<PAGE> 1
Total number of pages: 15
Exhibit Index on page: 14
FORM 10-QSB
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
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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 September 30, 1996, the number of shares outstanding of the Registrant's
only class of common stock was 2,653,655.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 15,173,000 $ 14,293,000
Federal funds sold 14,900,000 2,000,000
Interest-earning deposits 99,000 --
Investment securities available for sale 39,523,000 27,581,000
Investment securities held to maturity 7,349,000 7,753,000
Loans, net of allowance for loan losses of $2,923,000 as of September 30, 1996
and $2,013,000 as of December 31, 1995 195,811,000 141,930,000
Premises and equipment, net 8,083,000 6,550,000
Other real estate owned, net 1,433,000 3,139,000
Goodwill, net 3,596,000 1,603,000
Accrued interest and other assets 5,500,000 3,948,000
------------- -------------
$ 291,467,000 $ 208,797,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $ 63,774,000 $ 41,234,000
Interest-bearing 201,722,000 144,430,000
------------- -------------
Total deposits 265,496,000 185,664,000
------------- -------------
Accrued expenses and other liabilities 1,767,000 1,725,000
Subordinated debentures 4,575,000 4,575,000
------------- -------------
Total liabilities 271,838,000 191,964,000
------------- -------------
Stockholders' equity:
Common stock, par value $.001, authorized 4,000,000 shares; issued and
outstanding 2,653,655 and 2,650,811 in 1996 and 1995, respectively 3,000 3,000
Additional paid-in capital 24,571,000 24,556,000
Accumulated deficit (4,709,000) (7,910,000)
Unrealized holding gains (losses) on investment securities available for sale (236,000) 284,000
Receivable from ESOP -- (100,000)
------------- -------------
Total stockholders' equity 19,629,000 16,833,000
------------- -------------
$ 291,467,000 $ 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 Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
1996 1995 1996 1995
- --------------------------------------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,935,000 $ 3,780,000 $ 13,716,000 $ 10,954,000
Federal funds sold 201,000 146,000 385,000 312,000
Interest-earning deposits 1,000 7,000 5,000 19,000
Investment securities 737,000 488,000 1,822,000 1,217,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Total interest income 5,874,000 4,421,000 15,928,000 12,502,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Interest expense:
Deposits 1,657,000 1,176,000 4,324,000 3,250,000
Other 121,000 122,000 365,000 366,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Total interest expense 1,778,000 1,298,000 4,689,000 3,616,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Net interest income 4,096,000 3,123,000 11,239,000 8,886,000
Provision for loan losses 150,000 100,000 550,000 100,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Net interest income after
provision for loan losses 3,946,000 3,023,000 10,689,000 8,786,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Other operating income:
Service charges 683,000 548,000 1,807,000 1,444,000
Other 14,000 58,000 143,000 269,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Total other operating income 697,000 606,000 1,950,000 1,713,000
- --------------------------------------------- ------------ ----------- ------------ ------------
Other operating expenses:
Salaries and employee benefits 1,726,000 1,387,000 4,812,000 4,057,000
Professional services 463,000 500,000 1,473,000 1,273,000
Occupancy 388,000 321,000 1,034,000 875,000
Furniture and equipment 315,000 234,000 801,000 636,000
Merchant credit card charges 200,000 142,000 517,000 372,000
Other real estate owned, net 19,000 143,000 225,000 296,000
Loss on sale of investment securities 9,000 66,000 145,000 112,000
Goodwill amortization 75,000 23,000 178,000 49,000
Other 484,000 610,000 1,515,000 1,596,000
- --------------------------------------------- ----------- ----------- ------------ ------------
Total other operating expenses 3,679,000 3,426,000 10,700,000 9,266,000
- --------------------------------------------- ----------- ----------- ------------ ------------
Earnings before income taxes 964,000 203,000 1,939,000 1,233,000
Net income tax benefit (5,000) (222,000) (1,262,000) (222,000)
- --------------------------------------------- ----------- ----------- ------------ ------------
Net earnings $ 969,000 $ 425,000 $ 3,201,000 $ 1,455,000
============================================= =========== =========== ============ ============
Primary earnings per share: $ .36 $ 0.16 $ 1.18 $ 0.61
============================================= =========== =========== ============ ============
Fully diluted earnings per share: $ .32 $ 0.11 $ 1.07 $ 0.54
============================================= =========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
1996 1995
- ----------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,201,000 $ 1,455,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 914,000 713,000
Provision for loan losses 550,000 100,000
Provision for losses on other real estate owned 152,000 284,000
Gain on sale of other real estate owned (17,000) (315,000)
Loss on sale of investment securities available for sale 145,000 112,000
(Increase) decrease in accrued interest and other assets (876,000) (375,000)
