<PAGE> 1
Total number of pages: 14
Exhibit Index on page: 13
FORM 10-QSB
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
Commission File Number 0-17650
FP Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0018976
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
613 West Valley Parkway, Escondido, California 92025-4929
(Address of principal executive offices) (ZIP Code)
(619) 741-3312
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
-- --
As of June 30, 1996, the number of shares outstanding of the Registrant's only
class of common stock was 2,651,805.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Cash and due from banks $ 20,169,000 $ 14,293,000
Federal funds sold 9,500,000 2,000,000
Interest-earning deposits 99,000 --
Investment securities available for sale 25,575,000 27,581,000
Investment securities held to maturity 7,462,000 7,753,000
Loans, net of allowance for loan losses of $3,025,000 as of
June 30, 1996 and $2,013,000 as of December 31, 1995 188,658,000 141,930,000
Premises and equipment, net 7,959,000 6,550,000
Other real estate owned, net 1,687,000 3,139,000
Goodwill, net 3,679,000 1,603,000
Accrued interest and other assets 5,170,000 3,948,000
------------- -------------
$ 269,958,000 $ 208,797,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------
Deposits:
Noninterest-bearing $ 53,763,000 $ 41,234,000
Interest-bearing 191,340,000 144,430,000
------------- -------------
Total deposits 245,103,000 185,664,000
------------- -------------
Accrued expenses and other liabilities 1,678,000 1,725,000
Subordinated debentures 4,575,000 4,575,000
------------- -------------
Total liabilities 251,356,000 191,964,000
------------- -------------
Stockholders' equity:
Common stock, par value $.001, authorized 4,000,000 shares; issued and
outstanding 2,651,805 and 2,650,811 in 1996 and 1995, respectively 3,000 3,000
Additional paid-in capital 24,561,000 24,556,000
Accumulated deficit (5,678,000) (7,910,000)
Unrealized holding gains (losses) on investment
securities available for sale (284,000) 284,000
Receivable from ESOP -- (100,000)
------------- -------------
Total stockholders' equity 18,602,000 16,833,000
------------- -------------
$ 269,958,000 $ 208,797,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,992,000 $ 4,059,000 $ 8,781,000 $ 7,174,000
Federal funds sold 105,000 112,000 184,000 166,000
Interest-earning deposits 4,000 12,000 4,000 12,000
Investment securities 530,000 412,000 1,085,000 729,000
------------ ------------ ------------ ------------
Total interest income 5,631,000 4,595,000 10,054,000 8,081,000
------------ ------------ ------------ ------------
Interest expense:
Deposits 1,496,000 1,150,000 2,667,000 2,074,000
Other 122,000 119,000 244,000 244,000
------------ ------------ ------------ ------------
Total interest expense 1,618,000 1,269,000 2,911,000 2,318,000
------------ ------------ ------------ ------------
Net interest income 4,013,000 3,326,000 7,143,000 5,763,000
Provision for loan losses 150,000 -- 400,000 --
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 3,863,000 3,326,000 6,743,000 5,763,000
------------ ------------ ------------ ------------
Other operating income:
Service charges 617,000 502,000 1,124,000 896,000
Other 66,000 86,000 129,000 211,000
------------ ------------ ------------ ------------
Total other operating income 683,000 588,000 1,253,000 1,107,000
------------ ------------ ------------ ------------
Other operating expenses:
Salaries and employee benefits 1,673,000 1,438,000 3,086,000 2,670,000
Professional services 596,000 429,000 1,010,000 793,000
Occupancy 350,000 310,000 646,000 554,000
Furniture and equipment 282,000 237,000 486,000 402,000
Merchant credit card charges 194,000 123,000 317,000 230,000
Other real estate owned, net 122,000 35,000 206,000 153,000
Loss on sale of investment securities 110,000 46,000 136,000 46,000
Goodwill amortization 75,000 26,000 103,000 26,000
Other 614,000 525,000 1,031,000 966,000
------------ ------------ ------------ ------------
Total other operating expenses 4,016,000 3,169,000 7,021,000 5,840,000
------------ ------------ ------------ ------------
Earnings before income taxes 530,000 745,000 975,000 1,030,000
Net income tax benefit (978,000) -- (1,257,000) --
------------ ------------ ------------ ------------
Net earnings $ 1,508,000 $ 745,000 $ 2,232,000 $ 1,030,000
============ ============ ============ ============
