<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Act of 1934
Date of Report (Date of earliest event reported) April 1, 1996
FP BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-17650 33-0018976
(State or other (Commission (IRS Employer
jurisdiction) File No.) Identification No.)
613 West Valley Parkway, Escondido, California 92025-4929
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619)741-3312
n/a
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 1, 1996, FP Bancorp (the "Company") completed the previously announced
proposed merger of RB Bancorp and its wholly-owned subsidiary, The Bank of
Rancho Bernardo, with and into FP Bancorp's wholly-owned subsidiary, First
Pacific National Bank. The Bank of Rancho Bernardo was a state-chartered bank
with one office located in the community of Rancho Bernardo in North San Diego
County, California. The merger was consummated after obtaining all applicable
regulatory approvals and the approval of the shareholders of RB Bancorp on
February 16, 1996.
Pursuant to the merger agreement, shareholders of RB Bancorp received
$7,350,000 in cash for the exchange of all outstanding RB Bancorp shares.
$7,094,480 of the funds were provided from the liquidity of First Pacific
National Bank, and $255,520 of the funds were provided by a good faith deposit
made by the Company. The amount of consideration was determined by
negotiations between the Company and RB Bancorp.
Upon consummation of the merger, RB Bancorp and The Bank of Rancho Bernardo
ceased to exist and First Pacific National Bank continued as the surviving
entity. The combined institution had assets of approximately $270 million,
loans of $193 million and deposits of $240 million after the transaction.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
(1) RB Bancorp and Subsidiary Consolidated Financial Statements as of and
for the years ended December 31, 1995 and 1994. (Page 3.)
(2) Agreement and Plan of Reorganization by and among FP Bancorp, Inc.,
First Pacific National Bank, RB Bancorp and Bank of Rancho Bernardo.
(Incorporated by reference to Exhibit 10.22 to the Annual Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-KSB dated
December 31, 1995.)
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 hereunto duly authorized.
FP Bancorp, Inc.
(Registrant)
By /s/ Michael J. Perdue
-----------------
Michael J. Perdue
Executive Vice President and Chief Operating Officer
(Duly authorized officer and principal financial officer)
Dated: April 12, 1996
2
<PAGE> 3
RB BANCORP AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RB Bancorp
We have audited the accompanying consolidated balance sheets of RB Bancorp and
subsidiary (the Company) as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RB Bancorp and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Additionally, as discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for certain investments in 1994 to
adopt the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
March 8, 1996
4
<PAGE> 5
RB BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- ----------
<S> <C> <C>
Cash and due from banks (note 14) $ 3,264,000 2,532,000
Federal funds sold 5,725,000 2,762,000
Interest-bearing deposits 891,000 486,000
Investments:
Securities held-to-maturity (note 2) --- 3,294,000
Securities available-for-sale (note 3) 9,468,000 5,802,000
Loans, net of allowance for loan losses of $815,000 and $738,000 in 1995 and
1994, respectively (notes 4 and 12) 39,732,000 39,531,000
Other real estate owned (OREO), net (note 5) 55,000 337,000
Premises and equipment, net (note 6) 1,406,000 1,504,000
Other assets 516,000 446,000
----------- ----------
$61,057,000 56,694,000
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 7):
Non-interest bearing $10,717,000 11,323,000
Interest-bearing 44,452,000 40,418,000
----------- ----------
55,169,000 51,741,000
Accrued interest and other liabilities (note 9) 640,000 594,000
----------- ----------
Total liabilities 55,809,000 52,335,000
Stockholder's equity (notes 3, 10 and 16):
Preferred stock, $100 par value; authorized, issued and outstanding
23,358 shares in 1995 and 1994 2,336,000 2,336,000
Common stock, no par value; authorized 10,000,000 shares in 1995 and
1994; issued and outstanding 9,955 shares in 1995 and 1994 83,000 83,000
Retained earnings 2,769,000 2,018,000
Unrealized gain (loss) on securities available-for-sale,
net of tax effect 60,000 (78,000)
----------- ----------
Total stockholders' equity 5,248,000 4,359,000
Commitments and contingencies (notes 11, 12, 13, 14, 15 and 16)
$61,057,000 56,694,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
