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, 1996
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 (909) 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.
4,426,418 shares of Common Stock
as of October 31, 1996
<PAGE>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Cash and due from banks $ 32,334 $ 26,278
Federal funds sold 22,400 41,750
--------- ---------
Total Cash and Cash Equivalents 54,734 68,028
--------- ---------
Interest-bearing deposits in other
financial institutions 5,827 6,433
--------- ---------
Investment Securities Held-To-Maturity
(approximate market value $7,773
in 1996 and $23,582 in 1995)
U.S. Treasury 2,393 4,958
U.S. Government Agencies 2,000 14,777
Municipal Agencies 3,134 3,506
Other Securities 250 250
--------- ---------
Total Investment Securities
Held-To-Maturity 7,777 23,491
--------- ---------
Investment Securities Available-For-Sale 25,405 18,743
--------- ---------
Loans, net of unearned discount and
prepaid points and fees 291,727 259,068
Direct lease financing 2,541 2,086
Less reserve for possible loan
and lease losses (4,235) (3,644)
--------- ---------
Total Loans & Leases, net 290,033 257,510
--------- ---------
Bank premises and equipment 7,295 7,353
Accrued interest 2,561 2,851
Other real estate owned, net of allowance
for possible losses of $779 in 1996
and $909 in 1995 5,226 3,879
Cash surrender value of life insurance 3,467 3,149
Prepaid expenses 1,055 917
Deferred income taxes 1,607 1,607
Other assets 1,392 1,220
--------- ---------
TOTAL ASSETS $ 406,379 $ 395,181
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Deposits
Demand deposits $ 109,444 $ 96,478
Savings and NOW deposits 88,250 78,144
Money market deposits 60,417 48,784
Time deposits in denominations of
$100,000 or more 51,423 61,457
Other time deposits 59,369 76,251
--------- ---------
Total deposits 368,903 361,114
Accrued employee benefits 1,292 1,195
Accrued interest and other liabilities 1,767 1,622
Long-term debt 179 208
--------- ---------
Total Liabilities 372,141 364,139
--------- ---------
Stockholders' Equity
Contributed capital
Capital stock-authorized 12,500,000
shares without par value; issued and
outstanding 4,424,008 shares in 1996
and 3,944,502 in 1995 14,872 10,789
Additional Paid-in Capital 456 456
Retained Earnings 19,351 19,999
Valuation Allowance for Investments (441) (202)
--------- ---------
Total Stockholders' Equity 34,238 31,042
--------- ---------
Total Liabilities and
Stockholders' Equity $ 406,379 $ 395,181
========= =========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands)
Nine Months Ended September 30, Three Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 23,087 $ 21,547 $ 8,101 $ 7,250
Interest on investment securities
U.S. Treasury 172 388 64 98
Obligations of other U.S. government
agencies 1,415 943 340 486
Municipal agencies 326 66 110 23
Other securities 146 102 44 34
Interest on deposits 336 99 107 53
Interest on Federal funds sold 772 1,423 277 631
Lease financing income 93 166 33 45
-------- -------- -------- --------
Total Interest Income 26,347 24,734 9,076 8,620
-------- -------- -------- --------
INTEREST EXPENSE
Interest on savings & NOW deposits 942 912 329 295
Interest on money market deposits 1,285 997 494 393
Interest on time deposits in denominations
of $100,000 or more 2,453 2,469 734 1,014
Interest on other time deposits 2,680 2,615 767 1,080
Interest on borrowings 15 30 5 6
-------- -------- -------- --------
Total Interest Expense 7,375 7,023 2,329 2,788
-------- -------- -------- --------
Net Interest Income 18,972 17,711 6,747 5,832
PROVISION FOR LOAN AND LEASE LOSSES 1,747 1,670 722 170
-------- -------- -------- --------
Net Interest Income After Provisions
for Loan and Lease Losses 17,225 16,041 6,025 5,662
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OTHER INCOME
Fees and service charges 3,590 3,109 1,225 982
Other 316 293 127 40
-------- -------- -------- --------
Total other income 3,906 3,402 1,352 1,022
-------- -------- -------- --------
OTHER EXPENSES
Salaries and benefits 8,026 7,193 2,906 2,435
Occupancy expenses, net of revenue
of $87 in 1996 and $103 in 1995 1,555 1,436 553 507
Furniture and equipment expenses 1,083 922 359 301
Other expenses (Note 2) 5,692 5,750 1,661 2,015
-------- -------- -------- --------
Total other expenses 16,356 15,301 5,479 5,258
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,775 4,142 1,898 1,426
-------- -------- -------- --------
PROVISION FOR INCOME TAXES 1,847 1,556 746 523
-------- -------- -------- --------
NET INCOME $ 2,928 $ 2,586 $ 1,152 $ 903
======== ======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK $ 0.67 $ 0.60 $ 0.26 $ 0.21