Primary earnings per share: $ 0.55 $ 0.28 $ 0.82 $ 0.46
============ ============ ============ ============
Fully diluted earnings per share: $ 0.48 $ 0.27 $ 0.74 $ 0.46
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,232,000 $ 1,030,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 581,000 449,000
Provision for loan losses 400,000 --
Provision for losses on other real estate owned 143,000 196,000
Gain on sale of other real estate owned (10,000) (278,000)
Loss on sale of investment securities available for sale 136,000 46,000
(Increase) decrease in accrued interest and other assets (615,000) 132,000
Increase (decrease) in accrued expenses and other liabilities (693,000) 3,000
(Increase) decrease in deferred loan origination fees 63,000 (112,000)
------------ ------------
Net cash provided by operating activities 2,237,000 1,466,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in loans outstanding (4,827,000) 6,733,000
Proceeds on sale of other real estate owned 1,856,000 2,311,000
Net maturities of interest-earning deposits 396,000 1,358,000
Maturities of investment securities available for sale 2,345,000 237,000
Maturities of investment securities held to maturity 278,000 83,000
Purchase of investment securities available for sale (7,047,000) (5,398,000)
Purchase of investment securities held to maturity -- (839,000)
Proceeds from sale of investment securities available for sale 8,995,000 4,798,000
Decrease in receivable from ESOP 100,000 16,000
Net capital expenditures for premises and equipment (783,000) (561,000)
Net cash acquired in merger 5,302,000 4,312,000
------------ ------------
Net cash provided by investing activities 6,615,000 13,050,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in interest-bearing deposits 2,928,000 (1,686,000)
Net increase in noninterest-bearing deposits 1,591,000 12,327,000
Proceeds from exercise of stock options 5,000 --
Decrease in Federal funds purchased -- (2,800,000)
------------ ------------
Net cash provided by financing activities 4,524,000 7,841,000
------------ ------------
Net increase in cash and cash equivalents 13,376,000 22,357,000
Cash and cash equivalents at beginning of period 16,293,000 9,627,000
------------ ------------
Cash and cash equivalents at end of period $ 29,669,000 $ 31,984,000
============ ============
</TABLE>
4
(continued)
<PAGE> 5
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,943,000 $ 2,163,000
Income taxes $ 26,000 $ --
Supplemental disclosure of noncash investing and financing activities:
Transfer from loans to other real estate owned $ 229,000 $ 1,533,000
Transfer from other real estate owned to loans $ 95,000 $ --
Change in unrealized holding gains (losses) on investment securities
available for sale $ (568,000) $ (492,000)
Common stock issued in merger $ -- $ 4,255,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FP BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include the accounts of FP Bancorp,
Inc. (the "Company") and its wholly-owned subsidiary, First Pacific
National Bank ("FPNB"). All material intercompany accounts and
transactions have been eliminated. The consolidated financial statements
as of June 30, 1996 and for the three- and six-month periods ended June
30, 1996 and 1995 are unaudited and reflect all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results of the interim periods. The consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto, together with management's discussion and analysis of
financial condition and results of operations contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995. The
results of operations for the three- and six-month periods ended June 30,
1996 are not necessarily indicative of the results for the entire year
ending December 31, 1996.
2. Primary earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Stock options for all periods
presented are considered to be common stock equivalents and are used in
the primary earnings per share calculations unless they are antidilutive.
The weighted average numbers of shares used for the primary earnings per
share calculations for the three-month periods ended June 30, 1996 and
1995 were 2,718,000 and 2,658,000, respectively. The weighted average
numbers of shares used for the primary earnings per share calculations for
the six-month periods ended June 30, 1996 and 1995 were 2,715,000 and
2,247,000, respectively.