RB BANCORP AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans $4,117,000 3,658,000
Interest on federal funds sold 300,000 131,000
Interest on investments:
Held-to-maturity 142,000 153,000
Available-for-sale 399,000 289,000
Other interest income 17,000 9,000
---------- ---------
4,975,000 4,240,000
Interest expense - deposits (note 7) 1,657,000 1,102,000
---------- ---------
Net interest income 3,318,000 3,138,000
Provision for loan losses (note 4) 54,000 210,000
---------- ---------
Net interest income after provision for loan losses 3,264,000 2,928,000
---------- ---------
Other operating income:
Data processing 91,000 96,000
Service charges 171,000 202,000
Other 200,000 123,000
---------- ---------
462,000 421,000
---------- ---------
Other operating expenses:
Salaries and employee benefits 1,324,000 1,192,000
Premises and occupancy expense 361,000 359,000
Professional services 362,000 214,000
Office and communications 118,000 124,000
Data processing 107,000 105,000
FDIC assessment 76,000 129,000
OREO expense, net 23,000 159,000
Other 221,000 241,000
---------- ---------
Total other operating expenses 2,592,000 2,523,000
---------- ---------
Earnings before income taxes 1,134,000 826,000
Income taxes (note 9) 383,000 345,000
---------- ---------
Net earnings $ 751,000 481,000
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
RB BANCORP AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
SECURITIES
AVAILABLE-
FOR-SALE
PREFERRED PREFERRED COMMON COMMON RETAINED (NET OF
SHARES STOCK SHARES STOCK EARNINGS TAX EFFECT) TOTAL
--------- ---------- ------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 23,499 $2,350,000 10,000 $84,000 1,535,000 -- 3,969,000
Repurchase and
retirement of
preferred and
common stock (141) (14,000) (45) (1,000) 2,000 -- (13,000)
Unrealized loss on
securities
available-for-sale -- -- -- -- -- (78,000) (78,000)
(net of tax effect)
Net earnings -- -- -- -- 481,000 -- 481,000
-------- ---------- -------- ---------- --------- ---------- ----------
Balance,
December 31, 1994 23,358 2,336,000 9,955 83,000 2,018,000 (78,000) 4,359,000
Change in
unrealized
gain (loss) on
securities -- -- -- -- -- 138,000 138,000
available-for-sale
(net of tax
effect)
Net earnings -- -- -- -- 751,000 -- 751,000
-------- ---------- -------- ---------- --------- ---------- ---------
Balance,
December 31, 1995 23,358 $2,336,000 9,955 $83,000 2,769,000 60,000 5,248,000
======== ========== ======== ========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
RB BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 751,000 481,000
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for loan losses 54,000 210,000
Provision for losses on other real estate owned 14,000 123,000
Depreciation and amortization 174,000 187,000
Loss (gain) on sale of securities available-for-sale 9,000 (1,000)
Provision for deferred income taxes (71,000) 20,000
Increase in other assets (76,000) (60,000)
Increase in accrued interest and other liabilities 46,000 29,000
(Decrease) increase in deferred loan fees (12,000) 2,000
Gain on sale of real estate owned (2,000) (39,000)
----------- -----------
Net cash provided by operating activities 887,000 952,000
----------- -----------
Cash flows from investing activities:
Net increase in loans (440,000) (6,530,000)
Maturities of securities held-to-maturity 1,650,000 --
Purchase of securities held-to-maturity (1,592,000) (1,014,000)
Proceeds from sale of securities available-for-sale 1,121,000 3,179,000
Purchase of securities available-for-sale (4,987,000) (1,083,000)
Maturities of securities available-for-sale 3,650,000 750,000
Net (increase) decrease in interest-bearing deposits
in financial institutions (405,000) 104,000
Net additions to premises and equipment (60,000) (293,000)
Proceeds from sale of other real estate owned 443,000 838,000
------------- -----------
Net cash used in investing activities (620,000) (4,049,000)
------------- -----------
Cash flows from financing activities:
Net increase in deposits 3,428,000 846,000
Purchase and retirement of preferred and common stock -- (13,000)
------------- -----------
Net cash provided by financing activities 3,428,000 833,000
------------- -----------
Net increase (decrease) in cash and cash equivalents 3,695,000 (2,264,000)
Cash and cash equivalents at beginning of year 5,294,000 7,558,000
------------- ------------
Cash and cash equivalents at end of year $8,989,000 5,294,000
============= ============
</TABLE>
(Continued)
8
<PAGE> 9
RB BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,633,000 1,093,000
=========== =========
Taxes $ 364,000 152,000
========== ---------
