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 March 31, 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.
4,377,164 shares of Common Stock
as of April 29, 19965
<PAGE>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1996 DECEMBER 31, 1995
<S> <C> <C>
Cash and due from banks $ 32,107,084 $ 26,277,669
Federal funds sold 20,750,000 41,750,000
------------ ------------
Total Cash and Cash Equivalents 52,857,084 68,027,669
------------ ------------
Interest-bearing deposits in other
financial institutions 9,196,000 6,433,209
------------ ------------
Investment Securities Held-To-Maturity
(approximate market value $17,235,370
in 1996 and $23,582,008 in 1995)
U.S. Treasury 4,179,801 4,958,323
U.S. Government Agencies 9,297,512 14,777,382
Municipal Agencies 3,497,718 3,505,503
Other Securities 250,000 250,000
------------ ------------
Total Investment Securities
Held-To-Maturity 17,225,031 18,743,254
------------ ------------
Investment Securities Available-For-Sale 40,010,847 18,743,254
------------ ------------
Loans, net of unearned discount and
prepaid points and fees 264,589,085 259,067,800
Direct lease financing 1,970,902 2,086,233
Less reserve for possible loan
and lease losses (3,980,645) (3,643,594)
------------ ------------
Total Loans & Leases, net 262,579,342 257,510,439
------------ ------------
Bank premises and equipment 7,671,601 7,352,380
Accrued interest 2,534,761 2,850,334
Other real estate owned, net of allowance
for possible losses of $789,421 in 1996
and $909,351 in 1995 4,454,886 3,878,891
Cash surrender value of life insurance 3,214,987 2,850,334
Prepaid expenses 728,155 916,481
Deferred income taxes 1,607,278 1,607,278
Other assets 1,008,167 1,220,343
------------ ------------
TOTAL ASSETS $403,088,139 $395,180,848
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Deposits
Demand deposits $102,203,592 $ 96,478,018
Savings and NOW deposits 83,701,835 78,143,475
Money market deposits 49,934,249 48,783,730
Time deposits in denominations of
$100,000 or more 59,787,858 61,457,272
Other time deposits 72,994,227 76,251,030
------------ ------------
Total deposits 368,621,761 361,113,525
Accrued employee benefits 1,175,535 1,195,123
Accrued interest and other liabilities 1,308,808 1,621,672
Long-term debt 198,751 208,488
------------ ------------
Total Liabilities 371,304,855 364,138,808
------------ ------------
Stockholders' Equity
Stock dividend to be distributed 3,571,560 -
Contributed capital
Capital stock-authorized 12,500,000
shares without par value; issued and
outstanding 3,973,427 shares in 1996
and 3,566,005 in 1995 10,940,226 10,788,474
Additional Paid-in Capital 455,997 455,997
Retained Earnings 17,250,689 19,999,433
Valuation Allowance for Investments (435,188) (201,864)
------------ ------------
Total Stockholders' Equity 31,783,284 31,042,040
------------ ------------
Total Liabilities and
Stockholders' Equity $403,088,139 $395,180,848
============ ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31,
1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,249,737 $ 6,727,834
Interest on investment securities
U.S. Treasury 60,094 174,576
Obligations of other U.S. government
agencies 446,392 181,453
Municipal agencies 106,202 23,037
Other securities 51,673 34,267
Interest on deposits 111,336 16,941
Interest on Federal funds sold 334,196 254,150
Lease financing income 31,476 49,219
---------- ----------
Total Interest Income 8,763,516 7,768,739
---------- ----------
INTEREST EXPENSE
Interest on savings & NOW deposits 298,262 309,874
Interest on money market deposits 393,715 280,658
Interest on time deposits in denominations
of $100,000 or more 929,303 602,478
Interest on other time deposits 1,014,525 665,231
Interest on borrowings 5,132 18,637
---------- ----------
Total Interest Expense 2,640,937 1,876,878
---------- ----------
Net Interest Income 6,122,579 5,891,861
PROVISION FOR LOAN AND LEASE LOSSES 490,000 630,000
---------- ----------
Net Interest Income After Provisions
for Loan and Lease Losses 5,632,579 5,261,861
---------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
OTHER INCOME
Fees and service charges 1,179,805 1,071,182