Fully diluted earnings per share is computed by dividing net earnings,
subject to certain adjustments, by the weighted average number of shares
of common stock, common stock equivalents and other potentially dilutive
securities. Stock options are considered to be common stock equivalents
and are used in the fully diluted earnings per share calculations unless
they are antidilutive. The subordinated convertible debentures are
considered to be other potentially dilutive securities and are used in the
fully diluted earnings per share calculations unless they are
antidilutive. The adjusted net earnings used for the fully diluted
earnings per share calculations for the three-month periods ended June 30,
1996 and 1995 were $1,517,000 and $848,000 in 1996 and 1995, respectively.
The weighted average numbers of shares used for the fully diluted earnings
per share calculations for the three-month periods ended June 30, 1996 and
1995 were 3,179,000 and 3,115,000, respectively. The adjusted net earnings
used for the fully diluted earnings per share calculations for the
six-month periods ended June 30, 1996 and 1995 were $2,361,000 and
$1,236,000 in 1996 and 1995, respectively. The weighted average numbers of
shares used for the fully diluted earnings per share calculations for the
six-month periods ended June 30, 1996 and 1995 were 3,179,000 and
2,705,000, respectively.
3. On April 1, 1996, the Company completed the merger of RB Bancorp and its
wholly-owned subsidiary, The Bank of Rancho Bernardo, with and into FPNB
(the "RB Merger"). 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.
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 FPNB continued as the
surviving entity.
6
<PAGE> 7
The following pro forma data presents the historical results of the
combined bank as if the RB Merger had occurred at the beginning of the
three- and six-month periods ended June 30, 1996 and 1995, with
intangibles from various acquisitions being amortized over a period of 12
to 15 years.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- --------------------------
(in thousands, except share & per share data) 1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 5,631 $ 5,696 $ 11,169 $ 10,283
Interest expense 1,618 1,679 3,314 3,129
Provision for loan losses 150 -- 456 54
Noninterest income 683 759 1,390 1,384
Noninterest expense 4,016 3,733 7,756 7,199
---------- ---------- ---------- ----------
Net earnings before income taxes $ 530 $ 1,043 $ 1,033 $ 1,285
========== ========== ========== ==========
Net earnings $ 1,508 $ 1,043 $ 2,290 $ 1,285
========== ========== ========== ==========
Net earnings per share $ 0.55 $ 0.39 $ 0.84 $ 0.57
========== ========== ========== ==========
Average shares outstanding 2,718,000 2,658,000 2,715,000 2,247,000
========== ========== ========== ==========
</TABLE>
Assets acquired in the RB Merger included net loans of $42,498,000, liquid
assets of $8,854,000, premises and equipment of $1,025,000, other real
estate owned of $403,000 and other assets of $358,000. Liabilities assumed
included $54,920,000 of deposits and $647,000 of accrued expenses and
other liabilities. The acquisition was accounted for using the purchase
method of accounting, resulting in goodwill of $2,429,000.
4. Because of the nature of its activities, the Company is at all times
subject to pending and threatened legal actions which arise out of the
normal course of its business. In the opinion of management, based in part
upon opinions of legal counsel, the disposition of all litigation will not
have a material effect on the Company's financial position or results of
operations.
5. Goodwill is amortized on a straight-line basis over an estimated useful
life of twelve to fifteen years.
6. Certain 1995 amounts have been reclassified to conform to the presentation
used in 1996.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The financial position and the results of operations as of June 30, 1996 reflect
the Company's acquisition of RB Bancorp on April 1, 1996 (the "RB Merger") and
the opening of a second branch in the City of Temecula in Riverside County ('the
"Rancho California Road Branch") on April 22, 1996.
The Company's net earnings for the quarter ended June 30, 1996 were $1,508,000
or $.55 per share, compared to net earnings of $745,000 or $.28 per share for
the same quarter in 1995. The Company's return on average assets and return on
average stockholders' equity were .56% and 8.40%, respectively, for the
three-month period ended June 30, 1996 as compared to .36% and 4.88%,
respectively, for the same period in 1995. The increase in earnings of $763,000
or 102.42% for the three-month period ended June 30, 1996 as compared to the
same period in 1995 was primarily due to a net income tax benefit of $978,000
offset in part by a provision for loan losses of $150,000 recorded during the
quarter ended June 30, 1996.