(Decrease) increase in accrued expenses and other liabilities (665,000) 258,000
(Increase) decrease in deferred loan origination fees 13,000 113,000
------------ ------------
Net cash provided by operating activities 3,417,000 2,345,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in loans outstanding (12,318,000) 7,474,000
Proceeds on sale of other real estate owned 2,346,000 2,994,000
Net maturities of interest-earning deposits 396,000 1,655,000
Maturities of investment securities available for sale 2,814,000 1,606,000
Maturities of investment securities held to maturity 384,000 1,151,000
Purchase of investment securities available for sale (23,431,000) (18,734,000)
Purchase of investment securities held to maturity -- (1,871,000)
Proceeds from sale of investment securities available for sale 10,992,000 9,399,000
Decrease in receivable from ESOP 100,000 25,000
Net capital expenditures for premises and equipment (1,149,000) (617,000)
Net cash acquired in merger 5,302,000 4,312,000
------------ ------------
Net cash (used in) provided by investing activities (14,564,000) 7,394,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in interest-bearing deposits 13,310,000 (3,172,000)
Net increase in noninterest-bearing deposits 11,602,000 4,990,000
Proceeds from exercise of stock options 15,000 --
Decrease in Federal funds purchased -- (2,800,000)
------------ ------------
Net cash provided by (used in) financing activities 24,927,000 (982,000)
------------ ------------
Net increase in cash and cash equivalents 13,780,000 8,757,000
Cash and cash equivalents at beginning of period 16,293,000 9,627,000
------------ ------------
Cash and cash equivalents at end of period $ 30,073,000 $ 18,384,000
============ ============
(continued)
</TABLE>
4
<PAGE> 5
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1996 1995
------------ ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,834,000 $3,530,000
Income taxes $ 33,000 $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to other real estate owned $ 467,000 $1,976,000
Loans to facilitate sale of other real estate owned $ 95,000 $ 62,000
Change in unrealized holding gains (losses) on investment securities
available for sale $ (520,000) $ 590,000
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 September 30, 1996 and for the three- and nine-month
periods ended September 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 nine-month periods ended September 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 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 September 30, 1996 and 1995 were
2,724,000 and 2,690,000, respectively. The weighted average numbers of
shares used for the primary earnings per share calculations for the
nine-month periods ended September 30, 1996 and 1995 were 2,715,000 and
2,404,000, 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 September 30, 1996 and 1995 were $1,029,000 and $362,000
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 September 30, 1996 and 1995 were 3,195,000
and 3,250,000, respectively. The adjusted net earnings used for the
fully diluted earnings per share calculations for the nine-month
periods ended September 30, 1996 and 1995 were $3,415,000 and
$1,597,000 in 1996 and 1995, respectively. The weighted average numbers
of shares used for the fully diluted earnings per share calculations
for the nine-month periods ended September 30, 1996 and 1995 were
3,187,000 and 2,981,000, 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 nine-month periods ended September 30, 1996 and 1995, with
intangibles from various acquisitions being amortized over a period of
12 to 15 years.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- ---------------------------
(in thousands, except share & per share data) 1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 5,874 $ 5,512 $ 17,043 $ 15,796
Interest expense 1,778 1,716 5,092 4,845
Provision for loan losses 150 100 606 154
Noninterest income 697 763 2,087 2,147
Noninterest expense 3,679 4,154 11,435 11,354
---------- ---------- ---------- ----------
Net earnings before income taxes $ 964 $ 305 $ 1,997 $ 1,590
========== ========== ========== ==========
Net earnings $ 969 $ 527 $ 3,259 $ 1,812
========== ========== ========== ==========
Net earnings per share $ 0.36 $ 0.20 $ 1.20 $ 0.75
========== ========== ========== ==========
Average shares outstanding 2,724,000 2,690,000 2,715,000 2,404,000
========== ========== ========== ==========
</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 $429,000.
Liabilities assumed included $54,920,000 of deposits and $707,000 of
accrued expenses and other liabilities. The acquisition was accounted
for using the purchase method of accounting, resulting in goodwill of
$2,418,000.
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.
5. Goodwill is amortized on a straight-line basis over estimated useful
lives of twelve to fifteen years.
6. In June 1996, the Financial Accounting Standards Board issued Statement
of Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". This
statement specifies when financial assets and liabilities are to be
removed from an entity's financial statements, the accounting for
servicing assets and liabilities and the accounting for assets that can
be contractually prepaid in such a way that the holder would not
recover substantially all of its recorded investment. Management does
not believe SFAS No. 125 will have a material financial impact on the
Company.