Other 66,622 163,461
---------- ----------
Total other income 1,246,427 1,234,643
---------- ----------
OTHER EXPENSES
Salaries and benefits 2,504,725 2,273,719
Occupancy expenses, net of revenue
of $31,061 in 1996 and $30,546 in 1995 508,498 441,141
Furniture and equipment expenses 342,862 314,457
Other expenses (Note 2) 2,197,370 2,204,890
---------- ----------
Total other expenses 5,553,455 5,234,207
---------- ----------
INCOME BEFORE INCOME TAXES 1,325,551 1,262,297
---------- ----------
INCOME TAXES
Current payable 502,735 481,275
Deferred 0 0
---------- ----------
Total income taxes 502,735 481,275
---------- ----------
NET INCOME $ 822,816 $ 781,022
========== ==========
EARNINGS PER SHARE OF COMMON STOCK $0.19 $0.18
(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)
THREE MONTHS ENDED MARCH 31, 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 $ 7,439,924 $ 455,997 $ 19,361,463 $ (386,118) $ 26,871,266
10% stock dividend to be
distributed 5/1/95 2,941,925 (2,941,925) -
Exercise of stock options 6,300 39,000 39,000
Common stock issued under
employee benefit and dividend
reinvestment plans 12,140 99,665 99,665
Net income for three
months 781,022 781,022
Net unrealized loss on
marketable equity securities
available for sale 42,894 42,894
Change in net unrealized
loss on securities
available for sale 17,218 17,218
--------- ---------- -------- ----------- ---------- -----------
BALANCE, March 31, 1996 3,566,005 $10,520,514 $ 455,997 $ 17,200,560 $ (326,006) $ 27,851,065
========= ========== ======== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 3,955,761 $10,788,474 $ 455,997 $ 19,999,433 $ (201,864) $ 31,042,040
10% stock dividend to be
distributed 4/5/96 3,571,560 (3,571,560) -
Common stock issued under
employee benefit and
dividend reinvestment plans 17,666 151,752 151,752
Net income for the three
months 822,816 822,816
Net unrealized loss on
marketable equity
securities available for sale (87,117) (87,117)
Change in net unrealized
loss on securities available
for sale (146,207) (146,207)
--------- ---------- -------- ----------- --------- -----------
BALANCE, March 31, 1996 3,973,427 $14,511,786 $ 455,997 $ 17,250,689 $ (435,188) $ 31,783,284
========= ========== ======== =========== ========= ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
Cash Flows From Operating Activities:
Interest and fees received $ 9,112,605 $ 7,716,905
Service fees and other income received 1,187,597 1,099,092
Financing revenue received under leases 31,476 49,219
Interest paid (2,821,318) (1,961,733)
Cash paid to suppliers and employees (5,375,299) (5,508,178)
Income taxes paid (235,556) (415,968)
---------- ----------
Net Cash Provided by Operating Activities 1,899,505 979,337
---------- ----------
Cash Flows From Investing Activities:
Proceeds from maturity of investment
securities 60,320,000 11,840,000
Purchase of investment securities (75,681,360) (11,077,524)
Proceeds from maturity of deposits in
other financial institutions - 297,000
Purchase of deposits in other financial
institutions (2,762,791) (396,000)
Net (increase) decrease in credit card and
revolving credit receivables 100,600 87,125
Recoveries on loans previously written off 66,738 101,366
Net (increase) decrease in loans (5,842,442) 4,418,355
Net (increase) decrease in leases 160,908 337,901
Capital expenditures (1,170,697) (2,812,696)
Proceeds from sale of property, plant
and equipment 6,511 75,581
---------- ----------
Net Cash Used in Investing Activities (24,802,533) 2,871,108
---------- ----------
Cash Flows From Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts, savings accounts, and money
market deposits 12,516,645 7,442,678
Net increase (decrease) in certificates of
deposit with maturities of three months or less 68,278 (9,371,283)
Net increase (decrease) in certificates of
deposit with maturities of more than three
months (4,994,495) 13,935,866
Proceeds from exercise of stock options - 39,000
Proceeds from stock issued under employee
benefit and dividend reinvestment plans 151,752 99,665
Principal payment on long term debt (9,737) (8,814)
Dividends paid - (354,757)