The Company's net earnings for the six months ended June 30, 1996 were
$2,232,000 or $.82 per share, compared to net earnings of $1,030,000 or $.46 per
share for the same period in 1995. The Company's return on average assets and
return on average stockholders' equity were .93% and 12.69%, respectively, for
the six-month period ended June 30, 1995 as compared to .55% and 8.08%,
respectively, for the same period in 1995. The increase in earnings of
$1,202,000 or 116.70% for the six-month period ended June 30, 1996 as compared
to the same period in 1995 was primarily due to a net income tax benefit of
$1,257,000 recorded during the six months ended June 30, 1996.
Increases in net interest income and other operating income and expenses during
the three- and six-month periods ended June 30, 1996 as compared to 1995 were
primarily due to the growth accomplished through the RB Merger, as well as
moderate growth in the previously existing base of customer loans and deposits.
Total assets increased $61,161,000 or 29.29% from $208,797,000 as of December
31, 1995 to $269,958,000 as of June 30, 1996. The increase in asset size was
primarily a result of the RB Merger, but was also affected to some extent by the
Ranch California Road Branch, which had deposits of approximately $5,000,000 as
of June 30, 1996. Net loans increased $46,728,000 or 32.92% from December 31,
1995 to June 30, 1996. $42,498,000 of net loans were acquired in the RB Merger
and the balance of the increase was due to an increase in new loan volume during
the first and second quarters of 1996. Deposits as of June 30, 1996 increased
$59,439,000 or 32.01% from December 31, 1995. Deposits of $54,920,000 were
acquired in the RB Merger and the balance of the variance since December 31,
1995 was primarily attributed to new deposits generated at the Rancho California
Road Branch. The growth in deposits resulted in an increase in liquid assets of
$11,469,000 or 26.14% since December 31, 1995. Premises and equipment, goodwill
and accrued interest and other assets increased $4,707,000 or 38.90%, primarily
as a result of the RB Merger. Other real estate owned decreased by $1,452,000 or
$46.26% due to significant property sales during the first half of 1996.
On August 5, 1996, the Company opened its eighth branch in Valley Center,
located in North San Diego County, California (the "Valley Center Branch"). The
Rancho California Road Branch and the Valley Center Branch will increase the
Company's noninterest expenses during their start-up periods, which may impact
the net earnings of the Company during 1996.
8
<PAGE> 9
NET INTEREST INCOME
Net interest income before provision for loan losses increased $687,000 or
20.66% for the quarter ended June 30, 1996 as compared to the same period in
1995 and $1,380,000 or 23.95% for the six months ended June 30, 1996 as compared
to the same period in 1995 Net interest income is affected by changes in average
rates, average volumes of interest-earning assets and average volumes of
interest-bearing liabilities. On April 1, 1996, $43,121,000 of loans and
$43,982,000 of interest-bearing deposits were acquired in the RB Merger, which
contributed to the increase in net interest income during the second quarter of
1996 as compared to 1995. Changes in the interest rate environment and the
Company's cost of funds also effected net interest income.
The rate earned on interest-earning assets for the quarter ended June 30, 1996
decreased to 9.61% from 10.17% for the same period in 1995 due to the net
decrease in interest rates during the period. Average loans outstanding during
the quarter ended June 30, 1996 were $193,586,000 which earned interest at an
average rate of 10.37%, as compared to average loans outstanding of $143,817,000
which earned a rate of 11.32% during the same period in 1995. Average Federal
funds sold were $8,675,000 which earned an average rate of 4.87% for the three
months ended June 30, 1996 as compared to $7,735,000 which earned 5.81% during
the same quarter in 1995. Conversely, the investment securities portfolios had
an aggregate average balance of $33,266,000 and earned 6.41% for the three
months ended June 30, 1996 as compared to $28,786,000 which earned 5.74% during
the same period in 1995. The increase in the Company's yield on investment
securities in a decreasing interest rate environment was the result of a
restructuring of the investment portfolio into higher-yielding securities during
late 1995 and again in the second quarter of 1996.