Supplemental disclosure of noncash investing and financing activities:
Transfer from loans to other real estate owned $ 321,000 1,259,000
========== =========
Transfer of securities to available-for-sale from held-to-maturity $3,230,000 8,781,000
========== =========
Loans originated to facilitate the sale of other real estate owned $ 148,000 --
========== =========
Unrealized (gain) loss on securities available-for-sale before tax effect of
($43,000) and $55,000 at December 31, 1995 and 1994,
respectively $(103,000) 133,000
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Through its wholly-owned subsidiary, the Bank of Rancho Bernardo (the
"Bank"), RB Bancorp serves the commercial industrial, professional,
construction and individual markets of San Diego County. The accounting
and reporting policies of RB Bancorp and its subsidiary conform to
generally accepted accounting principles and to general practices within
the banking industry. The following is a description of the more
significant of these policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of RB Bancorp
(the "Parent") and its wholly-owned subsidiary, the Bank of Rancho
Bernardo, collectively (the "Company"). All significant intercompany
accounts and transactions have been eliminated.
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
Investments consist of government securities. Government securities are
stated at cost, adjusted for amortization of premiums and accretion of
discounts over the period to maturity of the related security. Gains and
losses realized from the sale of securities are determined using the
specific identification method and are accounted for on a trade date
basis.
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
(Statement No. 115), management determines the appropriate classification
of securities at the time of purchase. If management has the intent and
the Company has the ability at the time of purchase to hold securities
until maturity, they are classified as held-to-maturity. Securities
held-to-maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts over the period to maturity of the
related security. Securities to be held for indefinite periods of time,
but not necessarily to be held-to-maturity or on a long-term basis are
classified as available-for-sale and carried at fair value with
unrealized gains or losses reported as a separate component of equity.
Realized gains or losses on the sale of securities available-for-sale, if
any, are determined using the adjusted cost of the specific securities
sold. Securities held for indefinite periods of time include securities
that management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates,
prepayment risk and other related factors. Declines in market value
determined to be other than temporary are reported as losses on the
statement of earnings with a corresponding reduction in the carrying
value of the security in the year of identification. Effective January 1,
1994, the Company adopted Statement No. 115. The impact of adopting
Statement No. 115 did not have a material impact on the consolidated
financial condition or results of operations.
LOANS
Interest on loans is accrued as earned. The accrual of interest on loans
is generally discontinued when the loan becomes 90 days past due or when,
in management's judgment, a reasonable doubt exists as to the
collectibility of accrued interest in the normal course of business.
Nonaccrual loans that become current as to both principal and interest
can be returned to accrual status subject to appropriate management
approval.
10
<PAGE> 11
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Nonrefundable fees and related direct costs associated with the
origination or purchase of loans are deferred and netted against
outstanding loan balances. The net deferred fees and costs are recognized
as interest income over the term of the loan using a method which
approximates the interest method.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level deemed appropriate
by management to provide adequately for known and inherent risks in the
loan portfolio and other extensions of credit, including off-balance
sheet credit extensions. The allowance is based upon a continuing review
of the portfolio, past loan loss experience, the current economic
conditions which may affect the borrower's ability to pay, and the
underlying collateral value of the loans. Loans which are deemed to be
uncollectible are charged off and deducted from the allowance. The
provision for loan losses and recoveries on loans previously charged off
are added to the allowance.