(Note 3) ======== ========= ======== ========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
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, January 1, 1995 3,547,565 $ 7,440 $ 456 $ 19,361 $ (386) $ 26,871
10% stock dividend
distributed 5/1/95 356,433 2,940 (2,940) -
Fractional shares of stock
dividend paid in cash (3) (3)
Exercise of stock options 6,300 39 39
Common stock issued under
employee benefit and dividend
reinvestment plans 34,204 282 282
Net income for nine months 2,586 2,586
Net unrealized loss on
marketable equity securities
available for sale 103 103
Change in net unrealized
loss on securities
available for sale 20 20
----------- -------- --------- -------- ---------- -----------
BALANCE, September 30, 1995 3,944,502 $ 10,701 $ 456 $ 19,004 $ (263) $ 29,898
=========== ======== ========= ======== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 3,955,761 $ 10,789 $ 456 $ 19,999 $ (202) $ 31,042
10% stock dividend
distributed 4/5/96 396,840 3,572 (3,572) -
Fractional shares of stock
dividend paid in cash (4) (4)
Common stock issued under
employee benefit and
dividend reinvestment plans 71,407 511 511
Net income for the nine months 2,928 2,928
Net unrealized loss on
marketable equity
securities available for sale (121) (121)
Change in net unrealized
loss on securities available
for sale (118) (118)
----------- -------- --------- -------- ---------- -----------
BALANCE, September 30, 1996 4,424,008 $ 14,872 $ 456 $ 19,351 $ (441) $ 34,238
=========== ======== ========= ======== ========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
Cash Flows From Operating Activities:
Interest and fees received $ 26,696 $ 24,070
Service fees and other income received 3,551 3,091
Financing revenue received under leases 93 166
Interest paid (7,782) (6,837)
Cash paid to suppliers and employees (15,151) (16,006)
Income taxes paid (1,850) (1,823)
---------- ----------
Net Cash Provided by Operating Activities 5,557 2,661
---------- ----------
Cash Flows From Investing Activities:
Proceeds from maturity of investment
securities 159,726 34,822
Purchase of investment securities (151,120) (51,343)
Proceeds from maturity of deposits in
other financial institutions 3,958 792
Purchase of deposits in other financial
institutions (3,352) (3,663)
Net (increase) decrease in credit card and
revolving credit receivables 62 50
Recoveries on loans previously written off 372 516
Net (increase) decrease in loans (34,252) (1,846)
Net (increase) decrease in leases (478) 1,056
Capital expenditures (2,108) (2,218)
Proceeds from sale of property, plant
and equipment 58 136
---------- ----------
Net Cash Used in Investing Activities (27,134) (21,698)
---------- ----------
Cash Flows From Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts, savings accounts, and money
market deposits 34,722 17,153
Net increase (decrease) in certificates of
deposit with maturities of three months or less (26,545) 8,164
Net increase (decrease) in certificates of
deposit with maturities of more than three
months (372) 29,097
Proceeds from exercise of stock options - 39
Proceeds from stock issued under employee
benefit and dividend reinvestment plans 511 282
Principal payment on long term debt (29) (27)
Dividends paid (4) (358)
---------- ----------
Net Cash Provided by Financing Activities 8,283 54,350
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (13,294) 35,313
Cash and Cash Equivalents at Beginning of Year 68,028 36,173
---------- ----------
Cash and Cash Equivalents
at September 30, 1996 & 1995 $ 54,734 $ 71,486
========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
1996 1995
<S> <C> <C>
Net Income $ 2,928 $ 2,586
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation and amortization 797 457
Provision for possible credit losses 1,747 1,669
(Gain) loss on disposition of property,
plant & equipment (37) (107)
(Increase) decrease in taxes payable (3) (267)
(Increase) decrease in other assets (285) (1,022)
Increase (decrease) in interest receivable 442 (497)
(Increase) decrease in interest payable (407) 186
Increase (decrease) in fees and other
receivables (318) (205)
(Increase) decrease in accrued expenses
and other liabilities 775 (89)
Gain on sale of investments and other assets (82) (50)
---------- ----------
Total Adjustments 2,629 75
---------- ----------
Net Cash Provided by Operating Activities $ 5,557 $ 2,661
========== ==========
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)
(dollars in thousands)
SEPTEMBER 30, 1996 AND 1995
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, 1995. The results of operations for the three month period ended
September 30, 1996 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 the three and nine month
periods ended September 30, 1996 and 1995.