The rate earned on interest-earning assets for the six months ended June 30,
1996 decreased to 9.58% from 9.94% for the same period in 1995 due to the net
decrease in interest rates during 1996 and 1995. Average loans outstanding
during the six months ended June 30, 1996 were $169,582,000 which earned
interest at an average rate of 10.41% as compared to average loans outstanding
of $131,402,000 which earned a rate of 11.01% during the same period in 1995.
Average Federal funds sold were $7,397,000 which earned an average rate of 5.00%
for the six months ended June 30, 1996, as compared to $5,784,000 which earned
5.79% during the same period in 1995. Conversely, the investment securities
portfolios had an aggregate average balance of $33,982,000 and earned 6.42% for
the six months ended June 30, 1996 as compared to $26,277,000 which earned 5.59%
during the same period in 1995. The increase in the Company's yield on
investment securities in a decreasing interest rate environment was the result
of a restructuring of the investment portfolio into higher-yielding securities
during late 1995 and again in the second quarter of 1996.
The rate paid on interest-bearing liabilities was 3.33% for the quarters ended
June 30, 1996 and 1995. Average outstanding interest-bearing deposits of
$190,911,000 for the quarter ended June 30, 1996 were paid an average rate of
3.15% as compared to average outstanding interest-bearing deposits of
$148,375,000 which were paid an average rate of 3.11% for the same period in
1995. Debentures and other borrowings had an average outstanding balance of
$4,701,000 and paid 10.44% for the three-month period ended June 30, 1996 as
compared to an average balance of $4,575,000 which paid 10.43% for the
three-month period ended June 30, 1995.
The rate paid on interest-bearing liabilities was 3.34% for the six months ended
June 30, 1996 as compared to 3.29% for the same period in 1995. Average
outstanding interest-bearing deposits of $170,495,000 for the six months ended
June 30, 1996 were paid an average rate of 3.15% as compared to average
outstanding interest-bearing deposits of $137,204,000 which were paid an average
rate of 3.05% for the same period in 1995. Debentures and other borrowings had
an average outstanding balance of $4,673,000 and paid 10.50% for the six-month
period ended June 30, 1996 as compared to an average balance of $4,687,000 which
paid 10.50% for the six-month period ended June 30, 1995.
9
<PAGE> 10
The following table presents for the periods indicated a summary of changes in
interest income and interest expense for the major categories of average
interest-earning assets and average interest-bearing liabilities and the amounts
of change attributable to variations in volume and in interest rates.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 compared to 1995 1996 compared to 1995
--------------------------------- ---------------------------------
(in thousands) (in thousands)
Increase (Decrease) Increase (Decrease)
--------------------------------- ---------------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on interest-earning assets:
Loans (1) $ 1,401 $ (468) $ 933 $ 2,090 $ (483) $ 1,607
Taxable investment securities 64 54 118 214 142 356
Interest-earning deposits (9) 1 (8) (9) 1 (8)
Federal funds sold 14 (21) (7) 46 (28) 18
------- ------- ------- ------- ------- -------
Total interest on interest-earning assets $ 1,470 $ (434) $ 1,036 $ 2,341 $ (368) $ 1,973
======= ======= ======= ======= ======= =======
Interest paid on interest-bearing liabilities:
Interest-bearing deposits:
Savings and time $ 247 $ (14) $ 233 $ 355 $ 6 $ 361
Interest-bearing demand 101 12 113 164 68 232
------- ------- ------- ------- ------- -------
Total interest-bearing deposits 348 (2) 346 519 74 593
Debentures and Federal funds purchased 3 -- 3 (1) 1 --
------- ------- ------- ------- ------- -------
Total interest on interest-bearing liabilities $ 351 $ (2) $ 349 $ 518 $ 75 $ 593
======= ======= ======= ======= ======= =======
</TABLE>
(1) Nonaccrual loans are included in the loan totals used in the calculation of
this table.