7. 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 September 30, 1996
reflect the Company's acquisition of RB Bancorp on April 1, 1996 (the "RB
Merger"), the opening of a second branch in the City of Temecula in Riverside
County (the "Rancho California Road Branch") on April 22, 1996 and the opening
of a branch in the community of Valley Center in North San Diego County (the
"Valley Center Branch") on August 5, 1996.
The Company's net earnings for the quarter ended September 30, 1996 were
$969,000 or $.36 per share, compared to net earnings of $425,000 or $.16 per
share for the same quarter in 1995. The Company's return on average assets and
return on average stockholders' equity were .34% and 5.01%, respectively, for
the three-month period ended September 30, 1996 as compared to .20% and 2.68%,
respectively, for the same period in 1995. The increase in earnings of $544,000
or 128.00% for the three-month period ended September 30, 1996 as compared to
the same period in 1995 was primarily due to growth accomplished through the RB
Merger, internal deposit growth and a reduction in other real estate owned
("OREO") and other noninterest expenses during 1996.
The Company's net earnings for the nine months ended September 30, 1996 were
$3,201,000 or $1.18 per share, compared to net earnings of $1,455,000 or $.61
per share for the same period in 1995. The Company's return on average assets
and return on average stockholders' equity were 1.25% and 17.61%, respectively,
for the nine-month period ended September 30, 1995 as compared to .74% and
10.54%, respectively, for the same period in 1995. The increase in earnings of
$1,746,000 or 120.00% for the nine-month period ended September 30, 1996 as
compared to the same period in 1995 was primarily due to growth accomplished
through the RB Merger and the opening of two new branches during 1996 and a net
income tax benefit of $1,262,000 recorded during the nine months ended September
30, 1996.
Total assets increased $82,670,000 or 39.59% from $208,797,000 as of December
31, 1995 to $291,467,000 as of September 30, 1996. The increase in asset size
was a result of the RB Merger as well as internal growth of $27,043,000. Net
loans increased $53,881,000 or 37.96% from December 31, 1995 to September 30,
1996. Net loans of $42,498,000 were acquired in the RB Merger and the balance of
the increase was due to an increase in new loan volume during the first three
quarters of 1996. Deposits as of September 30, 1996 increased $79,832,000 or
43.00% 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 attributed to
internal growth in deposits generated at branches throughout the FPNB franchise.
The growth in deposits resulted in an increase in liquid assets of $25,821,000
or 58.85% since December 31, 1995. Premises and equipment, goodwill and accrued
interest and other assets increased $5,078,000 or 41.96%, primarily as a result
of the RB Merger. OREO decreased by $1,706,000 or 54.35% due to significant
property sales during the first nine months of 1996.
On August 5, 1996, the Company opened its eighth branch in Valley Center,
located in North San Diego County, California. The Rancho California Road Branch
and the Valley Center Branch will increase the Company's noninterest expenses
during their start-up periods.
On October 16, 1996, the Company announced that it had reached a definitive
agreement with Wells Fargo Bank to purchase Wells Fargo's branch in Valley
Center. The sale includes deposit accounts and facilities of the branch, and is
expected to close in the first quarter of 1997.
8
<PAGE> 9
NET INTEREST INCOME
Net interest income before provision for loan losses increased $973,000 or
31.16% for the quarter ended September 30, 1996 as compared to the same period
in 1995 and $2,353,000 or 26.48% for the nine months ended September 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, $42,498,000 of net 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 1996 as compared to
1995. Changes in the interest rate environment and the Company's cost of funds
also affected net interest income.
The rate earned on interest-earning assets for the quarter ended September 30,
1996 decreased to 9.34% from 9.53% for the same period in 1995 due to the net
decrease in interest rates during the period. Average loans outstanding during
the quarter ended September 30, 1996 were $192,908,000 which earned interest at
an average rate of 10.18%, as compared to average loans outstanding of
$141,222,000 which earned a rate of 10.62% during the same period in 1995.
Average Federal funds sold were $15,778,000 which earned an average rate of
5.07% for the three months ended September 30, 1996 as compared to $10,254,000
which earned 5.65% during the same quarter in 1995. Conversely, the investment
securities portfolios had an aggregate average balance of $41,445,000 and earned
7.07% for the three months ended September 30, 1996 as compared to $32,244,000
which earned 6.00% 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 1996.