The allowance for loan losses is subjective and may be adjusted in the
future because of changes in economic conditions. Additionally,
regulatory examiners may require the Company to recognize additions to
the allowances based upon their judgment about information available to
them at the time of their examination.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting
by Creditors for Impairment of a Loan" (Statement No. 114) and in October
1994, the FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" (Statement No.
118). Under the provisions of Statement No. 114, a loan is considered
impaired when it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
Statement No. 114 defines methods of measuring impairment and, if the
measure of the impaired loan is less than the recorded investment in the
loan, it requires a creditor to create a valuation allowance with a
corresponding charge to bad debt expense. Statement 114 applies to all
loans except large groups of smaller-balance homogeneous loans which are
collectively evaluated. Statement No. 118 amends Statement No. 114 to
allow a creditor to use existing methods for recognizing interest income
on impaired loans. Effective January 1, 1995, the Company adopted
Statements No. 114 and No. 118 on a prospective basis and the adoption
had no material impact on the Company's consolidated financial condition
or results of operations. Through its internal asset review function, the
Bank measures its impaired loans by using the fair value of the
collateral if the loan is collateral-dependent and the present value of
the expected future cash flows discounted at the loan's effective
interest rate if the loan is not collateral-dependent.
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure is carried at fair value. Fair value
is based on current appraisals less estimated selling costs. Write-downs
to fair value at the time of acquisition of the real estate are made by a
charge to the allowance for loan losses, if necessary. Any subsequent
write-downs are recognized as a valuation allowance on other real estate
owned. Operating expenses of such properties, net of related income, are
included in real estate owned expenses.
11
<PAGE> 12
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation on the Company's building and furniture, fixtures and
equipment is computed using the straight-line method over the estimated
useful lives of the related assets, which range from five to thirty
years. Expenditures for maintenance and repairs are charged to expense.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement
No. 109). Statement No. 109 requires the use of the asset and liability
method of accounting for taxes. Under the asset and liability method of
Statement No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under Statement No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
INTANGIBLES
Goodwill is amortized on a straight-line basis over an estimated useful
life of twenty years.
STATEMENTS OF CASH FLOWS
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 sold are purchased and sold for one-day periods.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (Statement No. 121).
Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition,
Statement No. 121 requires that long-lived assets and certain identified
intangibles to be disposed of be reported at the lower of carrying amount
or fair value less costs to sell. Statement No. 121 must be adopted for
financial statements for fiscal years beginning after December 15, 1995.
The impact on the Company of adopting Statement No. 121 is not expected
to be material.
RECLASSIFICATIONS
Certain 1994 items have been reclassified to conform to the 1995
presentation.
12
<PAGE> 13
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) SECURITIES HELD-TO-MATURITY
No securities were classified by the Company as held-to-maturity at
December 31, 1995. The carrying amounts of securities held-to-maturity
and their approximate market values at December 31 1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Treasury $2,959,000 5,000 51,000 2,913,000
U.S. government agencies 200,000 -- 5,000 195,000
Municipal securities 135,000 -- -- 135,000
------------- ------------ ---------------- --------------
$3,294,000 5,000 56,000 3,243,000
============= ============ ================ ==============
</TABLE>
Securities of approximately $1,160,000 at December 31, 1994 were pledged
to secure public deposits and for other purposes required or permitted by
law.
In November 1995, the FASB issued a special report called "A Guide to
Implementation of Statement 115 in Accounting for Certain Investments in
Debt and Equity Securities" (the "Guide"). In accordance with the
provisions of the Guide, the Company elected to reclassify certain of its
securities from held-to-maturity to available-for-sale. On December 28,
1995, the Company reclassified $3,230,000 from securities
held-to-maturity to securities available-for-sale.