Interest income on loans includes the accretion of loan fees resulting from the
Company's lending activities. Net fees included in interest income for the three
months ended June 30, 1996 and 1995 were $231,000 and $102,000, respectively.
Net fees included in interest income for the six months ended June 30, 1996 and
1995 were $367,000 and $243,000, respectively.
OTHER OPERATING INCOME
Other operating income was $683,000 for the quarter ended June 30, 1996 as
compared to $588,000 for the same period in 1995, an increase of $95,000 or
16.16%. Service charges increased by $115,000 or 22.91% while all other
operating income decreased $20,000 or 23.26%. The increase in service charges
during the three-month period ended June 30, 1996 as compared to the same period
in 1995 was due to the increase in the deposit base resulting from the RB
Merger. The decrease in other operating income was due to a $75,000 refund of
prior year legal expenses recorded in the second quarter of 1995, offset by an
increase in overall other operating income due to the Company's growth.
Other operating income was $1,253,000 for the six months ended June 30, 1996 as
compared to $1,107,000 for the same period in 1995, an increase of $146,000 or
13.19%. Service charges increased by $228,000 or 25.45% while all other
operating income decreased $82,000 or 38.86%. The increase in service charges
during the six-month period ended June 30, 1996 as compared to the same period
in 1995 was due to the increase in the deposit base resulting from the RB
Merger. The decrease in other operating income was due to a $75,000 refund of
prior year legal expenses recorded in the second quarter of 1995.
OTHER OPERATING EXPENSES
Total other operating expenses for the three months ended June 30, 1996 were
$4,016,000, an increase of $847,000 or 26.73%, as compared to the same quarter
in 1995. Many of the increases were a direct result of the RB Merger and to a
lesser extent, the opening of the Rancho California Road Branch: salaries and
benefits expense increased $235,000 or 16.34%; occupancy and furniture and
equipment expense
10
<PAGE> 11
increased by $85,000 or 15.54%; professional services expense increased by
$167,000 or 38.93%; Merchant Credit Card charges increased by $71,000 or 57.72%
and other expenses increased $89,000 or 16.95%. Net other real estate owned
expenses increased by $87,000 or 248.57% for the three-month period ended June
30, 1996 as compared to the same period in 1995 due to nonrecurring gains on the
sale of OREO properties of $278,000 recorded in 1995, offset by a real decrease
of $191,000 in OREO expenses for the period. Goodwill amortization increased
$49,000 or 188.46% due to the addition of $2,429,000 in goodwill resulting from
the RB Merger. A loss on sale of investment securities of $110,000 was recorded
in the second quarter of 1996 as compared to a $46,000 loss on sale in the same
period in 1995, an increase of $64,000 or 139.13%, due to management's ongoing
restructuring of the investment portfolio into higher-yielding securities.
Total other operating expenses for the six months ended June 30, 1996 were
$7,021,000, an increase of $1,181,000 or 20.22%, as compared to the same period
in 1995. Many of the increases were a direct result of the RB Merger and to a
lesser extent, the opening of the Rancho California Road Branch: salaries and
benefits expense increased $416,000 or 15.58%; occupancy and furniture and
equipment expense increased by $176,000 or 18.41%; professional services expense
increased by $217,000 or 27.36%; Merchant Credit Card charges increased by
$87,000 or 37.83% and other expenses increased $65,000 or 6.73%. Net other real
estate owned expenses increased by $53,000 or 34.64% for the six-month period
ended June 30, 1996 as compared to the same period in 1995 due to nonrecurring
gains on the sale of OREO properties of $280,000 recorded in 1995, offset by a
real decrease of $155,000 in OREO expenses for the period. Goodwill amortization
increased $77,000 or 296.15% due to the addition of $2,429,000 in goodwill
resulting from the RB Merger on April 1, 1996. A loss on sale of investment
securities of $136,000 was recorded in the second half of 1996 as compared to a
$46,000 loss on sale in the same period in 1995, an increase of $90,000 or
195.65%, due to management's ongoing restructuring of the investment portfolio
into higher-yielding securities.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Loan quality is monitored on an ongoing basis. On a quarterly basis, management
conducts an analysis of the composition and quality of the Company's loan
portfolio. The Company determines the allocation for allowances based upon the
evaluation of quality of the loan portfolio, total outstanding loans, previous
charges against the allowance and current and anticipated economic conditions.