---------- ----------
Net Cash Provided by Financing Activities 7,732,443 11,782,355
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (15,170,585) 15,632,800
Cash and Cash Equivalents at Beginning of Year 68,027,669 36,172,660
---------- ----------
Cash and Cash Equivalents at March 31, 1996 & 1995 $52,857,084 $51,805,460
========== ==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
1996 1995
<S> <C> <C>
Net Income $ 822,816 $ 781,022
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation and amortization 262,175 50,009
Provision for possible credit losses 490,000 630,000
(Gain) loss on disposition of property,
plant & equipment 6,795 (75,581)
(Increase) decrease in taxes payable 267,179 65,307
(Increase) decrease in other assets 354,925 317,828
Increase (decrease) in interest receivable 380,565 (2,615)
(Increase) decrease in interest payable (180,381) (84,855)
Increase (decrease) in fees and other
receivables (65,625) (59,970)
(Increase) decrease in accrued expenses
and other liabilities (438,944) (611,808)
Gain on sale of investments and other assets - (30,000)
---------- -----------
Total Adjustments 1,076,689 198,315
---------- -----------
Net Cash Provided by Operating Activities $ 1,899,505 $ 979,337
========== ==========
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)
MARCH 31, 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
March 31, 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 month periods
ended March 31, 1996.
Three Months Ended March 31,
1996 1995
<S> <C> <C>
Data processing $ 217,429 $ 217,723
Marketing expenses 217,048 116,846
Office supplies, postage
and telephone 283,365 234,519
Bank insurance & assessment 149,728 289,376
Professional expenses 214,985 259,243
Litigation Settlement Costs 452,500 -
Provision for OREO loss 90,000 570,000
Other expenses 572,315 517,183
----------- -----------
Total Other Expenses $ 2,197,370 $ 2,204,890
=========== ===========
</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
4,360,886 in 1996 and 4,301,953 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 March 31, 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 March 31, 1996.
The estimated fair value of the Bank's financial instruments are as follows:
MARCH 31, 1996
Carrying Amount Fair Value
--------------- --------------
Financial Assets
Cash 62,053,084 62,053,084
Investment securities 57,235,878 57,246,217
Real estate loans 28,005,533 28,005,533
Installment loans 12,794,757 12,908,757
Commercial loans 217,820,392 216,414,392
Direct lease financing 1,959,084 1,867,084
Financial Liabilities
Deposits 368,621,761 371,765,761
Long term debt 198,751 198,751
Unrecognized Financial Instruments
Commitments to extend credit 34,264,774 34,264,774
Standby letters of credit 1,920,263 1,920,263
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, Federal
funds sold, and deposits held at other financial institutions and
the interest paid on interest-bearing liabilities, principally
deposits. Net interest income increased by $231,000 or 4.0%, for
the three months ended March 31, 1996, as compared to the same
period in 1995. This increase was the result primarily of a
$995,000 increase in interest income that was attributable to a 9.5%
increase in the average volume of loans and leases, and a 56.5%
increase in the average volume of government securities and other
investments, that were outstanding during the first quarter of 1996.
The increase in interest income more than offset a $764,000
increase in interest expense that was primarily attributable to an
increase of $35,016,000, or 15%, in the average volume of interest-
bearing deposits outstanding during the three months ended March 31,
1996 as compared to the same three months of 1995. Increases in the
volume of time deposits, including both time deposits in
denominations of less than $100,000 and time certificates of
deposits in denominations of $100,000 or more ("Time Deposits"),
which generally bear higher rates of interest than other interest-
bearing deposits, accounted for approximately 80% of the increase in
the volume of outstanding interest bearing deposits.