(3) SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury $3,502,000 56,000 2,000 3,556,000
U.S. government agencies 4,986,000 39,000 2,000 5,023,000
Debt securities issued by
states of U.S. and
political subdivisions 877,000 12,000 -- 889,000
------------- ---------- ----------- ----------
$9,365,000 107,000 4,000 9,468,000
============= ========== ============ ==========
</TABLE>
13
<PAGE> 14
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Treasury $3,552,000 -- 44,000 3,508,000
U.S. government agencies 2,383,000 -- 89,000 2,294,000
------------- ------------ ------------ ------------
$5,935,000 -- 133,000 5,802,000
============= ============ ============ ============
</TABLE>
Securities of approximately $3,200,000 and $1,651,000 at December 31,
1995 and 1994, respectively, were pledged to secure public deposits and
for other purposes required or permitted by law.
The maturity distribution based on amortized cost and approximate market
value at December 31, 1995 by contractual maturity is as follows:
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
--------------------------------
AMORTIZED APPROXIMATE
COST MARKET VALUE
---------- ------------
<S> <C> <C>
Due in one year or less $2,909,000 2,923,000
Due from one to five years 6,456,000 6,545,000
---------- ------------
$9,365,000 9,468,000
========== ============
</TABLE>
Proceeds from the sale of securities available-for-sale were $1,121,000
and $3,179,000 during 1995 and 1994, respectively. Gross losses of $9,000
were realized on those sales during 1995. Gross gains of $2,000 and gross
losses of $1,000 were realized on those sales during 1994.
(4) LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES
A summary of loans at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- ----------
<S> <C> <C>
Real estate and construction $20,556,000 20,417,000
Commercial 15,649,000 15,046,000
Installment 4,437,000 4,913,000
Deferred loan fees (95,000) (107,000)
-------------- ----------
40,547,000 40,269,000
Less allowance for loan losses (815,000) (738,000)
-------------- ----------
$39,732,000 39,531,000
============== ==========
</TABLE>
14
<PAGE> 15
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
In the ordinary course of business, the Bank has made loans to certain
officers and directors or their affiliates under terms consistent with
the Bank's general lending policies. Loan activity to these individuals
is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Balance, beginning of year $1,518,000 1,052,000
New loans 409,000 711,000
Repayments (1,037,000) (245,000)
----------- ----------
Balance, end of year $ 890,000 1,518,000
=========== ==========
</TABLE>
The Bank has commitments to these officers and directors or their
affiliates totaling approximately $251,000 at December 31, 1995.
The Company's loan portfolio consists primarily of loans to borrowers
within San Diego County. Although the Bank seeks to avoid undue
concentrations of loans to a single industry or based upon a single class
of collateral, real estate and real estate associated businesses are
among the principal industries in the Bank's market area and, as a
result, the Bank's loan and collateral portfolios are to some degree
concentrated in those industries. The Bank evaluates each credit on an
individual basis and determines collateral requirements accordingly. When
real estate is taken as collateral, advances are generally limited to a
certain percentage of the appraised value of the collateral at the time
the loan is made, depending on the type of loan, the underlying property
and other factors.
The Company has established a monitoring system for its loans in order to
identify impaired loans, potential problem loans and to permit the
periodic evaluation of impairment and the adequacy of the allowance for
loan losses in a timely manner. The measurement of impairment may be
based on (i) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate,
(ii) the observable market prices of the impaired loans or (iii) the fair
value of the collateral of a collateral-dependent loan. The amount by
which the recorded investment of the loan exceeds the measure of the
impaired loan is recognized by recording a valuation allowance with a
corresponding charge to the provision for loan losses. Impaired loans
included in the Company's loan portfolio at December 31, 1995 were
$568,000, which had an aggregate specific related allowance amount of
$96,000. During 1995, the average balance of impaired loans was $274,000
and $15,000 of interest was recognized on these loans in accordance with
Company policy.