The provision for loan losses is a charge against earnings in the period in
which the potential loss is identified. Actual loan losses are charged against
the allowance for loan losses in the period in which they occur.
Provisions for loan losses of $150,000 and $400,000 were recognized for the
three- and six-month periods ended June 30, 1996. No provision for loan losses
was recorded in the second quarter of 1995. Based on a review of the loan
portfolio and considering historical experience with regard to potential loan
losses, the provision was necessary so that the allowance for loan losses as of
June 30, 1996 was adequate to absorb potential losses.
As of June 30, 1996, the allowance for loan losses totaled $3,025,000 or 1.58%
of total loans outstanding compared with $2,013,000 or 1.40% of total loans
outstanding as of December 31, 1995. Based on management's evaluation of the
loan portfolio considering the factors mentioned above, management believes that
the allowance for loan losses was adequate as of June 30, 1996.
INCOME TAXES
Net income tax benefits of $978,000 and $1,257,000 were recorded during the
three- and six-month periods ended June 30, 1996, respectively. The net income
tax benefits recorded through June 30, 1996 represent the last of the
significant income tax benefits to be recorded by the Company as a result of
prior year net operating losses. The amount of the benefits were determined in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", considering management's best estimate of the effective tax
rate expected to be applicable for the full fiscal year. Management believes
that it is more likely than not that the net deferred tax asset recorded will be
realized through future
11
<PAGE> 12
earnings and/or tax planning strategies. No income tax benefits were recorded
during the first or second quarters of 1995.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Effective asset/liability management is achieved by maintaining adequate
liquidity and minimizing the impact of future interest rate changes on net
interest income. The responsibility for monitoring the Company's liquidity and
interest rate sensitivity lies with the Asset/Liability and Executive Committees
of FPNB. The Executive Committee meets weekly and the Asset/Liability Committee
meets quarterly to monitor liquidity, investment strategies, rate sensitivity
strategy and loan demand as well as the adequacy of funding sources.
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers' credit needs. Liquidity is provided
by cash and due from banks, Federal funds sold, investments available for sale,
interest-earning deposits in other financial institutions, and loan repayments.
The Company's total liquid assets as a percentage of deposits totaled 22.58% and
23.63% as of June 30, 1996 and December 31, 1995, respectively.
The Company actively manages its interest rate sensitivity position. The
objectives of interest rate risk management are to control exposure of net
interest income to risks associated with interest rate movements, to achieve
consistent growth in net interest income, and to profit from favorable market
opportunities. The Company manages the rate sensitivity position by adjusting
the average maturity of and establishing rates on earning assets and
interest-bearing liabilities in line with its expectation for future interest
rates. However, even with perfectly matched repricing of assets and liabilities,
interest rate risk cannot be avoided entirely. Interest rate risk remains in the
form of prepayment risk of assets or liabilities, risks related to differences
in the timing and indexes for interest rate adjustments for assets and
liabilities with adjustable interest rates, and basis risk. In the Company's
experience, in a rising rate environment, rates on short-term liabilities rise
more slowly than rates on its adjustable rate assets, while in a decreasing rate
environment, the Company would expect rates on its short-term liabilities to
decrease more consistently with the rates on its adjustable rate assets.
CAPITAL RESOURCES
The Company engages in an ongoing assessment of its capital needs in order to
maintain an adequate level of capital to support business growth and to ensure
depositor protection. The Company's two sources of capital are internally
generated funds and the capital markets.