The rate earned on interest-earning assets for the nine months ended September
30, 1996 decreased to 9.49% from 9.79% for the same period in 1995 due to the
net decrease in interest rates during 1996. Average loans outstanding during the
nine months ended September 30, 1996 were $177,410,000 which earned interest at
an average rate of 10.33% as compared to average loans outstanding of
$134,714,000 which earned a rate of 10.87% during the same period in 1995.
Average Federal funds sold were $10,222,000 which earned an average rate of
5.03% for the nine months ended September 30, 1996, as compared to $7,293,000
which earned 5.72% during the same period in 1995. Conversely, the investment
securities portfolios had an aggregate average balance of $36,467,000 and earned
6.67% for the nine months ended September 30, 1996 as compared to $28,279,000
which earned 5.75% 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 1996.
The rate paid on interest-bearing liabilities increased to 3.42% for the quarter
ended September 30, 1996 from 3.37% for the quarter ended September 30, 1995.
Average outstanding interest-bearing deposits of $202,089,000 for the quarter
ended September 30, 1996 were paid an average rate of 3.26% as compared to
average outstanding interest-bearing deposits of $148,232,000 which were paid an
average rate of 3.15% for the same period in 1995. Debentures and other
borrowings had an average outstanding balance of $4,575,000 and paid 10.52% for
the three-month period ended September 30, 1996 as compared to an average
balance of $4,575,000 which paid 10.58% for the three-month period ended
September 30, 1995.
The rate paid on interest-bearing liabilities was 3.37% for the nine months
ended September 30, 1996 as compared to 3.32% for the same period in 1995.
Average outstanding interest-bearing deposits of $181,092,000 for the nine
months ended September 30, 1996 were paid an average rate of 3.19% as compared
to average outstanding interest-bearing deposits of $140,924,000 which were paid
an average rate of 3.08% for the same period in 1995. Debentures and other
borrowings had an average outstanding balance of $4,640,000 and paid 10.51% for
the nine-month period ended September 30, 1996 as compared to an average balance
of $4,649,000 which paid 10.53% for the nine-month period ended September 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 September 30, Nine Months Ended September 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) $1,380 $(225) $1,155 $ 3,475 $(713) $2,762
Taxable investment securities 139 110 249 353 252 605
Interest-earning deposits (5) (1) (6) (14) -- (14)
Federal funds sold 78 (23) 55 125 (52) 73
------ ----- ------ ------- ----- ------
Total interest on interest-earning assets 1,592 (139) 1,453 3,939 (513) 3,426
Interest paid on interest-bearing liabilities:
Interest-bearing deposits:
Savings and time 328 (10) 318 681 (2) 679
Interest-bearing demand 128 35 163 290 105 395
------ ----- ------ ------- ----- ------
Total interest-bearing deposits 456 25 481 971 103 1,074
Debentures and Federal funds purchased -- (1) (1) -- (1) (1)
------ ----- ------ ------- ----- ------
Total interest on interest-bearing liabilities 456 24 480 971 102 1,073
------ ----- ------ ------- ----- ------
Change in net interest income $1,136 $(163) $ 973 $ 2,968 $(615) $2,353
====== ===== ====== ======= ===== ======
</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 September 30, 1996 and 1995 were $180,000 and $48,000,
respectively. Net fees included in interest income for the nine months ended
September 30, 1996 and 1995 were $547,000 and $177,000, respectively.
OTHER OPERATING INCOME
Other operating income was $697,000 for the quarter ended September 30, 1996 as
compared to $606,000 for the same period in 1995, an increase of $91,000 or
15.02%. Service charges increased by $135,000 or 24.64% while all other
operating income decreased $44,000 or 75.86%. The increase in service charges
during the three-month period ended September 30, 1996 as compared to the same
period in 1995 was due to significant deposit growth during 1996. The decrease
in other operating income was due to a $75,000 recovery 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 $1,950,000 for the nine months ended September 30,
1996 as compared to $1,713,000 for the same period in 1995, an increase of
$237,000 or 13.84%. Service charges increased by $363,000 or 25.14% while all
other operating income decreased $126,000 or 46.84%. The increase in service
charges during the nine-month period ended September 30, 1996 as compared to the
same period in 1995 was due to the significant increase in the deposit base
during 1996. The decrease in other operating income was due to $105,000 in
recoveries of prior year legal and other expenses recorded during the first nine
months of 1995.