A summary of activity in the allowance for loan losses, which includes
provisions for impaired loans, is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Balance, beginning of year $738,000 731,000
Provision charged to operating expense 54,000 210,000
Charge-offs, net of recoveries 23,000 (203,000)
-------- --------
Balance, end of year $815,000 738,000
======== ========
</TABLE>
15
<PAGE> 16
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
At December 31, 1995 and 1994, loans aggregating approximately $438,000
and $184,000, respectively, were on nonaccrual status. The interest that
would have been earned on these loans in 1995 and 1994 was approximately
$16,000 and $46,000, respectively. Interest income of $1,000 and $18,000
was recorded for loans on nonaccrual status at December 31, 1995 and
1994, respectively.
(5) OTHER REAL ESTATE OWNED
A summary of real estate acquired in settlement of loans by property type
is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ --------
<S> <C> <C>
Single-family $ -- 53,000
Vacant land 65,000 372,000
------------- --------
Total other real estate owned 65,000 425,000
Allowance for OREO (10,000) (88,000)
------------- --------
$ 55,000 337,000
============= ========
<CAPTION>
A summary of the activity in the allowance for OREO is as follows:
1995 1994
--------------- --------
<S> <C> <C>
Balance, beginning of year $ 88,000 --
Provisions charged to expense 14,000 123,000
Charge-offs (92,000) (35,000)
--------------- ---------
Balance, end of year $ 10,000 88,000
=============== =========
<CAPTION>
(6) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 consist of the
following:
1995 1994
----------- ---------
<S> <C> <C>
Building $ 1,604,000 1,604,000
Furniture, fixtures and equipment 1,423,000 1,525,000
----------- ---------
3,027,000 3,129,000
Less accumulated depreciation (1,621,000) (1,625,000)
----------- ---------
$ 1,406,000 1,504,000
=========== =========
</TABLE>
16
<PAGE> 17
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) DEPOSITS
A summary of interest-bearing deposits at December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Interest-bearing demand $23,658,000 25,475,000
Savings 6,121,000 3,558,000
Time deposits, $100,000 or more 4,312,000 3,704,000
Other time deposits 10,361,000 7,681,000
----------- ----------
$44,452,000 40,418,000
=========== ==========
<CAPTION>
Interest expense on deposits for 1995 and 1994 is comprised of
the following:
1995 1994
----------- ----------
<S> <C> <C>
Interest-bearing demand $ 661,000 629,000
Savings 180,000 94,000
Time deposits, $100,000 or more 262,000 114,000
Other time deposits 554,000 265,000
----------- ----------
$ 1,657,000 1,102,000
=========== ==========
<CAPTION>
The following summarizes the maturities of time deposits of $100,000 or
more at December 31, 1995:
<S> <C>
Three months or less $2,856,000
Over three months through six months 844,000
Over six months 612,000
----------
$4,312,000
==========
</TABLE>
As discussed in Notes 2 and 3, certain securities are pledged to secure
public deposits.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments" (Statement No. 107), requires that
the Company disclose estimated fair values for its financial instruments.
The following summary presents a description of the methodologies and
assumptions used to determine such amounts.
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS
The carrying amount is assumed to be the fair value because of the
liquidity of these instruments.
17
<PAGE> 18
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
SECURITIES
Fair values are based on quoted market prices available as of the balance
sheet date. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and further segmented into
fixed and adjustable rate interest terms and by credit risk categories.
The fair value of fixed rate loans and non-performing or adversely
classified adjustable rate loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the
loans. The discount rates used for performing fixed rate loans are the
Company's current offer rates for comparable instruments with similar
terms.
The fair value of performing adjustable rate loans is estimated to be
carrying value. These loans reprice frequently at market rates and the
credit risk is not considered to be greater than normal.