The Federal Reserve Board (the "FRB") in December 1988, the Office of the
Comptroller of the Currency (the "OCC") in January 1989 and the Federal Deposit
Insurance Corporation in March 1989 adopted risk- based capital adequacy
guidelines for bank holding companies and banks. The risk-based capital adequacy
guidelines establish a risk-based capital ratio based on the overall risk of the
entity determined by assigning various weighted risks to each balance sheet
asset and certain off-balance sheet commitments, adding up all of the weighted
risk amounts, and dividing Tier 1 capital (capital, surplus and retained
earnings) into the risk-weighted assets. As of June 30, 1996, the Company's Tier
I risk-based capital to risk-weighted assets totaled 7.22% compared to 9.32% at
December 31, 1995.
The FRB and the OCC adopted leverage requirements effective January 1, 1992
which apply in addition to the risk-based capital requirements. Under these
requirements, bank holding companies and national banking associations are
required to maintain core capital of at least 3% of total assets. On June 30,
1996 and December 31, 1995, the Company's core capital to total assets stood at
5.70% and 7.25%, respectively.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May 21, 1996 at
5:30 p.m. at the California Center for the Arts, 340 North Escondido Boulevard,
Escondido, California. There were 2,020,151 shares represented at the meeting by
proxy or in person, constituting a quorum of all stockholders of the Company.
The following proposals were approved at the Company's Annual Meeting of
Stockholders:
<TABLE>
<CAPTION>
Votes Votes Broker
Votes For Against Withheld Non-votes
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
1. To amend and restate the Company's
Amended and Restated 1988 Stock
Option Plan. 1,739,549 26,199 73,755 180,648
2. Election of 12 persons to serve as
Directors of the Company, each
with a two year term. 1,976,244 0 43,907 0
3. Ratification of the appointment of
KPMG Peat Marwick LLP as the
independent auditor for 1996. 1,963,335 23,170 33,646 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.)
(b) Reports on Form 8-K
Form 8-K, File No. 0-17650 dated April 1, 1996 was filed to report that
the merger of The Bank of Rancho Bernardo with and into the Company's
wholly-owned subsidiary, First Pacific National Bank, had been
consummated.
13
<PAGE> 14
SIGNATURES
In the opinion of management, the financial statements presented reflect all
adjustments which are necessary to a fair statement of the results for the
periods presented.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FP Bancorp, Inc.
By: /s/ Michael J. Perdue
____________________________
Michael J. Perdue
Executive Vice President and
Chief Operating Officer
(duly authorized officer and
principal financial officer)
Dated: August 12, 1996
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 20,164,000
<INT-BEARING-DEPOSITS> 99,000
<FED-FUNDS-SOLD> 9,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,575,000
<INVESTMENTS-CARRYING> 7,462,000
<INVESTMENTS-MARKET> 7,234,000
<LOANS> 191,683,000
<ALLOWANCE> 3,025,000
<TOTAL-ASSETS> 269,958,000
<DEPOSITS> 245,103,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,678,000
<LONG-TERM> 4,575,000
0
0
<COMMON> 3,000
<OTHER-SE> 18,599,000
<TOTAL-LIABILITIES-AND-EQUITY> 269,958,000
<INTEREST-LOAN> 4,992,000
<INTEREST-INVEST> 530,000
<INTEREST-OTHER> 109,000
<INTEREST-TOTAL> 5,631,000
<INTEREST-DEPOSIT> 1,496,000
<INTEREST-EXPENSE> 1,618,000
<INTEREST-INCOME-NET> 4,013,000
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> (110,000)
<EXPENSE-OTHER> 3,906,000
<INCOME-PRETAX> 530,000
<INCOME-PRE-EXTRAORDINARY> 530,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,508,000
<EPS-PRIMARY> .55
<EPS-DILUTED> .48
<YIELD-ACTUAL> 6.85
<LOANS-NON> 1,239,000
<LOANS-PAST> 590,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,013,000
<CHARGE-OFFS> 456,000
<RECOVERIES> 278,000
<ALLOWANCE-CLOSE> 3,025,000
<ALLOWANCE-DOMESTIC> 3,025,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