The increases in the average volume of interest bearing
deposits were primarily the result of the Bank's internal growth and
marketing programs initiated in 1995 to increase the Bank's
liquidity. As a result, the additional funds generated by the
deposit growth were invested primarily in government securities and
other investments and, to a lesser extent, in new loans made by the
Bank. Since the Bank realizes somewhat lower yields on investment
securities, than it does on the loans that it makes, the change in
the mix of the Bank's earning assets to a higher proportion of
investment securities, together with the increase in the average
volume of the Time Deposits, caused the Bank's net interest margin
(i.e., net interest income expressed as a percentage of interest
income) to decline to 69.9% in the three months ended March 31, 1996
from 75.8% in the same three month period of 1995. However, the
Bank's net interest margin in the three months ended March 31, 1996
remained relatively unchanged from the Bank's net interest margin
for the immediately preceding three months ended December 31, 1995,
as a result of a decision by management, during the quarter ended
March 31, 1996, to allow outstanding Time Deposits to "run-off" as
they reached maturity, rather than to seek their renewal.
Consequently, the volume of Time Deposits outstanding at March 31,
1996 had declined by 3.6% as compared to the volume of such deposits
outstanding at December 31, 1995. At the same time, the outstanding
volume of demand, savings and money market deposits, on which the
Bank pays lower rates of interest than on Time Deposits, was 5.5%
higher at March 31, 1996 than at December 31, 1995.
Provision for Possible Loan Losses. The Bank maintains a
reserve for possible losses on loans or leases (the "Loan Loss
Reserve" or the "Reserve") that occur from time to time as a
incidental part of the banking business. Write-offs of loans and
leases (essentially reductions in or write-offs of 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 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 $490,000 for the first three months of
1996, as compared to $630,000 for the first three months of 1995,
and the Loan Loss Reserve was $3,981,000, or 1.5% of total loans and
leases outstanding, at March 1, 1996, as compared to $3,644,000, or
1.4% of total loans and leases outstanding, at March 1, 1995. The
decrease in the provision made in the first quarter of 1996, was due
primarily to a slowing in the growth of the Bank's volume of
outstanding loans and a determination by the Bank's management that
the amount of the Loan Loss Reserve was adequate in relation to the
volume and condition of the Bank's outstanding loans. Net loan
charge-offs aggregated $221,000, or eight hundredths of one percent
(0.08%) of average loans and leases outstanding, for the three
months ended March 31, 1996. This compares to loan charge-offs of
$268,000, or eleven hundredths of one percent (0.11%) of average
loans and leases outstanding, for the three months ended March 31,
1995.
Other Income. Other income increased by $12,000 or 1.0% in the
first three months of 1996, as compared to the same three months of
1995, as an increase of approximately $109,000 in fees and service
charges, attributable primarily to an increase in the volume of
deposit and other banking transactions, was offset by (i) a $97,000
decrease in other income generated from the provision of ancillary
services by the Bank, including a $30,000 decline in fees generated
from sales of SBA loans, and (ii) the fact that other income in the
first quarter of 1995 benefitted from a one-time gain of $62,000
from a sale and leaseback of the facility at which the Bank's data
processing and service center is located.
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 approximately $319,000 or 6.1% during the quarter ended
March 31, 1996, as compared to the same quarter of 1995.