DEPOSIT LIABILITIES
Under Statement No. 107, the fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits, savings and NOW
accounts, and money market and checking accounts, is equal to the amount
payable on demand as of December 31, 1995. The fair value of time
certificates of deposit is based on the discounted value of contractual
cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities. No value has been
assigned to the Company's long-term relationships with its deposit
customers (core deposit intangible) since it is not a financial
instrument as defined under Statement No. 107.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. The fair value of letters of
credit is based on fees currently charged for similar agreements or on
the estimated cost to terminate them or otherwise settle the obligations
with the counterparties.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a portion of the Company's financial instruments, fair value
estimates are based on what management believes to be conservative
judgments regarding expected future cash flows, current economic
conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates. Since the fair value is estimated as of December
31, 1995, the amounts that will actually be realized or paid at
settlement or maturity of the instruments could be significantly
different.
18
<PAGE> 19
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The fair values of the Company's financial instruments at December 31,
1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR VALUE
AMOUNT ESTIMATES
--------------- -----------------
<S> <C> <C>
Financial assets:
Cash and due from banks and interest-bearing deposits
$ 4,155,000 4,155,000
Federal funds sold 5,725,000 5,725,000
Securities available-for-sale 9,468,000 9,468,000
Loans, net 39,732,000 39,621,000
Financial liabilities - deposits 55,169,000 55,174,000
Off-balance sheet financial instruments:
Commitments to extend credit 11,985,000 180,000
Standby letters of credit 212,000 4,000
</TABLE>
(9) INCOME TAXES
The components of income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Federal:
Current $ 321,000 293,000
Deferred (benefit) tax (63,000) 13,000
----------- --------
Total federal 258,000 306,000
State:
Current 115,000 87,000
Deferred (benefit) tax (8,000) 7,000
----------- --------
Total state 107,000 94,000
Change in valuation allowance
(25,000) --
Taxes allocated to stockholders' equity 43,000 (55,000)
----------- --------
Total income taxes $ 383,000 345,000
=========== ========
</TABLE>
19
<PAGE> 20
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
A reconciliation of total income taxes for the years ended December 31,
1995 and 1994 to the amount computed by applying the applicable statutory
federal income tax rate of 34% to earnings before income taxes is set
forth below:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Computed "expected" income taxes $386,000 281,000
Change in balance of the valuation allowance for deferred
tax assets (25,000) --
State franchise taxes, net of federal income tax benefit
79,000 62,000
Other, net (57,000) 2,000
-------- --------
Total income taxes $383,000 345,000
======== ========
Effective rate 34% 42%
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Nonaccrual interest recognized as income for taxes but
not for books $ 24,000 30,000
Loan loss allowance, due to differences in computation
of bad debts 54,000 29,000
State franchise taxes 35,000 27,000
Other 48,000 28,000
Unrealized loss on investments available-for-sale -- 55,000
-------- --------
Total gross deferred tax assets 161,000 169,000
Less valuation allowance -- (25,000)
-------- --------
Net deferred tax assets 161,000 144,000
-------- --------
Deferred tax liability:
Premises and equipment, principally due to differences
in depreciation (102,000) (84,000)
Difference related to acquisition of the Bank -- (76,000)
Provision for core deposit deduction (101,000) (165,000)
Unrealized gain on investments available-for-sale (43,000) --
-------- --------
Total gross deferred tax liability (246,000) (325,000)
-------- --------
Net deferred tax liability $(85,000) (181,000)
======== ========
</TABLE>
20
<PAGE> 21
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Management believes that the net deferred tax assets will be recovered
either as a deduction against future taxable income or through carryback
of the deduction to prior years' taxable income.
(10) STOCKHOLDERS' EQUITY
In 1984, the Company sold, through a private placement, 24,000 shares of
$100 par value noncumulative, nonparticipating preferred stock for
$2,400,000. The preferred stock may be redeemed at any time at the option
of the Board of Directors of the Company. The redemption price ranges
from $100 to $170 per share, depending on the year the preferred stock is
redeemed.
Shares redeemed by the Company shall not be reissued and cease to be part
of the authorized shares of the Company.
During 1995, the Company purchased no shares of the outstanding preferred
stock or shares of the outstanding common stock.