Nine Months Ended September 30, Three months Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Data processing $ 662 $ 676 $ 212 $ 273
Marketing expenses 583 561 212 275
Office supplies, postage
and telephone 771 808 234 288
Bank insurance & assessment 436 761 142 169
Professional expenses 640 726 188 205
Litigation Settlement Costs 495 - - -
Provision for OREO loss 195 850 25 290
Other expenses 1,910 1,368 648 515
------- ------- ------- -------
Total Other Expenses $ 5,692 $ 5,750 $ 1,661 $ 2,015
======= ======= ======= =======
</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
4,402,531 in 1996 and 4,338,479 in 1995. The weighted average number of shares
for 1995 has been adjusted for the 10% stock dividends in 1995 and 1996.
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, 1996.
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, 1996.
The estimated fair value of the Bank's financial instruments are as follows:
SEPTEMBER 30, 1996
Carrying Amount Fair Value
--------------- --------------
Financial Assets (dollars in thousands)
Cash 60,561 60,561
Investment securities 33,182 33,178
Real estate loans 20,847 20,614
Installment loans 13,530 13,550
Commercial loans 253,132 251,712
Direct lease financing 2,525 2,525
Financial Liabilities
Deposits 368,903 369,129
Long term debt 179 179
Unrecognized Financial Instruments
Commitments to extend credit 34,950 34,950
Standby letters of credit 1,588 1,588
<PAGE>
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 and investment securities, and the interest paid on
interest-bearing liabilities, principally deposits. Net interest income is
affected by changes in prevailing market rates of interest and in the mix of
interest-earning assets and interest-bearing liabilities of the bank.
Generally, a bank realizes higher earnings, or yields, on loans than it does on
investment securities, Federal funds sold and funds held on deposit with
other depository institutions; and a bank pays no interest on demand
deposits and interest at lesser rates on savings and money market deposits
than it does on time certificates of deposit ("Time Deposits").
In the third quarter of 1996, net interest income increased by
$915,000 or 15.7%, as compared to the same quarter of 1995. That
increase in net interest income was primarily attributable to (i) an increase
in interest earned on loans, which more than offset decreases in interest
earned on investment securities and federal funds sold, and (ii) a 16.5%
decline in interest paid on deposits. The increase in interest earned on loans
was due to increased lending activity which resulted in an 11.2% increase in
the average volume of outstanding loans during the quarter, which was
funded primarily with proceeds from maturing investment securities to take
advantage of the higher yields that are available on loans. The decline in
interest expense in the third quarter of 1996 was due primarily to a
reduction in interest rates offered by the Bank on, and a 21.4% decline in
the average volume of, Time Deposits during that quarter.
In the nine months ended September 30, 1996, net interest income
increased by $1,261,000 or 7.1% as compared to the same period of 1995.
That increase in net interest income was primarily attributable to increases
in interest earned on loans and investment securities, due primarily to
increases in the volume of outstanding loans and in the average volume of
outstanding investment securities of 9.9% and 7.7%, respectively. The
increase in interest income more than offset a $352,000 or 5.0% increase in
interest expense that resulted primarily from increases in the volume of
savings and money market deposits, as interest paid on Time Deposits
during the first nine months of 1996 increased by less than 1%.
During the nine months ended September 30, 1996, demand,
savings and money market deposits increased by $21,739,000, or 18.1%,
from the volume of those deposits outstanding at December 31, 1995: while
during that same period, Time Deposits in denominations of $100,000 or
more, on which the Bank pays interest at its highest rates, declined by
$10,034,000 or 16.3%. The shift in deposit mix to a greater percentage of
demand, savings and money market deposits resulted in increases in the
Bank's net interest margin (i.e., net interest income expressed as a
percentage of interest income) during the quarter and nine months ended
September 30, 1996, to 72.0% and 74.3%, respectively, from 71.6% and
67.7%, in the same periods of 1995.