Contributing to this increase were (i) a $231,000 increase in
salaries and other employee benefits that was primarily attributable
to staffing requirements for the three new banking offices opened by
the Bank, respectively, in Glendale, California, in the first
quarter of 1995, Corona, California in the third quarter of 1995 and
Chino Hills, California in the first quarter of 1996; (ii) a
$100,000 increase in marketing expenses due to increased newspaper,
magazine and radio advertising, as well as other business
promotions, that were primarily designed to attract customers of
banks in its service areas that had been acquired by larger state-
wide banks; and (iii) payments aggregating $452,500 made in
settlement of certain outstanding litigation. These increases were
partially offset by a $480,000 reduction in the provision for
possible losses on other real estate owned, which is real property
that has been acquired by the Bank on or in lieu of foreclosure of
defaulted loans ("OREO"), that was made as a result of the
disposition of certain OREO properties subsequent to the first
quarter of 1995 and a determination by the Bank's management that
the current level of reserves for potential OREO losses was
adequate.
Provision for Income Taxes. The higher provision for income
taxes in the quarter ended March 31, 1996, as compared to the same
quarter of 1995, was the result of the increase in pre-tax earnings
in the quarter ended March 31, 1996.
Financial Condition and Liquidity
Between January 1, 1996 and March 31, 1996, the Company's total
assets increased by approximately $7,907,000 or 2.0%, which is a
lower rate of growth than in the four prior quarters of 1995 and
reflects the results of management's decision to reduce the Bank's
volume of Time Deposits, which had grown significantly in 1995
primarily as a result of programs designed to attract such deposits
to increase the Bank's liquidity. The Company continues to have
adequate cash resources with approximately $43,303,000 of cash held
on deposit at other financial institutions, $57,236,000 of
investment securities and $20,750,000 in Federal funds sold at
March 31, 1996.
During 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, which generally bear higher rates of interest than
other deposits. Often, Time Deposits in denominations over $100,000
("TCD's") 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. At March 31, 1996, the volume of TCD's had decreased by
$1,669,000, or 2.7%, from the volume outstanding at December 31,
1995, while demand deposits increased by $5,726,000 and savings and
NOW deposits increased by $6,709,000 at March 31, 1996 as compared
to the volume of those deposits 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 will be 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 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 $741,000 to $31,783,000 at
March 31, 1996, as compared to $31,042,000 at December 31, 1995. As
a result, the Bank's "Tier 1 capital ratio" (the ratio of total
shareholders' equity-to-total average assets) rose to 7.90% at
March 31, 1996, as compared to 7.77% at December 31, 1995, and
continued to be above the minimum bank regulatory requirements
applicable to the Bank of 6%.
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 March 31, 1996 was 11.44%, 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 March 31, 1996, the Company
recorded a valuation reserve for unrealized losses on such securities
aggregating approximately $435,000. Of this amount, $339,000 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:
Exhibits 27. Financial Data Schedule
(b) Reports on Form 8-K: None
<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 thereunto duly authorized.
Date: May 10, 1996 FOOTHILL INDEPENDENT BANCORP
By: /S/CAROL ANN GRAF
----------------------------
CAROL ANN GRAF
First Vice President
Chief Financial Officer
Assistant Secretary
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered Page
Exhibit 27. Financial Data Schedule 16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AS OF MARCH 31, 1996 AND THE STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 32,107
<INT-BEARING-DEPOSITS> 9,196
<FED-FUNDS-SOLD> 20,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,011
<INVESTMENTS-CARRYING> 17,225
<INVESTMENTS-MARKET> 17,235
<LOANS> 266,560
<ALLOWANCE> (3,981)
<TOTAL-ASSETS> 403,088
<DEPOSITS> 368,622
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,484
<LONG-TERM> 199
0
0
<COMMON> 14,512
<OTHER-SE> 17,271
<TOTAL-LIABILITIES-AND-EQUITY> 403,088
<INTEREST-LOAN> 7,622
<INTEREST-INVEST> 1,110
<INTEREST-OTHER> 32
<INTEREST-TOTAL> 8,764
<INTEREST-DEPOSIT> 2,636
<INTEREST-EXPENSE> 2,641
<INTEREST-INCOME-NET> 6,123
<LOAN-LOSSES> 490
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,553
<INCOME-PRETAX> 1,326
<INCOME-PRE-EXTRAORDINARY> 1,326
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 823
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<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>