(11) EMPLOYEE BENEFITS
The Company provides a tax deferred investment program to all full-time
employees under Section 401(k) of the Internal Revenue Code. Under the
terms of the plan, the Bank contributes an amount which is computed based
upon the rate of return on average equity of the Bank. During 1994, the
amount was computed based upon the rate of return on beginning equity of
the Bank. The Bank's contributions to the plan for the years ended
December 31, 1995 and 1994 were $65,300 and $34,000, respectively.
(12) COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheets. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank
has with particular classes of financial instruments.
Commitments to extend credit amounting to $11,985,000 and $10,138,000
were outstanding at December 31, 1995 and 1994, respectively. Commitments
to extend credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit amounting to $212,000 and $319,000 were
outstanding at December 31, 1995 and 1994, respectively. Standby letters
of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third-party. Those guarantees are
primarily issued to support private borrowing arrangements. Most
guarantees will expire within one year.
The Bank generally requires collateral or other security to support
financial instruments with credit risk. Management does not anticipate
that any material loss will result from the outstanding commitments to
extend credit and standby letters of credit.
21
<PAGE> 22
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The Company is involved in various litigation. In the opinion of
management and the Company's legal counsel, the disposition of all
pending litigation will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
(13) AVAILABILITY OF FUNDS FROM SUBSIDIARY
Dividends payable by the Bank to the Parent without the express approval
of the California Superintendent of Banks are limited to the Bank's net
profits (as defined) for that year combined with its retained net
earnings for the preceding two years. At December 31, 1995, the Bank
could have declared dividends up to approximately $1,544,000 without the
approval of the California Superintendent of Banks. However, as discussed
in Note 16, there are special requirements of the FDIC with respect to
payment of cash dividends exceeding $20,000 annually.
(14) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances with the Federal
Reserve Bank. Reserve requirements are based on a percentage of deposit
liabilities. The average reserves held at the Federal Reserve Bank for
the years ended December 31, 1995 and 1994 were approximately $210,000
and $390,000, respectively.
(15) SUBSEQUENT EVENTS
On January 12, 1996, the Company signed a Definitive Agreement that will
lead to the merger of the Company into First Pacific National Bank, the
wholly-owned subsidiary of FP Bancorp, Inc., upon regulatory and RB
Bancorp shareholder approval. RB Bancorp stockholders approved the merger
on February 15, 1996. The transaction is expected to be completed in the
second quarter of 1996. The terms of the transaction call for
shareholders of RB Bancorp to receive $7,350,000 in cash for the exchange
of all outstanding RB Bancorp shares.
(16) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
FDICIA was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provisions of FDICIA became effective on
December 19, 1992. In addition to the prompt corrective action
requirements, FDICIA includes significant changes to the legal and
regulatory environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits, increased
supervision by the federal regulatory agencies, increased reporting
requirements for insured institutions, and new regulations concerning
internal controls, accounting and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly under capitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions,
including the requirement to file a capital plan with its primary federal
regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory
monitoring, among other things. Other restrictions may be imposed on the
institution either by its primary federal regulator or by the FDIC,
including requirements to raise additional capital, sell assets, or sell
the entire institution. Once an institution becomes "critically
undercapitalized" it must generally be placed in receivership or
conservatorship within 90 days.
22
<PAGE> 23
RB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
To be considered "adequately capitalized" an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio
of at least 4%, and a total risk-based capital ratio of at least 8%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
The Bank is considered adequately capitalized under the provisions of
FDICIA.
As a result of the Federal Deposit Insurance Corporation's (FDIC) 1992
examination, the Bank entered into a Memorandum of Understanding (MOU)
with the FDIC on February 26, 1993. In accordance with the terms of this
MOU, the Bank has agreed to take the corrective actions addressed in the
MOU which, among other items, includes reduction of classified assets,
revision of lending and collection policies, development and
implementation of a comprehensive electronic data processing program, and
special requirements with respect to the payment of cash dividends
exceeding $20,000 annually.
As a result of the FDIC's 1995 examination, the FDIC concluded that the
Bank was in full compliance with all of the provisions of the MOU;
therefore, the MOU was terminated as of February 27, 1996.
23