Provision for Possible Loan Losses. The Bank maintains a reserve
for possible losses on loans (the "Loan Loss Reserve" or the "Reserve") that
occur from time to time as an incidental part of the banking business.
Write-offs and reductions in the values of non-performing loans carried on
the books of the Bank, due to actual or 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 and leases
and increases in the risk of potential losses due to a deterioration in the
condition of borrowers, in the value of property securing non-performing
loans or in local or 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 $722,000 in the third quarter of 1996, as
compared to $170,000 in the corresponding quarter of 1995. For the first
nine months of 1996 the provision for potential loan and lease losses,
inclusive of the provision made in the third quarter, totaled $1,747,000, as
compared to $1,670,000 for the first nine months of 1995. The Loan Loss
Reserve was $4,235,000, or 1.4% of total loans and leases outstanding at
September 30, 1996, as compared to $3,145,000, or 1.3% of total loans and
leases outstanding at September 30, 1995. Net loan charge-offs aggregated
$1,156,000, or forty-two hundredths of one percent (0.42%) of average
loans and leases outstanding, for the nine months ended September 30,
1996. This compares to net loan charge-offs of $1,091,000, or forty-four
hundredths of one percent (0.44%) of average loans and leases outstanding,
for the nine months ended September 30, 1995.
Other Income. Other income increased by $330,000 or 32.3% and
$504,000 or 14.8%, respectively, in the quarter and nine months ended
September 30, 1996, as compared to the same periods of 1995, primarily as
a result of increases in fees and service charges that were attributable
primarily to increases in the volume of deposit and other banking
transactions.
Other Expense. Other expense, consists primarily of (i) salaries and
other employee expenses, (ii) occupancy and furniture and equipment
expenses, and (iii) other operating and miscellaneous expenses that include
insurance premiums, marketing expenses, data processing costs and charges
that are periodically made against income to establish reserves for possible
losses on the disposition of real properties acquired on or in lieu of
foreclosure of defaulted loans (commonly referred to as "other real estate
owned" or "OREO"). Other expense increased by approximately $221,000
or 4.2% and $1,055,000 or 6.9%, respectively, for the quarter and nine
months ended September 30, 1996, as compared to the same periods of
1995, due primarily to (i) increases in salaries and other employee benefits
of $471,000 or 19.3%, and $833,000 or 11.6%, respectively, for the
quarter and nine months ended September 30, 1996, that were for the most
part attributable to staffing requirements for two new banking offices
opened by the Bank, respectively, in Corona, California in the third quarter
of 1995 and in Chino Hills, California in the first quarter of 1996 and (ii)
non-recurring payments aggregating $495,000 in the nine month period
ended September 30, 1996, made to settle a lawsuit in the first quarter of
1996. These increases were partially offset by a $655,000 reduction, during
the nine months ended September 30, 1996, in the provision for possible
losses on other real estate owned that was made possible by the disposition
of certain of the OREO properties subsequent to the second quarter of 1995
and a determination by the Bank's management that, after giving effect to
those dispositions, reserves for OREO were adequate. Despite the increases
in the dollar amounts of other expense, as a percentage of operating income
(net interest income plus other income) other expense declined from 76.7%
to 67.7% in the quarter ended September 30, 1996, and from 72.5% to
71.5% in the nine months ended September 30, 1996, in each case as
compared to the corresponding period of 1995.
Financial Condition and Liquidity
During the nine months ended September 30, 1996, the Company's
total assets increased by approximately $11,198,000 or 2.8%, due to an
increase in the average volume of outstanding loans and leases . At
September 30, 1996 the Company had adequate cash resources with
approximately $38,161,000 of cash held on deposit at other financial
institutions, $33,182,000 of investment securities and $22,400,000 in
Federal funds sold.
During the latter half of 1995 and continuing into the first quarter of
1996, the Bank conducted marketing programs designed to attract Time
Deposits in order to increase the Bank's liquidity. As a result, the average
volume of Time Deposits in denominations of $100,000 or more ("TCDs"),
which bear interest at rates higher than any other types of deposits at the
Bank, increased by approximately $14,959,000 during the six months ended
December 31, 1995. TCDs often 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 such deposits primarily from existing
customers in its local market areas and not to rely on "brokered" deposits,
which tend to be more interest-sensitive and volatile.
