENT OF INCOME AND THE
NOTES THERETO.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 27,911 27,911
<INT-BEARING-DEPOSITS> 4,059 4,059
<FED-FUNDS-SOLD> 43,575 43,575
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 14,959 14,959
<INVESTMENTS-CARRYING> 32,889 32,889
<INVESTMENTS-MARKET> 31,980 31,980
<LOANS> 248,337 248,337
<ALLOWANCE> (3,724) (3,724)
<TOTAL-ASSETS> 388,198 388,198
<DEPOSITS> 355,550 355,550
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 2,531 2,531
<LONG-TERM> 218 218
<COMMON> 10,701 10,701
0 0
0 0
<OTHER-SE> 19,198 19,198
<TOTAL-LIABILITIES-AND-EQUITY> 388,198 388,198
<INTEREST-LOAN> 21,546 7,250
<INTEREST-INVEST> 3,188 1,370
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 24,734 8,620
<INTEREST-DEPOSIT> 6,993 2,783
<INTEREST-EXPENSE> 7,023 2,789
<INTEREST-INCOME-NET> 17,711 5,831
<LOAN-LOSSES> 1,670 170
<SECURITIES-GAINS> 8 8
<EXPENSE-OTHER> 15,301 5,258
<INCOME-PRETAX> 4,142 1,426
<INCOME-PRE-EXTRAORDINARY> 4,142 1,426
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,586 903
<EPS-PRIMARY> .66 .23
<EPS-DILUTED> .66 .23
<YIELD-ACTUAL> 0 0
<LOANS-NON> 0 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 0 0
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 0 0
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