10
<PAGE> 11
OTHER OPERATING EXPENSES
Total other operating expenses for the three months ended September 30, 1996
were $3,679,000, an increase of $253,000 or 7.38%, 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 and the
Valley Center Branch. Salaries and benefits expense increased $339,000 or
24.44%; occupancy and furniture and equipment expense increased by $148,000 or
26.67%; merchant credit card charges increased by $58,000 or 40.85%; and
goodwill amortization increased by $52,000 or 226.09%. Conversely, professional
services expense decreased $37,000 or 7.40% primarily due to a reduction in
legal and data processing expenses. Net OREO expenses decreased by $124,000 or
86.71% for the three-month period ended September 30, 1996 as compared to the
same period in 1995 due to a reduction in level of OREO properties during 1996.
A loss on sale of investment securities of $9,000 was recorded in the third
quarter of 1996 as compared to a $66,000 loss on sale in the same period in
1995, a decrease of $57,000 or 86.36%.
Total other operating expenses for the nine months ended September 30, 1996 were
$10,700,000, an increase of $1,434,000 or 15.48%, 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 and the Valley
Center Branch. Salaries and benefits expense increased $755,000 or 18.61%;
occupancy and furniture and equipment expense increased by $324,000 or 21.44%;
merchant credit card charges increased by $145,000 or 38.98%; goodwill
amortization increased by $129,000 or 263.27% and professional services expense
increased $200,000 or 15.71%. Net OREO expenses decreased by $71,000 or 23.99%
for the nine-month period ended September 30, 1996 as compared to the same
period in 1995 due to a reduction in the level of OREO properties during 1996. A
loss on sale of investment securities of $145,000 was recorded in during the
first nine months of 1996 as compared to a $112,000 loss on sale in the same
period in 1995, an increase of $33,000 or 29.46%.
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 $550,000 were recognized for the
three- and nine-month periods, respectively, ended September 30, 1996. A
$100,000 provision for loan losses was recorded in the third quarter of 1995.
Based on a review of the loan portfolio and considering historical experience
with regard to potential loan losses, the provisions were necessary so that the
allowances for loan losses as of September 30, 1996 and 1995 were adequate to
absorb potential losses.
As of September 30, 1996, the allowance for loan losses totaled $2,923,000 or
1.47% 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 September 30, 1996.
However, there is no assurance that future changes in economic conditions would
not require that additional provisions be made.
11
<PAGE> 12
INCOME TAXES
Net income tax benefits of $5,000 and $1,262,000 were recorded during the three-
and nine-month periods ended September 30, 1996, respectively. The net income
tax benefits recorded through September 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. Management expects that the Company will become
taxable during the fourth quarter of 1996.
The amount of the benefits recorded were determined in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", in the
quarters in which management believed that it was more likely than not that the
net deferred tax asset recorded would be realized through future earnings and/or
tax planning strategies. Net income tax benefits of $222,000 were recorded in
the third quarter 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 26.25% and
23.63% as of September 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
12
<PAGE> 13
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 September 30, 1996, the Company's Tier I risk-based capital to
risk-weighted assets totaled 7.06% compared to 9.32% as of 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 September
30, 1996 and December 31, 1995, the Company's core capital to total assets stood
at 5.37% and 7.25%, respectively.
13
<PAGE> 14
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 The 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
None.
14
<PAGE> 15
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: November 12, 1996
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 15,173,000
<INT-BEARING-DEPOSITS> 99,000
<FED-FUNDS-SOLD> 14,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,523,000
<INVESTMENTS-CARRYING> 7,349,000
<INVESTMENTS-MARKET> 7,178,000
<LOANS> 198,734,000
<ALLOWANCE> 2,923,000
<TOTAL-ASSETS> 291,467,000
<DEPOSITS> 265,496,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,767,000
<LONG-TERM> 4,575,000
0
0
<COMMON> 3,000
<OTHER-SE> 19,626,000
<TOTAL-LIABILITIES-AND-EQUITY> 19,629,000
<INTEREST-LOAN> 4,935,000
<INTEREST-INVEST> 737,000
<INTEREST-OTHER> 202,000
<INTEREST-TOTAL> 5,874,000
<INTEREST-DEPOSIT> 1,657,000
<INTEREST-EXPENSE> 1,778,000
<INTEREST-INCOME-NET> 4,096,000
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> (9,000)
<EXPENSE-OTHER> 3,670,000
<INCOME-PRETAX> 964,000
<INCOME-PRE-EXTRAORDINARY> 964,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 969,000
<EPS-PRIMARY> .36
<EPS-DILUTED> .32
<YIELD-ACTUAL> 6.51
<LOANS-NON> 2,297,000
<LOANS-PAST> 45,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,013,000
<CHARGE-OFFS> 781,000
<RECOVERIES> 351,000
<ALLOWANCE-CLOSE> 2,923,000
<ALLOWANCE-DOMESTIC> 2,923,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