Beginning in the first quarter of 1996, the Bank initiated new
marketing programs designed to increase the volume of demand, savings
and NOW deposits, which are either non-interest bearing or bear interest at
rates which are substantially lower than those paid on Time Deposits. At
the same time, the Bank began reducing the interest rates it offered on
TCDs and other Time Deposits to discourage renewals of existing and
purchases of new Time Deposits by customers and, thereby, reduce the
volume of those deposits at the Bank. As a result, the volume of demand
deposits and savings deposits at the Bank had increased by $12,966,000 and
$21,739,000, respectively, at September 30, 1996 from the volumes of
those deposits that were outstanding at December 31, 1995 and demand
deposits, as a percentage of total deposits, had increased to 29.7% at
September 30, 1996 as compared to 26.7% at December 31, 1995. By
contrast, at September 30, 1996 the volume of TCDs had decreased by
$26,916,000 or 19.8%, from the volume outstanding at December 31,
1995.
During 1995, the Board of Directors made the decision to
discontinue the payment of cash dividends in order to retain internally
generated funds to support the growth of the Bank. In addition to the two
new offices opened during 1995, the Bank opened its eleventh office, in
Chino Hills, California on March 25, 1996. During the first quarter of
1996, the Company declared its second 10% stock dividend in two years,
which was distributed on April 5, 1996 and for accounting purposes was
recorded as a $3,571,560 reduction in retained earnings, offset by a
corresponding $3,571,560 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 and the retention of internally generated funds, the Company's
shareholders' equity increased by $3,196,000 to $34,238,000 at September
30, 1996, as compared to $31,042,000 at December 31, 1995. As a result
of these increases the Bank's "Tier 1 capital ratio" (the ratio of total
shareholders' equity-to-total average assets) rose to 8.32% at September 30,
1996, as compared to 7.77% at December 31, 1995, and continued to be
above the minimum bank regulatory requirement of 6% that is applicable to
the Bank.
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, 1996 was 11.90%, which is
well in excess of the minimum ratio required by these regulations.
Under accounting principles that became applicable to the Company
in 1994 that address the financial reporting requirements for investments in
certain equity and debt securities held by financial institutions, the Company
is required to report the unrealized gain or loss on securities that are held
for sale and certain other equity securities. Since any such gains or losses
are unrealized, and any actual gain or loss will not be determined unless and
until there is a sale or other disposition of the securities, any unrealized
gain is required to be credited to, and any unrealized losses are required to be
charged against, stockholders' equity, rather than being reflected as income
or loss for income statement purposes. At September 30, 1996, the
Company recorded a valuation reserve for unrealized losses on such
securities aggregating approximately $441,000. Of this amount, $373,000
related to certain investments in mutual funds, which are classified as
investments in marketable equity securities, and which the Company has
held for several years and intends to continue to hold for the foreseeable
future.
PART II - OTHER INFORMATION
ITEM 6, EXHIBITS AND REPORTS ON FORM 8-K
(A) 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, 1996 FOOTHILL
INDEPENDENT BANCORP
By:
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, 1996 AND THE STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH BALANCE SHEET AND STATEMENT OF INCOME AND THE NOTES
THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 32,334
<INT-BEARING-DEPOSITS> 5,827
<FED-FUNDS-SOLD> 22,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,405
<INVESTMENTS-CARRYING> 7,777
<INVESTMENTS-MARKET> 7,773
<LOANS> 294,268
<ALLOWANCE> (4,235)
<TOTAL-ASSETS> 406,379
<DEPOSITS> 368,903
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,059
<LONG-TERM> 179
0
0
<COMMON> 14,872
<OTHER-SE> 19,366
<TOTAL-LIABILITIES-AND-EQUITY> 406,379
<INTEREST-LOAN> 23,087
<INTEREST-INVEST> 3,167
<INTEREST-OTHER> 93
<INTEREST-TOTAL> 26,347
<INTEREST-DEPOSIT> 7,360
<INTEREST-EXPENSE> 7,375
<INTEREST-INCOME-NET> 18,972
<LOAN-LOSSES> 1,747
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,356
<INCOME-PRETAX> 4,775
<INCOME-PRE-EXTRAORDINARY> 4,775
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,928
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
